Chasing the Rabbit: Official Blog by Author Steven Spear

In response to a recent post, “Repair Healthcare Markets, So Markets Can Repair Healthcare Delivery,” I was asked the ‘theory’ behind such a proposal?

In fact, this is sound theory both because (a) the causal logic is sound and (b) there is evidence supporting the logical statement.

For those opposed to market based competition as the means of transforming quality, affordability, and access of health care delivery, the response question is: what is the soundness of a regulatory (centralized and public versus distributed and private approach to resource allocation?  My guess?  Quite unsound.

Read more, below, for elaboration.

Thanks!

Dear Reader,

In your response to your question: Is advocacy for market based competitioon as the means for repairing health care delivery ‘theoretical,’ it is in the positive sense: logically sound backed by sound data and not merely hypothetical, lacking both logical rigor and supporting data.

1: Theory and evidence for markets
The notion that transparency + informed consumer choice leads to increasing quality, decreasing unit cost, and consequently an explosion in availability is sound theory–e.g., there is logical reasoning.

I think you’re concern is that it is a hypothetical theory.  However, it is a sound theory, well tested in practice.

2: A question about alternatives
As for your concerns about the convoluted web of insurance and regulation do nothing but suppress the dynamics for competition further.  In fact, given that regulations are driven by convoluted legislative and regulatory mechanisms, it is hard to image the theory or evidence that more legislative and regulatory mechanisms will lead to even better results.

Let me elaborate more.

A sound theory is that certain actions, under particular conditions, will lead to predictable outcomes (positive or negative).  E.g., drop a rock off a building above a large mass and the rock will fall with a predictable time and acceleration.  Thank you to Sir Newton for that theory, well proven in practice.

In this case, the theory is that transparency allows individuals to find the bundle of quality, functionality, convenience, reliability and affordability that they most value.

In doing so, they will reward suppliers’ innovation, punish sloth, and repeatedly raise the market average overall.

The key caveat is about exceptional externalities (e.g., my self interested action has significant cost or benefit to you).  Adam Smith, I  believe, talked about the tragedy of the commons.

In short, unless there are exceptional externalities (a key condition), self motivated behavior works to societal benefit as well.

That is the theory.

There is substantial empirical evidence that supports (e.g., more formally, doesn’t refute) the theory.

First look outside healthcare at the markets for a broad range of consumer and industrial products and services.  The flat panel display example in the piece is but one of myriad ones in which informed choice informed a dynamic of relentless improvement.  For instance, are you reading this note on an iPhone, laptop with wireless connection, etc.?  You couldn’t just a few years ago.

Where are you reading this?  Did you pay more than a few hundred dollars to get there and back to your origin safely and reliably?  You couldn’t two decades ago.

Even in health care, despite the overwhelming market pathologies, there are examples, particularly for elective–out of pocket procedures and treatments.  Vision corrective procedures are but one example.  Competition drives innovation leading to decreases in cost and increases in volume.

The problem in health care is that by and large, there are not effective markets–your point exactly about the complex web of oddball rules and regulations.

There is minimal competition around therapies–e.g., what to do in a particular situation is not clear.  Heck, a frightening number of medical practitioners argue against evidence based practice.  Can it be possible their artisan knowledge acquired anecdotally overwhelms the mass of the community’s experience?

There is minimal competition between therapists on measures that count.  Here in Boston, the academic medical centers hide behind the prestige of their residency programs and amount of research funding, afraid to expose their clinical successes to the critical eye (Beth Israel Deaconess’s efforts are the rare exception to the general approach of opaqueness).

There is minimal competition for payment.  Insurance companies don’t compete across state borders.  They don’t compete on the basis of cost of policy and quality of service.

Finally: What is a reasonable alternative?

The current scheme of protected markets (e.g., minimal informed choice) has led to high cost, frighteningly poor quality, and impeded access.  The gap between the theoretical potential of medical science, the inclinations aspirations and preparation of those who apply it, and the reality of daily experience is extraordinarily disappointing.

As for your final point: In a free market economy, not everyone would have health care, like some, unfortunately have too little food, clothing, and housing.

In a free market, moral economy, where wealth is created at exceptional rates, completely unmatchable elsewhere, some of that wealth is parsed off–tithing has a long tradition back to the Old Testament, taxation to meet the needs has a long tradition as well–to meet the needs of those who cannot meet their own needs.

In short, if you want two sound policies.

1: Markets to unleash innovation, productivity, quality, and so forth so great value is enjoyed for minimal cost.

2: Social welfare to protect those who cannot protect themselves.

One last point, I bet if you rewatch Bill Moyers more closely, you’ll find lots of money driven behavior, but with nary a stitch of it occurring in markets with any of the positive properties you take for granted in the rest of your life.  That might be the worst of all worlds.

I look forward to continuing the discussion.

Thank you for taking time to write.

Best wishes,
Steve

P.S.: One last last point. Let me turn the question around about single payer, utilities, and the lack.

What is the theory (i.e., sound logical, causality) and what is the evidence?

What did you pay for phone service last month?  For sure, much less for much more functionality than when phone service was offered as a utility.

What did your parents pay for air travel in the 60s and 70s?  Much more, with fewer choices, on far more dangerous aircraft.

Related posts:

1. Healthcare Regulation: To Foster or Replace Markets and Competition?
2. Repair Healthcare Markets So Markets Can Repair Healthcare
3. Asking what quality initiatives get sacrificed under budget pressure asks the wrong question…
4. Brooks Right, Krugman Wrong on Healthcare ‘Reform’ Legislation
5. Who Was Caring for Mary–Revisited…