The Power of Consumer Shopping

The act of shopping is often denigrated by the literati as shallow and self-indulgent.  But shopping is at the very heart of why a free market works.  It enforces discipline on suppliers because they buyers will be comparing their price and quality and feature set to their competitors.

In health care, we have all but ended the act of consumer shopping.  Most of our medical expenses are paid by third parties, and we are just not very careful when spending other people's money.  These third parties sometimes try to be diligent about what we pay, but it is a losing task and in doing so they end up irritating everyone.

And thus, we get this:

You can find it on the Internet for $250 or less. But if Medicare is paying, a standard-issue brace for back patients costs more than $900.

In a report expected Wednesday, federal investigators say Medicare paid an average of $919 for back braces that cost suppliers $191 apiece, providing a window on how wasteful spending drives up health care costs.

“The program and its beneficiaries could have paid millions of dollars less if the Medicare reimbursement amount … more closely resembled the cost to suppliers,” says the report from the inspector general of the Health and Human Services Department. The Associated Press obtained a copy.

I discuss the phenomenon in health care more in this part 1 on a three part series I wrote at Forbes


  1. sch:

    But look how much they save on administrative costs compared with commercial insurance, medicare overhead is sooo low. I doubt the inspector general costs and fraud and abuse
    recovery costs are counted as part of overhead, comes out of another pocket.

  2. rollformer:

    I recently had an opportunity to see this even with private insurance. Regular pharmacy wanted $1050 for a 90 supply, but the pharmacy my company owns wanted $40 for the same thing.

  3. person:

    Even if you wanted to, there are a lot of things you're not allowed to compare for. Try dialing around for prices on painkillers... they won't even tell you if they have them in stock.

  4. nehemiah:

    I'd love to see the government run Medicare/Medicaid on the same 15% margin they are allowing medical insurance companies.

    Wouldn't it be neat if we practices free market capitalism in the good ole USA again?

  5. MingoV:

    "... Medicare paid an average of $919 for back braces that cost suppliers $191 apiece..."
    It's a new pricing scheme of switching the ones and the nines.

  6. rxc:

    My mother-in-law had a "special pad" prescribed for her wheelchair, which cost the govt $35. It was nothing more than a foam pad in a cloth cover. Probably cost about $2 to make and would otherwise normally sell for about $5 as a chair cushion.

  7. Matthew Slyfield:

    That's what happens when you put lysdexics in charge of government spending.

  8. SamWah:

    I'm sure that paying all the gummint workers involved and the insurance company workers and the hospital/doctor workers processing those payments suck up most of that.

  9. markm:

    AFAIK, most of the usual expenses of running an office (rent, utilities, cleaning, payroll processing, and even employee benefits and retirement) are supplied by other government agencies and not counted in Medicare overhead.

  10. JoeMama:

    I have an acquaintance who tried to intelligently shop for a knee replacement. He visited three hospitals and none were able to give him a quote. It is not that they refused. It was because their accounting systems lack the function. Their accounting systems can only bill after-the-fact. Absolute non-starter for Adam Smith's IGH.