Monday, February 15, 2016

One Asshole's (Informed) Opinion: The Rules Don't Apply, Part II

I'm likely to be catch crap from colleagues for this one, but it's salient to the ongoing dispute between Ontario and the doctors.

Why do politicians routinely make a stink about doctor's earnings, rather than nurses, bureaucrats, hospital CEOs, or themselves? Because doctors are the only ones on that list that have the ability to determine their own income. For the record, this applies to the traditional way doctors have been paid, by billing government insurance plans for services provided to the patient (fee-for-service or FFS for short). Nowadays, there are dozens of schemes under which doctors are paid, but it doesn't really affect the core of the issue.

If the number of barbers in a city doubles, what happens to the average amount each of them can make off a haircut? It wouldn't quite be expected to reduce by half. There's likely to be some unmet demand from people that couldn't get appointments previously, and there will be newcomers to town needing haircuts. But you would still expect there to be hit to the bottom line. This is a critical reason that wages have stagnated in the U.S. as manufacturing jobs were moved to China, India, and elsewhere...there are a lot more bodies to do not all that much more work.

How does this apply to health care?

From the 60s through the 80s, the number of doctors in Canada roughly doubled. Nevertheless, the average earnings per doctor, adjusted for this, that, and the other, went up. Even if you allow for demographic shifts, incentives to get doctors to underserviced areas, and pent-up need from people without doctors, could you really expect things to run contrary to basic economics? Probably not, until you factor in the how health care costs are driven by medical care.

The first is that the doctor has direct control over when and how often the patient is seen, and each visit is billed to the government insurance plan. If you have, say, an ear infection she decides to treat, the doctor has a clinical reason to see you back in two weeks and make sure it's cleared up. However, she also a financial incentive to book that follow-up visit as well. This straightforward ability of the doctor to determine the need for the next appointment, what economists might call supplier-generated demand, is probably the #1 thing governments HATE about universal medical insurance. It's also used as a propaganda bludgeon, because few doctors blatantly abuse the system. You can only see so many people in the run of a day before you're not really practicing medicine.

The second factor is that the practice of medicine itself drives health care costs and doctor billings. I don't get paid unless I see you. But, if that appointment results in ordering tests, the tests cost money, the referrals cost money, and heeding the specialist instruction to "see your family doctor for follow-up" costs money. 

Third, much like Apple, medicine keeps inventing new things to see your doctor about. Once we invent MRIs, we invent appointments to go over the results of the MRIs. Once we decide that high cholesterol is a disease, we create appointments to discuss your blood tests, give dietary advice, talk about medication, and review things once you've been taking the meds for a while. Really, technology is the only other industry that keeps creating expenses for the customer at this rapid a pace. However, unlike high-tech gadgets, you can't choose whether to opt in or out of health on a whim. There are ways we evaluate medical breakthroughs in terms of their cost-effectiveness, but such analyses are rarely of value for primary care or public health initiatives. There are simply too many balls in the air. 

The point of this and the previous post was to clarify why and how health care is not an ordinary good or service, no matter which way you look at it. If the normal rules of economics and business don't apply, we shouldn't expect the normal "solutions" from economics and business to apply either. So, with my full support, the next time some fast-talking politician or consultant comes to you with the miracle fix to the health-care system, quote The People's Champ:

Next time, wait times.

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