My mother’s doctor wanted to test her vitamin D levels.  

“Medicare doesn’t pay for this lab test, Mrs. Smith.”

“How much is it then?” 

“369 dollars.”

“OK. I think I’ll pass.”

What are the lessons here?  Put yourself in the shoes of the lab that has a capital outlay for vitamin D testing equipment.  Medicare stops paying.  This lab is now face to face with my mother.  She doesn’t see the value proposition at $369.  The lab has a choice.  They can either drop their price or not do any more vitamin D levels.  What do you think they will do?

The price tag for this test is in for a free fall.  It will reach a level (the market clearing price) where the consumer and the producer are both happy and willing to interact.  The poor, folks who would otherwise never be able to afford this test, will at some level find the price acceptable.  Everyone benefits.  The lab, offering the test to more patients, will make more money if they adopt the economies of scale that every other business in the world must adopt.  

The absence of the price distortion caused by the mother of all third parties, the federal government, results in a lower price for this test.  This is yet another example of the market at work, just as we have shown for B 12 shots in a previous post.  Justifying lab prices to veteran shoppers and bargain hunters like my mother is a much tougher prospect for this laboratory than firing off a claim to a third party.  The level of accountability for all of the actors dwarfs that of the previous arrangement with a third party intermediary.  Consumers are not likely to demand that this test be unnecessarily performed as they are the ones paying for it, for instance.

Let’s hope that Medicare refuses to pay for more and more care as this will move more of the medical economic system to the market where prices will fluctuate, sending the appropriate scarcity signals to the producers, leading us all to price nirvana, that place we have come to know as the “market clearing price.”  This price, achievable only through a free market will insure that vitamin D testing will always be available for those who need it.

G. Keith Smith, M.D.