If you need a flu shot, you could make an appointment with your physician, wait at a potentially inconvenient location, and likely receive an expensive bill. Or, you could head to your local grocery store and quickly receive the shot for under $30 with additional incentives like discounted shopping coupons. Some places like Walmart have even delivered flu shots for free, realizing they are a way of getting people into the store.
Why is there such a difference between the two? Charles Silver and David Hyman, authors of Overcharged: Why Americans Pay Too Much for Health Care, argue that it is because of the free market.
Traditional providers, like hospitals and clinics, are expensive and inconvenient for the consumer because their pricing is primarily based on what insurers will pay. In comparison, retail providers, like the clinic found in your grocery store, have to price their services in order to attract customers and strive for convenience. The two offer many of the same services but have completely different ways of doing business.
Retail providers are becoming an increasingly disruptive challenger of traditional providers. This should not be surprising—when providers are able to compete the results typically are lower-priced and more attractive options for the consumer. Just as internet shopping is disrupting brick-and-mortar businesses, retail medicine is disrupting traditional medicine, an industry that is used to being insulated from competition.
A great example of this is the way retail medicine is transforming audiology. While traditional audiologists charge steep prices for hearing aids and hearing checks (with additional charges for things like testing, warranties, and damage coverage, which can often make up 70 percent of the total price of a hearing aid), retailers are improving services while lowering costs. Costco Hearing Aid Centers offer similar services to that of audiologists without the additional charges.
Silver and Hyman write:
As more retailers enter the field, prices will become easier to compare and competition will intensify. Bargain-hungry consumers will look for better deals, but they will be interested in quality too . . . With pressure on both quality and price, retail offerings are bound to improve. (pg. 325)
Competitive pricing offered by the retail sector also allows people to avoid markups that come with using third-party payers. While most retail providers take insurance, patients pay out-of-pocket one-third of the time. In contrast, patients who visit primary care doctors pay out-of-pocket only ten percent of the time. Silver and Hyman view this as an important factor in the success of retail providers:
When we pay for health care the same way we pay for other services—by spending our own money instead of an insurer’s—good things happen: prices fall and quality improves as providers compete for business. (pg. 320)
Competition provides good things indeed. Want to learn more about market solutions for health care problems? Join us in St. Louis or Kansas City to learn more from Cato Institute scholars Charles Silver and David Hyman as they discuss why the American health care system is so dysfunctional and costly.