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A few observations about our broken healthcare system

A few observations about our broken healthcare system

Idaho Freedom Foundation staff
January 30, 2019

By Dr. John M. Livingston | Medical Policy Adviser

We are so lucky to live in a state where we have an incredible group of healthcare providers.  Doctors, nurses, and technicians, family nurse practitioners, and physician assistants are as knowledgeable and skilled as any place in the world, and I have practiced all over the world.

That being said, there were two recent pieces in the Idaho Statesman, one by Audrey Dutton on healthcare pricing transparency and an editorial response on Sunday, Jan. 27, by Odette Bolzano, CEO of St. Alphonsus Hospital in Boise.

I share with Ms. Dutton her skepticism about the process of pricing transparency.

The real problem, however, is reflected in Ms. Bolano's comments.

Ever since the Affordable Care Act came into being, with its promise of coverage and increased access to care, costs of providing medical services have gone up every year and the cost of insurance coverage in every state has at least doubled. We have been very lucky in Idaho because consumers in other states have seen their costs quadruple.

Eight years ago economists rightly predicted that as large hospital systems and their networks merged and consolidated, and as insurance carriers did the same, often times claiming through a process of "vertical integration" buying up provider hospitals and practices and taking on the role of benefit managers that in reality is nothing more than a purposeful move toward natural monopoly. The promised economies of scale have been more than offset by having fewer players in the marketplace. The decreased supply, increased demand for healthcare services, and prices have gone up.

With increased prices, the spending on non-medical line items of these large corporations, many of them nonprofits, has increased. Because of the decreased supply of providers and increased demand for healthcare services, both fostered by the ACA, the incentives to contain costs have vanished.

Ms. Balono states, "The mission of healing is not in the business of selling a service or commodity." She is making the assumption that healthcare is either a "right" or a common good, both of which are not true.

If healthcare were a right, in this case a term rooted in the natural law, there would be no need for an agent or agency to secure that right. The only thing government or anyone one else would need to do would be to not interfere in the "right" of the individual to exercise his or her own free will. This is interestingly the "dispositive" argument that former President Barack Obama made when describing our own Bill of Rights and Natural Law.

Therefore, if the government is the agent exercising that right, the government is doing so in a positive not a dispositive mannerit is therefore not a natural right.

Is healthcare a "common good"? Hardly. The term common good has a specific definition when used by economists, political scientists, and sociologists. For a common good to exist it must meet three criteria: 1. Non-exclusively of consumption. It is available to everyone without a need for a distribution process. 2. Jointness of consumption. There is no scarcity of the good or service, and when one unit is consumed there is no decrease in the number of available units for subsequent consumption. The air we breathe is an often cited example. 3. Neighborhood affect. When one person uses the good or service everyone benefits. An example is police patrolling a neighborhood.  

Healthcare does not meet the criteria of being a "common or public good."

The common sense method of determining if healthcare is a "right" is to simply ask: Do the people providing the service get paid and do the consumable goods have a cost?

There is human and physical capital involved in distributing healthcare and this cannot be ignored or marginalized when making a feel good argument.

In the same paragraph, Balano mentioned that buying healthcareWe’ve been told healthcare is a right, so I wonder why we must purchase itis a complex situation, similar to buying a car or a home.

Ms. Bolano’s argument is continued in last paragraph, where she states "one must understand the insurance benefits that one has in order to more accurately understand the true cost.”

This mixes up the definition of "cost" and "price." It is almost unheard of for a buyer in an unfettered market to have complete insight into a suppliers cost. That said, buyers are constantly trying to figure out costs of production, of supplierslike insurance carriers who won't disclose the rates they pay physicians publically guard their costs aggressively.

Prices are determined in the marketplace and when the price that is willing to be paid falls below the equilibrium pricereally not the true equilibrium price but a price that does not cover the suppliers' costs, then the supplier drops out of the transaction. The price is thus set in the

market place as the buyer and seller negotiate. If the price is to low the seller drops out and if the price is too high the buyer looks for another sellerexcept in our medical marketplace there are only a limited number of sellers.

Finally, the idea that the medical marketplace is unique and complex is folly, but folly that succeeds for 35 years is folly nonetheless.

Think of the many thousands of transactions that are made to make a car.

Every spark plug, hub cap, battery, fuel pump, and filter is the result of a transaction between numerous buyers and sellers. When I buy a car I don't ask to see a list of all these transactions. I look at the car, see what similar models cost, and make a decision based on price and quality, not on all the costs of the suppliers.

When we shop at the grocery store for vegetables do we ask to see the fuel, fertilizer, and seed prices of the farmer and how much he paid his labor force? I think not. We shop and look for the best price with the most quality.

Albertson's would love to have the margins that our large hospital systems and insurance carriers have today. But because of the competitive market for food and household goods, their margins are continually being squeezed and the consumer benefits. Do the executives entrusted with making healthcare business decisions not go to the grocery store? Maybe they are just making so much themselves that they never have to pay attention to market prices like everybody else does.

There has not been an unfettered healthcare market for 65 years, but in those places that there has been, think about how prices have come down. When I had my Lasik surgery in 1992 it cost $5,000 per eye. Today, it costs less than $500 per eye. The same is true of cosmetic surgery, where prices have come down for many procedures 500 percent. Whether it’s Lasik or cosmetic surgery there is a very competitive market for those services.

For those who ask about the emergent nature of medical care not being conducive to market forces, a recent New England of Medicine article pointed out that more than 80 percent of medical interactions are non-emergent.

What we do need is to re-examine the Medical Practices Act and allow for more mobility and accessibility of providers applying for licenses in Idaho.

We need legislation providing for malpractice coverage for physicians giving of their services pro bono. Many retired physicians would love to provide charity care but they can't afford the malpractice coverage.

We need to have all non-profit hospitals and insurance carriers that receive more than $100 million of federal transfer payments be required to undergo an independent, outside signed-partners audit presented to the representatives of the peopleour Legislature, who grant to the hospitals and carriers their tax-exempt non-profit status. The reason for this is not to look into costs but to look into how the transfers themselves are being accounted for.

We need for the legislature to require that all non-emergent services be preceded by an estimate for services that can later be married with an invoice and then a final bill.

We need to have an external audit of the Idaho Department of Health and Welfare immediately so we can see if those truly in need are receiving the proper available services and if anyone is gaming the system. We need to see if eligibility criteria are being properly vetted by in a timely fashion.

Finally, we need the governor or Legislature to set up a Blue Ribbon Panel that will not just be the usual stakeholder insurance carriers, state agencies, and large hospitals, but rather people who don't currently have a hook in the healthcare industry.

We have a lot to be thankful for in Idaho as concerns our healthcare providersdoctors, nurses and techniciansbeing the cream of the crop.

But when the people in charge of running the business side of healthcare don't know the difference between a price and a cost, healthcare will always be priced at premium plus.

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