You've probably heard that American healthcare is expensive. But here's something stranger: the same MRI scan can cost $400 at one hospital and $4,000 at another hospital ten miles away. The same blood test, the same surgery, the same overnight stay—wildly different prices depending on where you go.

This isn't about quality differences or fancy equipment. It's about a pricing system so opaque that even doctors rarely know what things cost. Understanding how this happened—and why it persists—reveals something fundamental about why American healthcare consumes so much money while leaving so many people struggling to afford care.

In most markets, similar products have similar prices. A gallon of milk at one grocery store costs roughly what it costs at another. Competition and transparency keep prices in a reasonable range. Healthcare operates differently. A 2019 study found that prices for the same hip replacement varied by more than $100,000 within single metropolitan areas.

How is this possible? First, patients rarely shop for care. When you need treatment, you go where your doctor sends you or where the ambulance takes you. Second, even if you wanted to compare prices, good luck finding them. Hospitals don't post prices the way stores post prices. And third, insurance creates a buffer—you might pay the same copay whether your hospital charges $5,000 or $50,000.

The result is a market where price has become disconnected from anything recognizable. Hospitals don't compete on cost because consumers can't see costs. Instead, they compete on reputation, convenience, and amenities. The pricing happens in a shadow realm of negotiations that patients never see.

Takeaway

In healthcare, the absence of visible prices doesn't mean prices don't exist—it means they exist without the competitive pressure that normally keeps them reasonable.

Here's how healthcare pricing actually works: Hospitals set something called a chargemaster—a list of prices for every service. These prices are often absurdly high, sometimes five or ten times what anyone actually pays. Then insurance companies negotiate discounts from these inflated prices. A hospital might list an MRI at $8,000, then negotiate a 60% discount with one insurer, a 40% discount with another.

This creates a strange incentive structure. Hospitals want high chargemaster prices because that's what they negotiate down from. Insurers can claim they negotiated great discounts even when final prices remain high. And crucially, these negotiated rates are kept secret. Contracts between hospitals and insurers typically include confidentiality clauses preventing disclosure.

Why the secrecy? Because if Hospital A knew that Hospital B accepted $2,000 for a procedure, they'd face pressure to match it. If employers knew one insurer negotiated much better rates, they'd switch. The opacity protects everyone in the system—except patients and the employers and taxpayers who ultimately foot the bill.

Takeaway

When buyers can't compare prices and sellers can't see competitors' prices, you don't have a market—you have a negotiation where only one side knows the rules.

In 2021, a federal rule took effect requiring hospitals to publish their negotiated prices. The results have been messy—many hospitals initially resisted or buried data in hard-to-use formats—but the information is slowly becoming available. Early evidence suggests that when prices become visible, they start to converge.

Some states have gone further with all-payer rate setting, where the government establishes standard prices that all payers must use. Maryland has done this for hospitals since the 1970s. The result? Hospital cost growth significantly below the national average, with no evidence of quality decline. It turns out that when everyone pays the same price, hospitals compete on quality and efficiency instead of negotiating leverage.

Transparency alone won't solve everything. Someone still needs to use the information—and patients facing emergencies can't comparison shop. But making prices visible is a necessary first step toward a system where cost and value have some relationship. It's hard to fix what you can't see.

Takeaway

Price transparency doesn't automatically create competition, but it removes the information asymmetry that allows prices to drift into absurdity.

American healthcare costs more largely because prices are higher—not because we use more care or have better outcomes. And prices are higher because they're set through secret negotiations in a market where normal competitive forces don't apply.

Understanding this system matters because change is possible. Other countries pay less for identical treatments. Some American states have implemented price controls that work. The mystery of healthcare costs isn't really a mystery—it's a choice we've made about how to organize a market, and choices can be unmade.