Market Forces in Healthcare

Interesting post from Karl Denninger.   He describes how a market focused surgery center is saving a lot of money for self-insured companies that have switched to plans that include that specific option.  As individuals choose to use the surgery center, they move away from more expensive hospitals.

Denninger quotes Craig Jones, the president of the hospital association, explaining that hospitals charge more due to other expenses inherent to their business models – as Jones says, “what you’re leaving the hospital with are sicker patients and more complex patients.”  Denninger characterizes this as “thuggery,” comparing it to crooked auto repair shops:

that sort of practice — getting a car up on the rack with a vague promise of it being “reasonable” to fix and then presenting the owner with a huge bill that must be paid to get the car back used to be common in the car repair business.

Laws were passed to prohibit this practice because it was (properly) seen as outrageously abusive to consumers who lack enough knowledge to be able to detect this sort of deception and effectively deal with it.

But if you read through to the end of the original article he cites, there’s another pretty good reason that hospitals cost more:

Those other costs that Jones implies are areas such as the emergency room and caring for uninsured patients.

This is the central conundrum between health care and free markets.  In any free market, there is always the option of “no transaction.”  With health care, this is simply not the case.  If someone is uninsured, yet critically ill, the law says that a hospital cannot refuse him treatment.  It makes sense for hospitals to be pared down by competition to the point where they consist of critical care, emergency rooms, and care for the uninsured.  The competition is already taking all the same day surgeries and procedures, as well as non-critical urgent care.  That leaves hospitals to cover critical care consisting of multi-day stays, 24-7 operating hours, and the most expensive life sustaining equipment, and emergency rooms used for only life-threatening emergencies (for the insured) and all types of health care needs (for the uninsured, and for the few hours that non-critical urgent care sites would be closed).

The answer comes down to, who will be forced to pay, and in what way?


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