Paragon Health Institute CEO Brian Blase and I start from similar, increasingly obvious observations about the U. S. healthcare system and arrive at drastically different conclusions. He proposes a series of market-based reforms. I believe those reforms are structurally incapable of solving the problem.
Every market-based approach to healthcare rests, implicitly or explicitly, on two assumptions: first, that healthcare functions as a market in any meaningful economic sense; and second, that patients behave as rational optimizers. Neither assumption holds. Healthcare lacks the core characteristics of a market—price transparency, substitutability, informed choice, and voluntary timing. Patients frequently encounter the system under conditions of stress, urgency, and profound information asymmetry. These are not minor deviations; they are category violations that have been demonstrated repeatedly in both theory and practice.
I agree with Mr. Blase that federal intervention beginning in 1965 profoundly distorted the U.S. healthcare system. But it does not follow that marketization is the cure. The distortions are now structural, not marginal, and meaningful reform will require a more fundamental transformation of how care is delivered and paid for than incremental market mechanisms can provide.
Read his testimony (linked above) for some eye-opening graphs and figures. Then reflect on real world solutions that might solve the problems they reveal.
In our rural Ohio county, the local hospital (only one there is) has bought out every practice and clinic, all specialties (except dentistry), and we now have a one provider, absolute monopoly, system. My brother in law tells me the same thing is happening in NH.
The main advantage is that no matter where you go (except for some reason ophthalmologists) the doctor you are seeing can call up and read all your medical records.
The downside is you have absolutely no options nor any negotiating power.
This is a major change, and it must have real economic results. Without noticing, we have stumbled into a privatized version of the UK’s NHS. Do any of our medical policy “experts” know what has happened?
Whenever people cite Lasik and plastic surgery as examples of health care you know they dont know what they are talking about or are just ideologically driven. They are both care for which there are essentially perfect substitutes. Both are totally voluntary.
His remarks about govt intervention leaves out a lot. Since the passage of the ACA we have seen total health spending stay relatively stagnant with a small increase last year. he large bulk of the increase in spending occurred before the ACA happened. Also note that in the 60s our spending was roughly the same as other OECD countries but the other countries with much more govt intervention have increased more slowly. It’s not govt intervention per se but our form of intervention which also retains private insurance and has multiple health care systems.
To answer bob’s question as a result, partially, of the banking crisis lending standards increased and it became very difficult for smaller hospitals and networks to acquire capital. Our CFO told us we couldn’t reliably get loans unless we were over $1.5 billion. Also, you get major purchasing discounts if you belong to a buyer’s group and you generally need to be in a decent sized network to get the best prices so most of them have joined or sold themselves to a network. Sometimes they are first bought by a PE entity and exploited for a bit more money before they go to a stable network. Finally (there are other reasons) the large hospitals/networks figured out that they could use smaller hospitals to enlarge their catchment area and funnel the high paying stuff into their larger, centralized hospitals. Some of that is unavoidable but some of the entities taking over these rural places are pretty exploitative.
I have done a fair bit of reading on rural medical care issue and helped take over and rehab 7 rural/very small town hospitals so I have some real world experience. I will say that while some of the failing rural places are just unlucky its also been pretty amazing how bad some of the administration has been at these places and how willing they were to tolerate very poor care.
Steve
A major intervention occurred during WWII when employers were given the option to provide healthcare insurance/benefits without it counting as taxable income. I would cite that as the beginning of our current system.
And the process Bob mentions above is taking place in even larger markets. We’ve got two (maybe three) major players in greater Orlando: Advent Health and Orlando Health.
A few holdout doctors/practices remain which are not a part of either system, but a good chunk of THEM (such as my wife’s former OB/GYN) are now owned by private equity. PE is NOT a great solution to healthcare, and there are reasons she switched providers.
Administrative ability also requires some talent, and anyone that has it will want to head for more opportunities as well.
This article from the actuaries provides some numbers so that you can see when health care spending increased and how much it increased. Spending really didnt change much with the change in health insurance during WW2. The inflection point is the mid 50s. The author correlates that a large increase in public investment in health care. It continued with the arrival of Medicare. Insurance existed before WW2 but it was much more widespread after due to the tax changes. It’d not really clear to me what is chicken and egg here.
Most people dont read medical history but medical care was pretty primitive in the 40s and 50s. After WW2 antibiotics were more widely available so sicker people survived illnesses but they need longer and more intensive hospitalizations. Bypass surgery started in the 60s coincident with the advances in plastics that let us do a lot more invasive stuff. Before the 50s we largely had only negative pressure ventilators but in the 50s and 60s we learned how to and developed positive pressure ventilation which resulted in the need for ICUs which largely didnt exist before 1950.
Steve
https://www.soa.org/4937b5/globalassets/assets/files/research/research-growth-health-spending.pdf
You start with credit and then move to spending, Steve. Different. Lack of creditworthiness preceded the banking crisis by at least 10 years. I was there. The underlying issues I don’t know.
BTW. I have racked up quite the hospital and procedure bills recently due to atrial valve stenosis and related diagnostics. Procedure yet to come. I’ve paid a lot in premiums, but I don’t know how an insurer makes money.
Steve,
I don’t think it mattered AT THAT TIME. But ppl came to associate HC insurance with working, and so did employers. This was fine until HC costs started to skyrocket. Ppl really don’t appreciate how much employers have gotten squeezed on their side of it in the last 40 years. I imagine employers with large HC insurance costs would not be entirely against a completely socialized system.
And everyone talks about the costs of HC insurance, when the issue is the cost of HC.
Drew:
Very few healthcare insurers are actually insurers in the sense of bearing risk. Most are actually administrators who take a commission on the amount spent. If that isn’t a perverse incentive I don’t know what is.