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Dr. Taylor Dickinson's articles and essays discussing his ideas on tax-preserved Universal healthcare...

A Counterpoise solution: Prologue

Posted: Fri, Nov 30, 2012

By Taylor Dickinson

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Healthcare's Price.

Once upon a time healthcare had a price. Patients paid physicians and everyone agreed that this was right. It worked like any other marketplace. Then subtle changes took place. Medical science began to understand disease. Cures became possible. People lived. Medicine’s relentless expansion of its core capabilities was in motion. No static definition of healthcare would ever exist again.

Possibilities that never existed before soon affected everyone’s bottom line. A gentleman’s agreement was no longer enough to cover the bill. Patients sensed real hope but with real hope came real bills. This hope fueled a primal, relentless demand. Herein lay the trick. Inevitably, someone saw the opportunity. Channel this demand into health insurance. To build this novel concept its founders took two unprecedented steps. They offered to pay all providers for all services; and they sold the concept, not to patients, but to their employers. This business plan severed the essential link between supply and demand. From then on neither physician, nor patient, had any fiscal relationship to the cost of healthcare. Supply and demand were free of all constraint. Fiscal responsibility belonged to health insurance. The medical marketplace disappeared, and with its disappearance came the end of price.

Everything was wonderful. With every new diagnostic test, or tool, or treatment, supply could try and do them all, and insurance paid. Healthcare entered a period of unprecedented expansion. But without a price all market discipline disappeared. At first it was easy. Every year actuaries recalculated the likely impact of demand and added a margin for profit. At year’s end everyone was happy. It worked so well that even the government wanted to play. The old and the poor should also be protected. Medicare and Medicaid became insurers too. But trouble lay ahead.

The original insurance business plan created loss ratios into which both the former supply and demand were unceremoniously dumped. At first this was inconsequential. But as medicine expanded, this unfettered incentive to treat the sick began to weigh heavily upon insurance’s bottom line. This problem was worse for Medicare and Medicaid. Their losses haunted the taxpayers. Something had to be done. It was obvious. If profit is being squeezed then, like any good business, they must reduce their cost. Thereafter, loss ratios became the dreaded “cost” of healthcare that must be reduced. It is unclear if they ever recognized their own flaw; that they owned the risk, but not the means of production, in healthcare. They had always been vulnerable. It was only a matter of time before expansion exposed this weakness. One can only speculate that it was medicine’s focus upon its own primary incentive, to treat the sick, which delayed the crisis so long. To save itself, insurance had to act.

The solution seemed easy. They needed to control supply and demand. They tried reducing fee schedules. Doctors drive cost. Pay them less and cost will go down. Medicare and Medicaid took total control over fee schedules. It didn’t work. Next they worked on the organization of medicine. HMO’s, IPA’s, PPO’s, all came to be. These physician networks were meant to restrict patient mobility and further limit fee schedules. They still did not control supply. Cost continued to climb.

Managed care became the watchword. If only healthcare ran the way General Electric runs. Good business practices will eliminate waste and maximize the use of resources. Practices became more efficient, patient visits were shortened and less skilled personnel were inserted where the risks were less acute. Medicare and Medicaid fine tuned their efforts at control by selecting specific aspects of healthcare to restrict. Cost continued to climb.

Now insurers were frenzied. *Cost will bankrupt us! Medicare and Medicaid are unsustainable! The time was ripe. Reform! Let’s experiment. Reorganize medicine. Computerize medicine, tabulate performance, and let government determine best practices. Bundle payments, encourage cooperation, and discourage fee-for-service. Invent Medical Homes, Accountable Care Organizations and Specialty Care Organizations. Build upon the best and discard the rest. But all must surrender profit to the government. No price is intended to emerge. The insurer still controls its loss ratio. The ability to confiscate profit rather than the discipline of a market price becomes the name of the game. The demand for tax dollars will determine the quality of healthcare. But will it control cost?

Science is accelerating its growth. The human genome, the immune system, nanotechnology and the power of computers are all primed to deliver answers to human disease at an unprecedented rate. With these answers comes a constant churning of medical practice. Will the bureaucracy be able to adapt in a timely fashion, or will it be in government’s best interest to even try? Reform fails in the two critical areas that affect the future of healthcare. It neither creates a price, nor establishes a feasible mechanism to manage its inevitable expansion. In the end the cost of healthcare isn’t driven by the things we do, but by the things we are going to be able to do. Is it possible that they missed the point; that healthcare is a bubble and that this bubble’s expansion, fueled by science, is driven by the human desire for life?

With all the fanfare, supply and demand are still flapping in the breeze. The essential communication between patient and physician remains a fiscal orphan. As long as cost is the focus, our lives remain a tax bargain against a bridge to nowhere. Beware the feeble minority; those to lame, to sick, to near death to complain. In such a world politicians seek the weakest link, while physicians, beholden to the system, now become impotent to intervene.

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