MYTHBUSTERS: High Prices Mean High Quality Care

July 11, 2017

In an ideal market, a higher price correlates to a better quality product.  When we shop for lightbulbs, for example, one shopper may choose to invest more in a product proven to last for multiple years while another shopper may choose to buy a cheaper lightbulb to save money in the short-term, knowing it will need to be replaced.  Extending this retail mindset to health care, consumers should be able to assume that the most expensive obstetrician is the one who delivers (pun intended) the highest quality of care, right?

Sadly, this is wrong! The health care industry is unlike any other marketplace that facilitates the exchange of goods and services.

To start, there is an imbalance of information between the seller and the buyer.  Consumers don’t have widespread access to the price or information about the quality of health care.  As a result, consumers can’t rule out providers for being too expensive or not meeting specific quality criteria even if they want to.

And the seller—the health care provider—is in the position of directing what goods and services a consumer (e.g. the patient) needs to buy.  So much for consumers applying the typical retail mindset.

Additionally, research tells us that doctors and hospitals with considerably higher prices do not differ significantly from lower priced providers in their quality ratings or the patient experience.

Why does the health care market allow this?  Prices turn out to be more associated with market power than quality.  Market power is either derived from the health system or hospital’s market share or reputation.  Markets with a dominant health system or hospital can set high prices for health care services because consumers either have few alternatives for care or the health system knows consumers will demand access to it.  With leverage and little competition, the health system doesn’t have to improve quality continuously in the way consumers would hope for and even assume. And, as we’ve learned, consumers don’t even have access to quality and price information to hold providers accountable.

The bottom line?  Don’t fall victim to the assumption that prices and quality are correlated.  Catalyst for Payment Reform has long taken up arms to advance transparency and expose the impact of other market forces, like provider consolidation, on price and quality. We hope, as you upgrade to LED lights and move away from iridescent, you’ll join us in pushing for a health care market place where consumers can fully understand how to find the best value.

Join the debate on September 6, 2017!

CPR is  hosting a Virtual Summit to help health care stakeholders learn more about the impact provider consolidation can have on health care costs and quality.  Register today to learn from the experts.

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