Are We Missing Incentives for Consumer Market Efficiency? April 12, 2007Posted by federalist in Healthcare, Markets.
Back in February a WSJ article on Lasik noted what looks like a critical market failure.
A closer look at Lasik, plastic surgery and other procedures suggest[s] formidable barriers to informed shopping in even the most developed consumer medical markets. In a report published in Health Affairs … researchers found that despite heavy competition and mass marketing, comparison shopping is limited.
In many ways, Lasik … looks ideal for consumer shopping. It is an elective procedure that most consumers can research at their leisure, even obtaining price quotes over the phone.
If the markets can’t get this right for purely elective medical procedures like laser and plastic surgery, what hope is there for the broader market for healthcare? Andrew Baker in a WSJ letter to the editor explains,
Mr. Goodman’s compelling call for entrepreneurship in health care alludes to the vital role consumer information on quality and cost will play in enhancing efficiency. Indeed, most consumer markets are shaped by buyers’ perceptions of such “value” trade-offs. But the current trend toward consumer-directed care, in which the responsibility for the patient’s own good health is influencing treatment and payment policies, will succeed only if a critical information gap between doctors and patients is filled.
Physicians do not expect, and are therefore not prepared, to have conversations with patients about cost-quality trade-offs and health-care value. Patients and their families, however, view doctors as the most trusted source of information on both quality and costs. Consumers certainly do not consider their health plan or the government as credible alternative sources. This information disconnect must be reconciled by a trusted source — perhaps an academic consortium or a health-care consumer organization.
Granted, we aren’t looking at a complete failure:
- Castle Connolly is a for-profit service providing independent and useful consumer information on doctors and healthcare.
- Consumers Union has been a good (even if lately leftward-biased) independent, non-profit source of general consumer information for over seventy years.
- Consumers’ Checkbook does the same at a more local level in select regions.
- Of course there are plenty of great online information sources like http://consumersearch.com/
But I am still left wondering if buyers and sellers aren’t missing a more rigorous approach to independent evaluation clearinghouses that could enhance market efficiency. It is in the interest of both parties, since consumers are more likely to find (and eagerly purchase) goods and services that will most reliably meet their needs, and sellers of quality products will certainly make more sales — and perhaps even maintain stronger profit margins for.