The American healthcare system has deviated so far from any form of competitive market that it lost any claim to the moniker ‘capitalist,’ but it has received a steady stream of denigration as an example of capitalism run amok nonetheless. Today, I’d like to go over some of the obstacles to a fair market and what can be done to improve it.
There are, of course, things that cannot be properly serviced by a market. We’d like everyone to have access to good healthcare and that is only possible if we help our disadvantaged citizens out a little bit. Humans discount low-probability but high-impact scenarios too much, so we need to be encouraged to purchase insurance and participate in preventative care more frequently. Still, there are aspects of healthcare that would be significantly worse if the invisible hand of the market didn’t encourage investments of time and money into high-quality treatments.
Perhaps both the best example of an ideal application of a competitive market and the most egregious example of corporate lobbying and legalese erecting barriers to competition is that of the pharmaceutical industry. Large pharmaceutical companies spend enormous amounts of money on R&D, but perhaps even more impressive is their legal and lobbying budget. No industry spends more on lobbyists than Big Pharma, and it isn’t even close. They make money on a few blockbuster drugs, so when they find one, they set their rabid pack of lawyers to work on preventing any new entrants to the market (like generics). They don’t need to win, they only need to delay to make those lawyers worth nearly any cost. I wrote about the issue in a bit more detail here, so I will not go too deeply into it, but the crux of the issue is anti-competitive behavior allowing pharmaceutical companies from charging exorbitant prices. Medicare is not even allowed to negotiate in the same way as private insurance companies; the whole situation is a cash grab into the pockets of the taxpayer.
Hospitals make an even larger percentage of the total healthcare spend in the US than pharmaceuticals, but they have run rampant with bureaucratic costs, monopolistic behavior, and opaque pricing. There is no menu of prices for various procedures. They hide behind deceptive labeling when they create your bill. They charge absurd prices for simple things. The same procedure can cost an order of magnitude more in one hospital than another across town. Price discrimination, while illegal in all other industries, is commonplace in hospitals. The simple truth of the matter is that there is nothing you can do as a consumer of healthcare because hospitals are almost never close to each other. They are given regional monopolies and they abuse that monopoly power with impunity while insurance companies struggle to negotiate with them because of nearly unparalleled market power.
Meanwhile, the American Medical Association (AMA), an organization made up entirely of doctors, is allowed to determine licensure for various procedures. I doubt someone who completes college, medical school, internships, and residency has anything but the best interests of their patients at heart, but they do naturally assume that anyone without their extensive training is able to give competent care. While, in an ideal scenario, everyone would have fast and cheap access to a physician, the truth of the matter is that we do not have nearly enough doctors to do everything they are meant to do for everyone. Trained nurses can perform many of the more basic tasks that are assigned to doctors competently enough and their labor comes at a fraction of the cost. Labor shortages mean that we have to pay healthcare professionals much more money per hour and care suffers as a result. Preventing people who would be able to perform those tasks from doing so only exacerbates the problem.
Despite all of that and more problems we will not be discussing today, the American healthcare system does an admirable job of providing care. Controlling for accidental deaths, gun violence, and drug overdoses, we have one of the best systems in the world. The problem lies with price. We spend more per capita than any other nation for a similar result. Fixing it should, in theory, be simple. We need to make markets more transparent and lower barriers to entry for drugs and labor. In practice, there are powerful special interests that are able to prevent those things from coming to pass. Shining a light on the dirtiness of the issue can go a long way towards pressuring elected officials to get these things done.