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Why do price controls require hospitals to make a trade-off

by Expert Jayjay1 | 22 May 2017

One of the very recent bills that most of the Congress in the world is the one that concerns the prices of medical expenditures or most commonly known as the price controls bill. Stated in this bill, government can interfere medical institutions in fixing prices for expenditures such as cost of operations and the price of medicines. Also, the government subsidizes expenditures, a part or even whole of the medical cost for a patient.

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The idea of price controls may seem beneficial since the government can make the prices low so that the public can enjoy health care for low prices also. Somehow, this will cost many problems; first of all, patients have different degree of sickness. For example, two patients are diagnose with cataract, if one is worse than other, then the medical personnel would expend a little more on the severe patient. Abiding the price control policy, they will both pay the same amount.

The problem about this is whether the price assigned is too low or too high for expenditure. If the price is set too high, the quality of medical service would be better since they are funded with more money now. Well, in this manner, hospital will benefit and will have improvement. In the same scenario, maybe, most of the patients cannot afford the price of medication, thus, not enabling them from acquiring the needed service. The result of making the price to high is quality of medical service for the hospital but fewer patients that can afford to acquire the service.

Now, let us look at the scenario in which prices are set to be too low. Since the medical service is too low, the purchasing power increases. Hence, more patients can avail the services offered by hospital; but because of the low cost of medication, the quality of medical service is sacrificed. Hospitals and other medical institutions will have a lower funding for quality improvement, and they can even find way in pushing away patients for they may lose the business aspects, that is only possible when the prices are very very low. Hence, the result of having the price is too low is more can afford the services but quality is sacrificed.

In the end, hospitals are forced to give up one of these two thing – quality of service and number of patients serve. Unless one is given less importance, both of these will be ineffective.

References

  • Gaumer Gary. (December 22, 1994). Hospital Wage and Price Control: Lessons from the Economic Stabilization Program. 1 July 2007. 
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