Health care prices aren’t being set in a well-functioning competitive market. Some geographic markets just lack competition in health care. But in many others, prices for hospital services are being negotiated in ways that result in big variations between geographic areas–like prices for a given service in one place being a multiple of what it costs in other places. In turn, these different prices being charged are linked to big differences in spending across geographic areas. Moreover, all of this is happening in a setting with potentially large cross-subsidies–potentially running in either direction–between private health insurance and public health insurance programs like Medicare. It’s all part of the reason why designing policies to slow the rise in health care spending is so difficult.
What you will hear is that the problem is with our free-market health care system. For many people, “free-market”
serves as an all-purpose boo-word. Of course, my own view is that health care regulations are what are most heavily implicated in the high, opaque pricing of medical services.
Healthcare is a product which includes time value. Since time value is attached to specific time and place, there are unique characteristics to its given resource access that will provide healthcare (and other time based services) a unique price structure. Whereas tradable goods rely on time coordination within single institutions, which allows them to achieve a “single” or international price.
http://monetaryequivalence.blogspot.com/2016/01/time-based-markets-as-secondary-markets.html
Whenever there is a reference to “free markets” ( or, in most cases to just “markets”) those subjects ( “free” & “market”) should be described or delineated.
We can accept that markets are forms of relationships; but, they are conducted in, and delineated by, circumstances, even when, by consensus they are “free.”
Example: The perceived (and widely accepted) need for assurance of competence in medical care and treatments create circumstances that circumscribe (delineate) the relationships in those services.
If regulators are the reason prices are high, why are countries where the regulators have more pricing power countries with both lower prices and similar outcomes?
I price healthcare for a living. It is driven ENTIRELY by bargaining power. If you had one payer, they would have more bargaining power. I don’t think this would impact healthcare quality much because there is a ton of inefficiency and overpayment in the system. If providers got paid less they would adjust without much impact.
Of course I don’t like the kind of regulations we have in the USA. They make it complicated and harder to do my job, while not doing much good. However, they are the result of not having enough regulator power. When your forbidden to negotiate directly, but charged with achieving certain regulatory outcomes, all you can do is pull indirect and shoddy levers to try and do so.
Of course we will never get single payer, because healthcare is too high a % of GDP now and too big an interest group to take on. Even if you passed single payer tomorrow, I don’t think the regulators could push through the necessary price decreases (lobbyist would push back…successfully). It worked in other countries because they did all this in the 70s, before healthcare ballooned, and not by making dramatic cuts to the existing system but through lower annual inflation that added up over decades.
I don’t have any health care pricing experience to gainsay anything you’ve said, but I have some personal experience that runs somewhat counter to your comments on single payer, besides my general skepticism that health care is so unique as to make it one of the few goods/services where reduced competition on the supply side is just the thing it needs to drive future improvements in cost and quality.
My father is a primary care physician. Many years ago, he moved the family to rural northern Minnesota. He did that because doctors (at least at the time, I don’t know the situation today) earned a premium for working in the sticks. He earned a further premium for working on one of the Indian reservations that dot the landscape of northern Minnesota.
This premium was the only way the hospitals and clinics could attract and retain physicians. If the U.S. version of the NHS were setting the price of my father’s services, what kind of premium would his employer have been able to offer him? What effect would this have on the supply of medical care in places like this?
Other countries have lower starting points probably because they are simply poorer. and higher growth rates because, well, they aren’t really controlling costs and they are catching up.
As for bargaining power, other countries do have lower quality. They just keep worse and/or different statistics. We overpay for much higher end healthcare. Probably because we can afford to.
And as Arnold points out, our government seeks to control supply and subsidize demand. That is one reason why our government spending, our Socialized medicine half, is more than most “socialized medicine” countries whole.
USGovernment control of the money certainly isn’t the fix when our government already spends more than almost all these countries who are supposedly controlling cost growth, except for the fact that they aren’t. The explosion in the 70s when our growth rates outpaced the rest of the world happened almost to the date that government got more involved. Let them bargain now. They already control half. Or maybe they are the whole problem.
As an aside, I think we are reaching a point (if we weren’t there from the very start) where restricting supply wasn’t just intuitively increasing price but also less intuitively reducing quality. An obvious example is the prescription drug addiction and overdose epidemic. A bottleneck on doctors could conceivably result in over-prescription and under-surveillance. For an anecdotal example, I was looked at askance when I asked the doctor if I could get a larger (aka effective) dose of painkiller for my tonsillectomy since I’m huge relative to the rule-of-thumb dose- all adults get the same dose. I was told no, that it would kill my liver. Fair enough, but upon researching, I found that the liver-destroying properties of the standard painkiller are a result of the Tylenol content, not the Codeine. If I had a doctor or a NP I could discuss this with for more than 5 minutes I’m pretty sure I could convince them I wasn’t doctor shopping for drugs and just wanted a body-mass-appropriate dose (as opposed to the internet horror stories where the standard dose does nothing for large body masses). Another example is how doctors are constantly complaining that they are powerless to resist parents who demand antibiotics for their kids with viral infections. Come on docs, you are just lazy and too busy to educate, and the money is too good to risk irking a free-riding patient.
On the other hand, prior to Medicare Part D, funds were directed towards procedures rather than drugs. While yes, it was largely pushed through as a BigPharma “giveaway,” it also corrected an obvious distortion of our government healthcare funding parity. Previous fear of the BigPharma bogeyman likely caused a lot of suffering and expensive and ineffective treatments better suited to prescriptions. We still have lots of stents and back surgeries that do exactly nothing other than cause morbidity and cost money.
Read John Goodman’s “Priceless” if you want to understand how the market is prevented from working in the US.
This is an industry that controls politics and makes regulation. Don’t look for them to give that up. Don’t expect politics to change that.
Cause or effect. Basically all regulated industries capture. Healthcare may only be different by degree. Interesting that you imply industry is to blame and politicians are powerless. I’m more inclined towards a bootleggers and baptists variation model.
Very perceptive comments by asdf on bargaining and single payer possibilities.
Single payer advocates in the USA tout the efficiency of such a system. They barely mention that this system requires a universal fee schedule that is accepted by all providers.
When a patient visits a doctor in Germany or France, the doctor can swipe their health card at the end of the visit, and I assume the doctor gets paid in ten seconds or less. Of course this is more efficient.
But this requires a standard fee for office visits, accepted by all providers.
America is a million miles from this kind of fee schedule. In fact we are moving the opposite way with an even more complex coding system.