Disconnect between prices and costs

The Wall Street Journal published a piece on a hospital's investigation into its prices. They had been raising prices annually and they priced knee-replacement surgery at an average of more than $50,000 in 2016. When the hospital investigated, they found their costs to be close to $10,000.

It's unclear if the cited costs were only variable costs (e.g. personnel time), or if it included an allocation of fixed costs for such as the hospital building and administrative overhead. It is interesting that the hospital operated for so many years without knowing the costs of its procedures. The disconnect between prices and costs suggests that the hospital probably operated in a non-competitive market and was therefore able to raise prices without much effective resistance.

As the cost of healthcare grows more quickly than inflation, businesses will increasingly be forced to reckon with it. The article talked about the hospital being approached by an employer group to lower its prices, and that the two were able to come to an agreement.