This is getting tiresome. I am being assailed by economists who protest that they can boil health care down to supply and demand, and that demand creates supply. True on its face, but the economic devils are in the details. And they don’t want to hear the details, or they want to ignore them, or they’re just so smart ….well, clearly that’s not it.
The problem with health policy today is that too many people who style themselves as economists (including one commenter on a previous post), and therefore experts on everything, make flat out wrong statements like “Adding supply does not increase demand. The increased supply of health services over the last forty years is due to an increase in demand (due to Medicare).”
How simplistic. The reason health care costs are increasing is an aging population, medicine’s position as more art than science, a lack of control over new and expensive technology and medicines, and the US subsidizing much of the world’s pharma research. But back to demand and supply.
Here’s healthcare 101. Some may have heard of John Wennberg, MD. Here’s an excerpt from his seminal study on hospital utilization in Boston and New Haven. (Lancet, May 23, 1987)
” The populations of New Haven and Boston are demographically similar and receive most of their hospital care in university hospitals, but in 1982 their expenditures per head for inpatient care were $451 and $889, respectively. The 685,400 residents of Boston incurred about $300 million more in hospital expenditures and used 739 more beds than they would have if the use rates for New Haven residents had applied. Most of the extra beds were invested in higher admission rates for medical conditions in which the decision to admit can be discretionary. The overall rates for major surgery were equal, but rates for some individual operations varied widely. These findings indicate that academic standards of care are compatible with widely varying patterns of practice and that medical care costs are not necessarily high in communities served largely by university hospitals.
Why was utilization higher in Boston? Because they had more hospital beds, and admitted more patients with conditions such as COPD than docs in New Haven did (may not be in an economics textbook, but known to we morons in health care as chronic obstructive pulmonary disease). The supply drives demand in health care.
And that is but one reason health care is NOT like any other good or service.
Here’s another quote from a more recent Wennberg article on variation in medical utilization:
“Medicare spending varies more than twofold among regions, and the variations persist even after differences in health are corrected for. Higher levels of Medicare spending are due largely to increased use of “supply-sensitive” services-physician visits, specialist consultations, and hospitalizations, particularly for those with chronic illnesses or in their last six months of life. Also, higher spending does not result in more effective care, elevated rates of elective surgery, or better health outcomes.
There are many other reasons so-called economists’ simplistic opinions on health care are naive and ignorant – there is little to no accurate data on what procedures, facilities, or providers provide optimal outcomes so buyers don’t know what to buy; it is often impossible for the layman to determine if a symptom or set of symptoms is an indicator of something serious; the most expensive patients cost far more than any deductible anticipated by the CDHP advocates, thereby eliminating any price sensitivity on their part; poor folk can’t afford basic insurance anyway so their care gets covered under EMTALA, and on and on.
Economists talking health policy are like priests talking safe sex. They know all about it in theory, but their knowledge is purely academic, as is their understanding of the basic concept and sensitivity to the potential positive and negative outcomes. And the visual is decidedly unappealing.
I wish I could bill for this.
