Monday, February 23, 2009

Boutique Medicine

Some students in classes I teach are concerned about the emergence of “boutique medicine” where providers set up shop and make access to their services a lot easier, but there are many extra fees and the providers do not take insurance. The concern is that access to good primary care will eventually become limited for less wealthy patients. Is this concern warranted? Probably not. In the end, this type of service is unlikely to make a large impact on the industry for providing medical care services. Let’s follow the logic.

The demand for boutique medicine is relatively inelastic (i.e. the quantity tat will be used does not change much with changes in prices) for the industry as a whole and for each provider. The demand is relatively inelastic for the industry as a whole because people who can afford this type of care do not tend to be extremely price sensitive. Also, where there are lots of other options for medical care there are few substitutes for this level of service. The demand is relatively inelastic for each provider since there are a limited number of providers and the providers are not perfect substitutes for one another.

As the number of physicians choosing to practice this way grows larger potential patients will recognize greater opportunity for substitution among these providers. As a result, this part of the health care industry is likely demand for each provider is likely to become more elastic. This will push down the price that any one can charge. This will make it less interesting for other providers to join this part of the industry.

It also may be the case that the early adopters of this method of providing medical care are different from potential later providers. In other words, maybe the physicians who chose to practice this way first were uniquely suited for this type of practice. Later providers may not be able to provide as high quality services and the outcome would be that patients would see these services as less differentiated from general primary care.

In addition to all the supple side issues mentioned so far, there is no guarantee that there are all that many patients who could afford this type of arrangement. Limited demand will discourage too many providers from joining boutique practices.

Finally, if an extraordinary number of physicians began to take this approach, then other health care systems would find it necessary to pay the physicians who remain in a traditional practice setting more to keep them in this setting. How much more depends on a whole variety of factors. But, the market should be somewhat self-correcting.

So, in the end, there is not good evidence that a very large number of physicians could be supported providing boutique care. If a large number did switch to this type of care arrangement, the market should take care of itself. In the latter case, the fees for basic primary care may increase. That would disadvantage some, and hopefully there would be ways of subsidizing this group or finding more efficient ways to provide care in general. While this last point cannot be guaranteed, it is definitely not the case that the emergence of some boutique care services poses a threat to the health of the general public.

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