Competition Would Save Medicine, Too
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Filed Under: Give Me a Break!
Tags: central planning • competition • free market • Free rider • health care • health insurance • spontaneous order
Competition so regularly brings us better stuff—cars, phones, shoes, medicine—that we’ve come to expect it. We complain on the rare occasion the supermarket doesn’t carry a particular ice-cream flavor. We just assume the store will have 30,000 items, that it will be open 24/7, and that the food will be fresh and cheap.
I take it for granted that I can go to a foreign country, hand a piece of plastic to a total stranger who doesn’t speak English . . . and he’ll rent me a car for a week. Later,Visa or MasterCard will have the accounting correct to the penny.
Compare: Governments can’t even count votes accurately—or deliver the mail efficiently.
Yet now, somehow, government will run auto companies and guarantee us health care better than private firms? And the public seems eager for that!
If you think it’s mainly the political class and mainstream media that are clueless, listen to the doctors. Dr. Atul Gawande, in an otherwise interesting New Yorker article on health-care costs, disparages medical savings accounts and high-deductible insurance. First, he explains the theory behind this proposal to cardiologist Lester Dyke:
“[People would] have more of their own money on the line, and that’d drive them to bargain with you and other surgeons, right?”
Gawande comments, “He gave me a quizzical look.”
The doctors then dismiss the idea with a sneer.
“We tried to imagine the scenario. A cardiologist tells an elderly woman that she needs bypass surgery and has Dr. Dyke see her. They discuss the blockages in her heart, the operation, the risks. And now they’re supposed to haggle over the price as if he were selling a rug in a souk? ‘I’ll do three vessels for $30,000, but if you take four, I’ll throw in an extra night in the ICU’—that sort of thing? Dyke shook his head. ‘Who comes up with this stuff?’ he asked.”
I do. Adam Smith did. Market competition is what’s brought us most of what’s made life better and longer.
The Free-Rider Benefit
But the doctors have mastered the anti-free-market sneer: Markets are good for crass consumer goods like washing machines and computers, but health care is too complicated for people to understand.
That’s nonsense. When you buy a car, must you be an expert on automotive engineering? No. And yet the worst you can buy in America is much better than the best that the Soviet bloc’s central planners could produce. Remember the Trabant? The Yugo? They disappeared along with the Berlin Wall because governments never serve consumers as well as market competitors do.
Maybe 2 percent of customers understand complex products like cars, but they guide the market and the rest of us free-ride on their effort. When government stays out, good companies grow. Bad ones atrophy. Competition and cost-conscious buyers who spend their own money assure that all the popular cars, computers, etc. are pretty good.
The same would go for medicine—if only more of us were spending our own money for health care. We see quality rise and prices fall in the few areas where consumers are in control, like cosmetic and Lasik eye surgery. Doctors constantly make improvements because they must please their customers. They even give out their cell numbers.
Drs. Dyer and Gawande don’t understand markets. Dyer’s elderly woman wouldn’t have to haggle over price before surgery. The decisions would be made by thousands of 60-, 40-, and 20-year-olds, the minority who pay closest attention.
Word about where the best values were would quickly get around. Even in nursing homes, it would soon be common knowledge that hospital X is a ripoff and that Y and Z give better treatment for less.
People assume someone needs to be “in charge” for a medical-care market to work. But no one needs to be in charge. What philosopher F. A. Hayek called “spontaneous order” and Adam Smith called “the invisible hand” would make it happen, just as they make it happen with food and clothing—if only we got over the foolish belief that health care is something that must be paid for by someone else.
Comment by Barb W on 21 August 2009:
Well, How about that? A person who is in his right mind and gives the person the benefit that their intelligence will be their saving grace. I love John Stossel!
Comment by James Madison Fan on 21 August 2009:
Obamacare aside, the way I understand it, Kaiser and Cigna are businesses? Am I correct? They make money right? They aren’t NPO’s helping people out of the goodness of their heart, right?
I just looked at my paycheck and there is a deduction for health care and my employer pays them using this money and last I checked Kaiser and Cigna are still in business so it sounds to me like they are a business and I am a customer and my health care is not being paid for by “someone else.” Is that an illusion? Are Kaiser and Cigna taking a loss? Are these companies getting taxpayer money to provide this care? As far as I can tell they have every bit as much right to exist as my local supermarket.
So where is the problem? They offer a service. I pay for it. They make money. I’m protected against being bankrupted when I find out my daughter is going to need a million dollar heart operation. If Cigna and Kaiser don’t like the prices they should haggle with the doctors rather than expecting me to play desert trader when my life is in danger or the life of someone I care about.
I have heard it said you shouldn’t go shopping when you are hungry because you by stuff you shouldn’t eat, buy excessively, and pay too much. If something as trivial as daily hunger pangs can prompt imprudent behavior I wonder what happens when you go shopping when your life is in danger? The person about to go under the knife probably isn’t the best person to be negotiating the price and the issue of ignorance exacerbates the issue greatly.
If an expert tells you that a pint of Hagen-Das is going to save your life most people are not going to ask if it is on sale.
Comment by fundamentalist on 24 August 2009:
Madison fan: “If Cigna and Kaiser don’t like the prices they should haggle with the doctors…”
That’s how it does work. I work for an insurance company and we haggle all the time. The problem is the AMA. That union for doctors keeps the supply of medical care professionals artificially low and drives up costs just as any good monopolist would do. If the AMA didn’t have a monopoly on health care supply, competition would force prices down for insurance companies so that individuals don’t have to haggle with their doctors.
Comment by WE27 on 24 August 2009:
fundamentalist: the AMA doesn’t have a monopoly on health care supply
Comment by James Madison Fan on 25 August 2009:
Fundamentalist,
It isn’t the AMA that is charging $10.00 for a box of “Mucus Retrieval Wipes” (generic Kleenex) or $1.00 for an “Ear Wax Removal Stylus” (Q-Tip) or some other ridiculous price attached to a nonsensical label. . I understand that hospitals need to make up for lost revenues due to EMTALA (Emergency Medical Treatment and Active Labor Act) but many are using this as an excuse to pad an already exorbitant bill. If they are having EMTALA issues they need to raise a stink about it and bring it into the public attention so it can be changed. Raising prices on everything and keeping the reason a secret doesn’t do anyone any good, unless their fondest dream is to be nationalized.
I do not think the rising cost of health care in the US can be traced to a single factor but these contributing sources better get a handle on their greed or the government is going to step in and make it worse for everyone involved.
This is the primary reason I want Congress to do a more thorough job examining the current system before they even attempt to design a new one. We should have a handle on what is driving up the cost of health care before we act rather than assuming that Obamacare is a panacea. Until we have a handle on what’s wrong with the current system we have no idea how to build one that won’t fall victim to the same problems. Reinventing the wheel doesn’t do anyone any good if we go from a square to a triangle when a circle is what is needed.
Comment by Jay Fraz on 26 August 2009:
I think this is the right idea, no regulations just like in the 3rd world. I mean, it is not like if you emulate a 3rd world system you will get one right?
Comment by Jason Shaw on 28 August 2009:
Doctors must graduate from accredited universities in order to practice in the US. I believe the AMA is integral to this process.
Assuming that is the case, they have the power to create artificial scarcity by limiting the number of universities they accredit. The process is slow since it would take several years for their efforts to effect the number of professionals practicing but in time, it would filter through.
There is a wonderful book called Licensing Professionals (I believe) that FEE reviewed several months ago about this subject. You should consider checking it out.
Comment by James Madison Fan on 28 August 2009:
Jason,
I do not discount the potential that the AMA could do such a thing. The mechanism you offered seems entirely plausible the questions I have are: Is it happening? Is it intentional? Is it contributing to the increased cost of health care? Are we lacking doctors thus fueling increased costs? If we are is that due to the AMA or something else?
For instance, I can make scads of money as an Engineer because schools are not graduating many engineers. Why? Kids are not taking engineering courses. It has nothing to do with accreditation or the engineering equivalent of the AMA. Kids going into college today want to make Mega dollars so they are lining up for management so they can be a VP or CEO. Why become a chemist and make a hundred-thousand dollars when you can run DuPont and make millions lording over the lowly chemists that labor beneath you? Why become an engineer and make a hundred-thousand dollars when can run Rockwell and make millions? In short, why become a lowly Indian when you can become a Chief?
So why become a doctor? The academic wherewithal necessary to go through the p-chem and bio-chem alone is staggering. Most chemists bail before they get out of these courses and that’s just the start of your journey to becoming an MD. Then once you have completed your academic journey you get to go through residency which is hell on Earth. Sleep? What’s that? It takes a special type of masochist to go through the entire process. What’s the reward at the end? You get to hang your own shingle but that doesn’t guarantee success. Even if your good and build up a client base you have to beg, borrow, and steal from insurance companies and God forbid you fill out the wrong form or do it incorrectly. All of this in addition to malpractice insurance because everyone and their pet monkey wants a check if the doctor so much as makes them blush excessively. Some doctors bring home decent cash but is it worth the hassle? Not when you make more money running Cigna than the average doctor will see.
Doctors already in the market are bitching constantly about law suits, lack of payment, the threat of Obamacare, ad nauseam. Is it any wonder fewer kids are taking that career path?
When you make it hard to do something and do not reward the investment kids are not going to do it. Isn’t that Capitalism 101?
Comment by Alex on 7 September 2009:
Yes James Madison Fan, the AMA controls entry into the field of medicine. Thousands of applicants to medical school are turned down each year. If there were more schools, more could attend. The AMA controls which schools receive accreditation. Of course this is intentional. They want to control the amount of money you make as a doctor. The same way the bar controls the amount of lawyers and thousands of other guilds control entry into their field.
If you artificially lower supply (and we know it is artificial because “naturally” a lot more people want to become doctors) then you necessarily raise the price or have to ration. A human only has so many hours to work in a day. In the free market prices get raised to accommodate this shortage. In the socialist market medicine is rationed (think of triage on a battlefield).
As to your other argument – if it is hard to do one thing, but easy to do another, why would anyone do the hard thing? Preferences.
First off I disagree with your premise that it is easy to become a VP or CEO and make millions. It is not.
But you entered a field that pays well but not millions. Ask yourself. You are engineer. That is difficult. You did not become a CEO (as if there are millions of them running around). Why? You could have made money working a ton of hours as a bartender at a top club in NYC. (I know people who make 1k a night and they didn’t graduate high school.) Why aren’t you doing that? Why isn’t everyone?
Don’t bother answering, the question was rhetorical and designed to point out that people do things for all kinds of reasons.
Question: How do I obtain my Medical License?
In order to practice medicine, all graduates of medical school are expected to acquire a medical license.
Answer: Students should contact the proper department in their state to determine the requirements necessary to obtain a legal medical license. Many students can acquire a license after a year of residency in an approved residency program. Residency programs are accredited by the Accreditation Council of Graduate Medical Education (ACGME) through the Residency Review Committees (RRC).
In the US, requirements are straightforward:
* Students graduate from an approved US medical school.
* The school is accredited by the Liaison Committee on Medical Education (LCME), a joint committee of the Association of American Medical Colleges (AAMC) and The American Medical Association (AMA).
* Pass at least one exam that proves the student to be competent to practice medicine (e.g. USMLE).
* Letters of reference.
* A review of a student’s malpractice history.
Foreign medical schools have more complex regulations, which can be found through medical licensing boards.
For other ways the AMA strangles the medical field see: http://www.lewrockwell.com/rockwell/medical.html
If you want more articles on this topic, search this website, Lewrockwell.com, or FFF.org for hundreds of other articles on the topic. Go to google, click on advanced search and you can search a particular site for content.
Comment by James Madison Fan on 8 September 2009:
Alex,
As I read it, the premise on the table is that the AMA is acting in bad faith by fraudulently failing to accredit schools that should be in an effort to limit the supply of Medical Education.
The evidence that supports this assertion that has been provided consists of a null set. That is to say nothing. Nada. Zip. It is my intellectual duty to remain skeptical until such a time as something convincing is provided rather than unsupported assertion.
Something that greatly supports my skepticism is the fact the moment someone can support your theory with something concrete is the day these schools will sue the AMA into oblivion. So my questions remain unanswered: Is it happening? Is it intentional?
This reminds me of minority groups crying about “racist tests” in an effort to lower educational standards rather than telling their constituents to study harder. If the AMA is acting legitimately I do not think it is reasonable to ask them to lower their standards and compromise the quality of medical care for no other reason than to satisfy economic demand. If these schools want to be accredited they need to “study harder” so they can meet the AMA’s guidelines rather than expecting the AMA to change their regulations in an effort to indulge the failures of the lowest common denominator. We already do that far too often in this country.
Comment by Sheldon Richman on 9 September 2009:
If you have any doubt that doctors sought licensing to protect their incomes from competition see “The Early Development of Medical Licensing Laws in the United States, 1875-1900″ by Ronald Hamowy:
http://mises.org/journals/jls/3_1/3_1_5.pdf