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Are We Missing Incentives for Consumer Market Efficiency? April 12, 2007

Posted 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.



1. federalist - August 5, 2007

Web Golinkin, co-founder of the Convenient Care Association, provides another answer to this question: There may exist a healthcare cartel that extracts rents from the inefficiency of this market.

Some physician organizations … are pushing for new regulations that would impede the growth of convenient care clinics through expensive permitting requirements (which physician practices do not have to face), further limitations on the number of nurse practitioners that an individual physician can supervise, and prohibitions against advertising that compares the fees of convenient care clinics with those of physicians. This is exactly the kind of price transparency our health-care system needs. In addition, the American Medical Association passed resolutions at its recent annual meeting that push for government intervention, legislation and other measures that could curtail the expansion of convenient care clinics.

2. federalist - August 19, 2007

Two good letters in WSJ this weekend amplify the suggestion that there is a physician cartel:

Your article “States Boost Scrutiny of Drugstore Clinics” (Personal Journal, Aug. 9) identifies a key problem confronting American health care today: opposition to change from the medical establishment. Many state regulators and physician groups, including the American Medical Association, oppose retail health clinics, which provide easy access to low-cost health care in retail settings. These clinics, with care provided by nurse practitioners, are emerging because of a shortage of primary-care doctors, which is forecast to worsen in the next 20 years; the emergence of higher deductibles and higher co-pays, forcing consumers to bear more of the cost of care and to become smarter health-care shoppers; and the rising number of medically uninsured, who, studies show, are willing to pay for care, but not at the exorbitant rates charged by emergency rooms and urgent-care clinics.

Medical literature consistently shows that care provided by nurse practitioners is comparable to that provided by physicians. In all of the major retail clinic chains, nurse practitioners use evidence-based treatment protocols and state-of-the-art software to standardize care.

A constant refrain of those opposed to retail health clinics is that continuity of care will suffer. Continuity isn’t interrupted, however, if a patient tells his primary-care doctor that he went to a retail health clinic on a Sunday to have his poison ivy treated for $35 after waiting five minutes, when the alternative is to go to the local ER, wait as long as eight to 10 hours, and pay more than $300.

J. Kevin Shushtari, M.D.
Chief Hospitalist
Hospital Internists of New London
New London, Conn.

This appears to be nothing more than a turf war, and the arguments reported as being put forth by the physicians groups are specious at best. Further, laws requiring that these clinics be owned by physicians do absolutely nothing to insure that a doctor is involved in patient care. They only line the pockets of the physician-owners, who will rarely, if ever, set foot inside the clinic.

Doctors who suggest that the mere presence of a clinic in a pharmacy or other retail establishment will lead to a dangerously increased risk to bystanders have obviously never spent much time in either their own waiting rooms, in a pharmacy, or even the mall during flu season. Frankly, I consider sitting in my doctor’s office for a routine check-up far more risky, as doctor’s waiting rooms are typically very crowded (far more crowded than the clinics), filled with sick people and I’m generally exposed for longer than I would be in a clinic.

I would suggest that rather than trying to restrict and further limit drugstore clinics, the physicians groups should consider why people are using the clinics and fix their own problems. Competition can be a very good thing.

Flérida Uldrich
Millersville, Md.

3. federalist - October 5, 2007

Joel Waldfogel is coming out with a book describing how the market often fails to serve niches. From this review:

Waldfogel cites President George W. Bush’s words on the occasion of Friedman’s 90th birthday: “Milton Friedman has shown us that when government attempts to substitute its own judgments for the judgments of free people, the results are usually disastrous. In contrast to the free market’s invisible hand, which improves the lives of people,” Bush continued, “the government’s invisible foot tramples on people’s hopes and destroys their dreams.”

Waldfogel offers a series of detailed empirical and case studies to counter that view. “My goal in this work is not so much to argue that Friedman is wrong,” he writes, but to “demonstrate that Friedman’s dichotomy between markets and collective choice is not right. In many markets, what I get depends on how many others also want it. Market allocation shares many of the features of allocation through collective choice.”

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