The Cult Of Free Market Economagic And How To Really Control Cost

Austin Frakt knows that this reform effort is not going to be the end of health care reform in this country. It will only be Health Reform Debate 1.0. This bill will greatly expand coverage, add some much-needed regulations, and contain some modest cost containment measures. It will not really address the serious cost issue in this country--we pay way too much for health care:
Meanwhile, the cost of care, and coverage for it, is becoming an increasingly heavy load stone for states, businesses, and families. Debate 2.0 is nearly upon us, even as we struggle to resolve 1.0 (beta).

Therefore, I’d like to add a 15th item to Cowen’s list: payment reform that compensates providers, at least in part, on the basis of quality and cost control. That’s very vague. One can conjure up some specifics and some have. Few are thoroughly tested and none have been anywhere near the center of political debate. But they will, and soon.

The problem is that we don't need to try a bunch of untested ideas to bring down cost. Every other industrialized nation on Earth provides health care for dramatically less than we do. Cost control is not some great mystery. There is no need to re-invent the wheel. There is no need to come up with brand new, super-complicated "reimbursing for quality" reward ideas. There are plenty of thoroughly tested, completely proven cost control mechanisms we can directly borrow from other nations.

The problem is economists and policy experts in this country insist on only using what I call “free market economagic” to fix our health care system. Health care does not (and never will) truly work on free market principles. It works most closely on the principles of a hostage negotiation. I walk into a hospital with a gunshot wound, and I need them to perform surgery to save my life. What “fair market value” they can charge me for saving me life? Basically, they can charge me anything because I literally have no choice but to pay them what they ask.

What we don't need is health care economists trying to figure out solutions that fit the “free market economagic” doctrine. We need people willing to make simple, practical comparisons between our incredibly expensive system and those of other nations. Looking around the world, one thing becomes clear: We pay more for everything. We pay much more for drugs, more for hospitals stays, more for tests, and more for almost all procedures.

While industrialized nations have many different health care regimes, almost everyone uses a centralized payment negotiating system. Normally, it is the government, but in some places, like Switzerland, it is a regulatory cabal of all the insurance companies. The centralized payment negotiator determines a fair price for a drug or procedure that most providers agree to accept. One should not be surprised that our system, where thousands of providers try to secretly negotiate reimbursement rates with hundreds different insurers and payers, is a recipe for waste and inefficiency. The multitude of different insurers don't have the clout (or desire) to negotiate the best rates possible for everyone. And since each provider is being paid differently for the same procedure, the bill collecting paperwork is a nightmare.

I support looking into any potential new cost saving ideas, but we need to take off the “free market economagic” blinders. We don't need some clever theoretical proposal because there are already proven ideas that are currently working. If we seriously want to rein in our out-of-control health care spending, we must start by adopting solutions proven to work elsewhere.

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