Saturday, August 1, 2009

Saving Money In Healthcare

There is a lot of talk today about healthcare reform and how we can save so much money, and all the waste in it.

A few points on this topic -

From the outside, there appears to be no focus on cost containment in the healthcare industry. When I drive by my local hospitals I always see construction. The same goes for another growing-faster-than-inflation money hole, the local university. And why not, the demand for healthcare has been inelastic. As the price they charge goes up, their business does not see an equal percentage drop.

If costs are to be reduced, it first means a loss of jobs - fewer direct employees in healthcare. Less doctors, nurses, admin staff. It means less investment - fewer indirect employees in healthcare. This is a sad, but true reality. People you know will loose their jobs.

One way to achieve cost reduction with less of a jobs impact may be to end hospital competition. In a capitalist society, competition generally reduces profit and means lower consumer prices. In this industry, I think the opposite is true. If cost containment is the most important aspect we'd like to change in healthcare, we would stop the healtcare arms race and instead encourage hospital systems to work together.

For example, Hospital A would focus on cancer, B would take trauma, C heart conditions and so on. With these agreements in place the hospitals would then outsource their other needs to each other, and invest heavily in their own specialty. This would insure the care you receive would be served by truly the best doctors with the best equipment in the region. Today, you wonder if your doctor is competent and if the hospital across the street has better technology.

This of course is against the law. Our antitrust laws make this illegal, and an exception would have to be made for healthcare. The risk is that as the only game in town, Hospital A can then charge through the roof for their cancer service. As part of the agreement, we get regulated prices, much like we do from public utilities.

I think its crazy enough to work.

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