So, You Want Competition to Bring Down Healthcare Costs? – Then, Logically You’re Talking Single-Payer

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Debates over fixing U.S. healthcare often end up with each party choosing a side – either “Competition” or “Government.”

But in a strange twist of politics, logic, and the broken healthcare market, turns out that Competition and Government are on the same side.

Let me explain…

In order for there to be competition, there must be a free market that obeys the laws of supply and demand.  But U.S. healthcare is anything but a free market. In large part healthcare is comprised of monopolies, not competitive markets. According to a 2013 study headed by Harvard health-care economist David M. Cutler, a full 40 percent of all hospital stays now occur in health-care markets where a single entity controls all the hospitals. Another 20 percent occur in regions where only two competing hospitals remain. The same study details that nearly half of hospital markets are so highly consolidated as to be uncompetitive.

Open Market Institute cites two illustrative examples. Yale-New Haven Health System bought out its last remaining competitor in 2012, giving it a 98% share of inpatient admissions. The Institute also reports another case based on a 2014 Court filing:

In the San Francisco Bay area, the giant hospital chain Sutter has amassed such market power—up to 100 percent of the market for inpatient hospital services in Berkeley and Davis—that it forces health care plans, including those run by large insurance companies and large employers, to sign contracts in which they promise not to steer patients to lower-cost hospitals.

Monopolistic hospitals use the system to their own advantage, not to benefit their patients and communities. For example,

  • Health systems with monopolistic market share leverage their power, not to reap efficiencies and pass along their cost savings to insurance companies and patients. Rather, they cut quality corners and to raise prices.
  • Hospitals obfuscate their prices under 87,000 separate diagnostic codes and 10,155 procedure codes; or they conceal prices altogether.
  • Doctors, half of whom are now hospital employees, serve as both suppliers and purchasing agents; they control both supply and demand.

For more details see my previous video/transcript and blog post. Elisabeth Rosenthal also has published an exposé on the “dysfunctional medical market” showing how the usual laws of supply and demand work backwards in healthcare.

Some of this anti-competitive consolidation is the result of deliberate design by greedy elites (see Taming the Tapeworm). But in many cases it’s a simple fact of geography. Namely, sparsely populated regions are not large enough to support two or more complete health systems. Thus, these small markets can exist only as monopolies with no competition to hold down prices.

Surely this is not what free-market-competition advocates envision.

So upon logical analysis, competition advocates must presume either large regional markets or better yet a giant nationwide market. In the case of Medicare and federal programs (which already account for 41% of total U.S. health spending), large regional markets already exist currently in the form of regional Medicare insurance “carriers” that process payments to doctors and hospitals. If we expanded this existing Medicare carrier system to a giant nationwide insurance carrier system, it would essentially amount to “Medicare for all.”

Theoretically, could there be more than a single payer in each large region or in the nation? Yes, but this would be no different than the fragmented insurance market we have now. There are currently 600,000 doctors and 5,500 hospitals, each with separate agreements with 35 different insurers. Individual practitioners, specialist cartels, and healthcare networks have rigged this fragmented system to avoid market constraints on prices. For starters, one can hardly get a straight answer from private hospitals and doctors about prices of services. As further proof of the weak leverage of the 35 insurers, one need only compare insurers’ going rates for any given service with the Medicare-approved price. Medicare’s prices are consistently lower.

Having a single payer nationally or regionally, on the other hand, would usher in true competition based on price, quality, and customer service. A single payer would have strong buying power, especially over drugs, according to health economists Woolhandler and Himmelstein.

Following this logic, consolidating all Americans under a single payer would result in the strongest competition of all, under which the payer could leverage fair market prices even from monopolies.

Government would be the most logical single payer. Like any large institution, a single-payer system would need transparency, accountability, and oversight. A public payer would fulfill these requirements to the greatest degree, much more so than a private payer would. In addition, a government single-payer would have recourse to its legal anti-trust authority to stand up to the monopolistic health systems.

Quod erat demonstrandum: If you really want the most Competition, then logically you want a Government Single-Payer system.

“This is socialism – government intrusion!” some protest, including the President.  We’ll look at that claim in the next blog post.

But first, Take Action.

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Image Credit

By: Aaron Zhu [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)%5D, via Wikimedia Commons; URL:  https://commons.wikimedia.org/wiki/File:Rodin_Thinker_-_panoramio.jpg

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