What Tummy Tucks Can Teach Us about Health Care Reform

May 28, 2013

There are many myths downplaying the role the market can play in health care, says Shawn Tully, senior editor-at-large of Fortune Magazine.

  • One leading myth is that each patient is so different, and every procedure so tailored, that doctors can't determine the cost, or tell patients the price, in advance. Hence, providing consumers with prices they can compare is totally impractical.
  • Another holds that medicine is so sophisticated that consumers are incapable of choosing deals that combine low cost with the promise of excellent outcomes.
  • A third is the concept that -- in contrast to every other area of the economy -- new technology inevitably makes everything more expensive.

Those oft-repeated beliefs are wrong. The best evidence is the ultra-competitive field of cosmetic surgery and minimally invasive treatments. A new paper from the National Center for Policy Analysis shows just how the industry's dynamics follow the patterns that prevail everywhere else.

  • Over the past two decades, U.S. medical prices -- not total spending -- have been rising at around 5 percent per year, or twice the increase in the consumer price index.
  • By contrast, prices for cosmetic surgery are inching forward at just 1.3 percent a year, or a full 1.2 percentage points lower than inflation.

The reason is that patients spend their own money on cosmetic treatments, and in doing so behave just like consumers everywhere else. They shop for the best deals and love doing it. In every other medical field, costs are largely covered by third parties, employers, insurers or Medicare and Medicaid. Consumers pay just 11 cents for every dollar in care they consume. The rewards for seeking the most favorable prices are nil.

It's just the opposite in cosmetic surgery: Whatever you can save on a procedure is money you get to spend on a vacation or your kid's tuition. Doctors compete vigorously to win business using steep discounts. Websites such as Groupon and LivingSocial regularly offer "deals-of-the day" for cosmetic procedures. Indeed, the average cost of Botox dropped from $500 in 2007 to $365.

The market will work in medicine. Rules that lavishly subsidize demand and at the same time shackle supply are not the answer. Follow the lessons from facelifts and tummy tucks: The more consumers spend their own money, the more efficient health care will become.

Source: Shawn Tully, "What Tummy Tucks Can Teach Us about Health Care Reform," Fortune Magazine, May 23, 2013. Devon M. Herrick, "The Market for Medical Care Should Work Like Cosmetic Surgery," National Center for Policy Analysis, May 2013.

 

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