Health Care Entrepreneurs: The Changing Nature of Providers

Studies | Health

No. 318
Wednesday, December 03, 2008
by Devon M. Herrick

The market for medical care does not work like other markets. Providers typically do not disclose prices prior to treatment because they do not compete for patients based on price. Payments are usually not made by patients themselves but by third parties - employers, insurance companies or government. And the amounts paid are not really market-clearing prices; they are "reimbursement" rates negotiated with bureaucratic institutions and networks. Furthermore, when providers do not compete on price, they usually do not compete on quality either. In fact, in a very real sense, doctors and hospitals are not competing for patients at all - at least not in the way normal businesses compete in markets.

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