In late 2014, the then owner of the New Republic challenged former editor Michael Kinsley to “come up with a listicle, à la BuzzFeed” with the 10 reasons why healthcare isn't a free market.
Kinsley demurred, but I took up the challenge in my desperate attempt to appear on David Letterman’s last show before giving way to Stephen Colbert. On re-reading the column recently, I was depressed to be reminded how little has changed in the intervening years.
Here’s my list, Letterman-style, in reverse order. The top ten reasons why healthcare isn’t a free market:
Number 10:
Most care is delivered locally and will remain that way. Forget medical tourism (traveling abroad for care). Foreign competition, which spurs better products at lower prices in manufacturing, barely exists in healthcare.
Number 9:
Physician assistants, nurses, lab techs and other specialized personnel labor under overly restrictive licensing laws that were put in place by government officials to protect the public from gross incompetence. The result is a straitjacketed, inflexible workforce.
Number 8:
Doctors belong to professional guilds whose power would make medieval glass blowers in Venice blush. The doc guilds limit access to their profession by lobbying for overly-restrictive licensing laws and limited training opportunities. Their professional societies establish treatment protocols with little regard for the underlying cost, even when cheaper, equally effective treatments are available, because it helps inflate U.S. physician salaries, which are the highest in the world.
Number 7:
Pharmaceutical and medical-device firms use patent monopolies, granted to foster innovation, to impose huge price premiums on their life-saving products, giving those companies the highest profit margins in the world. They simultaneously use the same patent monopoly protections to charge extraordinarily high prices for things that aren't so innovative.
Number 6:
In most local markets, healthcare delivery is dominated by one or two hospitals and their wholly-owned physician subsidiaries. Eighty percent of hospitals operate as non-profit enterprises, often religious based. They use their tax-exempt status to pursue a strategy of “no margin, no mission,” where there can never be too much of a good thing and where doing well financially—in some cases, very well—can always be justified in the name of doing good.
Number 5:
Comparison shopping is only possible for about 30% of healthcare services. Where it is possible, choices are confusing and difficult to make since the outcomes of most medical interventions are not guaranteed and different therapeutic approaches have different outcomes for different patient populations. Even when comparison shopping is possible, the layperson—not to mention many physicians—have inadequate information about pricing, quality, outcomes and what works best on whom.
Number 4:
The law says no one can be denied healthcare when needed. Yet there are laws restricting the establishment of new capacity to provide it and no federal or state laws requiring universal health insurance to pay for it. The resulting “marketplace” charges the poorest people the highest prices, while elaborate cross-subsidies send false price signals to every other payer.
Number 3:
Patients, even those in high-deductible insurance plans, pay for only a fraction of the cost of healthcare. Doctors who prescribe healthcare do not face price-sensitive customers. Neither has the foggiest notion of the true cost of care. Where there are no prices and no understanding of costs, there can be no market.
Number 2:
Insurers pass along all their costs to employers through higher premiums while hospitals and doctors charge employers higher prices to offset the lower fees paid by government programs. Thus, healthcare largely remains a price tag-less department store where most customers have an unlimited credit card.
And the Number 1 reason why healthcare isn't a free market is:
Nobody in the middle of a heart attack shouts, “Let's go shopping!”