In the Green Room: David Goldhill on How American Health Care Killed His Father
Author: Gerrit LansingDavid Goldhill is President and CEO of the Game Show Network and has run numerous businesses during his career. When his father died of a hospital-borne infection two years ago he began researching the entire U.S. health care system, analyzing it with the keen eye of a businessman. What he learned is that intermediaries like insurance companies, Medicare and Medicaid distort a system that is supposed to provide health care to individuals into one that serves faceless and, largely, uncaring bureaucracies. Case in point: 100,000 people die every year in America of infections received in hospitals. 100, 000 people. Why?
“This hospital saw someone other than my father as their customer,” said Goldhill at a Cato institute event in the Rayburn House office building last week. ”The role we’ve let intermediaries…play in our health care is not just about money, it’s also about who the providers really report to, what customer they’re really servicing.”
Goldhill’s advice is to put the consumers of health care - individuals, not government and/or intermediaries - in the driver’s seat. Consumers of products in other industries (cell phones, TVs, cars, etc.) demand things like accountability, low prices and high quality. They can do this because there are other companies that make better or safer cars or TVs at a lower price, thereby forcing companies to compete for customers. Why should we treat health care any differently?
The closing paragraph of Mr. Goldhill’s outstanding Atlantic piece explains why programs like Medicare, the largest spender of health care dollars in the U.S., should not be the most important customer in our health care system:
Before we further remove ourselves as direct consumers of health care—with all of our beneficial influence on quality, service, and price—let me ask you to consider one more question. Imagine my father’s hospital had to present the bill for his ‘care’ not to a government bureaucracy, but to my grieving mother. Do you really believe that the hospital—forced to face the victim of its poor-quality service, forced to collect the bill from the real customer—wouldn’t have figured out how to make its doctors wash their hands?
Great article by self-identified Democrat David Goldhill in the Atlantic on health care reform. It is well worth your time to read the whole thing, but this section on how our dependence on third party payments (including employer sponsored health insurance and government programs) drives up health care costs is a good highlight:
One of the most widely held pieces of conventional wisdom about health care is that new technology is relentlessly driving up costs. Yet over the past 20 years, I’ve bought several generations of microwave ovens, personal computers, DVD players, GPS devices, mobile phones, and flat-screen TVs. I bank mostly at ATMs, check out my own goods at self-serve supermarket scanners, and attend company meetings by videoconference. Technology has transformed much of our daily lives, in almost all cases by adding quantity, speed, and quality while lowering costs. So why is health care different?
Well, for the most part, it isn’t. Whether it’s new drugs to control previously untreatable conditions, diagnostic equipment that enhances physician productivity, or minimally invasive techniques that speed patient recovery, technology-driven innovation has been transforming care at least as greatly as it has transformed the rest of our lives.
But most health-care technologies don’t exist in the same world as other technologies. Recall the MRI my wife needed a few years ago: $1,200 for 20 minutes’ use of a then 20-year-old technology, requiring a little electricity and a little labor from a single technician and a radiologist. Why was the price so high? Most MRIs in this country are reimbursed by insurance or Medicare, and operate in the limited-competition, nontransparent world of insurance pricing. I don’t even know the price of many of the diagnostic services I’ve needed over the years—usually I’ve just gone to whatever provider my physician recommended, without asking (my personal contribution to the moral-hazard economy).
By contrast, consider LASIK surgery. I still lack the (small amount of) courage required to get LASIK. But I’ve been considering it since it was introduced commercially in the 1990s. The surgery is seldom covered by insurance, and exists in the competitive economy typical of most other industries. So people who get LASIK surgery—or for that matter most cosmetic surgeries, dental procedures, or other mostly uninsured treatments—act like consumers. If you do an Internet search today, you can find LASIK procedures quoted as low as $499 per eye—a decline of roughly 80 percent since the procedure was introduced. You’ll also find sites where doctors advertise their own higher-priced surgeries (which more typically cost about $2,000 per eye) and warn against the dangers of discount LASIK. Many ads specify the quality of equipment being used and the performance record of the doctor, in addition to price. In other words, there’s been an active, competitive market for LASIK surgery of the same sort we’re used to seeing for most goods and services.
The history of LASIK fits well with the pattern of all capital-intensive services outside the health-insurance economy. If you’re one of the first ophthalmologists in your community to perform the procedure, you can charge a high price. But once you’ve acquired the machine, the actual cost of performing a single procedure (the marginal cost) is relatively low. So, as additional ophthalmologists in the neighborhood invest in LASIK equipment, the first provider can meet new competition by cutting price. In a fully competitive marketplace, the procedure’s price will tend toward that low marginal cost, and ophthalmologists looking to buy new machines will exert downward pressure on both equipment and procedure prices.
No business likes to compete solely on price, so most technology providers seek to add features and performance improvements to new generations of a machine—anything to keep their product from becoming a pure commodity. Their success depends on whether the consumers will pay enough for the new feature to justify its introduction. In most consumer industries, we can see this dynamic in action—observe how DVD players have moved in a few years from a high-priced luxury to a disposable commodity available at discount stores. DVD players have run out of new features for which customers will pay premium prices.
Perhaps MRIs have too. After a long run of high and stable prices, you can now find ads for discount MRIs. But because of the peculiar way we pay for health care, this downward price pressure on technology seems less vigorous. How well can insurance companies and government agencies judge the value of new features that tech suppliers introduce to keep prices up? Rather than blaming technology for rising costs, we must ask if moral hazard and a lack of discipline in national health-care spending allows health-care companies to avoid the forces that make nonmedical technology so competitive.
its limits.