Free markets and the laws of supply and demand have been very good to us. We have a strong economy, good worker productivity and a huge variety of products available at affordable prices. In order for the laws of supply and demand to work efficiently, however, they require certain conditions such as transparency about prices and the absence of large barriers to entry. Both of those important factors are missing from the healthcare marketplace and we see the results all around us. Healthcare deserts, outrageous prices for drugs, widely different prices for the same service in the same local area, private equity purchasing doctor practices and then raising prices are all symptoms of the failure of the marketplace to deliver good quality healthcare at competitive prices. It is time to try something different.
There is no single factor which has rendered the healthcare marketplace such a disaster. Rather it is a number of factors.
Hospitals have a vested interest in keeping pricing secret or difficult to understand. Recent federal regulations mandate that hospitals make the prices of the procedures they offer readily available on line, but many hospitals simply ignore the requirement. Even if they list their prices on the internet, hospitals enter into secret deals with health insurance companies to set the price the companies will pay when their insureds go to that hospital. There are usually separate secret contracts with each major insurer. If you end up “out of network” at a hospital your health insurer does not contract with, you can expect to pay extra.
Even when you have health insurance, you may have a large deductible or a high co-pay percentage. It is therefore important to you what your health care provider is going to charge for the treatment you need. If you cannot find out what the charge is going to be, you cannot use that as a factor in deciding where to be treated.
Price is, of course, only one factor in consumer choice. Price is most significant when the products are identical. That is not the case with health care. While there is some data about quality of care available through the Centers for Medicare and Medicaid Services (CMS) for hospital, there is no similar data available for care from individual physicians. Yelp ratings or similar patient ratings are of very little value. A surgeon who mutilates 5% of her patients is still going to have a 95% approval rating and maybe some very nice comments. Medical boards can help identify some questionable doctors, but most bad doctors escape the notice of the boards.
You may have noticed that here in Phoenix, there is a Banner Health facility on nearly every corner. Banner, although nominally a non-profit, makes a lot of money. Other hospital operators might be inclined to open a facility to compete with Banner, but to do so requires a huge investment. The larger the initial investment, the higher the barrier to entry and the less likely high profits are to attract a lower-cost competitor.
Medical specialists require a certain population size to generate the patients they need. This is one reason we see most medical specialists in large population centers. There just isn’t enough business in rural communities to keep them busy. In the case of surgical specialists, this is particularly important as every study has shown that surgeons who perform the same procedure over and over multiple times a week get the best results. Even the world’s greatest surgeon is likely to have problems if she only does a particular surgery one or twice a month.
It is not only the needs of specialists that create care deserts. There is a significant shortage of primary care physicians across the United States, a problem that is most acute in poorer, rural communities. Obstetricians are another medical specialty experiencing shortages. Some expectant mothers are little better off than their sisters in the 1800’s. They are hundreds of miles away from the nearest obstetrician and may have to face any obstetrical emergencies on their own.
There is no single, simple solution to these problems, but they are not going to solve themselves and are generally getting worse. Fee for service, the model in which providers get paid for each thing they do for you, is at the root of many of our health care delivery problems. Under this model, doctors don’t get paid for keeping you healthy or even for being good at getting you back to health. They get paid for treating you when you are sick. If you aren’t sick, there isn’t much for many of them to do to make money.
Fee for service leads to billing abuses in which procedures are broken into pieces and the provider charges separately for each piece. It leads to unnecessary treatment on occasion. Witness some of the doctors who have been sent to prison for performing unnecessary surgeries on their patients or for running pill mills and getting paid for prescribing opiates to addicts.
We would probably be a lot better off with a model in which doctors are paid a certain sum per patient. The healthier they can keep the patient, the less of that money they have to use for treatment and the more they can keep for themselves. Hospitals could be paid on the basis of their success on a variety of measures, such as in keeping patients from being readmitted, avoiding infections and keeping stays short.
We spend more per capita on health care than any other nation in the world and yet our health care outcomes are consistently well below the outcomes of other major nations. It is time for us to try something different.
