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

Introduction: The Lack of Transparency

Every day, millions of American consumers go shopping.  They compare the prices and quality of goods and services ranging from groceries to cellular telephone service to fast food to housing.  But there is one major sector of the economy where consumers typically do not make decisions based on comparison shopping, even though it accounts for one-sixth of the U.S. economy.  That sector is health care.

“Patients typically do not know the cost of medical services in advance.”

A recent Harris Poll found that consumers can guess the price of a new Honda Accord within $300.  But when asked to estimate the cost of a four-day hospital stay, those same consumers were off by $8,100!  Further, 63 percent of those who had received medical care during the last two years did not know the cost of the treatment until the bill arrived.  Ten percent said they never learned the cost. 1

In most markets, prices and quality indicators are transparent - clear and readily available to consumers.  Health care is different:  Prices are difficult to obtain and often meaningless when they are disclosed.  Patients who ask for price information are likely to be disappointed. 2   Typically, neither the hospital nor the doctor will know the cost until the procedure is completed.  Further, there is not one price for a procedure but many different prices.  Each health insurer may have a different negotiated discount.  And each enrolled patient entering the hospital may require a slightly different level of care.  Of one hundred patients entering a hospital for the same procedure, no two may incur a bill for the same amount.

Furthermore, health care providers do not usually publish information on how their quality compares to other providers.  Prospective patients have a legitimate interest in knowing about hospital-acquired infection rates, medical errors and surgical outcomes.  Currently this knowledge is hard to come by.  And what information is available is often technical and in a form that is meaningless to the average person.

It is odd that this nation of shoppers knows so little about price and quality in health care.  This study will examine why that problem exists and what is being done about it.

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