The Health Care Market: There Isn't One

The impetus here is a story out of New York City, which may not make the news in other parts of the country, yet it is relevant to every American. In fact, the genus of the report, that of health care insurers and the health care industry engaged in price negotiations is no longer really news, but topical given the attention to our over all health care system in Congress.

The details this time have a major health care insurer, UnitedHealthcare, insisting that it be notified within 24 hours of the hospital admitting a patient. The hospitals, Continuum Health Partners, are a group of five in New York, including Beth Israel Medical Center. The insurer sees a necessity of having its case managers involved quickly, and to enforce it upon the hospitals they want a violation to incur a stiff penalty, a 50% reduction in their reimbursements for that patient's care.

There is an enormous elephant in the room, can you find it? Seeing this elephant requires the clearing of one's head and removing all prior hardened opinions of who is to blame for a health care system too costly for much of America. It also requires you to go to a wide angle view and summon your basic understanding of economics, our market based economy and the notion of competition.

With that said, many may jump to think I am going to reinforce the Republican talking points about competition among health care insurers; not here, though I will say they have it part right. And, that I am speaking ill of the health care system at all, one might presume I will reinforce the Democratic talking points of gravitating towards a single payer system with the goal of providing health care to all citizens equitably; again, not here, though I admire and share their goal.

Since adulthood I have decried aspects of our health care system. I could see that health care costs were rising at rates far in excess of other consumer goods and services. Just as compound interest is heralded for its taking a small sum and enlarging it many times over with the passing years, it took no great foresight to see that if health care costs continued to rise at rates double that of inflation it would grow as a percentage of our total expenditures to a point that would be devastating to individuals and our national economy.

After college, I was for the first time dealing with the business side of my own health care. I worked for a small company that provided health insurance coverage to its employees, and my understanding of insurance was that it reimbursed you for covered expenses.

After a session with a doctor I paid the bill before leaving the office, and soon thereafter I submitted a claim to the insurer (my employer had forms for such).  However, the collusion of healthcare providers and insurers was already well underway having created a system that almost mandated consumers pay only their deductible, and therefore not know or even sense the true revenue being taken in by healthcare providers. 

Despite my having paid my bill in full, the doctor's office (any office I visited) would then submit a claim to my insurer, who would comply and pay the doctor without my authority, confirmation or even knowledge.  No matter how hard and often I tried to have them cease that exercise, they continued to submit requests for payments to the insurer despite my having a zero balance on their books.


I then attempted to withhold my insurance information from any newly visited office, but they always insisted on having it, promising me that it would not be used, but that wasn't the case. There was a clear message being sent, that the providers were NOT going to be putting the actual bills in front of the consumers.  Hiding these prices, while couched in being a consumer friendly service, clearly behaves as a strategy to allow prices to continue to escalate not hindered by consumer awareness.   


Whether it was a conscientious act on the part of practitioners or, for some, just following the industry trend, the creation of a systemic administrative link between the two entities was further distancing the consumer from knowing, let alone caring about, the costs of their health care, essentially eliminating any degree of value judgment for the services provided. 

I'd had enough economics to know the fundamentals of markets, and it wasn't any small secret that our nation was based on private capital, free enterprise, and the most fundamental element to it all was market competition.  That competition was so important to the welfare of our nation, a Republican no less than Theodore Roosevelt, had championed placing restrictions on free enterprise in those instances where the existence of effective competition was threatened by a monopoly on supply.

Competition is a consumer making a choice using a cost/benefit analysis, however rudimentary, from goods or services offered by separate providers. Those collective choices steer providers toward offering goods and services at levels of quality and price which best meet the needs of consumers.

Thus, for competition to exist there are two elements necessary, sufficient options from separate providers and the presence of consumer value judgments. The anti-trust laws of Roosevelt's time were aimed at restoring to certain markets the former of those two. It was well past his time when developments in industry and later, U.S. government policies, began to undermine competition within the health care industry.

The rapid development of company financed health insurance was viewed and welcomed as a great social good, and it was, at the time and for many years afterward. At the dawn of this new system, prices were still the result of a true market based economy. As more money was made available for health care and the element of consumer value judgments were removed, the pressures that would normally limit price increases had virtually vanished.

Without the element of a consumer value judgment (on the cost) providers no longer felt the pressure of competition and costs containment was now a minor concern. In fact, as the consumer was relieved of costs, a provider's only concern was the consumer's perception of benefits, a combination which encouraged unnecessary expenditures.

Now enter the health care supply industry. Like the health care providers, those who supplied them now had consumers whom were not cost conscience. No longer did the town's four doctors have to compete, like shoe store owners and bakeries. Their patients did not ask about the price of procedures and operations, because they no longer had to make that value judgment; unlike before when they would have inquired about charges and weighed their alternatives.

There was now plenty of money to spend by providers on supplies and equipment. Make a mental inventory of all the items you see in your physician's office and at a hospital on your next visit. The industry which provides those items has enjoyed a free ride out of the media spot light. They didn't create the malformed health care economy from which they've reaped great profits, but we must recognize their portion of the cost picture; if we can do that then perhaps we'll better understand what has limited our ability to provide reasonably priced and good health care to our citizens.

Had we implemented measures, 30 years ago, to address the competition that was missing from our health care, with all the gusto of a Teddy Roosevelt, our costs would be, at least, 50% less than what we incur today, with equal or better quality and be affordable for virtually every citizen. That estimate hasn't been derived through any formula; there aren't any numbers one can plug in for the psychological pressure of keeping your costs down in order to keep your business. It's a gut feeling, stemming from my belief in the promise of competition, just as so many put their faith in compound interest.

-RLee