Where Are the Health Care Entrepreneurs?
From the abstract of a new working paper by Harvard Professor David Cutler, "Where Are the Health Care Entrepreneurs? The Failure of Organizational Innovation in Health Care:"
Medical care is characterized by enormous inefficiency. Costs are higher and outcomes worse than almost all analyses of the industry suggest should occur. In other industries characterized by inefficiency, efficient firms expand to take over the market, or new firms enter to eliminate inefficiencies. This has not happened in medical care, however. This paper explores the reasons for this failure of innovation. I identify two factors as being particularly important in organizational stagnation: public insurance programs that are oriented to volume of care and not value, and inadequate information about quality of care. Recent reforms have aspects that bear on these problems.
Here's a bit more detail from the paper about the orientation of public insurance programs to volume not value:
In most industries, higher quality is associated with higher prices. That is not true in medical care, however, largely because of the public sector. Medicare accounts for 25 percent of physician and hospital services, and Medicaid accounts for another 13 percent. Since the 1960s, Medicare has paid providers on a fee-for-service basis, without reference to the quality of care delivered. Medicaid reimbursements are more flexible, but they are so low that many providers view Medicaid patients as effectively uninsured. As a result, about 40 percent of the market transmits incentives to provide more care but not more efficient care (Medicare) or to avoid patients who are sick (Medicaid). With so much of compensation pegged to volume, not value, inefficient care is the natural outcome.
Health care
Nobody said fascism was going to be pretty...or efficient.
Substitution Effect and Monopoly Pricing
As you are aware, when goods are expensive, consumers switch to lower cost providers and also to substitute goods. From a researcher point of view, health care is only medical care (doctors, nurses, hospitals, etc) and pharmaceuticals.
From a consumer perspective, health care includes alternative medicine, such as vitamins, supplements, acupuncture, massages, etc. Plus, it includes lifestyle changes, such as eating less red meat, smoking less, exercising, drinking a glass of red wine, etc.
Additionally, health is affected by environmental and safety factors. The water and air are much cleaner and cause fewer ill health effects than decades ago. Likewise, the automobile, which is the primary cause of accidental deaths, is also much safer and auto deaths have declined.
Go to any major store that sells plastic bottles and you will see them advertise BPA free bottles, because of consumer concern about the health affects of BPA.
Tremendous innovation, entrepreneurship and efficiencies occur in health care, when the boundary of health care is broadened to match the views of the consumer.
Additionally, paying more is not necessarily better. Does a $15,000 Rolex watch tell time better than a $50 Seiko?
Doctors are a monopoly created by government licensing restrictions, and foreign-trained doctor restrictions and AMA restrictions on number of medical schools and number of graduating doctors. The number of graduating doctors has remained unchanged for decades despite population growth, while the number of applicants to medical schools has increased.
In monopolies, of course there are inefficiencies, high prices, lack of innovation and poor quality (poor health outcomes). Aren't insurance companies just capturing some of the economic rent that goes to doctors' monopoly pricing power? Aren't medical care consumers behaving similarly to other monopoly product consumers?
As the number of primary care doctors has declined as a percentage of the population, has it become somewhat like a luxury goods. Is there a status signaling effect as medical care costs increase? Is going to the doctor for a minor ailment a status signal, similar to owning a Lexus instead of a Camry?
Monopoly, luxury good effect, and failure to look at a broader consumer "health care" behavior can probably explain most of what we see happening in doctor provided medial care costs.
What's really sad is the
What's really sad is the incredible number of people who desire to heal people in whatever way they can, only to be told they must spend unbelievable amounts of money first. And if indeed the necessary degrees are gotten, the people these healers would help, can no longer afford them.
Republicans oppose any effort
Republicans oppose any effort to make Medicare/Caid more efficient, on the thinking that it leads to death panels.
Don't forget.