NCPA - National Center for Policy Analysis

Price Competition Can Lead to Quality Competition

July 8, 2011

In our third-party-payer health insurance system the price for care is typically set by entities outside the doctor-patient relationship.  As a result, providers rarely compete for patients based on money prices.  Potentially they can compete on the time price of care, on amenities, and on quality.  Yet providers rarely compete on quality, says John C. Goodman, president and CEO of the National Center for Policy Analysis.

In those health care markets where third-party payment is nonexistent or relatively unimportant, providers almost always compete for patients based on price.  And where there is price competition, transparency is almost never a problem.  Not only are prices posted (as in walk-in clinics, surgi-centers, etc.), they are often package prices, covering all aspects of care (as with cosmetic surgery, Lasik surgery, etc.), and therefore easy for patients to understand.

Wherever there is price competition, there also tends to be quality competition.

  • In the market for Lasik surgery, for example, patients can choose traditional Lasik or more advanced custom Wavefront Lasik.
  • Prices range from less than $1,000 to more than $3,000 per eye.
  • In the international medical tourism market, some hospitals in India, Thailand and Singapore disclose their infection, mortality and readmission rates and compare them to such U.S. entities as the Cleveland Clinic and the Mayo Clinic.

Competition tends to produce more uniformity of fees and waiting times than would otherwise be the case.  Similarly, quality competition tends to produce either uniform quality or a uniform trade-off between money prices and quality, says Goodman.

Source: John C. Goodman, "Price Competition Can Lead to Quality Competition," Heartland Institute, July 6, 2011.


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