The Market for Medical Care Should Work Like Cosmetic Surgery

May 21, 2013

Cosmetic surgery is one of the few types of medical care for which consumers pay almost exclusively out of pocket. In health markets without third-party payers, doctors and clinics use price competition, package prices, convenience and other amenities in order to attract patients willing to purchase their services. When patients pay their own medical bills, they become prudent consumers. Thus, the real (inflation-adjusted) price of cosmetic surgery fell over the past two decades -- despite a huge increase in demand and considerable innovation, says Devon M. Herrick, a senior fellow with the National Center for Policy Analysis.

Since 1992:

  • The price of medical care has increased an average of 118 percent.
  • The price of physician services rose by 92 percent.
  • All goods, as measured by the inflation rate, increased by 64 percent.
  • Cosmetic surgery prices only rose only about 30 percent.

Cosmetic services have become competitive for a variety of reasons, including the fact that surgeons generally adjust their fees to stay competitive and quote package prices.

Wherever there is price competition, quality competition tends to follow. Consider corrective eye surgery.

  • From 1999 through 2011, the price of conventional Lasik fell about one-fourth due to intense competition.
  • Eye surgeons who wanted to charge more had to provide more advanced Lasik technology, such as Custom Wavefront and IntraLase (a laser-created flap).
  • By 2011, the average price per eye for doctors performing Wavefront Lasik was about what conventional Lasik had been more than a decade ago; but the quality is far better.
  • In inflation-adjusted terms, this represents a huge price decline.

By contrast, the market for medical care does not work like other markets. 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. Most patients never learn the true cost of their care.

Source: Devon M. Herrick, "The Market for Medical Care Should Work Like Cosmetic Surgery," National Center for Policy Analysis, May 2013.

 

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