An interesting piece in the New York Times by a physician, noting the manner in which American health care is vastly expensive by any global standard. This is not about the detailed structure of that health care system, that's more properly the concern of other here at Forbes, notably my boss. What we do have here though is an interesting underlying economic case. And the answer is going to come from an underlying economic process too. Certainly not this year and maybe not these decades but what is going to happen is that we're going to automate a great deal of that health care. And as happens everywhere else we automate things the process will make it hugely, vastly, cheaper.
The NYT piece is correct in the analysis but fails a little on the solution:
Physician specialty groups have created “societies” to provide education, establish clinical guidelines and handle public relations. These range from the Society of Surgical Oncology to the group that represents me and my ear, nose and throat colleagues, the American Academy of Otolaryngology-Head and Neck Surgery. They are also lobbyists, charged with maximizing the incomes of member doctors by influencing pricing decisions made by the Centers for Medicare and Medicaid Services. Those prices become the benchmarks for private health insurance companies, too.
There are so many specialty organizations because each develops authority over a niche market and vigorously guards its turf. Imagine building a house by allowing each workman to do his own thing. The plumber would put a sink in every room. The electrician would install chandeliers on every ceiling. The carpenter would panel every room in luxurious wood. That’s how health care works.
At root, and this is true of any form of financing it, American health care is expensive because the people who provide health care make it so. Which brings us to Milton Friedman's comments decades ago:
The AMA, and in this current analysis all of the smaller and more local speciality groupings, make health care more expensive through their exercise of their monopoly power. Which is where the solution being offered rather falls down:
This law would return primary care to the primary care physician. Every patient should have one trusted doctor who is responsible for his or her overall health. Resources must be allocated to expand those doctors’ education and training. And then we have to pay them more.
...Those doctors should have to approve specialist referrals — they would be the general contractor in the building metaphor.
There are health care systems which do this, Britian's NHS for one, and health care systems which do not do this, France for example. Both are notably cheaper than the US system and thus it cannot be this which determines the expense.
But my point is not about such details of a health care system, it's about the underlying economics here. As Mark Perry points out, Friedman again:
(In) Capitalism and Freedom, Dr. Friedman describes the American Medical Association (AMA) as the “strongest trade union in the United States” and documents the ways in which the AMA vigorously restricts competition.
Or as Shikha Dalmia has said here at Forbes:
But the entities that will be most injurious to the nation’s health are not so much in the evil-mongers’ group but the first group, including the American Medical Association–a doctors’ cartel that has controlled the medical labor market in the U.S. like its personal fiefdom for a century. Instead of “palling up” with it, President Obama should do everything in his power to break its choke-hold and bring physician salaries–among the biggest drivers of health care costs–back down to Earth.
Or again, back to that Milton Friedman speech at the Mayo Clinic in that clip above:
Speaking to a group of medical professionals at the Mayo Clinic in 1978, economist Milton Friedman argues for "no licensure of physicians," because that would help to "reduce and eliminate the monopoly power of the American Medical Association. That monopoly power is derived almost entirely from the fact that the practice of medicine is an activity which can be engaged in by only those who have licenses from government. And the control over that licensure procedure is what has enabled the AMA to exercise its monopoly power for these many decades."
Now, entirely pull yourself away from the precise subject being discussed here, health care, and look instead at the underlying economic model. By being able to firstly insist upon licensure, then secondly limit entry into the profession, a group has managed to become the gatekeepers to something like 18% of the American economy. Most certainly, the excess costs, the difference between the perhaps 10 or 11% of other rich economies, the 18% of the US, devoted to this sector is not only due to this monopoly and market power being exercised. But it's certainly very much something to do with it. And we'd really like to do something about this too. We all like the output but we'd all also prefer to be paying a little less for it.
The question thus becomes, well, how do we break the monopoly, lessen the market power? It's not obvious that there is any political possibility of doing so if we're honest about it. Dean Baker deserves an honourable mention here as he insists that allowing hugely freer immigration of trained personnel will help, as indeed it would. But when we look around at the current debate we see that it's all about who should be paying these high costs, not how do we get the costs reduced?
At which point an extremist view about monopolies. Robert Bork was widely, and unfairly, castigated for making it over Microsoft a couple of decades back. The point being that no one has a permanent monopoly. Technology always changes enough so that any and every monopoly is broken in the end. This is entirely true too, although obviously "the end" can be Keynes' long run where we're all dead anyway. But we do seem to be getting to that point, as I've argued before:
Imagine the use of Watson in the medical field. Much diagnosis is looking at the symptoms and then running down a decision tree as to what might be causing them. There's various diagnostic tests that can be done at certain points and the results of those indicate which fork of the tree needs to be taken, that then determining what is the next question that needs to be answered. That's something that a properly programmed computer should be very good at. But what is then going to be the impact upon medicine of general use of such a machine?
Well, we've just automated much of what we spend many long years training doctors to do. We will, of course, get better diagnosis of what ails us. But we'll also see that skill that the doctors currently require rather fade away. Because the diagnostic skill is now in Watson. That means we don't need such highly trained doctors, nor so many of them. That is, the machine replaces the labourer. Doctors' jobs will start to vanish: the speed at which they do probably determined by the political skill they can deploy as a profession to make sure that no one who is not a doctor is allowed to use a Watson. Yes, automating medicine is going to mean fewer doctors.
When making that point I have, at times, had missives from people absolutely insisting that Watson will only ever work with, not replace, doctors. But despite the protestations of PR departments that is still what is going to happen. One of the professions, the parts of life, that the robots and AI technologies are going to overwhelm is this very monopoly of the AMA and the like.
Note again that this is a purely economic analysis. The US system is expensive because of a monopoly exerting market power. All monopolies come to an end as a result, if nothing gets them first, of changes in technology. We're on the cusp of exactly such a change in medical technology. Health care is going to become cheaper a a result of breaking the monopoly.
