The Market for Medical Care: Why You Don’t Know the Price; Why You Don’t Know about Quality; And What Can Be Done about It.

Policy Reports | Health

No. 296
Monday, March 12, 2007
by Devon M. Herrick and John C. Goodman


  1. Kathy Gurchiek, "Consumers Savvier about Cost of a New Car than a Hospital Stay," Human Resource News , August 2, 2005.  Also see Tracey M. Budz, "Consumer Health Care Survey Reveals Mixed Bag of Results," Great-West Healthcare, Press Release, July 28, 2005.  Available at  Accessed April 6, 2006.
  2. Julie Appleby, "Ask 3 Hospitals How Much a Knee Operation Will Cost ... and You're Likely to Get a Headache," USA Today , May 9, 2006.
  3. For a discussion, see John C. Goodman and Gerald L. Musgrave, Patient Power: Solving America's Health Care Crisis (Washington, D.C.: Cato Institute, 1992).
  4. Nearly 160 million Americans are covered through employer-sponsored health plans.  See David Blumenthal, "Employer-Sponsored Health Insurance in the United States - Origins and Implications," New England Journal of Medicine , Vol. 355, No. 1, July 6, 2006, pages 82-88.
  5. Centers for Medicare and Medicaid Services, "National Health Expenditures by Type of Service and Source of Funds: Calendar Years 2005-1960," Department of Health and Human Services, 2006. Available at  Accessed January 2006. Also see Katharine Levit et al., "Trends in U.S. Health Care Spending, 2001," Health Affairs , Vol. 22, No. 1, February 2003, pages 154-64.
  6. James P. Meza, "Patient Waiting Times in a Physician's Office," American Journal of Managed Care , Vol. 4, No. 5, May 1998.
  7. John C. Goodman, "Time, Money and the Market for Drugs," National Center for Policy Analysis, Special Publication, December 5, 2005.
  8. Surveyors called potential medical providers, including physicians and clinics, posing variously as Medicaid, uninsured or insured patients seeking an appointment for specific conditions and symptoms considered medically urgent. Attempted access was considered successful when the caller was able to schedule an appointment within seven days. The surveys were conducted in major, geographically dispersed urban areas.  See Brent R. Asplin et al., "Insurance Status and Access to Urgent Ambulatory Care Follow-up Appointments," Journal of the American Medical Association , Vol. 294, No. 10, September 14, 2005, pages 1,248-54. Also see Jae Kennedy et al., "Access to Emergency Care: Restricted by Long Waiting Times and Cost and Coverage Concerns," Annals of Emergency Medicine, Vol. 43, No. 5, May 2004, pages 567-73.
  9. Ken Fuson, "‘Patient' Says It All," USA Today, May 31, 2006.
  10. By the mid-1990s, bed occupancy at community hospitals had fallen below 60 percent.  See Bernard Friedman, "Commentary: Excess Capacity, a Commentary on Markets, Regulation, and Values," Health Services Research , Vol. 33, No. 6, February 1999, pages 1,669-82.  Keeler and Ying estimated the cost of excess capacity at $25 billion in 1993; see Theodore E. Keeler, John S. Ying, "Hospital Costs and Excess Bed Capacity: A Statistical Analysis," Review of Economics and Statistics , Vol. 78, No. 3, August 1996, pages 470-81.
  11. For a description of hospital capacity and the move to outpatient treatment, see "Statement of the American Hospital Association Submitted to the Federal Trade Commission," March 25, 1996.  Available at  Accessed December 18, 2006.
  12. In fact, due to Health Insurance Portability and Accountability Act (HIPAA) privacy regulations, it's often illegal for providers treating the same patient to discuss the patient's condition without expressly given patient consent.
  13. Michael E. Porter and Elizabeth Olmsted Teisberg, Redefining Health Care: Creating Value-Based Competition on Results (Boston, Mass.: Harvard Business School Press, 2006).
  14. Christine Wiebe, "Doctors Still Slow to Adopt Email Communication," Medscape Money & Medicine, Vol. 2, No. 2, 2001.
  15. Richard Hillestad et al., "Can Electronic Medical Record Systems Transform Health Care? Potential Health Benefits, Savings, and Costs," Health Affairs , Vol. 24, No. 5, September/October 2005, pages 1,103-17.
  16. Ibid.
  17. Catharine W. Burt and Jane E. Sisk, "Which Physicians and Practices Are Using Electronic Medical Records?" Health Affairs , Vol. 24, No. 5, September/October 2005, pages 1,334-43.
  18. David M. Cutler, Your Money or Your Life: Strong Medicine for America's Health Care System (New York, N.Y.: Oxford University Press, 2004).
  19. John E. Wennberg et al., "The Care of Patients with Severe Chronic Illness: An Online Report on the Medicare Program," Center for the Evaluative Clinical Sciences, Dartmouth Medical School, 2006. Available at  Accessed December 15, 2005.
  20. Ibid.
  21. As of January 2006, 3.2 million people had HSAs.  "January 2006 Census Shows 3.2 Million People Covered by HSA Plans," America's Health Insurance Plans, Center for Policy and Research, March 9, 2006.  An additional 3 million had HRAs while 6 million had a high-deductible health plan without a personal health account.
  22. See "Healthcare Coverage; Insurance Company Launches New Health Plans and Health Savings Accounts," Managed Care Weekly Digest , February 28, 2005.
  23. Kimberly Blanton, "Putting a Premium on Healthy Behavior," Boston Globe , February 17, 2005.
  24. For instance, coverage by Physician Provider Organizations (PPOs) rose from 27 percent to 58 percent of all employees in group health plans over the past 10 years, and 31 percent of PPOs used by small employers now feature in-network deductibles of $1,000 or more. "U.S. Health Benefit Costs Rises 7.5% in 2004, Lowest Increase in Five Years," Mercer Human Resource Consulting, Press Release, November 22, 2004; "Employer Health Benefits 2004 Annual Survey," Kaiser Family Foundation and the Health Research and Educational Trust, September 9, 2004. 
  25. Ibid.
  26. American Society of Plastic Surgeons and the Consumer Price Index, Bureau of Labor Statistics.
  27. See "2005 Average Surgeon/Physician Fees: Cosmetic Procedures," American Society of Plastic Surgeons, 2006; and "1992 Average Surgeon Fees," American Society of Plastic Surgeons, 1993.
  28. Data from Market Scope, LLC.  See "Lasik Lessons," Wall Street Journal , March 10, 2006.
  29. Liz Segre, "Cost of LASIK and Other Corrective Eye Surgery,", July 2006.  Accessed July 21, 2006.
  30. Milt Freudenheim, "Attention Shoppers: Low Prices on Shots in Clinic," New York Times , May 14, 2006.
  31. Information taken from Web site.  Accessed November 16, 2006.
  32. For example, see J. Edward Hill (President, American Medical Association), "AMA to Tennessean: MinuteClinics Not Providing Patients with Quality Health Care," The Tennessean , Letter to the Editor, September 15, 2005.
  33. Some physicians already employ nurse practitioners (NPs) to see patients needing routine services.  NPs work under the (nominal) supervision of physicians - who often pay them a salary and bill for their services.
  34. Minnesota Community Measurement, "2006 Health Care Quality Report." Available at  Accessed November 16, 2006.
  35. For sore throat scores, see Accessed January 5, 2007.  
  36. Ibid.
  37. For cold scores, see
  38. Rik Kirkland, "Wal-Mart's RX for Health Care," Fortune , April 17, 2006. RediClinic is venture of AOL founder Steve Case's Revolution Health Group and the company Interfit.
  39. Information taken from RediClinic Web site.
  40. Information obtained from Web site.  See also Milt Freudenheim, "Attention Shoppers: Low Prices on Shots in Clinic," New York Times , May 14, 2006.
  41. Maureen Glabman, "What Doctors Don't Know About the New Plan Designs," Managed Care Magazine , January 2006.
  42. Named after their chief proponent Rep. Pete Stark (D-Calif.).  For an analysis of the Stark laws, see Jo-Ellyn Sakowitz Klein, "The Stark Laws: Conquering Physician Conflicts of Interest?" Georgetown Law Journal , November 1998.
  43. Information obtained from conversations with TelaDoc executives in addition to the TelaDoc Web site.
  44. Conversations with Arthur Stern, corporate marketing specialist at Doctor On Call and the Doctor On Call Web site.
  45. This is probably because physicians are not reimbursed for phone calls.  Doctors often have busy schedules requiring long hours.  Physicians' time is a scare resource so they use what time they have to perform the tasks that pay versus those that do not pay.  See John C. Goodman "Time, Money and the Market for Drugs," National Center for Policy Analysis, Special Publication, December 5, 2005.  Available at
  46. Robert S. Berry, "Testimony of President and CEO of PATMOS EmergiClinic, Inc., Greeneville, Tennessee," Joint Economic Committee of Congress, April 28, 2004.
  47. Mercer Health & Benefits predicts this will be the case.  See Judy Foreman, "Bon Voyage, and Get Well!" Boston Globe, October 2, 2006.
  48. Joe Cochrane, "Why Patients Are Flocking Overseas for Operations," Newsweek International , October 30, 2006.
  49. Devon Herrick, "Medical Tourism Prompts Price Discussions," Heartland Institute, Health Care News , October 1, 2006.
  52. Unmesh Kher, "Outsourcing Your Heart," Time Magazine , May 21, 2006.
  53. For a literature review on how information technology will revolutionize health care see Regina E. Herzlinger, ed., Consumer-Driven Health Care: Implications for Providers, Payers, and Policymakers (San Francisco, Calif.: Jossey-Bass Publishers, 2004).
  54. Cristiano Antonelli, Aldo Geuna and W. Edward Steinmueller, "Information and Communication Technologies and the Production, Distribution and Use of Knowledge," International Journal of Technology Management, Vol. 20, No. 1/2, 2000, pages 72-94.
  55. Mary Chris Jaklevic, "Medical Data Accessible on Internet," Modern Healthcare, Vol. 26, No. 19, May 2, 1996, page 82.
  56. In 1999, Bob Pringle, president of health content provider Inteli-health, estimated there were 15,000 to 20,000 Web sites dedicated to health-related content.  See Robert McGarvey, "Online Health's Plague of Riches," Tech Insider , September 29, 1999.  The Internet Healthcare Coalition claims more than 20,000 Web sites dedicated to health care.  See "Tips for Healthy Surfing Online," Internet Healthcare Coalition, 2002.  This is consistent with estimates from the Journal of Medical Internet Research .  See Roberto J. Rodrigues, "Ethical and Legal Issues in Interactive Health Communications: A Call for International Cooperation," Journal of Medical Internet Research , Vol. 2, No. 1, 2001.
  57. Susannah Fox and Deborah Fallows, "Internet Health Resources," Pew Internet and American Life Project, July 16, 2003.
  58. Ironically, an equal number (60 percent) did not discuss their online findings with their physician.  See Joseph A. Diaz et al., "Patients' Use of the Internet for Medical Information," Journal of General Internal Medicine, Vol. 17, No. 3, March 2002, pages 180-85.
  59. Standard & Poor's, Moody's Investors Service and other firms assess the financial strength of insurers and corporations.  Consumers Union rates consumer goods.  Edmunds and the National Automobile Dealers Association calculate average wholesale and retail automobile prices. and are in the early stages of providing information on the price and quality of health care.
  60. Information therapy, often referred to as "Ix", is information prescribed to patients by their physicians similar to a therapeutic drug prescription. See "A Consumers Guide to Information Therapy," Center for Information Therapy.  Available at Accessed July 21, 2006.
  61. E-mail correspondence and meetings with Jeff Greene, founder of MedEncentive.  Meetings took place spring 2005 and winter 2006.  See
  62. Information taken from Health Dialogue Web site.  See
  63. Typically, usual and customary fees are calculated by geographic region and can vary from one insurer to the next.  Large insurers can negotiate lower fees than small insurers due to their high business volume.  Consequently, a large insurer likely would have a lower usual and customary price than a small insurer.
  64. Sarah Rubenstein, "Patients Get New Tools to Price Health Care," Wall Street Journal, June 13, 2006.
  65. Jon Sarche (Associated Press), "Web Site Will Cough Up Cost of Many Medical Procedures," St. Louis Post-Dispatch , March 20, 2006.
  66. For Dartmouth-Hitchcock Medical Center quality reports, see
  67. For Cleveland Clinic quality measures, see
  68. Rick Siegrist, "Medscape Introduces Online Hospital Comparison Tool, HospitalWise Professional," Medscape Internal Medicine, March 3, 2006.  Available at  Access verified March 15, 2006. 
  69. Ibid. 
  70. Available at  Access verified May 5, 2006.
  71. See
  72. Aetna Navigator Web site,
  73. The Web site  Accessed July 21, 2006.
  74. Prices from Web site surveys and  Accessed fall 2006.
  75. Price of Tenormin at involved buying 30 tablets at a time.  Prices would have been lower buying 100 at a time.
  76. Case study of seniors with osteoarthritis, GERD, high cholesterol and hypertension taking one daily dose of Celebrex 400 mg, Nexium 20 mg, Lipitor 10 mg, Hydrochlorothiazide 12.5 mg and Toporol XL 100 mg.  See "Rxaminer Part D Optimizer: Helping Seniors Save Money and Avoid the Donut Hole," DestinationRx, September 2006.
  77. and authors' conversations with CEO David Clymer.
  78. Information obtained from the Direct Laboratory Services, Inc. Web site at
  79. Anne Harding, "Do It Yourself Cancer Gene Testing Raises Concerns," British Medical Journal , Vol. 330, No. 7492, March 19, 2005, page 617.
  80. John J. Paris, "Ethical Issues in Cybermedicine: Patent-Medicine Salesmen Did Not Go Out of Style with the Conestoga Wagon," America, Vol. 184, No. 4, February 23, 2001, pages 15-24.
  81. For a discussion of patient attitudes and potential risks, see Lisa M. Schwartz et al., "Enthusiasm for Cancer Screening in the United States," Journal of the American Medical Association , Vol. 291, No. 1, January 7, 2004, pages 71-78.
  82. Self-ordered laboratory testing and medical scans in asymptomatic patients are not reimbursed by health insurance because they are not considered medically necessary.
  83. Paul B. Ginsburg and Ernest Moy, "Physician Licensure and the Quality of Care: The Role of New Information Technologies," Regulation , Cato Institute, Vol. 15, No. 4, Fall 1992.  For a literature review on the history of medical licensure, see John C. Goodman and Gerald Musgrave, Lives at Risk: Solving America's Health Care Crisis (Washington, D.C.: Cato Institute, 1992).
  84. Economists argue that government regulators are often "captured" by the industries they regulate.  Once captured, the regulators tend to protect the interests of the industry to the detriment of the people they are supposed to protect.  Allowing small groups of physicians, backed by the power of law, to decide who practices medicine and what constitutes the safe practice of medicine may reduce quackery.  But it also is likely to reduce competition and innovation - and protect the incomes of physicians.  See Ronald Kessel, "Price Discrimination in Medicine," Journal of Law and Economics , Vol. 1, October 1958, pages 20-53.
  85. Reuben A. Kessel, "Price Discrimination in Medicine," Journal of Law and Economics , Vol. 1, October 1958, pages 43-44. The theory is that price-cutting would lead to a situation where fees would be too low for a physician to render quality services.  For a review of health insurance regulation, see John C. Goodman, The Regulation of Medical Care: Is the Price Too High? (San Francisco, Calif.: Cato Institute, 1980).
  86. It was the goal of the American Hospital Association to discourage inter-hospital comparisons of quality through competitive advertising.  See American Hospital Association, Guidelines - Advertising by Hospitals (Chicago, Ill.: 1977), page 2, cited in John C. Goodman and Gerald Musgrave, Lives at Risk : Solving America's Health Care Crisis (Washington, D.C.: Cato Institute, 1992), page 171.
  87. John C. Goodman and Gerald Musgrave, Lives at Risk .
  88. In most states, nurse practitioners must be supervised by a licensed physician to some degree.  Some states merely require a small percent of a nurse practitioner's case files be reviewed by a physician.
  89. Rachel Burton, "Rapid Expansion of In-Store Clinics Has Lawmakers Watching," National Conference of State Legislators, Vol. 27, No. 3, August 7, 2006.  Available at Accessed November 10, 2006.
  90. For a discussion, see Devon M. Herrick, "Demand Growing for Corporate Practice of Medicine," Health Care News (Heartland Institute), January 1, 2006.
  91. Nicole Huberfeld, "Be Not Afraid of Change: Time to Eliminate the Corporate Practice of Medicine Doctrine," Health Matrix , Vol. 14, No. 2, 2004, pages 243-91.
  92. The American Medical Association (AMA) has come out against prescribing medication over the Internet prior to a physical examination. Richard F. Corlin, President, American Medical Association, letter to the editor, "AMA to The Wall Street Journal : Shut Down Illegal Internet Pill Pushers," Wall Street Journal , November 6, 2001.
  93. Michael E. Porter and Elizabeth Olmsted Teisberg, Redefining Health Care: Creating Value-Based Competition on Results (Boston, Mass.: Harvard Business School Press, 2006).
  94. Robert M. Wachter and Kaveh G. Shojania, Internal Bleeding: The Truth Behind America's Terrifying Epidemic of Medical Mistakes (New York, N.Y.: Rugged Land Books, May 2005), page 296.
  95. Ibid., page 264.
  96. For example, Harvard Business School professor Regina Herzlinger, a strong proponent of consumer-driven health care, has proposed a regulatory body modeled on the U.S. Securities and Exchange Commission to oversee transparency in health care.  See Regina E. Herzlinger, "Testimony Before the Subcommittee on Health of the House Committee on Ways and Means," July 18, 2006. Available at  Accessed July 21, 2006.
  97. This could be accomplished by federal legislation, or through a compact among the states. 
  98. Liability could be based on actual events or a history of malpractice events from previous legal action rather than self-reported ratings.
  99. For a discussion on creating quality measures for primary care, see Stephen M. Campbell et al., "Improving the Quality of Health Care: Research Methods Used in Developing and Applying Quality Indicators in Primary Care," British Medical Journal , Vol. 326, No. 7393, April 12, 2003, pages 816-19.  Also see "Quality Matters: Physician Quality Measurement," Commonwealth Fund, Newsletter, Vol. 13, November 2005.
  100. Nicole Huberfeld, "Be Not Afraid of Change: Time to Eliminate the Corporate Practice of Medicine Doctrine," Health Matrix , Vol. 14, No. 2, 2004, pages 243-91.
  101. Kate Murphy, "What Pilots Can Teach Hospitals about Patient Safety," New York Times , October 31, 2006.
  102. Research at NASA found most aviation accidents were human error and often could have been prevented by better communication among the flight crew. A protocol called "crew resource management" is now standard training for all flight crews.  See "New Surgeon-In-Chief Adapts Airline Safety Program to Improve Patient Safety," Medical News Today, November 13, 2006. Available at  Accessed December 14, 2006.  Also see Eric J. Thomas and Helmreich, Robert L. "Will Airline Safety Models Work in Medicine?" in Marilynn M. Rosenthal and Kathleen M. Sutcliffe, eds., Medical Error: What Do We Know? What Do We Do? (San Francisco, Calif.: Jossey-Bass, 2002), pages 217-34.
  103. John C. Goodman, President, National Center for Policy Analysis, "Health Savings Accounts," Testimony Before the U.S. Senate Special Committee on Aging, May 19, 2004.
  104. John C. Goodman, "Making HSAs Better," National Center for Policy Analysis, Brief Analysis No. 518, June 30, 2005. 

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