Meet the New Healthcare Boss

In a recent article for Tikkun, Dr. Arnold Relman argued that the versions of healthcare reform currently proposed by “progressives” all primarily involve financing healthcare and expanding coverage to the uninsured, rather than addressing the way current models of service delivery make it so expensive. Editing out all the pro forma tut-tutting of “private markets,” the substance that’s left is considerable:

“What are those inflationary forces? …[M]ost important among them are the incentives in the payment and organization of medical care that cause physicians, hospitals and other medical care facilities to focus at least as much on income and profit as on meeting the needs of patients…. The incentives in such a system reward and stimulate the delivery of more services. That is why medical expenditures in the U.S. are so much higher than in any other country, and are rising more rapidly…. Physicians, who supply the services, control most of the decisions to use medical resources….

“The economic incentives in the medical market are attracting the great majority of physicians into specialty practice, and these incentives, combined with the continued introduction of new and more expensive technology, are a major factor in causing inflation of medical expenditures. Physicians and ambulatory care and diagnostic facilities, are largely paid on a piecework basis for each item of service provided.”

As a healthcare worker, I have personally witnessed the kind of mutual log-rolling between specialists, and the endless addition of tests to the bill without any explanation to the patient, that Relman writes of. The patient simply lies in bed and watches an endless parade of unknown doctors poking their heads in the door for a microsecond, along with an endless series of lab techs drawing body fluids for one test after another that’s “been ordered,” with no further explanation. The post-discharge avalanche of bills includes duns from two or three dozen doctors, most of whom the patient couldn’t pick out of a police line-up. It’s the same kind of log-rolling that takes in place in academia, with professors assigning each other’s (extremely expensive and copyrighted) texts, and systematically citing each other’s works in order to game their stats in the Social Sciences Citation Index (I was also a grad assistant once). You might also consider Scott Adams’ account of what happens when you pay programmers for the number of bugs they fix.

One solution to this particular problem is to have a one-to-one relationship between the patient and a general practitioner on retainer. That’s how the old “lodge practice” worked.

But that’s illegal, you know. In New York City, John Muney recently introduced an updated version of lodge practice: the AMG Medical Group which, for a monthly premium of $79 and a flat office fee of $10 per visit, provides a wide range of services (limited to what its own practitioners can perform in-house). But because AMG is a fixed-rate plan and doesn’t charge more for “unplanned procedures,” the New York Department of Insurance considers it an unlicensed insurance policy. Muney may agree, unwillingly, to a settlement arranged by his lawyer in which he charges more for unplanned procedures like treatment for a sudden ear infection. So the state is forcing a modern-day lodge practitioner to charge more, and thereby keeping the medical and insurance cartels happy—all in the name of “protecting the public.” How’s that for irony?

Regarding expensive machinery, I wonder how much of that is embedded rent on patents and regulatorily mandated overhead. I’ll bet if you removed all the legal barriers to a bunch of open-source hardware hackers reverse-engineering a homebrew version of it, you could get an MRI machine with a Factor Twenty cost reduction.

More generally, the system is racked by artificial scarcity, as Sheldon Richman observed in an interview a few months back. Licensing systems that limit the number of practitioners, and arbitrarily impose levels of educational overhead beyond the requirements of the procedure actually being performed, fall into this category. That’s why dental hygienists can’t set up independent teeth-cleaning practices in most states, and nurse-practitioners are required to operate under a physician’s “supervision” (when he’s out golfing). No matter how simple and straightforward the procedure, you’ve got to pay amortization on a full med school education and residency.

Drug patents have the same effect, increasing cost per-pill by about 2000% on average.

As Jesse Walker argues at Reason, even if 100% single payer were passed, it would “still accept the institutional premises of the present medical system”: on the one side, an “artificially limited” number of providers, organized through a giant bureaucratic hospital; on the other, an enormous bureaucratic financing entity (whether a nominally private member of the insurance cartel, or a government bureaucracy like Medicare).

That’s why it’s much more important to change the way delivery of service is organized than to reform finance.