What if airlines ran like healthcare

When was the last time your EMR went down? Your LIS went down? You picked up a slide with the wrong label or stain, or both? A patient named Jones who was a patient of Dr. Smith was actually the patient Smith and Dr. You were suppose to get an electrocardiogram and the order was for an echocardiogram? Meanwhile, in the friendly skies, hotels. Seriously, when is the last time you actually bought that at your local supermarket?

Many people die in hospitals and those stories are not front-page news. To an extent, exercises in safety are the stories of future success through present day failures.

Public tolerance for plane crashes is exceedingly low and yet public tolerance for medical related death is exceedingly high. Commercial air travel has taught us to expect a safe arrival.

Medical practice has convinced the public to have no such expectation. If medicine aspires to be truly safe, it must take the nature of the practice of medicine much more seriously. To wit, commercial air travel is not referred to as the practice of flying. As new tests and treatments are developed, they are, for the most part, added to our Medicare or commercial insurance policies, no matter what they cost. But of course the money must come from somewhere.

The housing bubble offers some important lessons for health-care policy. The claim that something—whether housing or health care—is an undersupplied social good is commonly used to justify government intervention, and policy makers have long striven to make housing more affordable.

But by making housing investments eligible for special tax benefits and subsidized borrowing rates, the government has stimulated not only the construction of more houses but also the willingness of people to borrow and spend more on houses than they otherwise would have.

The result is now tragically clear. Why do we view health care as disconnected from everything else? Why do we spend so much on it? And why, ultimately, do we get such inconsistent results? Any discussion of the ills within the system must begin with a hard look at the tax-advantaged comprehensive-insurance industry at its center.

How has a method of financing health care become synonymous with care itself? The reason for financing at least some of our health care with an insurance system is obvious. We all worry that a serious illness or an accident might one day require urgent, extensive care, imposing an extreme financial burden on us.

In this sense, health-care insurance is just like all other forms of insurance—life, property, liability—where the many who face a risk share the cost incurred by the few who actually suffer a loss.

But health insurance is different from every other type of insurance. Health insurance is the primary payment mechanism not just for expenses that are unexpected and large, but for nearly all health-care expenses. Comprehensive health insurance is such an ingrained element of our thinking, we forget that its rise to dominance is relatively recent.

Modern group health insurance was introduced in , and employer-based insurance began to blossom during World War II, when wage freezes prompted employers to expand other benefits as a way of attracting workers. Still, as late as , only a minority of Americans had health insurance. This seemingly minor tax benefit not only encouraged the spread of catastrophic insurance, but had the accidental effect of making employer-funded health insurance the most affordable option after taxes for financing pretty much any type of health care.

There was nothing natural or inevitable about the way our system developed: employer-based, comprehensive insurance crowded out alternative methods of paying for health-care expenses only because of a poorly considered tax benefit passed half a century ago. In designing Medicare and Medicaid in , the government essentially adopted this comprehensive-insurance model for its own spending, and by the next year had enrolled nearly 12 percent of the population.

We all believe we need comprehensive health insurance because the cost of care—even routine care—appears too high to bear on our own. An expensive and wasteful absurdity, no? Is this really a big problem for our health-care system?

Well, for every two doctors in the U. Much of this enormous cost would simply disappear if we paid routine and predictable health-care expenditures the way we pay for everything else—by ourselves.

If the demand for health care is purely a response to unavoidable medical need, why do these companies do so much advertising? Medical ads on TV typically inform the viewer that a specific treatment—a drug, device, surgical procedure—is available for a chronic condition.

Many also note that the product or treatment is eligible for Medicare or private-insurance reimbursement. In some cases, the advertiser will offer to help the patient obtain that reimbursement. The key message: you can benefit from this product and pass the bill on to someone else. Most physicians, meanwhile, benefit financially from ordering diagnostic tests, doing procedures, and scheduling follow-up appointments.

Combine these two features of the system with a third—the informational advantage that extensive training has given physicians over their patients, and the authority that advantage confers—and you have a system where physicians can, to some extent, generate demand at will.

Do they? Well, Medicare spends almost twice as much per patient in Dallas , where there are more doctors and care facilities per resident, as it does in Salem, Oregon, where supply is tighter. Because doctors particularly specialists in surplus areas order more tests and treatments per capita, and keep their practices busy.

Many studies have shown that the patients in areas like Dallas do not benefit in any measurable way from all this extra care. All of the physicians I know are genuinely dedicated to their patients. But at the margin, all of us are at least subconsciously influenced by our own economic interests. The data are clear: in our current system, physician supply often begets patient demand. In this environment, trying to control costs is awfully tough.

When Medicare cut reimbursement rates in on chemotherapy and anemia drugs, for instance, it saved almost 20 percent of the previously billed costs. As The New York Times reported, some physicians believed their colleagues simply performed more treatments, particularly higher-profit ones.

Want further evidence of moral hazard? But likewise, insured patients often get only marginally beneficial or even outright unnecessary care at mind-boggling cost.

The unfortunate fact is, health-care demand has no natural limit. Our society will always keep creating new treatments to cure previously incurable problems. Some of these will save lives or add productive years to them; many will simply make us more comfortable. And the subtle difference between those two questions is costing us all a fortune.

Perhaps the greatest problem posed by our health-insurance-driven regime is the sense it creates that someone else is actually paying for most of our health care—and that the costs of new benefits can also be borne by someone else. Unfortunately, there is no one else. That would pay for four days of health care for all Americans. Another 7 days. Somebody else always seems to be paying for at least part of our health care.

Where else could it come from? In recent years, health-care costs have actually grown 2 to 3 percent faster than the economy. Would you have guessed these numbers were so large? If not, you have good cause: only a quarter would be paid by you directly and much of that after retirement.

The rest would be spent by others on your behalf, deducted from your earnings before you received your paycheck. Yet it goes without saying that in the big picture, all government efforts to control costs have failed. One reason is a fixation on prices rather than costs. The government regularly tries to cap costs by limiting the reimbursement rates paid to providers by Medicare and Medicaid, and generally pays much less for each service than private insurers.

The balloon continues to inflate, but in misshapen form. Cost control is a feature of decentralized, competitive markets, not of centralized bureaucracy—a matter of incentives, not mandates. Even the simplest business faces constant variation in its costs for labor, facilities, and capital; to compete, management must react quickly, efficiently, and, most often, prospectively.

By contrast, government bureaucracies set regulations and reimbursement rates through carefully evaluated and broadly applied rules. These bureaucracies first must notice market changes and resource misallocations, and then sometimes subject to political considerations issue additional regulations or change reimbursement rates to address each problem retrospectively. As a result, strange distortions crop up constantly in health care. For example, although the population is rapidly aging, we have few geriatricians —physicians who address the cluster of common patient issues related to aging, often crossing traditional specialty lines.

If seniors were the true customers, they would likely flock to geriatricians, bidding up their rates—and sending a useful signal to medical-school students. But Medicare is the real customer, and it pays more to specialists in established fields. And so, seniors often end up overusing specialists who are not focused on their specific health needs.

Many reformers believe if we could only adopt a single-payer system, we could deliver health care more cheaply than we do today. As currently structured, Medicare is a Ponzi scheme. The Medicare tax rate has been raised seven times since its enactment, and almost certainly will need to be raised again in the next decade. The subsidy is getting larger even as it becomes more difficult to maintain: next year there will be 3. The experience of other rich nations should also make us skeptical.

Whatever their histories, nearly all developed countries are now struggling with rapidly rising health-care costs, including those with single-payer systems. From to , per capita health-care spending in Canada grew by 33 percent, in France by 37 percent, in the U. Cost control by way of bureaucratic price controls has its limits.

In competitive markets, high profits serve an important social purpose: encouraging capital to flow to the production of a service not adequately supplied. But as long as our government shovels ever-greater resources into health care with one hand, while with the other restricting competition that would ensure those resources are used efficiently, sustained high profits will be the rule. Health care is an exceptionally heavily regulated industry. Health-insurance companies are regulated by states, which limits interstate competition.

And many of the materials, machines, and even software programs used by health-care facilities must be licensed by state or federal authorities, or approved for use by Medicare; these requirements form large barriers to entry for both new facilities and new vendors that could equip and supply them. Many health-care regulations are justified as safety precautions.

But many also result from attempts to redress the distortions that our system of financing health care has created. And whatever their purpose, almost all of these regulations can be shaped over time by the powerful institutions that dominate the health-care landscape, and that are often looking to protect themselves from competition. Take the ongoing battle between large integrated hospitals and specialty clinics for cardiac surgery, orthopedics, maternity, etc.

The economic threat posed by these facilities is well illustrated by a recent battle in Loma Linda, California. When a group of doctors proposed a bed private specialty facility, the local hospitals protested to the city council that it was unnecessary, and launched a publicity campaign to try to block it; the council backed the facility anyway.

Traditional hospitals got Congress to include an month moratorium on new specialty hospitals in the Medicare law , and a second six-month ban in But why are simple surgeries more profitable? Because of the nonmarket methods by which Medicare sets prices. The net effect of the endless layers of health-care regulation is to stifle competition in the classic economic sense. In , Benjamin Franklin and Dr. Yet in recent decades, the rationale for concentrating so much care under one roof has diminished steadily.

Many hospitals still exist in their current form largely because they are protected by regulation and favored by government payment policies, which effectively maintain the existing industrial structure, rather than encouraging innovation. Hospitals have sought to use the laws and regulations originally designed to serve patients to preserve their business model. Hospitals are indeed required to provide emergency care to any walk-in patient, and this obligation is a meaningful public service.

But how do we know whether the charitable benefit from this requirement justifies the social cost of expensive hospital care and poor quality? And again, the distortions caused by a reluctance to pay directly for health care—in this case, emergency medicine for the poor—are in large part to blame. Has anyone who believes this ever actually been to an emergency room?

My sister is an emergency-medicine physician; unlike most other specialists, ER docs usually work on scheduled shifts and are paid fixed salaries that place them in the lower ranks of physician compensation. The doctors and other workers are hardly underemployed: typically, ERs are unbelievably crowded. They have access to the facilities and equipment of the entire hospital, but require very few dedicated resources of their own.