Hillarysworld

Why markets can’t cure healthcare (7-25-09)
http://krugman.blogs.nytimes.com/2009/07/25/why-markets-cant-cure-healthcare/

This is an excellent article that is very nicely grounded and providing a good economists' perspective in layman terms.  Here are the closing paragraphs and some additional perspective (I am a trained economist).

Excerpts:
This problem is made worse by the fact that actually paying for your health care is a loss from an insurers’ point of view — they actually refer to it as “medical costs.” This means both that insurers try to deny as many claims as possible, and that they try to avoid covering people who are actually likely to need care. Both of these strategies use a lot of resources, which is why private insurance has much higher administrative costs than single-payer systems. And since there’s a widespread sense that our fellow citizens should get the care we need — not everyone agrees, but most do — this means that private insurance basically spends a lot of money on socially destructive activities.

The second thing about health care is that it’s complicated, and you can’t rely on experience or comparison shopping. (“I hear they’ve got a real deal on stents over at St. Mary’s!”) That’s why doctors are supposed to follow an ethical code, why we expect more from them than from bakers or grocery store owners.

You could rely on a health maintenance organization to make the hard choices and do the cost management, and to some extent we do. But HMOs have been highly limited in their ability to achieve cost-effectiveness because people don’t trust them — they’re profit-making institutions, and your treatment is their cost.

Between those two factors, health care just doesn’t work as a standard market story.

I would also add that there is a third factor that supports the same conclusion, which is that the supplier side of the large market is of service providers - both at organizational level (Hospitals, Labs) and at skill level (doctors, RNs) - is not fungible. It is a market with high barriers to entry with good reasons at the organizational level, and questionable reasons on numbers control at the level of control of the number of doctors coming out of colleges.  It takes a long time to become a doctor and to change the "supply" side of doctors.  The Board certifications are at the state level, making it a large oligopoly at the physician level.  While we have the information with which to select doctors and specialists (with luxury of time on our side) we are necessarily entrusting our primary care physician (PCP) with the recommendation -- and our insurance company with the function of managing the cost and being the gatekeeper on services.  While this may be a bitter pill for some, there is really not much better model out there on this except a greater empowerment of the consumer with more information that is more easily available.. and the information economy has been morphing the industry all by itself in this regard.  A table of services and prices set by the government just as they have for Medicare and Medicaid would not provide any relief to the fact that the supply side is highly constrained.


All of this doesn’t necessarily mean that socialized medicine, or even single-payer, is the only way to go. There are a number of successful health-care systems, at least as measured by pretty good care much cheaper than here, and they are quite different from each other. There are, however, no examples of successful health care based on the principles of the free market, for one simple reason: in health care, the free market just doesn’t work. And people who say that the market is the answer are flying in the face of both theory and overwhelming evidence.


Here is my question..
Given the above factors, we have to ask ourselves, what may work?


I believe, SUPPLY SIDE ECONOMICS by actively increasing the number of doctors and nurses may work.. in about 3-5 years, with highly active participation of the government in subsidizing education.

Second key determinant of success is TAKING ADMINISTRATIVE COSTS out of the equation.  The healthcae industry has been working on this very actively for the past 3 years coming towards a consensus on standardized economic processing systems. The established clearinghouses that have been milking the transaction costs have been resisting it, but this is an area that has evolved. A good support to these initiatives would put them on a the "fast track" to reducing administrative costs.  Of course, with that some of the higher skilled resources in the system will also get freed up, contributing to the effort of SUPPLY SIDE ECONOMICS mentioned in the prior paragraph.  The cost reduction side would have to be accompanied by a re-skilling of the current medical billing workforce to care delivery side to prevent brain-drain and to further strengthen the Supply side solution.

There is more thinking needed on other factors. I will come back to this post and edit..



-- Edited by Sanders on Saturday 1st of August 2009 10:19:09 AM