Planet Money

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A Suggestion for Planet Money: Investigate why the healthcare market isn’t competitive

Planet Money podcast: Please consider a second part for “Episode 439: The Mysterious Power Of A Hospital Bill”

I’ve regularly listened to Planet Money for a few years now. I’ve occasionally had qualms with an episode, but it’s a great podcast, and I’ve learned a lot from it. This Tuesday’s episode was about healthcare costs, and it focused on Steven Brill’s ideas (Brill just wrote a whopper of a cover story for Time: “Bitter Pill: Why Medical Bills are Killing Us“).

You should listen to the podcast to get the full flavor of the conversation. But the gist is that costs are high because insurers lack bargaining power. The silver lining is that Medicare actually pushes costs down because the program has so much bargaining power. Brill suggests we lower the age for Medicare so that costs will come down.

Near the end of the podcast, they acknowledge that there may be an alternate way to push costs down: competitive markets. But they quickly brush this aside after about a minute with, “Obviously we’re not gonna’ settle this debate right here.” Then they close the show. While I understand the time constraints of the podcast, I’m concerned that what they really mean is they aren’t going to try to settle the debate at all. I hope they revisit the idea that competitive markets could help bring costs down, if only healthcare were a competitive market.

“Healthcare is fundamentally different”

Here’s their reasoning for why this just wouldn’t work: Around 16:00 into the 18:00 podcast, they say “…healthcare is fundamentally different. If you have chest pains, you’re not gonna’ like get on the Internet and start Googling ‘what hospital in my neighborhood has the best price for heart attack treatment’, right?. You’re gonna’ call 911, and the ambulance is gonna’ come and get you and it’s going to take you wherever it takes you. So [Steven Brill] argues that the model is not really a sensible model to use for healthcare.”

This just seems like such a weak argument to me. I’m not going to settle the debate either, but I’d like to at least throw out some ideas, and point out how shallow this example is.

How much healthcare spending is on traumatic life-and-death care?

First of all, I’d be curious how much of our healthcare spending goes to this type of suddenly-traumatic and life-threatening situation. My guess is that the vast majority of “healthcare spending” happens in a planned, calculated way. People find out they’re sick, they get a first, second, third opinion. They decide on their course of treatment, and they sign up to receive that treatment at a hospital. There’s a lot of room for regular old competitive markets here. Nobody’s being whisked anywhere in an ambulance. The real question is why healthcare markets aren’t competitive in these planned-care situations.

But let’s look at this heart attack example since it seems to be the most extreme. Someone suddenly finds himself very ill, nearing death, and must seek treatment immediately. He calls an ambulance, and is simply taken to the nearest hospital. Cost is not a factor in any of this because he just doesn’t have time to think about cost. If he stops to negotiate price, he could be dead before he gets the care he needs.

There are just so many things ignored here. I’ll start with an analogy and then circle back to some of the finer points.

What if my car had a heart attack?

About 15 months ago, I took my car to a car wash, left the car with an attendant and waited around front for my car. After they finished washing and drying my car, I got in and could immediately tell something was wrong. The engine was pretty loud, and I noticed the temperature gauge was pointing to “really hot”. I put it in drive, just hoping I could move it to a parking spot or something so I could regroup. It didn’t make it to a parking spot (about 40 feet), so I just let it roll to a stop under a tree, out of the way. My car was dead – it wasn’t drivable and appeared to be in “limp mode”. I had no choice but to have it towed to see what was wrong.

Obviously, I wasn’t in danger of dying, but my car certainly was. What’s more, I was stuck – I couldn’t shop around for a good deal on the repairs because I need my car (I was going home for Thanksgiving in a few days, then off to Atlanta not long after that) and because it’s not drivable. Also, I was pretty sure the car wash wouldn’t be ok with me just leaving my car parked under their tree for very long. If my car were a person having a heart attack in Planet Money’s world, I’d call an ambulance and they’d whisk it away to whichever hospital could save it. I wouldn’t be able to negotiate the cost of repairs, and I’d end up paying a lot of money for some healthcare.

My car is saved, and I get a great price despite a desperate situation

What happened instead is that I called AAA, who sent a tow truck out in about 30 minutes. When the tow truck driver got there, I told him to take my car to Bush Gator Transmission & Auto Repair on Main Street. About 20 minutes later, it was up on the rack and they told me one of my cooling fans had died. I asked what it would cost, they told me, and I had them go ahead and do the repair. A couple hours later I drove home, plopped down on my couch, and finished planning my trip to Jacksonville.

“But you didn’t negotiate price either!”, you might be thinking. And you’re right… and wrong. The reason I didn’t negotiate price is that I knew I was going to get the best price. How? I’d been to Bush Gator many, many times in the previous five years. They’ve been my mechanic since I moved back to Gainesville in 2006. I initially went there because a friend told me about a really great experience he had there, so I decided to check them out. 1 When I first went to them, I did call around to shop prices, but I eventually just stopped doing that because Bush Gator was always far cheaper than anywhere else I called. 2

So, no, I didn’t negotiate the price of this particular repair. But I didn’t need to because I already knew they had the best prices and best service in town. I managed to get my dead-in-the-water car repaired in a pinch and I managed to get a really good price. Why isn’t this possible for healthcare? For heart attack victims, even?

Is healthcare innately different, or do we just treat it differently?

The common answer is some flavor of “healthcare is different” or “but this is life and death” 3, but this is very myopic. It assumes that Yelp! and Consumer Reports can’t exist for healthcare. It assumes that word of mouth isn’t important. It assumes that anyone who ever has a health emergency is totally ignorant of his options for care. It assumes people are incapable of making phone calls to find the lowest price for anything related to health or medicine. 4

But if I’m right, then there’s a big question we need to answer: Why isn’t healthcare a competitive industry? I don’t know, but I think Planet Money has the right resources to find out, and a great platform to tell us.

EDIT: This piece from Uwe E. Reinhardt is a good start: “Shocked, Shocked Over Hospital Bills”

FOOTNOTES:

NPR’s Planet Money Podcast flirts with the broken window fallacy

[Note: If you’re short on time, just click through and read the broken window fallacy Wikipedia page. It could change the way you think about economics and how you evaluate government policy. Also, I’ve put a couple disclaimers at the bottom of this post. I had to move them down there because it was just too much non-content leading the post.]

The latest episode of the Planet Money podcast – Why Japan Will Bounce Back – may have been misleading. A few weeks ago, I wrote the following tweet, but did not publish it (there are actually two drafts here – yes, I write drafts of tweets):

Well, apparently the economic stimulus bug has hit Japan! They’ll need to create hundreds of jobs to replace all that infrastructure!

What we call a disaster in Japan, Keynes would call phase one of a stimulus program.

I didn’t publish it because I was afraid it would be misread, and people would think I was making light of the devastation in Japan. I was really making light of the tunnel vision that many have regarding government’s ability to directly improve the economy through spending. Then, I heard the economist Planet Money booked to discuss the Japanese recovery flirting with the idea that Japan’s economy could see a net benefit from the disaster.

At first, they were just discussing economic resilience of industrialized countries. But they took it a little further from “Can Japan bounce back?” to:

Question from interviewer: Is it possible to come out with a net economic positive for Japan?
Economist: In terms of GDP and production flows you might be able to say that, except for the loss of wealth. You could’ve been using that same money – those same resources – for doing other things other than rebuilding.

In writing, this doesn’t seem quite so outlandish. But pretty much everything starting with “except for the loss of wealth” was said almost as a throwaway. It sounded like the economist thought the loss of wealth and redirection of resources would be insignificant relative to the overall “stimulus” provided to the rest of the economy. (At one point, he did compare Japan’s recovery to the economic recovery resulting from the stimulus in the States, so I know “stimulus” was on his mind when he gave the previous answer.)

I think what may have happened was the Planet Money team got caught up in the hook for their story: countries like Haiti and other impoverished countries do not  bounce back catastrophe in the way that developed superpowers like Japan can. That’s true, but they got a little carried away and started veering towards the idea that the disaster could ultimately be a benefit to the Japanese economy.

Another quote (my emphasis added):

You could say, possibly over the next year or two, we’ll see some strong positive benefits including the construction of new highways, new railroads, new cell phone towers and telecommunications networks, new housing for people to replace the old stock. So we could end up with more modern, more productive, more efficient amount of capital out there than we have at the moment.

The problem is they are flirting with the broken window fallacy. Of course the result is “strong positive benefits” and newer infrastructure to “replace old stock”, but that doesn’t mean the Japanese economy will see a net improvement. In order to think that, we have to ignore all of the “old stock” that was lost. That infrastructure had value, and the new infrastructure will cost money to build. This is a net loss to Japan unless all of the infrastructure lost was essentially value-less before it was destroyed. All the old stuff was still there because it still had economic value, not because they just couldn’t get around to building more modern stuff. I’m sure there were some condemned buildings or whatever, but most of the stuff they lost was economically useful and so represents substantial economic loss.

I will note that they led with a discussion about how GDP doesn’t capture lost assets that were previously created or acquired. The example they gave was a bridge built 10 years ago: if the bridge disappears, GDP doesn’t take a hit even though there has been economic loss. So it’s possible that the quotes above were said in light of this idea that GDP could look better once Japan starts the recovery (it will). But it didn’t sound that way to me. It seemed like they acknowledged the shortcoming of the GDP calculation and then the rest of the conversation – including the quotes above – were about the economy in general (not in terms of GDP).

Ironically, most people would read this and think, “Duh. Of course there was a loss. All that stuff got wiped out.” In this case, common sense rules the day. If there is a building, and then the building is gone, that building has been lost. But economists sometimes like to get fancy and out think themselves. Hence the broken window fallacy mentioned earlier.

The disaster will result in economic benefits, just not to Japan as a whole. My guess is that geographically proximate countries will benefit as they will likely need to supply Japan with materials and goods while Japan bounces back. Competing economies will be able to sell more of their own goods (and possibly at higher prices) while Japan is offline. Even within Japan, smaller parts of the economy will benefit at a cost to the overall economy. The construction industry will surely benefit, as will other industries whose services will be required to rebuild. But the bottom line is that Japan lost a lot of its still-useful infrastructure, and that represents an economic loss. Estimates are that it will cost $100 billion to hundreds of billions of dollars for Japan to rebuild, and that’s a good estimate for how much wealth Japan has lost as a result of the disaster.

What do you think? Am I just seeing monsters under my bed?

Disclaimers

  1. I like NPR’s Planet Money podcast. A lot. I listen to every episode, read the blog and follow them on Twitter. They do a great job of covering difficult material in an objective, approachable and understandable way. I’ve learned a lot from their podcast and I have recommended it to several people. This is the only episode I remember having serious qualms with, so don’t let this discourage you from subscribing.
  2. I could be totally out of line here. I’m using some quotes from the podcast to make my point, but I encourage you to go listen to it for yourself. It’s only 20 minutes long, and you can skip to about the 8:30 mark for the portion of the show that I’m discussing. I’m not quote mining, but I also can’t transcribe the entire podcast, so I’ve tried to find a middle ground without taking things out of context.