To control the increasing prices of medical materials and to give the public more options when making healthcare decisions, the Ministry of Health and Welfare is to address a controversy over capping out-of-pocket co-payments by improving price transparency. The idea is that price transparency would promote competition and drive down prices.
Growing expenditures on medical materials is not unique to Taiwan. Did other nations solve the problem by implementing price transparency rules?
Imagine someone buying a new car. Since it is at the buyer’s expense, they are concerned about the price, so they gather lots of information, compare vehicles, test drive and make cost analyses.
However, the “market mechanism” for self-financed medical materials offers extremely little space for cost-effective decisionmaking. Medical expertise is needed and there are legal restrictions on advertising. People thus become heavily reliant on the advice of physicians.
So what are the benefits of price transparency?
Medical expenditures in the US are higher than in any other country, and it has long tried to reduce the cost of medical materials through price transparency.
However, according to a 2008 economic analysis on the transparency of medical material pricing in Health Affairs, a well-known journal on medical policy, pricing transparency might on one hand help patients make decisions, but on the other hand facilitates price-fixing among hospitals or device providers, which reduces price competition.
Moreover, because self-financed medical materials might be paid for by insurance companies, patients might not want to know the prices differences.
The analysis concluded that pricing transparency leads to price reductions only when four conditions are met.
First, there are price disclosures. The cost of gathering information is high, but can be reduced by price disclosures.
Second, the disclosed price is the current market price.
Third, there is competition among hospitals. Competitive pressures make hospitals more willing to share the benefits of cost savings with patients.
Fourth, the differences in hospital procurement prices are not mainly decided by procurement volumes.
These conditions might not be met in the context of all medical materials, and price-fixing might increase due to limited availability of certain products and services.
Some countries have strategies similar to the National Health Insurance Administration’s (NHIA) plan. For example, since February, India has been implementing price caps on medical materials, and medical material prices may not increase by more than 10 percent within one year.
India might go even further than the NHIA’s plan and considers regulating margins between wholesale and retail prices of medical materials, restricting it to 30 percent, which led to a US-India trade dispute.
Another example is in the US. Since last year, US hospitals have been required to publish the prices of all medical services on their Web site. Due to the complexity and length of the price lists, one news outlet said that “unless you’re a machine, good luck reading the prices.”
Given these trends, it is necessary to consider whether the main policy concern in Taiwan, a rich nation with universal health insurance coverage, should be to focus on low prices?
Chen Chih-hsiung is a professor and director of National Chiao Tung University’s Institute of Technology Law.
Translated by Lin Lee-kai
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