Devon Herrick

Every day, millions of American consumers go shopping. In the process, they compare the prices and quality of goods and services ranging from groceries to cellular telephone service to fast food to housing. 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.

Americans visit their doctors more than a billion times each year, spending nearly $300 billion on physician care annually. Although only about 10 percent of health care expenditures are spent on physicians’ services, doctors are the gate keepers to virtually all care that is ordered and received; including MRI scans, lab tests, hospital admissions and surgeries. 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 OPM — 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.


Devon Herrick

Devon Herrick is a health economist and a senior fellow at the National Center for Policy Analysis (NPCA).