Competition Would Save Medicine, Too

If we could get over the foolish notion that "someone else" should pay for our health care, we could enjoy the same economic advantages in health care that we find in other industries.
John-stossel

Competition so regularly brings us better stuff — cars, phones, shoes, medicine — that we’ve come to expect it. We complain on the rare occasion the supermarket doesn’t carry a particular ice-cream flavor. We just assume the store will have 30,000 items, that it will be open 24/7, and that the food will be fresh and cheap.

I take it for granted that I can go to a foreign country, hand a piece of plastic to a total stranger who doesn’t speak English ... and he’ll rent me a car for a week. Later, Visa or MasterCard will have the accounting correct to the penny.

Compare: Governments can’t even count votes accurately — or deliver the mail efficiently.

Yet now, somehow, government will run auto companies and guarantee us health care better than private firms? And the public seems eager for that!

If you think it’s mainly the political class and mainstream media that are clueless, listen to the doctors. Dr. Atul Gawande, in an otherwise interesting New Yorker article on health-care costs, disparages medical savings accounts and high-deductible insurance. First, he explains the theory behind this proposal to cardiologist Lester Dyke:

“[People would] have more of their own money on the line, and that’d drive them to bargain with you and other surgeons, right?”

Gawande comments, “He gave me a quizzical look.”

The doctors then dismiss the idea with a sneer.

“We tried to imagine the scenario. A cardiologist tells an elderly woman that she needs bypass surgery and has Dr. Dyke see her. They discuss the blockages in her heart, the operation, the risks. And now they’re supposed to haggle over the price as if he were selling a rug in a souk? ‘I’ll do three vessels for $30,000, but if you take four, I’ll throw in an extra night in the ICU’ — that sort of thing? Dyke shook his head. ‘Who comes up with this stuff?’ he asked.”

I do. Adam Smith did. Market competition is what’s brought us most of what’s made life better and longer.

But the doctors have mastered the anti-free-market sneer: Markets are good for crass consumer goods like washing machines and computers, but health care is too complicated for people to understand.

But that’s nonsense. When you buy a car, must you be an expert on automotive engineering? No. And yet the worst you can buy in America is much better than the best that the Soviet bloc’s central planners could produce. Remember the Trabant? The Yugo? They disappeared along with the Berlin Wall because governments never serve consumers as well as market competitors do.

Maybe 2 percent of customers understand complex products like cars, but they guide the market — and the rest of us free-ride on their effort. When government stays out, good companies grow. Bad ones atrophy. Competition and cost-conscious buyers who spend their own money assure that all the popular cars, computers, etc. are pretty good.

The same would go for medicine — if only more of us were spending our own money for health care. We see quality rise and prices fall in the few areas where consumers are in control, like cosmetic and Lasik eye surgery. Doctors constantly make improvements because they must please their customers. They even give out their cell numbers.

Drs. Dyer and Gawande don’t understand markets. Dyer’s elderly woman wouldn’t have to haggle over price before surgery. The decisions would be made by thousands of 60-, 40-, and 20-year-olds, the minority who pay closest attention.

Word about where the best values were would quickly get around. Even in nursing homes, it would soon be common knowledge that hospital X is a ripoff and that Y and Z give better treatment for less

People assume someone needs to be “in charge” for a medical-care market to work. But no one needs to be in charge. What philosopher F.A. Hayek called “spontaneous order” and Adam Smith called “the invisible hand” would make it happen, just as they make it happen with food and clothing ... if only we got over the foolish belief that health care is something that must be paid for by someone else.



John Stossel is co-anchor of ABC News’ “20/20” and the author of Give Me a Break: How I Exposed Hucksters, Cheats, and Scam Artists and Became the Scourge of the Liberal Media (January 2005) as well as Myth, Lies, and Downright Stupidity: Get Out the Shovel — Why Everything You Know Is Wrong (May 2007), which is now available in paperback.

18 comments from readers  

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Jeff O
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Competition is the simple answer for most economic problems. How? Not so simple. For the Medical Industry, we need Doctors. Lots of doctors. How are we going to get them? It costs a fortune to train a Doctor and takes a decade, Too long. A typical doctor is thirty before they can start typical domestic life. Oh sure, things are great after that, but there goes your twenties. Many people can't wait that long. What if we had Academies That started at the beginning of High School, say 15 years old. teach them math, science, business, etc. all relative to becoming a doctor. I'm not trying to be morbid but why not run a medical school at every morgue in the country. You would be training your new doctors first hand to recognize everything that can harm a person medically before they are twenty and they would be finnished their training before they were twenty-five. This would allow them that many more years to practice and they would not have the feeling of the wasted twenties. I think this would literally flood the market with every good doctors and the practice of overcharging would not be able to continue.
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Very good. If each person had to be the one to hand over the cash to the doctors and hospitals things would change quickly. So many have come to think that the insurer, or government, takes care of the bill and they don't need to be involved. Even the insured need to be the ones to pay so that they are fully aware of the costs.

An even bigger problem is the way the individual expects to be taken care of no matter how they live. Sedentary lifestyles and junk food have put this nation at great peril. Children on my Granddaughter's ball team can't run the base path because they are just plain fat. We are talking fourth and fifth graders with cholesterol levels of the middle aged. Why should someone that doesn't smoke, drink or otherwise indulge in bad decisions have to pay for those that will not take care of themselves?
Blake S
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Thank you so much, John.

I am a physician, and lately the most gratifying aspects of my practice are the cosmetic side (lasik, Botox, and dermal fillers) as well as the charity work that I engage in. Most cosmetic patients and most patients receiving charity (real charity, not the government kind) appreciate the value of a doctor's services.

On the cosmetic side, yes, patients do sometimes negotiate on the price, and we must have a price and product which is worth it (though most are happy to pay whatever it takes to look good). Cash paying patients for medical services will also sometimes negotiate, and again, these patients understand the price mechanism.

The least gratifying aspect of medicine is that most physicians are completely clueless about the benefit and especially the morality of the free market, and would gladly hand their services over to the lowest bidder. (though ophthalmologists are slightly more independent than those in most fields of medicine).

Thanks again, John, for all of your superb efforts. The principled positions you take combined with your clear communication skills are a shining light.
Small
Competition IS great. And Competition in medicine would be great. But you can't fix one part and leave the other part unfixed and without mention. I worked in biotech for many years. One company I worked for developed vaccines for cancer. The CEO of that company wasn't concerned with whether they actually went to market, he was concerned solely with profit (and that's fine), but the big pharma companies have grown so huge (read: anti-competitive mega-monopolies) that they would swoop in and literally pay any price for the vaccine candidates we discovered. They did this not because they wanted to produce a vaccine, but because they wanted to prevent anyone else from producing one. A monopoly turns the good of profit-seeking on it's head. You see, an ounce of prevention ISN'T worth a pound of cure. A vaccine is preventative medicine, it is a one-off injection and reletively cheap. The 'cure' however keeps selling and selling, and when you have so few companies who have a virtual lock on all the products, they way to profit is to sell cure, over and over and over again. I gotta tell you, stem cell technology scares the bejezus out of big pharma! However promising though, I fear I will see a repeat of what I witnessed in the past - Big Monopolies buying up preventative medicines at prices the little start-ups can't afford to pay and thus 'preventing' the loss of their captive drug-cure market. If we want competition to work, then we've gotta find a way to give it a chance to work. Monopoly isn't competitive, it is control over competition.
Small
The only problem is this, the american public has become way too dumb to rely on themselves, as shown in all the latest decisions they have made. our own president wants GM to make "small cars" as well.. problem there, Unions (sheep) get what they want, because they cry.. I know I was in the DISGUSTING UAW for 10 yrs & felt just like an empty, mindless fool. After realizing at a young age, this was not the path I would choose to develop my future, (to socialist for me) I went out & started my own business & am happy to report, IT'S THRIVING! I do have to pay for medical insurance, but the care I get stinks No matter what. There again .. Government .. YAY
Small
Brilliant as usual. Par for John's course.

Ever since Medicare, the American people have been ripped off with high medical costs exaggerated because, "if the government's paying the bill, then we can charge anything we want." Naturally, the government treasury is a bottomless pit of money. Well, not according to China!
Small
Mr. Stossel, you are screaming in the wind. All is lost. Obama was the final nail in the coffin, good analogy for healthcare discussion. It took the lefties 400 years, but they finally brought America and Capitalism to its knees, precisely because they were so damned good. The same reason the contemporary intellectuals embraced Marx, because he was evil and advocated slavery. Canada!!? Last year Medicare cost over 160 billion dollars, one convention, and then there is Free education. Remember "control of the means of production of wealth?? How about "from those according their ability to those according their need?" Those are your answers Mr. Stossel. Frank Toplin
Small
John has hit the nail squarely on the head. But the free market requires responsible people.... people who take responsibility for themselves. The public education system and political whores have pretty much quashed this formerly prevalent American characteristic.
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John, I believe your assumptions are wrong. First, Dr. Gawande may have found an outlet for his theories in the New Yorker and the NY Times, but he hardly speaks for all doctors. (Neither does the AMA, which will not stand up for doctors when they blow the whistle on bad hospital care and are therefore attacked by hospital administrations and their minions...only 15% of practicing phyicians belong to the AMA).

Doctors do not control their destinies, much as they try (most have given up). Hospitals are owned by companies, corporations...some doctors have gotten past this by opening their own specialized surgicenters, but this is only a small part of places to do surgery...and doctors do not own emergency rooms or ICU's. Insurance companies own the patients, and a doctor may, in take it or leave it manner, either become under contract with the insurance company, or lose all of their potential patients. And doctors cannot band together (collude, as the FTC would say) and negotiate price...this is fixed for each procedure by the insurance company. So it is not a free market situation. And currently Medicare does not even reimburse doctors enough to cover their overhead for most visits/procedures.
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Health care needs one more thing before the costs can come back into line with reality: Doctors must understand that at present they are being compensated at a rate some 10 time greater than they should be. The example used in the article of $30,000.00 for a triple bypass would take fewer than three hours. $30,000.00? $10,000.00 and hour? $3,000.00 would be more in line, but we must get doctors to accept that they are not worth nearly as much in compensation as they think they are.
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No one says it better than John Stossel. I continue to marvel at how clear and understandable he makes all his comments. Thanks again.
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I have been reading articles from Atlashpere for years now and this article is one of the few that have motivated me to comment. John is right on and articulates the concept very well!
Small
But, John, your argument in favor of competition has a few assumptions. You mention each person making his own choice. You also describe a situation in which people can negotiate with providers of goods and services.

Where do people get the idea that THEY get to make choices? Do they think their lives belong to them and that the have responsibility to support their own lives? Do they really think that their own information gathering, their own thinking, their own choices are instrumental in supporting their lives? Who do they think they are, in the larger picture of the "machinery" of the larger society to give such emphasis to their OWN lives? Who do they think they are that their OWN minds should guide the process of benefitting their own individual lives?

Strange that there should be a school of thought that compels one to ask these common-sense questions? But, today, the view that the individual is a nuisance, interfering with the smooth design and the smooth operation of social processes designed to (under)serve everyone is the dominant philosophy.

Well, I shouldn't call it an entire philosophy, because, if evidence, logic, proof are the material and structure of a philosophy, nothing on Earth supports the anti-individual, socialist point of view.

Fact, logic, proof are all on the side of the existence, the value and the rights of the individual person. Individual rights is the essence, the core, the fundamental, the heart of the system you emphasize as being "competition". It is the individual person who has a life, is the center of all value, has the only rights, including the right to make the competitive choices and negotiations that enable him to support his life. It is he who keeps or loses his life, not society.
John, a view that argues on moral grounds for the activities by which persons thrive in a "competitive" system is the philosophy America needs to restore the productivity and variety that once were America. That view, that philosophy is portrayed best in the novel which, one half century after its original publication, became the runaway best-seller on Amazon.com, the largest bookseller on the planet. That book is Atlas Shrugged by Ayn Rand, mankind's greatest moral teacher.

Read, learn, enjoy!
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Thanks again, John, for another succinct piece. I, as a mental health provider in private practice, often bargain w/new clients re my fee. I know what my floor is and they know my ceiling. We go from there. Bea Armstrong, MFT
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I agree with most of this, but only if the playing field drastically changed.

The first thing that would need to go is the idea of phantom pricing. When you go to a hospital you can NEVER get a price on anything, because it changes depending on your carrier, whether you use medicare and a myriad of other factors that have nothing to do with the treatment.

Step one is forcing hospitals to post the price of common procedures prominently to allow for competition. Maybe if you're shot in the chest you won't be able to pick your price, but you can certainly shop around for the vast majority of medical conditions that are long term problems like diabetes or cancer treatment. The current system where you are surprised by a 100k bill at the end of the treatment is broken beyond belief.

Step two is severely limiting health insurance. Yes, limiting. All putting employers in the position of having to offer extensive health coverage does is encourage people to use it, health insurers to make it more expensive and hospitals to charge more. If customers don't feel like they're paying for anything then why not have that extra MRI, the bonus procedure thats not fully medically necessary or whatever else. Insurance should have heavy copayment that are based on the price charged by the specific institution. Say the insurance company will pay 400 dollars for procedure A and the insured pays the rest out of pocket. That will get customers thinking about how much they are paying at the hospital, and you better believe they won't accept any 2,000 dollar unneeded test when 1600 of that is from their pocket.

There seem to be too many vested interests to make this work from the right however, which means the government strong arming hospitals and insurance companies into lower prices (as governments have done the world over, which is why health costs are so much lower in other similarly situated nations) might be the only solution that works. I would prefer the former solution, but leaving things as they are will bankrupt us.
Small
Great article. I live in Canada and have had the "benefit" of living with Medicare for my entire life. Americans should consider the following when approving of publicly funded medicare. Canada's system will cost as much as our entire GDP by 2030 if current trends continue, some research suggests that since medicare was introduced doctors now spend only half as much time seeing patients (what can you expect from are essentially now government employees), Canadians have been traveling to countries such as India for either quicker treatment or treatment not even covered by Medicare, and worst of all I have not had to even see a doctor in over 15 years and due to the sin of being single, have been paying high taxes to support it the whole time.
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It's kind of hard to believe John was anywhere near Princeton, he makes way too much sense. He proves it's still possible to graduate from a place that proudly entertains "The Department of Political Economics"-- not to be confused with 'Economics"-- and still well understand Economics.

The model used to be, Patient A gets service from provider B, and then B looked 'A' in the eye and gave him a bill for service. If A had insurance, 'A' went home, sat at a desk, filled out a claim form for reimbursement, and was reimbursed by the insurance company. Or, 'A' sought welfare/charity. Or, 'A' paid his damn bill. Two separate, independent transactions, value for value, between vendor and customer. The patient was intimately aware of and involved in both transactions, and all patients -- self insured, privately funded, and publicly funded -- all mutually benefited from the market discipline.

This all changed with the advent of Medicare/Medicade. When providers needed to establish sufficient backoffice capability to handle third party payer, they started processing private insurance claims directly as well. "Here, we'll handle your claim for you." Sounds like 'full service' -- but the downside is, it totally perverts the marketplace, resulting in the ring-around-the-rosy we have today. A gets services from B who bills insurer C who collects premiums/taxes from D...who may not even be the original A. Total market insanity. And, there is a hint that we ar enot about to take. Keep the current system in palce, but extend the HPPA laws to isolate a patient's insurance status from health care providers. Doctors should have no concept at all if a patient has or does not have insurance, they should invoice for payment as in any act of value for value commerce, and patients should handle their own reimbursement/subsidy details. Would this be 'inefficient' and put drag ont he marketplace? Damn right. No more back offices full of high school girls on roller skates scooting bills off to insurance companies. Just like today, the backoffice hands over an invoice with actual numbers on it. Patients don't hand over any insurance cards to hospitals or doctors, they accept invoices and are responsible for them, and doctors/hospitals deal with deadbeats the same way the rest of the markets deal with deadbeats. The 'public' debate is once again at least corralled to the question of maintaining Hayek's concept of 'safety-net', period-- the terms and conditions under which public safety-net welfare is made available to people as a last resort.

As John aptly describes, a problem is that we are now over two generations into a marketplace that has practically forced doctors to remove themselves directly from commercial considerations, but in balance, is now exerting ever more coercive control over them. Not all doctors raised in the current environment, but some, rue any thought of the return to direct billing/fee for service, and there are plenty of anecdotal examples of doctors deliberately removing themselves from third party payer and implementing cash only practices, to escape the coercive nonsense.

But, those anecdotes are 180 degrees opposite the direction that the current administration is trying to lurch us in; they are trying to institutionalize the ring-around-the-rosy, cast it in federal concrete.

We tend to earn more as we get older; demographically, the Boomers are at or near the peak of their income and tax paying years, just prior to the cusp of, with futility, attempting to retire. It is somewhat ironic that, coming out of the peak of this demographic -- an extra 30 million taxpayers -- paying their subsidy into a 'pay as you go' defined benefits program, those programs are flat broke busted. I don't know too many Boomers who actually believed they would be anything other than the first generation to be hosed over by these programs, and always knew they wouldn't be there for their old age. At least, those that can do any math at all. It is also ironic to notice that, although it is reality, these programs wont be be funded in the future at the current level of benefits -- because it is impossible to do that, and that 'reality' is balked at by the current generation of beneficiaries, because they view it as 'raiding Medicare/Medicade to pay for health care reform.'

That aspect of this is just bad marketing of reality, coupled with a loose grasp on reality. Forget about 'paying' for anything new, those programs will soon enough be gutted from existing no longer sustainable benefits levels just simply to survive at all.

There is a rational way to sell this inevitability: just paint the current defined benefits program as a one time well deserved 'thank-you' to the Greatest Generation, on whose sacrifices all free-world economies since depended, and then transition them to a defined contribution plan, which will let the programs last in perpetuity(at obviously reduced benefit levels.)

Want more benefits? Then do what the Greatest generation did. Have more kids, feed them, bandage their skinned knees, wipe their noses, and send them off to school. Or, not, and buy that second Bass boat. But, that defines generational fairness, not overtaxing our fewer kids to try to float unreality.

The impending retreat of Medicare/Medicade (forget about 'paying' for anything new, that's a pipe dream), will mean that the Boomers generational pain will be back end loaded. The Greatest Generation's generational pain was front end loaded.

Did we really think we were going to dodge that one by screwing over our kids with 70% tax rates?
Small
Excellent piece. Like many physicians, Drs. Dyer and Gawande don't understand market forces. Worse than that, their words reveal their lack of confidence in their clinical skills and lack of knowledge of the virtue of their work. I would WELCOME market competition in healthcare.
To post comments, please log in first. The Atlasphere is a social networking site for admirers of Ayn Rand's novels, most notably The Fountainhead and Atlas Shrugged. In addition to our online magazine, we offer a member directory and a dating service. If you share our enjoyment of Ayn Rand's novels, please sign up or log in to post comments.