The market that cannot clear

The Washington Examiner reports something that ought to arrest anyone who still believes healthcare pricing in America resembles a functioning market: more than 500 hospitals across 45 states are flouting federal price-transparency requirements — not through oversight, not through administrative lag, but as a calculated business model. Let that sink in. The law exists. The hospitals know it exists. They have decided, apparently with tolerable consequences, that non-compliance pays better than compliance.

I have always maintained that markets are magnificent instruments — when they work. The precondition for a market to work is that buyers possess information sufficient to make meaningful choices. In healthcare, that condition is systematically denied. A patient entering a hospital for a procedure is not a shopper comparing prices at competing stalls; she is, in most cases, a person in distress, with limited alternatives, facing a bill she will not see until long after the service has been rendered. To call this a market is to abuse the word.

My classical colleagues would tell you that competition will eventually discipline the price-hikers, that transparency will emerge spontaneously because sellers have an incentive to attract buyers. I would ask them to explain why, after years of federal law and documented non-compliance, the invisible hand has not yet materialized. The answer, I suspect, is that market power — local hospital monopolies and near-monopolies — insulates these institutions from the discipline that theory promises. Where competition is absent, the market's self-correcting mechanism is also absent.

The paradox of thrift teaches us that what is rational for the individual household may be ruinous for the aggregate. There is an analogous paradox here: what is profitable for each hospital — opacity that protects margins — is ruinous for the aggregate of patients, insurers, employers, and ultimately the public budget that backstops so much of this spending. The aggregate cost of healthcare opacity is borne diffusely, while the benefit of opacity is concentrated. That asymmetry will not resolve itself without deliberate public intervention. (This is inference on my part; the Examiner's lead does not quantify the aggregate cost, but the logic is direct.)

The remedies are, in principle, buildable. Fines must be set at a level that exceeds the economic benefit of non-disclosure — currently, by most accounts, they are not. Enforcement must be visible and swift enough to alter the expected-value calculation of non-compliant administrators. And where hospitals enjoy genuine local monopoly power, antitrust scrutiny is not a radical instrument but the ordinary application of market-maintaining law. I would add that public investment in comparative price databases — genuinely accessible to patients, not merely to sophisticated intermediaries — would do more for healthcare competition than a decade of exhortation.

The deeper lesson is one I have pressed in other contexts: the state is not the enemy of the market; it is, often, the market's necessary architect. Price transparency does not emerge spontaneously in sectors characterized by emergency demand, information asymmetry, and concentrated supply. It must be built, enforced, and maintained. The 500 hospitals named in the Examiner's report are not outliers gaming a technicality; they are, the report suggests, practitioners of a business model. The appropriate response to a business model is a policy model — one with teeth.