NCPA - National Center for Policy Analysis

The Market for Medical Care Should Work Like Cosmetic Surgery

June 7, 2013

Every day, millions of American consumers go shopping, comparing the prices and quality of goods and services. But that daily ritual changes when it comes to comparing prices for medical care -- the only major sector of our economy where consumers typically do not make decisions based on comparison shopping, says Devon Herrick, a senior fellow with the National Center for Policy Analysis.

  • Americans visit their doctors more than a billion times each year, spending nearly $300 billion on physician care annually.
  • Yet, patients rarely discuss the price of a given service with their physicians in advance of receiving treatment.
  • Patients don't bother to shop for medical care, and doctors don't advertise their prices because about 90 percent of their tabs are paid with other people's money.

When patients do pay their own medical bills, they act like consumers, compare prices and look for value. And when patients act like prudent consumers, doctors who want their business must respond by competing against other doctors by offering low prices, convenience and other amenities they hope consumers will find appealing. Consider cosmetic surgery, one of the few areas of medicine where consumers pay out of pocket. As a result of this competitive behavior, the inflation-adjusted price of cosmetic medicine actually fell over the past two decades -- despite a huge increase in demand and considerable innovation.

  • Since 1992 the price of consumer goods, as measured by the inflation rate, increased by about 64 percent, according to the Bureau of Labor Statistics.
  • However, physicians hiked their prices by about 92 percent.
  • Indeed, the overall price of medical care increased even more -- by about 118 percent.
  • Yet, during this same period, the price of cosmetic medicine rose only about 30 percent -- less than half of the consumer price increase.

One criticism skeptics often voice in discussions about greater patient involvement is that a patient having a heart attack is not in a position to shop for the cheapest cardiac care from the back of an ambulance taking them to the emergency room. Few people would disagree. But only about one dollar out of every 20 worth of health expenditure is on patients who entered the health care system through the emergency room door. Most health care services could be obtained at a lower price if consumers merely had an incentive to compares prices.

Source: Devon Herrick, "The Market for Medical Care Should Work Like Cosmetic Surgery,", June 5, 2013.


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