The Virtue of Markets in Healthcare

I want to commend an interesting conversation between Megan McArdle econ prof Bart Wilson on the problems with using fiat pricing in healthcare. It’s an interesting discussion and makes a pretty good backgrounder for some of the fundamental economic issues in healthcare.

My questions are somewhat different. For one thing how can a really free market in healthcare persist in the presence of a supply bottleneck? The supply bottleneck in healthcare is maintained through licensing, limitations on accreditation of med schools, restrictions on med school class sizes, intellectual property law, and certificates of need, just to name a few of the devices. I think that in such an environment you’ll have cartel pricing rather than market pricing.

Secondly, much of the “demand” in healthcare is supplier-created. As long as that’s the case doesn’t it place nearly all of the influence in determining the market-clearing price in the hands of the suppliers?

61 comments… add one

  • michael reynolds

    Re Medical costs: http://dish.andrewsullivan.com/2013/03/01/the-number-one-app/

    And, no, the app does not require you to pee on your smartphone. It does, however, require you to pee into a cup with a chemical strip attached to it. The app, Wired explains, then analyzes those strips “by first taking photos with your phone at predetermined times and comparing the results that appear on the pee-soaked strip to a color-coded map.” The app then offers a breakdown of the elements present in the user’s urine, comparing levels of things like glucose, ketones, leukocytes, nitrites, and proteins — much like a urine test conducted at a medical lab would do, only without the trip to the lab. The app then presents the results to the user, offering visual breakdowns that indicate normal versus abnormal levels of each compound.

    I can’t find the conversation, but I told you so. Just the first of many medical tests that will be moved out of doctor’s offices, off their prescription pad, out of the lab, and out to the great unwashed for a fraction of the cost.

    Imagine what a good home diagnostic app could do to cut emergency room visits. We already have automated sphygmomanometers in many homes. Why not an EKG machine read by an app?

  • Wow, excellent names for two garage bands in one post.

    I presume that Michael already has those trademarks registered.

  • Drew

    “Good Christian white folk with guns vs.Baby murdering, fag-loving, brown-skinned commies.”

    You were saying something about libertarian extremes? C’mon, Michael. When you do this stuff you make yourself a caricature.

  • The problem with Libertarians is the same issue I had when I stopped belonging. They take things to extremes. They aren’t ready for practical politics. They aren’t ready to actually govern.

    I’m a libertarian. My personal policy preferences are…yes, extreme. However, I have offered practical politics…at places like OTB and the retard squad there respond by flinging shit. Those are your Democrats. So please, this is just nonsense you are spewing.

    You can’t capture the young with a mean-spirited, “Are there no workhouses?” approach.

    No libertarian would support work house. So, WTF are you talking about? Scrooge was not a libertarian BTW, he was just a mean old asshole. Well okay, he could be a libertarian, but the enlightened Scrooge at the end could have also been a libertarian. Being a mean old asshole is not a requirement for being a libertarian.

    If, and that is a huge if, you were a libertarian you’d know this.

    So please, stop talking out of your ass.

    I can’t find the conversation, but I told you so. Just the first of many medical tests that will be moved out of doctor’s offices, off their prescription pad, out of the lab, and out to the great unwashed for a fraction of the cost.

    I too believe in unicorns.

    Seriously, Michael I know you think your iPhone can crap gold, but it isn’t going to be the solution for the health care crisis. Why? because no fucking iPhone app is going to deal with the 65+ crowd.

  • sam

    “Why? because no fucking iPhone app is going to deal with the 65+ crowd.”

    Certainly not with this member.

  • This subject is probably worth a post of its own. Tests like the one Michael cites and quotes probably won’t do much to bring down the cost of healthcare. There are several reasons for this. I’ll give an example.

    Glucose test meterrs that had the potential to take blood tests for diabetics out of the doctor’s office were first introduced in the 1960s. The first models that were reliable enough and easy enough to use for patient use were introduced in the 1970s. Have you noticed healthcare costs going down rapidly since, say, 1975? Me, neither.

  • Certainly not with this member.

    Sorry sam, not trying to be a cold hearted bastard. But a big part of our health care problem is demographics. The other part is prices/supply bottle-necks. You combine rising demand with limited ability to expand supply and you have rising prices. Thus, costs growing at a rate several times that or our economic growth rate. Which is why it is unsustainable. We can’t App our way out of this unless Michael can come up with a gizmo like McCoy had on Star Trek that tells you what is wrong then gives you one of those magic shots that dealt with just about any medical emergency. Needless to say, I’m not pinning my hopes on this.

  • sam

    Ah, that’s OK, Steve, I was just registering my aversion to smart phones. I don’t think I have the intelligence, or maybe just the patience, to use one of the damn things. They seem so complicated to me. On top of that, I’m feeling sorry for myself today. I’m 72 and until three weeks ago I’d never had an allergy in my life. Three weeks ago that all changed. Sneezing, etc, etc. I went sleep-deprived for about two weeks until I found an OTC medication that worked (Alavert D, if anyone’s interested.) That’s a problem. But that’s not The Problem. Whatever I’m allergic to has doubled-down and engendered a secondary allergy to alcohol in me. I can’t take a sip of wine, bourbon, or beer without having a 5-10 minute sneezing fit, my eyes water and run, my head fills up, — the whole nine yards. Now, that’s a problem. Jesus, if I found out there was an App for this damn thing, I might even buy a smart-phone.

  • Whatever I’m allergic to has doubled-down and engendered a secondary allergy to alcohol in me. I can’t take a sip of wine, bourbon, or beer without having a 5-10 minute sneezing fit, my eyes water and run, my head fills up, — the whole nine yards. Now, that’s a problem. Jesus, if I found out there was an App for this damn thing, I might even buy a smart-phone.

    My sympathies…I love a nice dram or two of scotch in the evening after work. Not being able to enjoy that is not a pleasant thought.

    Best of luck sam.

  • steve

    @Steve- If you can test for it, you can treat it. It can increase costs. That said, I can se a time when the current digital native population, ie the youngsters, will communicate a lot of their results through a home or mobile device, it will initially be screened by a computer, then kicked up to a med person. Computers already do EKG interp., but not perfectly, though they are miles better now than when they started.

    Steve

  • @Steve- If you can test for it, you can treat it. It can increase costs. That said, I can se a time when the current digital native population, ie the youngsters, will communicate a lot of their results through a home or mobile device, it will initially be screened by a computer, then kicked up to a med person. Computers already do EKG interp., but not perfectly, though they are miles better now than when they started.

    Testing…okay maybe some apps. Maybe some (very) minor cost reductions. But a couple of points:

    The current 65+ crowd is:

    1. The problem, they are going to push costs up very high, and not just with tests, but with treatments.
    2. The current 65+ crowd are going to be, by and large, techno-phobes for the most part. Trying to get them to use a smart phone is like trying to teach a monkey to copy a work of Shakespeare.

    And even further down the road where the 65+ isn’t so adverse to smart phones the use of such devices in medical testing could drive costs up, not down. More tests might lead to more procedures that are orders of magnitude more costly than the test itself. So you save $200 with the iPhone app, but then end up doing a $50,000 procedure that without the iPhone you would not have done.

    It is kind of like the smoking issue (but in reverese). Everyone thought, “Hey, if we get people to smoke less it will save us money!” Then they looked at the numbers and realized that (former) smokers would live longer, consume more Social Security and use more Medicare and in the end cost more money.

    It is things like this that make me discount Michael’s pie-in-the-sky view.

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