The article complains
The medical-device industry faces virtually no price competition. Because of confidentiality agreements that manufacturers require hospitals to sign, the prices of the devices are cloaked in secrecy.This is ridiculous. I work in a very similar industry, selling very expensive equipment. Our prices, too, are cloaked in secrecy, and there is tremendous protectiveness about our prices and technology. But confidentiality agreements don't prevent our customer from shopping around, they just prevent them from sharing our information with our competitors and outside sources. The idea that a confidentiality agreement prevents price competition is ludicrous. It could only come from someone who has no experience with high-end niche-market products.
The reason it doesn't work for hospitals is that, unlike a truly free market business, there's no price pressure from below and almost no consumer choice. In my business, if the customer is going to spend several million dollars on our product, they have to justify the expense -- ROI, return on investment. They know they can't simply jack their prices up to ludicrous levels at the consumer end to cover it.
In the healthcare market, though, this isn't true. It starts right at the bottom. Because of the World War II era tax incentives on employer-provided insurance plans, the vast majority of workers get their health insurance through their employers. This means they have effectively no personal choice over their insurance plans. They don't get to choose how much they pay or what is covered. The premiums themselves are often highly-subsidized as a term of employment and even when not, it's pretty much a take-it-or-leave-it proposition.
Then when the consumer seeks actual healthcare, he is either only allowed, or highly-incentivized to go to the healthcare practitioners authorized by his insurance. What other industry does that? If you wreck your car, or your house is damaged in a storm you can go to any mechanic or contractor you want! But you can't protest this by dumping the insurance company that forces you into this, because see step one: employer-subsidized coverage! It all builds on a rotten foundation. No wonder you get a rotten product!
These doctors are forced into a pricing scheme that is heavily-influenced by insurance company and government mandates. Over half of every health care dollar in the U.S., even before Obamacare, is spent by the U.S. government. It's the 800 lb. gorilla in the room. Because Medicare is a mandatory insurance program for the elderly, and old age is when most people spent the vast majority of their healthcare dollars, Medicare rates dictate nearly all healthcare pricing in the nation -- even non-Medicare insurance and healthcare is warped by these pricing mandates. You can't dictate over half the pricing in an industry through government mandate without that being true.
So, the individual uses the insurance he doesn't have a choice in to select from a limited pool of doctors to obtain treatments for which he is prohibited from negotiating on price, and for which the price he does pay is highly subsidized, typically 80-90% paid by insurance. How, exactly, is this free market medicine? Naturally this encourages astounding waste because at nearly every level of the transaction people are dealing with "other peoples' money."
In my business *none* of it is subsidized. Every expenditure has to be justified by what the market will bear. That's the difference.
The article goes on:
Even worse, manufacturers often maintain personal relationships (sometimes involving financial payments like consulting fees) with physicians who choose the medical devices that their hospitals purchase, creating a conflict of interest. Physicians often don’t even know the costs of the devices, and individual physicians often choose devices on their own, which weakens a hospital’s ability to bargain for volume discounts.OK, the stuff that's really expensive is hardly fodder for "volume discounts" -- the medical equipment we're talking about here isn't exactly gauze and sutures. It's high-tech fiber optic cameras and highly specialized equipment that may only be used for a single type of surgery. The hospital doesn't buy the expensive pieces in "volume," it may have only one or a few of them.
Certainly the physician choosing his own equipment at hospital expense is another example of "other peoples' money" in operation, but that sounds to me a like a matter of hospital policy, not a matter for government intervention, and it goes back again to the lack of consumer pressure on prices, not fiscally-irresponsible doctors. The doctors choose the equipment because when they are in surgery wrist deep in a cardiac patient, there's no administrative bureaucrat, no advisory group of doctors on the budget committee, to take the fall if the doctor is saddled with inadequate equipment. It's all on his head, the buck stops there. So do we really want anyone but our doctor dictating what equipment he uses?
As for the personal relationships, I don't think people understand how complicated this equipment is. Most people don't realize that there are often medical equipment company reps. right in the OR with the doctor and the rest of the team, because some of this equipment is so complex it requires a highly-knowledgable rep. to be on hand for advice and assistance. Again, we're not talking about gauze and sutures. This is also true in my industry, although it's not life or death: we spend a lot of time advising and assisting customers with our technology long after the sale. You're not just buying a refrigerator from Home Depot, getting it dropped off and never talking to GE or Home Depot again unless you need warranty repeair. When you buy equipment this high-end, you're also buying the company. Good personal relationships and trust in the vendor are essential! If this guy's in the OR with you helping you operate a million-dollar medical device with a patient's life on the line, it's nice to know he's someone competent, that he wasn't flipping burgers two weeks ago, before he signed on with the company that won the contract by submitting the lowest possible bid!
This article says the author, Topher Spiro, is the vice president for health policy at the Center for American Progress. If you go to his bio, he's a lifelong bureaucrat and policy wonk. He's absolutely not the guy you want involved in your life-or-death medical decisions! He demonstrates this in his article by showing that he has no understanding of either the basic economics that underlie this problem, nor the medical necessities involved in the use and sale of expensive medical equipment.
The entire article boils down to "Blah, blah, blah, greedy corporations! Blah, blah, blah, enormous profits!" It's a screed fit for a sophomore political activist, not someone seriously interested in improving the nation's healthcare.
His entire approach is a top-down "solution" that says "Medicare should force" this and legislation would "require" that, when top-down legislation and price fixing are what got us into this mess. It's no accident that the most highly-regulated markets in the nation are also the ones where supply and demand function least effectively. But, when you are a statist, the answer to failure of statist schemes is always "more statism!"
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