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Supply And Demand Don’t Work

Via Nat Turner at the Agonist, an article in The Dallas Morning News, Dallas sees no relief in health care expenses as competition drives up costs

Medical care in Dallas is delivered in a broken market where doctors, hospitals and other providers shower patients with services of diminishing value but staggering cost.

The spending is rooted in the city’s proud entrepreneurial culture. Dallas is home to many competing hospital systems and physician practices. But this competition raises costs rather than lowering them, because it rewards those who do more procedures and tests and offers no incentive to spend less.

Scott & White Healthcare in Temple, by contrast, dominates medical delivery in Central Texas yet provides care for far less money. “Logically, the more competition, the lower the price. It doesn’t work that way in health care,” said Scott & White president and CEO Alfred Knight. “Competition increases the price.”

This is the great disconnect that you have to understand when you are looking at health care and its cost: the standard rules of supply and demand don’t work as people presume from other markets. A lot of health care professionals attempt to cover up the extra procedures they are performing by calling them “defensive medicine”, but the same thing happens in states, like Texas, that have tort reform on the books. The extra procedures are to generate revenue – it’s that simple.

Until people are willing to accept that doctors, as well as insurance companies, are motivated by profits, you can’t make reasoned decisions about the health care system.

4 comments

1 LadyMin { 09.25.09 at 1:42 pm }

I read a good article in the NY Times a few weeks ago contending that this is only a part of the problem

Big Food vs. Big Insurance
No one disputes that the $2.3 trillion we devote to the health care industry is often spent unwisely, but the fact that the United States spends twice as much per person as most European countries on health care can be substantially explained, as a study released last month says, by our being fatter. Even the most efficient health care system that the administration could hope to devise would still confront a rising tide of chronic disease linked to diet.

That’s the elephant in the room. Cheap, convenient food is generally bad food. It takes a conscious effort to avoid it. And good reading glasses to see the tiny print on the packaging that tells you what’s in there.

One of the leading products of the American food industry has become patients for the American health care industry.

.-= last blog ..Curious Chipmunk =-.

2 Badtux { 09.25.09 at 5:04 pm }

LadyMin, there’s actually been studies done on this. Yes, fat people use more healthcare than skinny people. But in the long term, fat people actually use LESS healthcare over the course of a lifetime than skinny people, because they die of a heart attack or stroke usually more than ten years before the skinny person dies, and that skinny person’s health care during the age-range 75 to 85 is far more expensive than the additional health care the fat person used prior to that age (the fat person is, of course, long dead by this time).

Same deal with cigarette smoking. Again we have studies on this. A smoker in a given year uses more health care than a non-smoker, but over the course of a lifetime, smokers use less health care than non-smokers because they die earlier. Sorry, you can’t explain America’s health care costs based on unhealthy eating habits or smoking, because over 1/4th of healthcare costs go to the oldest Americans, who are NOT, in general, fat or unhealthy (since the fat/unhealthy ones stroked out or died of a heart attack years earlier).
.-= last blog ..Box or birdie? =-.

3 Badtux { 09.25.09 at 5:13 pm }

Oh yes: price for health care is basically unlimited because health care providers basically operate under Dillinger Rules: “Your money, or your life.” If it’s a choice of paying whatever price is demanded or your life, you will pay whatever is demanded, even if it utterly impoverishes you.

The problem with high-supply areas is that with fewer customers per provider, each provider must charge more to get the amount of profit that he desires. Because all of the providers in the area are operating under the same Dillinger Rules, they all do this, meaning that normal competition can’t drive down prices. Instead, the bigger supply simply drives *up* prices, since each robber err doctor or hospital simply hikes its prices more to obtain its desired amount of heist money err profit.

So anyhow, that’s yet another reason why the entire notion of competition being the solution to health care costs is a sham. When the whole industry operates under Dillinger Rules — “your money, or your life” — there’s no real need for any entity in the industry to compete. You don’t see muggers competing to see who can mug less money from each victim, do you? Same deal — an increase in the number of muggers in an area does *not* decrease how much money they obtain from each victim!

– Badtux the (Healthcare) Mugging Penguin

4 Bryan { 09.25.09 at 5:29 pm }

I don’t eat prepared food, because it tastes like plastic and it’s not that difficult to cook something the way I like it, i.e. no chemicals and minimum of salt. I don’t have a problem with salt, I just don’t like it. I force myself to increase my intake during the summer, but I just don’t like it, and most prepared foods think it’s and important food group.

First we deal with over-charging, then we can deal with over spending. Right now, the obese and smokers are propping up the Social Security and Medicare systems by dying off before they use what they put in, so lets not get hasty.

Florida just kicked up the tobacco tax and revenues have plummeted, They found the magic “Laffer” point at a dollar a pack, added to the Fed increase. People will quit or buy on the black market that has already started.