Monday, October 25, 2010

The Marginal Value Of US Medical Service Is High So Medical Prices Are High

A comment I posted to "Health Care Prices: Ignored Once Again?" by Chris Fleming on HealthAffairs Blog:
It is the prices stupid, but if researchers only look at the cost of the medical service, as the authors mentioned above do, they miss the total economic price that a patient pays.

Opportunity costs to patients have to be included. Opportunity costs help explain the value of medical services to patients and why prices for US medical services appear to be high. As long as the price of a medical service has a positive marginal value to the patient, the patient will be willing to pay the higher price.

The US has very high productivity and high GDP per worker. A lost day's work has a very high opportunity cost to an American worker. Even if the worker receives sick pay, a day's absence from work often means for many a backlog of work when they return. An extra few day's work missed by going to the doctor more often for treatment or staying in the hospital longer is very expensive to an American worker. It is also not just the number of visits, but also the lost productivity due to the time it takes a patient to get better. For example, imagine a patient with a bad knee who can get knee surgery in a couple of weeks versus one who has to wait a few months for the surgery. The longer waiting time surgery might be cheaper, but the opportunity cost of the lost worker productivity until the surgery has to be included in the comparative cost. Medical costs studies as a rule do not include these opportunity costs to the patient and the employer.

American workers are willing to pay more for medical services because US medicine is more efficient and reduces the number of days of wait until treatment, of missed work due to doctor visits, uncured illness and hospital stays. This is why we visit the doctor less and have fewer days of hospital stay.

Opportunity costs extend to relatives of the patients. Often a parent is taking a child to the doctor or staying home with the child until the child gets well. Likewise, adult children often assist with the care of their elderly or sick parents.

I would say that the reason these studies were ignored is that they presented an interesting fact but also an incomplete story. Show me a comparative study that analyzes medical prices that includes patient (or caregiver) opportunity costs.

My gut feeling is that prices of medical services in the US are at a level where the marginal value to patients equals the marginal costs, including opportunity costs, to patients.
Also see my later post, "Health Care Costs And Worker Opportunity Costs" relating to this topic.


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