As opposed to the situation in other consumer services markets, there is a general lack of transparency in market-based pricing procedures in health care. It is practically almost impossible for patients to make coherent comparison of shop prices to medical services on a price basis. This is mainly because providers of medical services will typically never disclose the prices of their services prior to the service.
Other impacting conditions of health care prices include programs such as Medicare- a government mandated insurance program. For transparency to be there should be an open advertisement of the price of a specific service. This allows for consumers to choose which products or service provider to deal with. In contrast to this, the United States medical service industry do not allow for patients’ access to any pricing information until such a time after which the services have been offered.
California Healthcare Foundation conducted a study which indicated that among all visitors in hospitals asking for pricing information, only 25% were able to access the same in a single enquiry or visit to a hospital (Baker, 1998, pp. 28). Majority of Americans (85%) have health insurance and as such they do not make direct payments for their medical services (Baker, 1998, pp. 29). It is the insurance companies that negotiate and pay for these services for their clients.
Thus medical providers usually disclose their pricing schedules only to such institutional payers like insurance companies. Those who are uninsured are expected to pay for the services directly, and due to the lack of pricing information access, there is reduced price-based competition. It is the introduced high-deductible insurance that promoted the consumers’ increased demand for information on services costs. As a measure to encourage cost reduction, quite a good number of insurance companies have made announcements about their intended pricing information disclosure to their clients.
Other consumer websites like Wisconsin’ Price Point have as well emerged as benchmark price informers for medical services and procedures. This has been an effective tool that provides patients with a real time estimate prior to any medical related procedures; surgical, cosmetic surgery, outpatient, inpatient, dentistry services, and a myriad of other medical procedures (Giezen, 2004, pp. 18). Medicare fees are regarded as the lowest acceptable services’ payment.
The price includes bundled fees that other insurance companies would have normally paid. This is major reason why many insurers have adopted Medicare as their gold standard whenever they establish their acceptable services payments. However, there is a big disparity between a single doctor’s payment negotiations as compared to a larger pool of doctors practicing as a group in different areas of coverage. Medicare prices are given as a percentage that is calculated as an average of Medicare fee schedules from five up to ten years (Heshizer, 1997, pp. 38).
Healthcare market price distortions are brought about by several factors such as government subsidies provided for critical care, Medicaid and Medicare public insurance systems, and the government-mandated critical care services. It is such factors that have made the differences between prices in healthcare and those in other consumer markets. There complex fee schedules that have led to the dysfunction of healthcare systems in the United States.
Furthermore, there is inadequate reimbursement of the fewer solo primary care medical practitioners (Heshizer, 1997, pp. 42). In conclusion, it is fundamentally important to use the conventional competitive pricing system in healthcare prices as those used in other businesses and profit oriented institutions. This will for example reduce the tendency of primary care providers to continually increase the volume of their clients as they attempt to compensate the decreased reimbursements from insurance companies.
Baker Dean (1998). Getting Prices Right: The Debate over the Consumer Price Index. M. E. Sharpe, New York, pp. 28, 29 Giezen Robert (2004). Federal Statistics on Healthcare Benefits and Cost Trends: An Overview: Federal Government Statistical Agencies Provide a Variety of Healthcare Information on Diverse Aspects of the Nation’s Healthcare Picture. Monthly Labor Review, Vol. 127, pp. 18 Heshizer Brian (1997). Medical Savings Accounts: A Health Insurance option for the Public? Public Personnel Management, Vol. 26, pp. 38, 42