Consumer Sovereignty

The appropriate amount of health expenditure is based on a set of values and the concept of economic efficiency. Resources are limited, so they should be used for what consumers believe to deliver the most value. Consumers decide how much to purchase on the basis of their perceptions of the value they expect to receive and the price they have to pay, knowing that buying one good or service means forgoing other goods and services. Consumers differ greatly in the value they place on medical care and what they are willing to forgo to receive that care. In a competitive market, consumers receive the full benefits of their purchases and, in turn, pay the full costs of those benefits. If the benefits received from the last unit used (e.g., the last visit to a physician) equal the cost of that unit, the quantity consumed is said to be optimal. If more or fewer services are consumed, the benefits received are said to be greater or less than the cost of that service.

Consumer sovereignty is most easily achieved in a competitive market system. Through their purchases, consumers communicate their desires regard- ing goods and services. In response, producers use their resources to produce the goods and services consumers desire. If producers are to survive and profit in competitive markets, they must use their resources efficiently and produce the goods and services for which consumers are willing to pay; otherwise, they will be replaced by producers that are more efficient and in tune with what consumers want.

Some people believe that consumer sovereignty should not determine how much we as a society spend on medical care. Patients lack information and have limited ability to judge their medical treatment needs. Other concerns are the quality of care patients receive and the quantity of care that is appropriate.

Consumer sovereignty may be imperfect, but the alternatives are equally imperfect. If medical care were free to all and physicians (paid on a fee-for- service basis or salaried) decided the quantity of medical care to provide, the result would be “too much” care. Physicians are likely to prescribe services as long as they perceive them to be even slightly beneficial to their patients because the physicians are not responsible for the cost of that care.