The case for delivery of heath care services facilitated by commercial enterprises in a capitalistic based free market economy, i.e. capitalism, has been made based on the belief that the competition promotes innovation and better productivity which will improve the quality of the services provided and lower the costs. However, the requirement that high profit levels need to be maintained in order for commercial medical healthcare service providers to garner the capital investment required to provide the facilities, technologies, and resources needed to deliver cost efficient heathcare services is based on the fact that factors outside of what is considered free market economics govern the industry. The profit levels attained by US healthcare service providers have apparently fallen short of that required to overcome the risk of making such investments in a free market economy and as a result the costs of heathcare services have escalated out of control for over 15 years.
If one compares capitalistic based free market economic principles to how services are delivered by US healthcare service providers several differences can be identified immediately. First, requirements which are not driven by free market economics are imposed on the industry by federal, state, and local government. Second, the process of delivering normal, i.e. not emergency, healthcare services is based on a referential business model not a competitive business model. Third, new services are provided to improve the quality of patient lives which are not justified by a cost / benefit business case analysis. Forth, patients requiring substantial service levels are typically least able to pay for the services provided due to being out of work as a result of the illness they are fighting, having limited levels of insurance coverage due to being in a higher risk category with insurance providers as a result of their medical condition, and having limited future earnings in order to pay for services provided. I am glad that our society's ethics and the ethics of professional concerns in the healthcare industry have supplanted the fundamental principles of capitalism here. However, trying to facilitate healthcare services based on the principles of a free market economy and circumventing those principles due to ethical / professional considerations results in exactly what has been happening in the healthcare industry during the past 20 years, i.e. escalating costs with lower service levels.
The effects of not effectively addressing the issues associated with imposing requirements which are not inherent to a free market economy on the healthcare industry have expanded beyond the industry itself and are now effecting the overall US economy. An example of this is the sale by Daimler AG's of the DaimlerChrysler business unit to Cerberus Capital Management, a New York based private equity firm, in 2007 for approximately $7.4B. Daimler AG retained just less than 20% of the of the company as a result of the transaction. This means that Daimler AG estimated the value of the DaimlerChrysler business unit as $9.25B which is a fraction of the $92 billion share swap transaction used to facilitate the Daimler-Benz's purchase of Chrysler Corporation in 1998. It has been said that the $92 billion dollar price tag Daimler-Benz paid for Chrysler Corporation was inflated due to Chrysler Corporation's business performance in the mid 1990's and that the value of the company was substantially below what Daimler-Benz paid for it. However, something must be wrong with valuing the DaimlerChrysler business unit at $9.25B almost 10 years after purchasing it for $92B. Daimler AG's said that liabilities due to UAW pensions and projected healthcare costs for retirees resulted in the overall valuation of the DaimlerChrysler business unit used as the basis for its sale. I can understand this valuation if the increases in cost of healthcare services during the past 10 years were used to predict the costs for providing healthcare services to US DaimlerChrysler retirees over the next 10 to 20 years. Hence, the compelling reason for Daimler AG to sell the DaimlerChrysler business unit at a fraction of its original purchase price. This transaction directly points to the consequences of the US not addressing issues related to escalating healthcare costs and the competitiveness of US economy in a world wide market.
The cost, efficiency, quality, and availability of healthcare services in this country have been discussed extensively during the past 20 years by the legislative and executive branches of the US federal government but little has been done to stem the escalating costs, lapses in quality, and limited availability of healthcare services. The two primary reasons for this lack of progress are the influence of concerns dependent on the healthcare services industry, e.g. healthcare insurance & pharmaceutical companies, on US governmental legislators (politicians) and the fallacy that the healthcare industry can provide services based on capitalism based free market economics. The US governmental legislators will have to address the issue of healthcare industry lobbyists and concerns having undue influence on the laws and regulations used to manage the heathcare services industry on a national basis. However, a major part of the problem is the fallacy of being able to deliver healthcare services using business models based on free market economic principles. The reason I say that delivering healthcare services using business models based on free market economic principles is fallacious is because:
1.Our government continually imposes new regulations and requirements on concerns
delivering services in the healthcare industry which are not driven by free market
economic principles.
2.The fundamental business model used to facilitate healthcare services delivery
is referential.
3.New services are provided on the basis of improved medical outcomes for patient
health and quality of life and not based on a "Cost – Benefit" Business Case
Analysis.
4.People requiring substantial healthcare service levels are in the weakest
position to pay for them.
New regulations and requirements are not the result of innovation and competition facilitated through a free market economy instead they are imposed by federal, state, and local government concerns in order to ensure that the services paid for by the government are provided within the regulations and laws passed by the government. Government laws and regulations for the healthcare industry are oriented toward ensuring patient safety and service quality. A specific example of this are the standards the Joint Commission on Accreditation of Healthcare Organizations (JCAHO) specifies for patient safety procedures which healthcare service providers must comply to retain the accreditation of the services they provide. JCAHO's mission is "To continuously improve the safety and quality of care provided to the public through the provision of healthcare accreditation and related services that support performance improvement in healthcare organizations." JCAHO's accreditation of healthcare organizations has improved that quality of services provided to patients and patient safety. JCAHO accreditation is a prerequisite for healthcare service providers to receive compensation for services provided by supporting federal programs. The requirements imposed on healthcare providers are in the best interest of the patients being served but they are driven by an entity which is not governed by the economic principles of a free market economy. Should free market economic principles be used to govern JCAHO's accreditation processes? The answer lies in whether healthcare service quality levels will be directly based free market economics and competition which equate to cutting costs and service levels in order to achieve a level of profitability or whether substantial considerations for patient safety and the quality of services over and above what free market economics dictate prevail which results in substantially lower profitability. An example of the referential business model used to provide healthcare services is the requirement of having a general practitioner (GP) medical doctor refer you to the services of a medical doctor providing specialty services, for example the services of a surgeon. If you tried to schedule an appointment for a consultation directly with the surgeon you will be asked who the referring physician is and if you don't have one you will be told you need one in order to schedule an appointment with the surgeon. The referential business model ensures patient healthcare services continuity which improves the safety and quality of the services provided but at the same time limits free market competition. Now think about having the requirement for a hospital to perform a "Cost-Benefit" Business Case Analysis before medical services could be provided to a premature newborn baby or to child ill with Leukemia. How would you put a monetary value on the benefit of saving lives to counter the cost of providing the services? If free market economic principles were used to determine which patients get healthcare services based on their ability to pay for the services most severely ill and terminally ill patients would be denied services because it would be determined that they would not be able to pay for the services provided afterwards. One of the main reasons the bankruptcy reform laws were passed by the republican congress in Bush's first term in office was to prevent people who were severely ill or injured and as a result required substantial amounts of healthcare services from filing bankruptcy to get relief from the overwhelming debt created due to the services provided. Essentially, the revised bankruptcy laws force these people into being indentured for those costs for the rest of their lives. So legislators penalized the citizens of this country for their inability to pass comprehensive healthcare reform legislation.
If considerations for patient safety and quality of services trumps the requirements of free market economics then we need to stop using economics based on capitalistic business models as the basis for structuring / measuring the healthcare services delivery industry. We need to develop a national healthcare plan based on the needs of our society today and in the future. This plan should have been developed and implemented over 13 years ago but industries with inherent conflicts of interest and their representatives used their money and influence to prevent the national dialog required to move such a plan forward. The process used to move the dialog about a national healthcare plan forward should be vetted openly with the public first so that a majority of the population understands the goals and objectives of the process and will support it. The process should include businesses and institutions directly involved with delivering services in the current system in order to be inclusive of their needs and interests. It should engage those business interests which are involved as second or third parties in the delivery of heathcare services to obtain comments and feedback on the attributes and characteristics of what is incorporated in the proposed national healthcare plan but they should not have direct input into the formulation of the plan due to their inherent conflicts of interest.. That should be the penalty of delaying this nationally strategic dialog for over 13 years and putting our economy at risk as a result.