Friday, September 21, 2007

The Free Market and Medicine

I often overhear in the physician lounges, or read on the internet, about many doctors' views on the free market. Typically, the doctors argue that "standard free market principles" do not apply to medical practice. Their arguments go something like this:
  • I charge $180 for an new patient consult, but only get paid $90, and therefore, free market principles do not apply.
  • I charge $5000 for a total knee, but only get $1200, and therefore, free market principles do not apply.
  • A radical prostatectomy is worth $4000, yet I only get $900 and therefore, free market principles do not apply.

Over the past 7 years, I have heard this line of reasoning hundreds of times.

I don't think they understand the free market. Let's use another industry to elucidate and clarify the problem. Let's use the toy industry.

Mattel designs, markets, and sells toys, but they don't make them. Since Mattel is a corporation, it's fiduciary responsibility is to maximize profits. One way to do this is by minimizing costs. A great way to minimize production costs is to outsource manufacturing to countries that can do it more cheaply. Mattel outsources toy manufacturing to Chinese factories.

Mattel, like United Health Care, has lots of money and thus leverage over the manufacturers. Mattel uses this leverage to negotiate production costs for its toys. The Chinese factories can either take it or leave it. Since the factories can not remain viable without a contract from Mattel, they choose to accept the terms of the contract, and then attempt to maximize their own profits by cutting production costs and increasing production rates. The Chinese factory does this by paying workers extremely low wages, using cheap materials, and, as we have now learned, using inexpensive lead based paints on the toys.

Mattel pays the factories cut-throat rates, which forces the factories to cut corners to make a profit, which, unfortunately, can ultimately impact the consumer negatively. On the other hand, however, the consumers in the USA and Europe, don't want to pay a lot for their toys, so the cycle continues.

Sounds familiar, right.

United Health Care does not produce health care, it only pays for it. As a corporation, its fiduciary responsibility is to maximize profits. One way it can do this is by minimizing production costs. United Health uses it's leverage, much like Mattel and the Chinese factories, to negotiate cut-throat production rates to the factories, which in this case are the providers. Unable to remain viable without the contract, we chose to take it, rather than leave it.

Now, to maximize our own profits, we attempt to cut our costs and increase production. We do this by outsourcing services, downsizing office (factory) sizes, and hiring low wage personnel and then we see more and more patients. The downside of this is that ultimately the consumer--the patient--can get hurt because in our efforts to cut-corners and increase production, we may make mistakes and hurt people. As a society, we accept this because, like toy purchasers, consumers of health care don't want to pay a lot for the product and the cycle continues.

See, our health care model is the epitome of the free market, and anyone who suggests otherwise is wrong.

Thanks for listening,

The IU.