Healthcare Installment #7. Please start with post of 08/25/09.

The Need for Healthcare Workers

As the population increases in size and simultaneously expands its portion of elderly members, the demand for medical staff climbs. Only increased efficiencies and automation can offset the need for more personnel. Healthcare, by its nature however, is nurturing and caring aid that is done by one human being for another. Star Wars aside, we are not likely to see robotic nurses on duty.

The costs to enter the medical profession in terms of both time and money are at odds with the need for more staff. In addition, doctors are specializing instead of generalizing because the pay is far more rewarding. This runs opposite to the need for more primary care physicians. If the government wanted a more active role in healthcare, it might be to subsidize the training of the next generation of medical staff. Any shortage in the supply of staff will lead to less total care or higher costs as people compete for access to scarce resources. In such a scenario, there could be an effort to cap payments to providers. The government can do this arbitrarily (Medicare does) while private insurers negotiate these caps. If the caps become oppressive where the reward is not worth the effort, providers will opt out of being part of the plan if they can. Patients in such a plan will then have less choice and fewer resources to serve them, driving up wait times. The whole dynamic of price control is fraught with potentially unintended consequences.

Arguing over who gets care and who pays for it will be meaningless without enough providers to deliver the service. This fact seems to be overlooked in today’s debate.
　
The Healthcare Marketplace

The market for healthcare is chaotic. Unlike shopping for many consumer products where prices are easily known and quality can be determined with moderate effort, information on healthcare prices and quality is not easily available to the recipient. In the case of persons covered by health insurance (85% of the population), the "consumer" is not one party, but two. The first party is the patient who typically pays some portion of the bill. The other consumer is the insurance firm who pays the balance. It is the insurer who bargains on behalf of the patient to get the best price from a network of providers. As long as the patient stays in the "network," the price is fixed. The patient "shops" by staying in the network for services where the price is fixed. However, for uninsured patients who could price shop, access to this information would only be available by calling various providers and asking for their fees, assuming they would cooperate. Hospitals run
ads touting their awards and care, but when have you seen an ad promoting discounted prices? In general, individual consumers lack leverage on prices.

Finding information about the quality of physician and hospital services, a concern to every patient regardless of insurance, is only available after intensive research on the internet. Even that data is sketchy. More generally, people have relied on anecdotal stories from friends, or the recommendations of their current healthcare providers. In many cases, the choice of a hospital is not based on its outcome quality, but on whether the patient’s physician has the privilege to practice there. Choosing a better hospital may mean changing to a new doctor – an uneasy trade off. Consumers lack leverage on quality.

Because consumers lack leverage on prices and quality due to poor information, normal market forces cannot apply pressures to achieve efficiencies, cost reductions, and quality improvements. This job falls on the insurers and various accrediting councils and professional boards. As a result, suppliers are more insulated from pressures from the consumer than in a normal market. Until the dynamics of the market can be fully activated, the normal forces of private enterprise will not be sufficient to bring about major change. Until healthcare prices and outcomes are much more transparent and the information easily accessible (like prices in the supermarket and ingredients on a food label), market-driven improvements in healthcare may only be a dream. When patients and insurers can take their business to successful healthcare providers and stay away from error-prone ones, then the pressure will build to improve results. Better results mean fewer errors, and fewer errors mean lower costs.

Add to this mix the confusing constellation of policies with thousands of variations in what is covered, under what conditions, and for how much and the entire marketplace is awash in chaos. The use of insurance as a buffer against the uncertainty of future personal medical costs leads to individuals paying vastly different amounts for essentially the same final services. There is nothing inherently wrong with an array of competitive insurance offerings in a free-market, but it does appear to contribute to additional administrative costs. The New England Journal of Medicine reported that in 1999, the cost of administration was 31% of U.S. healthcare cost Compare that to Canada's nationalized system where it was 16%. This demonstrates the advantage of single payer systems is in reduced administrative costs. A simpler system is less expensive to operate.