Health Care – The “simple” economics July 15, 2013

Within the U.S.A. there is an ongoing debate/conversation/argument/fight related to healthcare and how we can make it better.  While there are numerous complexities to the system as it currently exists, there are three principles that can be referenced in a common sense discussion of the healthcare topic:

1. Cost
2. Quality
3. Access

In a book written by Rob Rodin titled “Free Perfect and Now” (the three insatiable customer demands), we see a simple economic example of three principles that you can never have completely or 100% at the same time.  A thing can be free, and you can possibly even get it immediately (now), but it will not be perfect.  For it to be perfect, it would need to be able to address a multitude of different needs.  To make something free and available now, requires that it address a specific (limited) set of needs.

In the same way we can look at the other dimensions of perfection which if we strive to make a thing “perfect”, it will likely not be free and in the quest of specifying its “perfectness” we have guaranteed that it will not be available now.  So with these things in mind, lets consider the simple principles of healthcare economics (cost, quality, and access).  They follow the same dimensions Free-Perfect-Now as described in Rob Rodin’s book.

For many years America had the best healthcare system in the world.  And even today, one can say with confidence that the quality of American healthcare is the highest in the world.  However in our quest for quality, we have introduced some significant complexity into the system.  This it seems is driven by a belief that the healthcare system can be engineered at a massive national level.  There it seems is where we have made a bet that is not working out quite like we planned.

Not that long ago (in the 50’s and 60’s) there was a lot of research going on in healthcare and that research found its way into the practice of healthcare through the individual motivation of practicing doctors, nurses, and other healthcare professionals.  Practicing physicians learned new things and they applied these new things to improving their patients outcomes.  Things were working pretty well.

Then it seems a movement arose to try and “assure” that all medical professionals were following the same quality guidelines.  And moreover, these quality guidelines would need to be enforced.  About the same time there is a desire to make it possible for patients to be able to afford the really expensive procedures so we see medical insurance become a commonplace item and increasingly an item that is a key part of a compensation package when working for a company. Well now all companies did this and that is where we start to see some inequality in the system.  Not everyone can “afford” to get “access” to the higher quality of care that is offered to those with insurance.

In an attempt to address the “cost of access” problem, the concept of managed care is introduced with the idea that a free-market system (at a bigger scale) can drive efficiency and enable the delivery of high-quality (but expensive) procedures at a lower price point and therefore enable access to patients that could not previously afford such services.

And while all of this is happening, we see an increasing burden and financial catastrophe taking shape within American hospitals.  They are using the high-end medical procedures being delivered to finance “free” services to those that cannot afford to pay.  To a great extent, the hospitals become the front-lines for delivery of free healthcare to those in need without the ability to pay.  So the economics of this strange configuration drives up the costs of the “paid” procedures and since there are now layers of administration and oversight that must be compensated within this delivery model, the costs further rise.

Then along comes the affordable healthcare act (Obamacare).  This system is proposed to solve the skyrocketing costs of healthcare while also improving access to 100% of the population and at the same time making sure that the quality stays the same.  In effect the Affordable Healthcare Act seeks to make healthcare free, perfect, and now.  Well we have seen that is just not possible and trying to engineer the impossible on a grand national scale makes it even less likely.

So my suggestion is to go back to the way we used to practice healthcare before the days of managed care, big insurance, and lots of government administrative regulations.  We can have local doctors that get good educations, keep abreast of new things, and at their individual pace, factor these new things into their medical practices and thereby improve outcomes for their patients.

With such a system we will certainly have “good doctors” and “bad doctors” and the resulting outcomes of this disparity in quality.  But since we cannot engineer 100% success in cost, quality, and access, this highly resilient and distributed approach can more effectively serve the national needs by focusing on the local community needs.  It is a simple approach, and we need not make the problem complex just so we feel compelled to solve it with a massive national program.  The solution it seems is to back away from the massive national program and to return to basic principles that have always worked best in the aggregate by fostering a provider-client relationship that is rooted in local community.