I was going to spend the next several diaries talking about the health care consumer, but reactions to my last diary made me realize that the issue of health care as a "free market" phenomenon excites all kinds of passions, and therefore needs some additional analysis. So we will hold off on the consumer aspect of health care economics and try to sort out some of the analytical issues that arise in a discussion about the free market, whether the market is involved with health care or not.
Perhaps rather than talking about free markets, because no market is totally free, we should focus our attention on a more fundamental phenomenon, namely capitalism itself. Because if we define an economic market as a place where goods and services change hands through the process of buying and selling, then by definition where you find a market you find capitalism. And in order for capitalim to exist, there have to be some capitalists.
What is a capitalist? The capitalist is a person who puts together resources (materials and labor) and produces services or products that can then be brought to the market. Now if this sounds like something right out of Marx's Das Kapital, it's not by accident. I studied all three volumes of Capital in graduate school, and even though Marx himself never really worked for a living, he certainly understood what the capitalist system was all about. And what capitalism is all about is selling what you bring to the market at a price which is high enough to pay off the costs of production and leave you with a profit that can be re-invested in more resources so that the whole process repeats itself.
But the problem with the capitalist system, which Marx defined as its inherent contradicton (and which he analyzed brilliantly in Volume III,) was the tendancy, due to market forces, for the rate of profit to decline as more capitalists came into the market selling cheaper and cheaper products. Sooner or later this would lead to market saturation, over-production, unsold products, the withdrawl of capitalists from the market and the collapse of that particular market segment.
This was the way in which the market functioned and capitalists behaved in the 19th Century. But what Marx could not forsee in the 20th Century was the fact that capitalists could be induced to remain in the market if the participatory incentives were provided by the government. And this is exactly what happened in the United States with the advent of Medicare and Medicaid in the 1960s. From a capitalist perspective what these programs did was to create incentives for capitalists to stay in the health care market by expanding the number of consumers who could afford to buy health care products and services.
But who exactly were these health care capitalists? The usual answer is that Medicare and Medicaid made it profitable for HMOs and other for-profit companies to enter the health care market and begin to transform the delivery of health care into an industry. But this answer begs a very fundamental question, namely, if capitalism involves an exchange between seller and buyer, and if the seller is a capitalist who brings his wares to market looking for a buyer, isn't the physician in fact the capitalist?
And the answer is: yes. The truth is that the entire U.S. health care system, subsidized or not by the federal government, was and still is based on fee-for-service arrangements between sellers (physicians) and buyer (patients.) And whether the buyer pays directly by writing a check to the medical group or indirectly by submitting a claim to the insurance company is really besides the point. Unless we want to throw out Das Kapitol and completely redefine capitalism, the undrpinnings of the health care system are held in place by the behavior of the capitalists who happen to be the MDs.
But in their role as physicians, these capitalists find themselves in as much of a contradiction as the old-line capitalists experienced when confronting the declining rate of profit. Because the capitalist, once he creates a product, has to spend all his time and energy looking for customers. And as he widens the customer net, he also has to drop the price. On the other hand, to be a good doctor means that you are supposed to diminish the number of customers as much as you can. After all, that's what healing the sick is all about. If the patients keep coming back to see you again and again, you're not doing what you're supposed to do. There's a reason why children can't go to school unless they've been immunized. We don't want to turn an entire school of children into patients, right?
Don't get me wrong. I'm not saying that physicians walk into their clinics or their practices or their hospitals wondering how they are going to make a buck today. They don't think of themselves as capitalists, they think of themselves as healers, which is what they are. But without their participation there wouldn't be a health care market, regardless of whether that market operates efficiently or inefficiently, or however it operates.
Stay tuned. More to come shortly.