Consumer sovereignty in healthcare implies that society benefits at large when healthcare organizations compete to develop high quality healthcare products while reducing the cost of doing business (reflected in low prices), and when consumers choose wisely among healthcare products by purchasing those high quality products at low prices.
, healthcare consumers lack the ability, motivation, and opportunity to choose healthcare products that are high in quality and low in price.
More precisely, there are three key differences between health care and other goods and services. The first market failure in health care relates to the lack of "consumer sovereignty". While individuals initiate the first contact with the health care system, it is providers who then determine the volume of diagnostic tests, visits to specialists and the needed prescription drugs. In other words, an individual cannot obtain hospital surgery or radiation therapy without the recommendation of a licensed provider. Thus, resource allocation in health care is not a simple function of the interaction between supply and demand as it is in a free marketplace. In fact, health care providers can affect demand in a way that is impossible in just about any other industry.
Second, there is a problem of "asymmetry of information" between the health care provider and the consumer because consumers are generally unable to determine for themselves the type of health services they need. Health care providers have a very large advantage over consumers in that they have the professional knowledge to determine what is best for their patients. Therefore, in a free health care market, this asymmetry of information leaves open the possibility of exploitation of consumers by providers. Health care providers can be placed in a situation of conflict of interest if they recommend care at the same time as they make their own living from it.
The third market failure relates to the "uncertainty of illness". Marketable goods – such as food and shelter or TVs and VCRs – can be properly budgeted for. This contrasts sharply with health care. Because illness is unpredictable, the demand for health care is likewise uncertain. Individuals cannot easily determine in advance an optimal pattern of health care use in a given year as they might do for food. More importantly, health care costs can also be enormous. Very few people can manage health care costs on their own.
What we call "consumer choice" is really just a choice among available market based alternatives, and it is not even true that corporations respond to what consumers want by developing new products accordingly. Instead, all of the evidence seems to indicate that corporations spend minimal amounts on research and development, and most of their money on "market research," which means finding the best way to convince customers to buy what's available, and marketing, which puts the market research into practice. That people still continue to buy things they don't need and probably would be happier without is more of an indication that people are susceptible to advertising than that people are necessarily happy with what's on the market.
Many market choices involve a variant of the prisoner's dilemma. Health care is an excellent example, in which individuals operating in a private market will try to maximize their own health care plan, which drives up costs for everyone and leaves many people without any access to health care at all. However, a publicly administered,