Healthcare in the USA is wildly expensive and is growing more so at a rate that exceeds inflation. This is well known. The battle for healthcare reform in DC is bogging down under the weight of private interests and infighting.  Soaring rhetoric from both left and right is mistaken for intellection and reason. It is evident that the fix to the problem was started before there was a clear understanding of the variables.

If you look at healthcare as a manufacturing activity with labor, capital equipment, and materials as input and some sort of health benefit as the output, you can start to see what cost inputs may begin to dominate. Of course this is very simplistic, but hang with me.

A round of health care involves attention by highly trained and expensive labor. A health care worker can only attend to one person at a time, though that worker may have many patients under his/her supervision. If a patient is stabilized, the care worker can also attend to other patients and achieve some sort of parallel production for better cost containment. In the heirarchy of medicine, the docs are managers who provide oversight to nurses who manage the patients. Docs also do consultations, examinations, and perform surgery, so they are not pure people managers- they get their hands dirty. Docs are a unique class of management all by themselves.

To exaggerate the effects of labor costs, imagine if you had a doc or a nurse picking strawberries, how expensive would the strawberries be? Even if Dr. Picker was very fast, the berries would be expensive. To have reasonably priced berries you have to find workers who will do the work at a lower wage. Lower wages derive from an abundance of willing labor.

In the end, medical schools control the scarcity of physicians by controlling enrollment. And the enrollment is defined by the curriculum, faculty size, and the particulars of the coursework- availability of clinical experiences, lab space, equipment, etc. But, you have to wonder what would happen to medical costs if there was less labor scarcity.

The most important resource a medical school has, other than faculty, might be the university hospital. What if more hospitals had medical schools rather than the other way around? I don’t think that the existing medical schools have absorbed all of the bright candidates out there.

Health care is a kind of economic chimera. The recipient of medical treatment is not the person in control of the costs. Physicians prescribe the type and extent of resources and the insurance companies release the funds. The medical establishment receives payment for services irrespective of outcome. Insurance companies profit by denial of services. The patient is left to sort out how to get the best value from available treatment.

American medicine is very much influenced by technological triumphalism.  New and expensive materials and devices hit the market all of the time. The question every potential marketer of medically related items must ask is- will the docs use or prescribe it? The most powerful instrument in medicine is the physician’s pen. The question for drug and equipment makers is, how do you get the docs to use their pens to your advantage?

The view that a disease or an injury is a sales opportunity is what drives for-profit clinics and hospitals. Without chronic disease, accidents, and sporadic outbreaks of mayhem, growth and profit in the healthcare industry might be more static.

So in the end, who do you trust? Do you put your faith in the private sector whose avowed goal is to profit on your illness? Or do you trust the government which, though accountable to its citizens, is prone to profound organizational inertia and a lackluster draw to talented staff?  This is the balance of opposing forces the fools in Washington are trying to sort out. Howard help us all.

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