E CONOMISTS and other interested observers of the medical marketplace frequently speculate on the impact of voluntary health insurance and other mass purchasing of physicians' services on medical prices. Medical prices, such as are reflected in the Consumer Price Index, are made up of a host of individual determinations made by individual physicians as to the amounts to be charged individual patients. In the past, in this market, typical cost-price determinations hardly entered into establishing the charge because of the many imponderables involved. The nature of the demand for medical care sets it apart from ordinary goods and services. The longstanding custom of varying physicians' fees by vague yardsticks of ability to pay further removes the pricing of physicians' services from the area of direct cost-price relationships or the operation of the market. In the United States, however, a different kind of market structure is emerging in this field, a structure which lies somewhere between a system of administered prices and a system in which supply and demand affect but do not set prices. In the medical marketplace hospital charges are identical for all paying patients, regardless of income. Insurance payments, too, with few exceptions, are the same for all patients regardless of their financial situation. Early fee schedules were developed by purchasers of services in such programs as the Veterans Administration Home Town Medical Program and for workmen's compensation purposes. Their impact was not great because the volume of services was relatively small and either diffused or confined to a few physicians (in the case of workmen's compensation). In the early stages of voluntary health insurance plans, surgical-fee schedules covering most procedures were developed by the plans. These schedules bore little resemblance to the charges the physician might actually make. One characteristic of these early schedules was readily apparent; procedures that had a high incidence usually carried a fee in the schedule considerably below the best estimate of going charges; rarely performed procedures carried the top fee and gave the schedule its identification, such as a $150, $200, or $300 fee schedule. Even these fees bore little resemblance to actual charges. The few studies that were conducted relating insurance benefits to actual charges produced evidence that, overall, surgical benefits were meeting only between 60 to 65 percent of the amounts billed by surgeons. Raising all the items in the schedule by an identical proportion, such as the 50 percent increase that would change a $200 fee schedule to a $300 one, did not increase the proportion of the surgical bill met by insurance to a corresponding degree. Obviously, the change in purchasing power created by the new schedule influenced physicians' fees. A second influence operated simultaneously in this particular market. It was probably as influential in the changes that have since ocMrs. Brewster is branch chief and Miss Seldowitz is an economist, Health Economics Branch, Division of Community Health Services, Bureau of State Services, Public Health Service. This paper was presented at the 92d annual meeting of the American Public Health Association, October 1964, in New York City.