In a recent article by Worstall in the AEI Journal the author speaks of health care cost reductions. He refers to a paper by Baumol who argued that in certain industries such as a symphony orchestra it is just impossible to gain what could be called scale economies. Thus what he argues is that there may be a fundamental flaw in health care that will drive costs up as demand goes up.
Specifically he states:
"What we really want to do is to routinize and mechanize as much of the medical process as we can, and the one spur, the workable incentive, that we know encourages this is that combination of greed, profits, the division of labor and specialization, and the urge to find cheaper ways of doing things which comes from that odd but unique interaction of capitalism and markets.
It is a basic truism that if you do not identify the source or cause of a problem then you cannot discover a workable solution to said problem. The current laboring of the elephant will indeed produce a mouse to address the perceived problems of healthcare unless we grasp the basic points—that we want more, not less, high-tech medicine and that to get from here to there we have to harness both markets and capitalism to our desires, not attempt to abolish them from the system.
In short, attempting to bend the cost curve through legislative fiat is simply silly, but to try and do so by limiting either capitalism and markets or innovation in new technologies is, quite frankly, insane."
Now he also refers to Emanuel's comments, the brother of the Chief of Staff of the current President:
"Which leads us on again to the idea that the way to reduce the inflation in medical costs is to curb the use of “high-tech” medicine. Dr. Ezekiel Emanuel, the president's healthcare adviser, is said to be a fan of this idea, which is worrying. For of course it is entirely and absolutely wrong. It is precisely and exactly technology that reduces medical costs by increasing the productivity of labor."
But more on that later, since Emanuel also urges rationing and only providing services to 15-55 year olds, and letting the rest for the most part to fend for themselves. Nice trick if you can do it. But what does one expect.
Now back to the AEI article. As we have argued the basic cost equation in health care is:
Costs = Population X Incidence X Procedures per Patient X Cost per Procedure
Thus we can try to reduce any one of these four elements. Yet the true issue as we have stated is the number of new procedures used. Again just look at heart failure and the 1970 6th Edition of Harrison's versus the 2008 17th Edition of Harrison's. We now perform dozens of more procedures, both diagnostic and treatment wise. Yes the unit costs has gone up but that is not the driver, it is the number of procedures for heart failure. Yet in the Type 2 Diabetes realm it is the incidence not the procedures. Thus it is possible to look at the ten major diseases and compare 1970 to 2010 and see whether it is procedures, incidence, or both which are the drivers. Then if one follows Emanuel we let the older and the younger die, perhaps, but Dr. Emanuel should note the problem is with those in the middle!
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