Sunday, May 23, 2010

Did the Wall Street Journal editors get duped, or is Scott Gottlieb just a health industry shill? Scott Gottlieb, an AEI fellow and practicing internists wrote a May 18 WSJ op-ed, that is either an earnest, hard-hitting criticism of Obamacare and its unintended consequences, or a sly praise of the new health reform:
[I]nsurers are being blocked from raising premiums—for now by political jawboning, but the threat of legislative restrictions looms.

One of the few remaining ways to manage expenses is to reduce the actual cost of the products. To implement this strategy, companies need to be able to exert more control over doctors.

So insurers are trying to buy up medical clinics and doctor practices. Where they can't own providers outright, they'll maintain smaller "networks" of physicians that they will contract with so they can manage doctors more closely. That means even fewer choices for beneficiaries. Insurers hope that owning providers will enable health policies to offset the cost of the new regulations.

Doctors, meanwhile, are selling their practices to local hospitals. In 2005, doctors owned more than two-thirds of all medical practices. By next year, more than 60% of physicians will be salaried employees.


The bottom line: Defensive business arrangements designed to blunt Obamacare's economic impacts will mean less patient choice.

It sounds like havoc is being wreaked on the industry. But wait, wasn't Obamacare supposed to "bend the curve" and make health care cheaper for consumers? And is reduced choice caused by vertical integration really going to be all that bad? Aren't the Mayo Clinic and Kaiser Permanente, which have great customer satisfaction and medical outcomes, already vertically integrated, and arguably successful precisely because they are vertically integrated? From the Economist:
KP’s business model integrates fixed-price health insurance with treatment at its own hospitals and clinics. This has led to big efficiency gains, making KP one of the cheapest health-care providers in most of the regional markets in which it competes.... Moreover, KP’s medical results are as good as its financial ones. By many clinical measurements, it is the best-performing health-care outfit in the regions it covers.
I think the Economist article also answers my initial question. Gottlieb is not trying to stealthfully praise the Democrat's health care reform. He's just whining on behalf of doctors all across America:
The prevailing culture of health care in the country is difficult to overcome. Some American patients, used to having all the scans and consultations with exotic specialists they want, costs be damned, do not like KP’s frugal ways. By the same token, some freewheeling American doctors do not like KP’s rigid systems or fixed (albeit generous) salaries.
There are many problems with the health care reform bill. It is filled with lots of nasty surprises (e.g., the 1099 mess). It's combination of high subsidies for individual insurance and low penalties for employers failing to provide health insurance loom as a potential fiscal disaster. It forces insurers to charge young people too much and old people too little, as compared to actuarially fair prices. This, combined with tiny penalties for not purchasing health insurance, and combined with the requirement of guaranteed issue, will create a huge adverse selection problem.

I could go on listing more faults, but the idea that the private health care industry might actually be made more efficient, and soon, is a very pleasant surprise. If you think, like I do, that we spend too much on health care in the US, then one of the less intrusive ways for the government to bring down costs is to simply set an industry-wide ceiling on the growth rate of per-capita health care costs, and let private industry figure how to still make a profit.

How might I be wrong in seeing a silver lining here? First, it could be that health care providers and insurers ultimately will cut costs not by becoming more like KP (which is actually earninga big profit, despite being a non-profit organization), but by crude forms of rationing that leave the population significantly less healthy, thereby actually making the industry less efficient. Or perhaps they'll fail to cut costs quickly enough, and instead they'll go bankrupt, leading to an emergency British-style nationalization of health care. Or, costs might be cut, but not enough to keep current levels of medical innovation profitable, such that our children and grandchildren will die younger than they would have otherwise.


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