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Unlike most markets for consumer services in the United States, the health care market generally lacks transparent market-based pricing. Patients are typically not able to comparison shop for medical services based on price, as medical service providers do not typically disclose prices prior to service. (1) Government mandated critical care and government insurance programs like Medicare also impact market pricing of US health care. PRICE TRANSPARENCY ISSUES In a market with transparent pricing, the price of a particular service is openly advertised (2) . For example, companies that provide automotive oil changes often advertise their prices, and consumers have access to these prices when choosing a service provider. In contrast, in the US medical industry, patients generally do not have access to pricing information until after medical services have been rendered. A study conducted by the California Healthcare Foundation found that only 25% of visitors asking for pricing information were able to obtain it in a single visit to a hospital. (3) Since the majority (85%) of Americans have health insurance, they do not directly pay for medical services. (4) Insurance companies, as payors, negotiate health care pricing with providers on behalf of the insured. Hospitals, doctors, and other medical providers have traditionally disclosed their fee schedules only to insurance companies and other institutional payors, and not to individual patients. Uninsured individuals are expected to pay directly for services, but since they lack access to pricing information, price-based competition may be reduced. The introduction of high-deductible insurance has increased demand for pricing information among consumers. Recently, some insurance companies have announced their intention to begin disclosing provider pricing as a way to encourage cost reduction. (5) Consumer websites like MDCost.com have also emerged which provide benchmark prices for medical procedures and services. (6) HEALTH CARE MARKETPLACE DISTORTIONS In a free market, prices are set by buyers and sellers of a good based upon the buyers' demand for the good and the sellers' supply of that good. (7) In the US health care market, several distorting factors act to prevent normal market function. These distorting factors include government-mandated critical care, government subsidies for critical care, and the Medicare and Medicaid public insurance systems. Government Mandated Critical Care In the United States and most industrialized nations, emergency medical providers are required to treat any patient that has a life-threatening condition, irrespective of the patient's financial resources. In the US, the Emergency Medical Treatment and Labor Act (EMTALA) requires that hospitals treat all patients in need of emergency medical care without considering patients' ability to pay for service. (8) This government mandated care places a cost burden on medical providers, as critically ill patients lacking financial resources must be treated. Medical providers compensate for this cost by passing costs on to other parts of the medical system, through increased prices for other patients and through collection of government subsidies. (9) Medicare and Medicaid Medicare was established in 1965 under President Lyndon Johnson as a form of medical insurance for the elderly (age 65 and above) and the disabled. Medicaid was established at the same time to provide medical insurance primarily to children, pregnant women, and certain other medically needy groups. (10) Medicare and Medicaid are managed at the Federal level by the Centers for Medicare & Medicaid Services (CMS). CMS sets fee schedules for medical services through Prospective Payment Systems (PPS) for inpatient care, outpatient care, and other services. (11) As the largest single purchaser of medical services in the US, Medicare's fixed pricing schedules have a significant impact on the market. These prices are set based on CMS' analysis of labor and resource input costs for different medical services. As part of Medicare's pricing system, Relative Value Unit (RVUs) amounts are assigned to every medical procedure. (12) One RVU translates into a dollar value that varies by region and by year; in 2005 the base (not location adjusted) RVU equaled roughly $37.90. Major insurers use Medicare's RVU calculations when negotiating payment schedules with providers, and many insurers simply adopt Medicare's payment schedule. PRICE SETTING Medical providers receive fees set by CMS when providing services for Medicare and Medicaid patients. Providers receive similar fees when providing services to patients insured by most major insurers, since these insurers use CMS fee schedules as a guide in price negotiations. Medical providers are free to set market rates for uninsured patients. However, since most uninsured patients have lower than average incomes, they are unlikely to be able to afford major medical bills. Many medical providers respond by increasing prices for uninsured patients, so that higher prices will offset lower rates of collection. Medical fees charged to uninsured patients are often 3 to 5 times higher than rates charged to Medicare or insurance companies. EXTERNAL LINKS
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