Supply Side Health Care Reform

We fight over health care policy because we focus on demand and redistribution. We could reach greater agreement if we focused on supply and innovation. What are the key areas where agreement is likely?

1) Cancer kills both Republicans and Democrats so more spending on medical research is likely to reach broad agreement.  As I said in Launching:

Looking at the future, if medical research could reduce cancer mortality by just 10 percent, that would be worth $5 trillion to U.S. citizens (and even more taking into account the rest of the world). The net gain would be especially large if we could reduce cancer mortality with new drugs, which are typically cheap to make once discovered. A reduction in cancer mortality of this size does not seem beyond reach, and the value of such a reduction in mortality far exceeds that of spending more on medical care today. Yet because the innovation vision is not central to our thinking, we overlook potentially huge improvements in human welfare.

By greater spending on medical research, I mean not only greater spending through the NIH but also a commitment to innovation policy more broadly. We know, for example, that price controls kill medical research so no price controls. We can also improve the FDA. I would favor less regulation but there are other methods to speed up the approval process which could command bipartisan support such as greater funding of the FDA. The FDA is also not monolithic, some departments are better than others, so we can reform the FDA by making it more like the better parts of itself.

In thinking about pharmaceutical regulation we also need to remember that 80-90% of prescriptions are for generic drugs and due to intense competition, generic drug prices are low and falling–so lets build on the parts of the US health care system that work well by keeping the entry barriers to entry in the generics market low.

2) Increase the supply of physicians. Despite an aging population and greater demand, the number of MDs per person has been trending downwards! Increasing physician supply could involve a combination of increased immigration of foreign physicians (skilled immigration is really a non-brainer that receives widespread support), increased slots at medical schools and in residency programs (via Medicaid), increased support for allowing nurse practitioners, dental hygienists and so forth and making occupational licenses portable across states. (In addition to making it easier for foreign physicians to come to US patients we should also make it easier for US patients to travel to foreign physicians–patients without borders). None of these things are easy to do, of course, but neither are they riven by ideological differences.

3) Demand price transparency from hospitals and other health care providers. In real markets, a price is a signal wrapped up in an incentive. With few exceptions, we don’t have real markets in health care and so “prices” neither signal nor incentivize. Thus, I don’t expect miracles from “price” transparency and this is a policy that could go wrong but transparency would still allow for some standardization, comparison, and computation of tradeoffs. Price transparency would also limit some of the worst forms of bill abuse. Even the Soviets found prices to be useful for these purposes.

Other supply side reforms that could find bipartisan support?


3. Price is what the third party payer has agreed to pay the provider, which can vary widely across providers, providers with the greatest market power often getting the highest price (size matters), incentivizing providers to consolidate and discouraging competition.

...What? You've taken a lot of leaps in logic which you don't support, and which make no sense as a whole.

I can only assume you're describing the system we have now, which is obviously flawed. But you present it as if you're responding to 3, so I must ask: how would price transparency discourage competition more than hidden prices do?

"We know, for example, that price controls kill medical research so no price controls." Link, please?

Are price controls different in this regard from highly competitive supply markets that bid down prices? Because we certainly have seen substantial innovation in some of those markets. Think of smartphones.

Where most medical research for potentially soon applications are done in private markets, this is how the incentives will work.

Certainly, things can be structured otherwise. There is no question that the debate is not obvious.

But in a context where you presuppose the existing US health care market, that is an entirely expected result that basically could not be otherwise.

Because Americans often forget that there is a rest of the world out there, the observation of empirical evidence from the US may suggest t omany that the only possible outcome is that this relationship will hold as a general truth.

Of course, the government could both invest in medical research and enforce price controls, even one, say, crown corporations owned by the veyr same government.

With a preference up front and centre for market solutions wherever more organized planning by the state has no obvious contribution, it must be said that the example of the USA says that in health care, markets deliver expensive goods of inferior average quality. Some middle ground perhaps?

The United States is disproportionately important in the world of medical research. In fact countries with socialized systems of medicine do very little research at all. Or at least very little successful research. Look at Canada.

In the US, markets deliver a very expensive product that is generally of excellent quality but that has little impact on medical outcomes compared to lifestyle. While subsidizing the rest of the world who get medical techniques and drugs paid for by American consumers.

You are spot on. If we stick to the assumption that businesses seek to maximize profit, price controls would definitely reduce innovation because price controls are dynamic over time and basically take away the potential for long term economic profits. However, I don't think that there is much research on how to make treatments more cost effective. Research in the US is geared toward solving serious conditions at any cost. They can then extract significant profit while the new drug is under IP protection. The drugs are then priced around the world according to ability/willingness to pay. Unfortunately US consumers pay the bulk of the development cost while the benefits are fairly equally distributed around the developed world. In most single payer systems, some conditions are simply not treated beyond an economic or probabilistic threshold. Private research has less opportunity in these circumstances, but today's exorbitantly priced remedy will eventually become tomorrow's over the counter cure.

Countries where single payers are able to negotiate with solution providers do not tend to pay millions of dollars for treatments that are only marginally better (maybe not even!) than treatments that cost thousands of dollars.

IN a market system, there will be deep pocketed people willing to try these things, but which a single payer system could never justify paying for.

So, that sort of thing is going to skew the data enormously. You're gong to have a lot of low-grade patents selling extremely high priced outputs which are essentially snake oil or worse compared to other pre-existing options.

And then there are quite obviously success cases as well.

The point is that it's not obvious.

I doubt that the USA itself benefits from this trillion dollar a year difference which delivers marginally better for some handful of the wealthiest. The real debate, I think, is whether medical advances are faster GLOBALLY as a result.

First, major confounding factor. Dammit, all those $$$ stole many of our top researchers!!! This does not itself constitute evidence that the outputs are necessarily more useful for the fact that some handful of wealthy people will pay through the teeth to access something that might be marginally better.

Also ... as usual, Americans basically just do not recognize similar advances in other countries and instead claim credit for themselves. Like, who discovered the circulatory system? An Arab, about 500 years earlier than the individual specified in your textbook.

Anyways, it would be good to have the debate with specifying the ideal (best medicine for America, screw the world; global medical advance; etc.) and to then be able to set aside sources of animosity such as patriotism and ideology in seeing what options actually lead to that.

So, I have to be open to the idea that the trillion dollar a year premium in the US market is actually worth it to American, or the world as a whole. And you have to be open to the idea that the trillion dollar savings by doing it the other way could lead to more and better research and service delivery, most especially by spending less on litigation, unnecessary procedures and lobbying.

American healthcare has problems but so do other countries. We pretend that the US system is "free market" but it isn't. It's a market that's heavily distorted by government interventions and suffers from some of the perverse consequence from that, in easily identifiable ways.
It's possible that an actual free market would both improve outcomes and reduce costs.

After all we KNOW that state-run industries are ineffficient in every other economic area. The left keeps saying "health care is different" and the right keeps reiterating the nonsense that everything is just peachy right now in pretend-free-market-land. (They don't call them the stupid party for nothing)

But why should we believe that in this one instance a government-run system is going to be inherently superior to an actual free market?

The more important innovation is public though we do have a very expensive private structure. We have a rather poor system of innovation because it only encourages more expensive treatments, not less expensive. If anything, we already spend too much on innovation, spending as much as we do with so little to show for it.

Price controls encourage innovation in meeting them, something we could use more of.

SSC had a good post that covers the issue:

Bingo, something like this is what I was looking for. (

Public doctors reliability rankings?

Combined with a removal of HIPPA, that sounds terrific.

"Cancer kills both Republicans and Democrats so more spending on medical research is likely to reach broad agreement."

Yes, everyone agrees that cancer is a big problem, but it does not follow that everyone agrees with a particular solution. I hate this sort of lame reasoning that attempts to short-circuit legitimate debate.

If spending on cancer research is so obvious than why haven't Republicans and Democrats agreed to allocate money to this already? Oh wait. They have. A lot of it. The question is what benefit would come from even more money, and I don't think it can be assumed without argument that additional research funding would pass a cost-benefit test.

Yeah, it seems like (as an outsider) we're at the point in the tradeoff curve where each additional dollar buys only a smallish improvement in prospects for cancer patients. And the policy decision about whether or not to fund more research should sensibly depend on the marginal benefit--if we put another dollar into cancer research, how much return can we expect?

Using the following post's figure for a trillion in investment in knowledge capital, and knowledge capital does not depreciate unless events like burning the Library of Alexandria occur, one dollar more investment will only increase the C in ROIC by 1/1,000,000,000,000, so the annual return will be by definition be small.

But that is true of all knowledge. Are you arguing for ending all investment in knowledge capital?

The total aggregate return on knowledge capital must be totalled over thousands of years. Founding knowledge taught to all children dates back 5000 years when the investment was made to write it down as lessons.

Given you benefit from knowledge investment made 5000 years ago, what argument do you give for not making similar investments today to benefit everyone from now through the next 5000 years even if the annual return is equally as small as the return on capital made 5000 years ago.

Note that knowledge of what is not true is almost as valuable as the multiple investments to establish what is true to high certainty.

And you don't get to a trillion in invested capital by any means other than one additional dollar at a time.

We have finite resources. We can't invest limitlessly in everything that might produce beneficial knowledge.

Is the return on additional cancer research better than other possible uses of that money? That is the question.

It's probably worth putting more money into cancer research, but we should definitely realizing that what we are buying is very small incremental improvements into length of life and quality of life. Those definitely accumulate over the decades, and our kids will enjoy having another 12 months of cancer-symptom-free life, but this can easily be a bottomless pit that swallows everything else if we don't look at it coolly.


Throwing money at a problem is the standard establishment Repuplican/Democrat/Government stupidity.

We have spent well over a Trillion Dollar$ worldwide on cancer research since since President Nixon declared a War on Cancer in 1971 — yet the cancer death rate is still about the same as 1971. That big money cancer solution has failed dramatically. (Nixon expected success within 5 years)

Supply-Side solutions are meaningless and hopeless with the government massively controlling and distorting the skeleton of the American health care "market". Our "supply" is sharply limited precisely because our Republican/Democrat politicians intervened in medical markets to achieve that end. Tabarrok discerns none of this, but instead recommends even more "bipartisan" government interventions.

"The cancer death rate is still about the same as 1971"

There has been significant improvement since 1971 in cancer outcomes, but people are living longer due to other improvements (e.g. reduction in early deaths from heart disease, stroke) and therefore getting more cancer.

However, it has been incremental improvement, not the cure that many expected if we just threw enough money at the problem. And I agree that it's not clear whether spending even more money would be beneficial.

".....significant improvement since 1971 in cancer outcomes"

outcomes ? kinda vague

the cancer statistics and word play rapidly get complicated

for example, earlier cancer detection can falsely indicate people "live longer" after cancer diagnosis and treatment, but actually their life span was unchanged by the detection/treatment

the whole "cancer survivor" meme is way overblown

So, you're claiming no significant improvement in childhood cancer survival? Nor a reduction in tobacco related cancers due to fewer smokers? Last I heard, about the only area where the US was better than most of the rest of the 1st World was cancer treatment. Not at all clear to me why AT picked cancer funding, it's a poor choice imho. When the "new" treatments are $1000's per pill, then it's pretty obvious that the Law of Diminishing Returns is kicking in and the money is probably better spent elsewhere. Like free screenings and more referrals from primary care providers. AT: my bet is we need fewer doctors and many more physician assistants and nurse practitioners. (Not to mention med-techs). Compare the value of an RN today with a GP circa 1950. It seems to me that A.I. is and should have an enormous near-term impact on Health Care Costs, allowing the funneling of patients based on fuzzy/deep knowledge to tier 1 specialists (technicians/assistants/practitioners) while allowing more refractory (complex/multifaceted) cases to go to either MDs or to teams which include MDs. One of the problems is licensing requirements which are obsolete. Another is the AMA. A third is the medical school/professional "industrial complex". The most obvious problem is our 3rd party payment system. Get employers OUT of the doctor/patient transaction. (fully tax health insurance (or care) provided by the company - tax BOTH the company and the employee (in other words get rid of it).) The employee should be free to choose any coverage s/he prefers with the only 'benefit' that a company can provide is negotiation of lower (bulk) rates - the employee should be free to join the pool across the street.

TJ - You say earlier detection can be why outcomes appear to have improved, but right before you call someone else's comment about outcomes "vague." How is your statement not vague?

To say cancer mortality rates have remained about the same since 1971 is strange. What is the source for your info? The historical trends stats at show otherwise.

I'm not going to say that cancer rates haven't improved.

But it's definitely true that if you simply find cancer earlier and make no other changes that your cancer outcomes will look improved, even though, by assumption, you make no other changes.

If you used to find out you have cancer at 57 and die of it at 60, and in the new world you find out you have cancer at 56 and die of it at 60, it can look like survival time improved by 33%, when in reality nothing changed.

So that's why looking at the raw statistics is hard.

Yes survival statistics are hard, especially because of the early detection problem. But I don't think you can make a serious argument that there has been no true improvement in survival.

A lot of "common sense" things that everyone is sure help health care outcomes don't. Like the the annual physical. It would be somewhat surprising, but not completely surprising, to learn we haven't really improved cancer outcomes.

"We have spent well over a Trillion Dollar$ worldwide on cancer research since since President Nixon declared a War on Cancer in 1971 — yet the cancer death rate is still about the same as 1971."

At least, you are winning all your other wars against comprehensive nouns: poverty, drugs and terrorism.

"That big money cancer solution has failed dramatically. "

Care to point to the "small money cancer solutions" that deliver equal or bigger results?

Given cancer is fundamentally a breakdown of a person's genes which is driven by time and apparently inevitable, treatments that delay the terminal outcome will not reduce the cancer death rate, even if everyone's life is extended by 100% to 500%.

Every person has a fatal preexisting medical condition, (except people who are terminal in less than a year). Every year you will be marginally more uninsurable, marginally less healthy. Genetic breakdown is a primary driver. Cancer is one symptom. Another is slower cellular renewal/replacement. The odds of being killed by a lion have been replaced by being killed by your friend's gun during an argument.

And if the massive US government intervention in the US food market has reduced food supply, why are Africans constantly facing famine with lots of death and dying? Isn't the total-lack-of-government-free-market in major parts of Africa going to produce food excess by your free market without government theory?

Or in health care, are you arguing the supply of health care is higher in Africa than in the US, or Europe or developed Asia with even more government intervention than the US???

You need to test your dogma in the real world.

'We fight over health care policy because we focus on demand and redistribution.'

Or not, as is the case in all the countries which are able to provide health care to essentially all citizens at a price that is at least a third less than in the U.S.

'We could reach greater agreement if we focused on supply and innovation.'

Actually, do note that the U.S. is essentially the only major industrial nation with millions and millions of people without health insurance. And further note that above price comparison - the U.S. needs to figure out how to cut costs while providing health care to tens of millions of more people.

'Cancer kills both Republicans and Democrats so more spending on medical research is likely to reach broad agreement.'

If only the U.S. did not have a large number of people that prefer faith over science.

'We know, for example, that price controls kill medical research so no price controls'

Almost as if the University of Heidelberg did not exist. Or these people - 'More than 450,000 people are diagnosed with cancer each year in Germany. Cancer is a disease that poses enormous challenges to research, because every cancer is different and its course can vary immensely even from one patient to the next. To perform research into cancer is the task of the German Cancer Research Center (Deutsches Krebsforschungszentrum, DKFZ) according to its statutes. DKFZ is the largest biomedical research institute in Germany and a member of the Helmholtz Association of National Research Centers. In over 90 divisions and research groups, our more than 3,000 employees, of which more than 1,200 are scientists, are investigating the mechanisms of cancer, are identifying cancer risk factors and are trying to find strategies to prevent people from getting cancer.They are developing novel approaches to make tumor diagnosis more precise and treatment of cancer patients more successful.

In 2008, a very special distinction was the Nobel Prize in Medicine awarded to Professor Harald zur Hausen, who discovered that human papillomaviruses (HPV) cause cervical cancer. In 2014, for the second time a researcher at the DKFZ has been awarded the highest distinction in science: Professor Stefan W. Hell has been awarded the 2014 Nobel Prize in Chemistry for his pioneering work in the field of ultra high resolution fluorescence microscopy.'

'Increase the supply of physicians.'

Paging Dr. Baker, paging Dr. Baker, Dr. Tabarrok is in need of assistance ....

'skilled immigration is really a non-brainer that receives widespread support'

Except from the AMA. As Dr. Baker likes to point out, as a matter of fact. Here is a good review from July 2014 -

Exactly Right!!!

Thank you for this intelligent and informative response!

That very last point is the best one: Politicians don't focus on costs because every cost is someone else's profit, and the groups that are profiting are very good at convincing politicians to listen to them.

At the heart of every inefficiency, there's a group that the press hasn't spent enough time demonizing.

there are reform who could get bipartisan opposition:
welcoming more foreign doctors, nurse, etc.

some standardization would be needed to ensure quality, but there surely exist large supply of medical personnel that could cut wait time, prices, and distance to facilty.

Give nurses and physician assistants more authority in providing healthcare. The MDs and DOs have successfully made themselves the bottleneck for our healthcare, but we need to expand the available healthcare resources to drive down costs and availability.

Streamlining the availability of telemedicine would greatly help supply healthcare to areas in need. Not all states support telemedicine uniformly.

Are you arguing for a total Federal government takeover of health care delivery?

Devolved to the States?

Perhaps each State legislature gets to pass laws that become the law in every other State?

Perhaps an amendment to the Constitution reestablishing slavery so costs can be reduced while expanding the supply of people delivering health Care?

Doctors do not have much more education than nurses and practitioners. The big difference is doctors undergo an apprenticeship where they practice under the supervision of a more experienced practitioner, or in the case of specialties, multiple apprenticeships.

Lacking the experience of a doctor, a nurse in year one is less capable than a doctor in year one. Nurses handling a limited range of patients and conditions will be more experienced than a GP at five years than the GP at year one for that limited specialty.

If doctors were required to work in teams, then doctors would require less training, and a medical practice would work like auto maintenance and repair. You show up for an appointment, a service manager would direct you to a mechanic based on your complaints. There would be a doctor focused on just checking BP. Another on aches, strains. Another for breaks in bones. Just like mechanics do only oil change and lube, fender dent removal, computer code interpretation driven part repair, etc, with a very limited number of general purpose mechanics who can restore your car to better than new, but even they specialize into those who restore contemporary BMWs and those who restore 69 vetts or 53 Ford pickups.

Nope, mr slippery slope, not a total takeover by federal government. Nurses and nurse practitioners go through internships as well. They should have more authority in giving out prescriptions, etc. and leave the doctors to the cases that require their expertise--like everywhere else in the world.

Back in the early 1990's when I was a poor graduate student, I used to see a PA for my colds, stitches, whatever. 25 dollars out of pocket with no health insurance. But the "non-profit" entity that owned the clinic ended up replacing him with a Dr. -- after that a 35 dollar copay and insurance required. The clinic would see the same problems, but the healthcare district was able to increase profits by making the doctor the lone gatekeeper. Having to see a doctor today, as is often required in the US, for a cold is like taking your car to a mechanical engineer for a flat tire.

We need more PAs and RNs out working directly with the public in a free market, let the doctors focus on cases requiring their expertise. We need fewer closed, monolithic medical systems.

The paper funded by the pharma lobby says pharma price controls kill medical research? What a surprise!

The US healthcare system is such a patchwork that anything short of dramatic upheaval won't change things at all. TR Reid in "The Healing of America" documented pretty nicely how healthcare systems in Germany, France, Taiwan, Japan, Canada, the UK, and Switzerland all achieve much better results than the US. Sure, we will hear about waiting lines in Canada and quasi-rationing of somethings in the UK infant mortality statistics and life-span after the age of 60 (ruling out the confounding statistics of homicides from gun violence and deaths from traffic accidents) is far superior in the aforementioned countries. Why not take the Bismarckian approach that is working in a lot of other countries and has been around since 1880?

I don't know why Alex is talking about increased funding at the FDA. I was involved in the original User Fee legislation and the next three reauthorizations. FDA has more than enough resources to get the job done. FDA Commissioner appointee, Scott Gottlieb, has publicly stated that the Cancer group under Rick Pazdur is doing an outstanding job. The problem is as it always has been, insufficient efficacy data to support approval or drug toxicity that cannot be adequately managed. Nothing is new under the sun in this regard.

Pricing is certainly a key issue. this is partially controlled by either the insurance companies, Medicare or Medicaid. It certainly is not transparent. The experience in Japan is revealing in this regard. The Ministry of Health came up with a real low ball reimbursement for MRIs and told the Japanese device companies to come up with less expensive instruments. They did and as a result MRIs are much less expensive over there yet still turn a profit. Even if you have pricing, you still have no information about quality. The Republicans have always shortchanged funding in this area.

No point in putting more band-aids on a patient that is hemorrhaging.

that is working in a lot of other countries and has been around since 1880?

Because it involves taking things away from people.

There was a reason Obama made such a big deal about "if you like your health insurance plan you can keep it." It's because, even if people are nervous about their health plan or don't like how much it costs, they know it could be much worse if the government implements something half-heartedly.

Other than easing the immigration (and certification) of doctors, increasing their supply seems difficult. It's a market. Currently a doctor has to jump through hoops A, B and C to become a doctor. She gets paid N. She works M hours/week. She deals with daily hassles X, Y and Z.

If you want more people to become doctors you need to do some combination of: 1. Reducing or eliminating A/B/C, 2. Increasing N, and 3. Decreasing M, or 4. Reducing X/Y/Z.

For the purpose of reducing heath care spending, increasing N doesn't help us. You basically need to make it easier to become a doctor, perhaps lowering the bar to entry (which results in a less competent set of doctors), or you make it more attractive to be a doctor in some way other than simply earning more money.

This isn't really correct. The number of residency slots is directly controlled by the government, and U.S. Medical schools cap their sizes (and new ones don't get started) because it's bad PR to have graduates who don't get residency slots and thus will never be able to work in the field. There are lots of universities with strong science departments and strong law/business schools without medical schools, and this is why. It's also why huge flagship state schools don't have larger medical schools.

Because the number of residency slots is directly controlled by the government, and medical school admissions are *incredibly* competitive, there's no reason to expect that supply wouldn't expand fairly dramatically without watering down the USMLE, specialty boards, and the difficulty of training programs themselves. It seems likely that many kids with mere 3.7 undergrad GPAs would do just fine.

Had no idea residency slots were controlled by the government. So weird. In that case, yes, it should be easy to increase supply. However, it still seems like it would result in lower quality. Maybe only marginally so, though, and hence not worth worrying about.

Ryan is completely correct. There are lots of very smart and caring students who would make excellent physicians who don't get into medical school because there just aren't enough slots in the United States. It's fairly astounding that Tyler still was not aware that it's the residency slots that are the scarce resource here. Immigration does not help that it's a one-for-one trade-off.

We do not have any under supply of the talent of people who can become great doctors. And that includes excellent black and Latino physicians as well. I can name many who I've had in my classes you might've had a 3.5 GPA but I am sure would make great primary care physicians.

This really encapsulates the dumb argument for high skill immigration. It completely ignores the barriers that are put in front of people who would do plenty well in these high school careers if they were given half a chance. It is mostly the laziness of our so-called meritocratic elite class that prevents working-class kids from all kinds of ethnic backgrounds from getting a shot intact were his doctors or in other high demand field

They certainly are NOT directly controlled by the government. Rather, the medical industry strongly resists paying for any residencies. Although many residencies are funded privately, there is huge organized opposition to such residencies as that would endanger all the free money they get from the government that supports their lavish lifestyles. There is no benefit to the doctors because they would have to pay to create their own competition. Those are the simple facts.

I disagree for the reasons Ryan gave. You could add slots, and find plenty of willing and able candidates to fill them. There'd be no need to sweeten the deal. Quite the contrary. Which is why they restrict slots.

In some cases adding doctors increases bills without improving patient outcomes. Look at places where there are lots of back doctors, for example.

Price transparency won't do much of anything because the payers who bear most of the burden (insurers) already know the price. Prices are signals to buyers as well as sellers, and when it comes to the US health system, the buyers are insurers. If you want real competition (within the third-party payer system), you'll want to focus on regulations that prevent insurers from offering large incentives to go to one physician/hospital/pharmacy over another (this also affects your desire to increase travel).

Also, the people spending the most money on health care are generally really sick or badly injured, and aren't in a great position to shop around and bargain on price.

It's true that there are parts of the health care system where you simply cannot comparison shop.

However, it doesn't follow at all that there is no place in the health care system where you can comparison shop.

Especially for chronic conditions, where we are going to be paying thousands of dollars a month for someone's health care, it would make sense to apply price pressure there.

Regulating everyone onto high-deductible plans might help, right? In reducing health care *usage* if not its expense.

Several years ago I sprained my ankle. I ended up getting an MRI because, why not? My insurance was going to pay for it; it was "free to me". Or near enough. Then I went to approximately 5-6 physical therapy sessions. These cost me $40/session, but the place billed my insurance $240/session. Had I been asked to pay $240, I would have just done the exercises at home.

Price transparency won't do much of anything, unless people move to high deductible policies, which could happen.
I mean, we have to get people off of employer-based plans. Then price transparency will happen automatically because consumers will demand it.
The reason we don't have price transparency is because in the current system patients have absolutely no reason to care what anything costs.

"Skilled immigration is really a non-brainer that receives widespread support", except in the current White House.

Hey, everyone! I found the dipshit! It's JFA!

Bipartisan is narrowly defined at present, but could overbuild VA capacity, especially in "healthcare deserts", enable them to also take Medicaid/care & private insurance. Also empowering nurses, telemedicine, and continuing electronic records adoption.

How hard is it to increase the number of people allowed to become doctors? Is it jut creating more residency spots? That seems like something that wouldn't be so hard for the government to do.

Yes, the residency slots seem to be the bottleneck. Some people will say med school admissions but I don't think it's that per se; rather the admissions reflect the limited residencies. Med schools don't want to take more people than they can place in residency programs.

Medicare gives a subsidy of something like 100K+ per year per resident. I believe hospitals are allowed to go over Medicare's cap but the slots would be unsubsidized.

This is one of those cases were Trump is right. Pharma companies are making profits in the US market in a very unique way since the "government" can't negotiate prices. A bit of strong-arm tactics as the president promised would be just in line with the global approach to the issue. So, what do you like more, cheaper drugs or free market ideology?

Ps. this is how the deal is done ;)

I and many here (and Dean Baker loudly for a long time) support increased immigration of skilled medical personnel. The easy way to deal with this is to eliminate the requirement that physicians must do residency here in the US to get certified.

Now it may be that in fact the support for this really is widespread. But it is quite amazing how powerful the AMA is, as Milton Friedman noted a long time ago. When ACA was under consideration, never once did a single member of Congress or of the administration bring this idea up, of eliminating the residency requirement for immigrant physicians or any other proposal for increasing this form of skilled immigration. Nor did I see or hear any push from the media, aside from a few isolated voices like Dean Baker, who is more of a media critic than the media, or even from the public more broadly. Support may be out there, but the sllence about it was positively deafening back then and pretty much since then as well. It certainly was not part of Trumpcare either, and I heard again not a whisper from either a politician or a major media outlet on this issue.

This raises the question whether this sllence reflects ignorance about this matter on the part of most of the population, especially given that nearly nobody talks about it, or if in fact they are opposed, perhaps out of fear of unskilled doctors or maybe a feeling of sympathy for the overblown incomes of our overpaid doctors in the US.

There is a world of difference between medical graduates from western europe and medical graduates from pakistan/nigeria/guatemala. There is a huge variation of standards in medical schools and what passes for 'residency' across the world, with plenty of countries not even requring residency. How are you going to certify that each foreign physician actually received a minimum quality education or is minimally qualified to practice? The AMA is wrong in many areas, but the restrictions on foreign physicians is not their greatest sin. The simplest and easiest ways is to increase residency funded slots here in the US.

The employers could easily determine for themselves whether job applicants have the necessary skills. Or you could easily restrict the expansion to those countries with similar standards. The residency system is an abomination of government subsidy and government granted monopoly. It should be completely overhauled.

There are a finite number of countries and number of medical schools in the world. Surely it is not beyond the realm of possibility to actually take an account of each one's standards and make a list of which of them are good enough for the US and which are not.

Our medical education program is a total joke in the US. Most other countries the MD studies start right away in college and there is not this two tiered degree program of getting a BA/BS and then applying to medical school. Most other countries there is no difference in tuition (if there is one) between medical studies and other programs. We certainly can produce far my doctors in this country by making some very small changes in the way we educate them. of course the AMA is probably against this as it increases the supply. Dean Baker's approach is also necessary.

Repeal Any Willing Provider Statutes to increase competition.

Abstract: Any Willing Provider and Freedom of Choice laws restrict the ability of managed care entities, including pharmacy benefit managers, to selectively contract with providers. The managed care entities argue this limits their ability to generate cost savings, while proponents of the laws suggest that such selective contracts limit competition, leading to an increase in aggregate costs. We examine the effect of state adoption of such laws on total state healthcare spending, finding that any willing provider/ freedom of choice laws are associated with cost increases of at least 3 percent. These results suggest that these laws are harmful from a spending perspective." Here is the link:

Next time you hear Secretary Price talk about how you should be able to choose any physician you want--open networks where providers do not have to fear being excluded unless they lower price because they can always match later--recognize that you have been had.

"finding that any willing provider/ freedom of choice laws are associated with cost increases of at least 3 percent. These results suggest that these laws are harmful from a spending perspective.”

Is there any difference in outcomes in the any willing provider states? Without that information this study means little.

Evidently you did not look at the link to the report. The report that I linked to provided the statistical evidence to support the claim with a state by state analysis.

(1) Yes, there is always support for throwing more money at research. Just ask the Global Warming "scientists." But before you do: please tabulate the amount spent on cancer research for the last 25 year and be sure to include all the charities. Then tabulate the number of lives saved. Let me know how many dollars per life saved, or per form of cancer cured. Feel free to round off to the nearest hundred-million-dollars.

(2) This is 60% of the US Healthcare problem right here. But it's not just physicians; nurses, pharmacists, optometrists, everyone. But just like our K-12 teaching disaster, those who have the credentials do not want others to have the credentials. It's the elephant in the room. If you don't attack this first, you're not serious.

(3) Sure, whatever.

(1) I think that Alex is saying 'fund' by ensuring that researchers will be able to monetize their inventions. No senate hearings about prices, and decent patent protections. Given this investors will actually back research.

Several of the big stories/outrages about drug pricing lately were old out-of-patent drugs that some company got a short-term monopoly on via gaming the regulatory system. Investigating those guys (and closing the loopholes allowing this kind of gaming of the system) wouldn't decrease incentives for innovation a bit.

Research on how global climate systems work or on cancer research are basically like digging ditches and filling them back in.

To promote innovation and technologicla advancement, all researchers in life sciences and climate-related sciences should be required to check in for leg irons and ditch digging duties.

Question: should agricultural insurers be preparing for higher-than-average liquidity requirements as a function of climate-associated risks to this year's harvest?

What is the risk? That the harvest will be too big?

Weather events leading to it being larger or smaller, most especially related to sufficiently extreme events as to trigger insurance payouts.

"With few exceptions, we don’t have real markets in health care and so “prices” neither signal nor incentivise." At last, a point on which economists should have useful things to say.

"more spending on medical research is likely to reach broad agreement": your federal government spends far too much already. Further there's a general rule that all talk, or even hint, of a War on Cancer is meretricious rubbish. Thirdly, anything that finds broad agreement in Congress is probably a conspiracy against the taxpayer.

"Increase the supply of physicians": union-busting is a reliably healthy economic policy. Be sure to accompany it with the busting the monopolies, cartels and cronyisms that infest your medical industries. Fat chance.

Why does the British guy know far more about US healthcare economics than Tyler? Everything above is spot on. In an off-the-cuff response, no less.

May I add "don't copy the NHS"? Really. Just don't.

"a price is a signal wrapped up in an incentive."

I'm guessing that only works when the signal/incentive between producer and consumer is not blocked by an insurer?

1. Relaxing medical scope of practice rules that limit competition (FTC has been active here)
2. Allow US Medicare benefits to be portable (at a discount) abroad. Retire in Costa Rica.
3. The ACA's push towards ACOs has led to more local market consolidation by dominant hospitals - need some way to foster more competition in these markets.

And in another vein: allow a couple states to radically experiment. VT MA and NY could try single payer; a couple red states could go full libertarian, and everything in between.

Maybe this is why there don't seem to be any other intelligent extraterrerstrial civilizations in the universe. Any sufficiently intelligent species becomes so aware of mortality that they eventually consume all available resources attempting to live forever.

I have some reservations about the FDA "room for improvement" argument by citing "speed to approval". It cites oncology and antiviral being the fastest, while neurology and cardiovascular/ renal are the slowest. Could the factor be simply the typical medication period is limited/short vs lifetime/long. For drugs that would be taken for a long time wouldn't you need to wait a little longer to open for potentially competing results (long term side effect studies)?

Increase the number of Over-The-Counter Drugs and Medical Devices.

Both lowers cost and diminishes the visits to the doctor. Doesn't solve everything but it would make an impact.

Research into what treatment works might reduce cost by reducing ineffective treatment.

I have read somewhere (no link) that simply putting every person over 55 on Lipitor (now available as a low cost generic) would reduce deaths from heart disease and stroke.

Better treatments for depression, addiction and diabetes could lead to enormous consumer surplus.

“Other supply side reforms that could find bipartisan support?”

Certificate-of-need repeal:

A. CON laws fail to achieve intended results.

B. Both left and right tend to be skeptical of government-created cartels. This explains why antitrust authorities at the DOJ and the FTC have long opposed CON, irrespective of party affiliation.

C. CON laws are a state-level barrier to entry. And the odds of reform in one of 35 CON states would seem to be greater than the odds of any federal reform.

Yea price transparency, so when I'm in an ambulance after a car crash I can pick whatever hospital I want from a menu of options. Hey they're having a special on blood transfusions at that hospital 30 miles away! Send me there.

But is it enough of a difference to offset extra fuel spending?

According to CDC, "Eighty-six percent of all health care spending in 2010 was for people with one or more chronic medical conditions."

The ambulance situation gets repeated a lot, but most spending is going to be on diabetes, cancer, or nursing homes. Plenty of time to shop around for care.

You may be right that there is usually enough time to shop around, but the study doesn't say that eighty-six percent of all health care spending is for chronic medical conditions but that eighty-six percent of all health care spending is for people with chronic medical conditions. And chronic medical conditions includes common problems such as obesity so that half of all American adults have a chronic condition. It's at least possible that a good portion of the eighty-six percent of spending on these people could be described as "emergency."

I don't know enough facts about health care, but I worry that it's a little like water rationing in California. Over the years the government has gone to great lengths to discourage household water use, yet water and other urban uses account for such a small share of water use (11%?) that these efforts can't possibly have any real effect. To what extent is health care spending driven by heavy use by a few individuals with chronic conditions? The number you quoted above helps, but it's not quite right.

This is such a bogus argument. There is all sorts of health spending that happens in non-emergency contexts.

You have some wierd pain in your side, you go see your GP, the GP orders a bunch of tests. You COULD shop around at different diagnostic labs and find out which one will do the testing for the smallest amount of money. This doesn't happen because your insurance is going to cover it so why should you care? The doctor just sends you to whichever one is in the same hospital network or whatever.
Step 2: The tests turn up nothing of note. The GP decides it's muscoloskeletal and tells you to get more exercise. Of course, there's a remote chance that they missed something so maybe you should get a CAT scan "just in case". You COULD choose not to get the CAT scan, but hey, you're no paying for it, so why not? The GP probably doesn't want to worry about a malpractice lawsuit in his future, so he doesn't care either.

All of these people saying, "shop around." How many of them have "shopped around," -- gotten second and third opinions on treatment for an injury or illness?

Because I'm curious about how you pay for this. People don't have multiple primary care physicians. Any PCP you want to visit with will usually have a lead time of at least a week. And they want an introductory visit first. Appointment availability is often worse with specialists. Most people are lucky to scrounge up the money to visit one doctor for an ailment, let alone two or three for the same ailment.

I've shopped around for a provider. My wife needed an MRI on her liver and a shopping tool from our insurer listed all the covered providers and the prices. Range was from $300 to over $2000 if I remember right. All had good reviews, and the $350 choice worked well.

We transitioned to a high deductible plan. As soon as we did, my wife shopped around for a more affordable pediatrician. A difference in $50 per visit is significant.

I have employer-based insurance. I don't give a shit what anything costs.

I have known of people choosing the hospital they preferred even when being taken there in an ambulance with quite acute health problems (not because of price but because of perceived comfort and quality).

Shopping around because of price could and would happen a lot more than many people assume. If you have had a stroke or heart attack and every minute counts, then no. But most health problems are not like that. And even for those critical emergencies, you could shop around for rehab, etc., beyond the immediate acute care.

I'm with Robin Hanson: cut the healthcare spending baby in half. All of these sound like recipes for more of something which already does so little good on the margin. Yes, it sounds good politically, which is why we're in this situation where we spend so much on something which doesn't seem to improve health outcomes.

Part of what we need is to recognize that we all die and that spending hundreds of thousands of dollars to keep a 75 year old over weight smoker alive for an extra three months makes no sense.

Robin Hanson wrote in the comments section of his blog in 2007 (the same year he wrote "Cut Medicine in Half), "I would not claim exactly zero marginal effects of medicine. With limited statistical power, one can just infer a small effect, but not a zero effect."

But that was ten years ago and based on a 1983 study that tracked patients from 1974 to 1982. Wouldn't an argument based on the health system in the late 1970s be just a tad bit outdated?

The demand side usually gets all the attention. The classic libertarian argument is that costs are out of control because of third party payment and we just need to have everything paid out of pocket (aside from catastrophic insurance) and this will bring down costs.

But you can still be overcharged paying out of pocket and that is exactly what happens typically to uninsured people. An HSA with no insurance company or other intermediary would be a mess. Paying out of pocket won't do you any good if 1) the hospitals, drug companies, etc. have considerable market power, 2) you don't understand the services you are demanding, don't have access to the prices until after the fact, and don't know how much it should cost anyway. Moreover, culturally most of us aren't comfortable haggling with doctors over medical care and it would likely poison the doctor-patient relationship. Consequently, it's actually quite sensible I think to have some third party (government or private insurance) do the haggling and cost control.

Currently, there are all kinds of supply side restrictions, many of them local. Hospitals get protection because they say otherwise specialized suppliers will come in and steal their high margin business, leaving them holding the bag on the money-losing stuff they are legally required to provide to the indigent. Pharma similarly needs protection to recoup research expenses. If there's going to be real cost control, I think it will be from clearing out the economic rents on the supply side (either from competition or government exercising monopsony power).

It's a chicken and egg problem. Prices aren't transparent BECAUSE consumers aren't paying out of pocket and hence don't care what the prices are.
If consumers were paying out of pocket, they would demand prices up front. Doctors are under an ethical obligation to be honest to their patients and have an economic interest in giving honest recommendations as well. If you aren't sure what you should pay for something, or whether to pay for it, ask your doctor's honest opinion. A good GP will tell you what testing is just a precaution, and what things are really serious and need to be looked into. You should totally cultivate an honest relationship with your GP about cost-effectiveness.

Hospital treatment is sort of a different story but that's what insurance is for.

I don't think transparent pricing is the silver bullet. College has fairly transparent pricing and yet costs are out of control.

Consumers can demand prices, and maybe they will get them, but does that mean they'll be reasonable? The car mechanic can still rip you off even if you're paying cash. Suppliers will tend to escalate costs and most patients won't know any better and will defer to the professionals. I think you are assuming too high a level of sophistication for the typical patient. Plus, people are going to have a hard time paying medical bills in cash, so some sort of financing is inevitable. If not insurance it will have to be a savings account or loans or something.

Personally I have an HSA plan. But all the billing is still done through the insurance even though they don't rarely pay anything. If you were totally on your own I don't think it would work out well.

"I don’t think transparent pricing is the silver bullet. College has fairly transparent pricing and yet costs are out of control."

No, colleges don't have "transparent pricing". They have a rack rate. What each student pays is based upon a Financial analysis of the students "needs", which is completely different than transparent pricing.

Billing via the insurance company does seem to work pretty well. The insurer has an incentive to seek lower cost providers and only offer those in network. I think you would still want up front pricing if you have a high-deductible plan though, as long as you don't expect to meet the deductible in the plan year.
In theory the pricing could be provided via the insurance company. They could give you a list of in-network providers and what each one costs.

I wonder why insurance companies don't already do this. Perhaps they don't want to disclose what the prices they have negotiated with the hospitals are. I suppose as more consumers move to HDHPs there should be more demand for the insurers to tell you what the negotiated rates are.

On the matter of suppliers inflating costs.

I think not, because each clinic has an interest to keep an eye on these costs. So unless there is some collusion in the market (very possible) this should not be a problem. I think you could specify many types of situations related to this issue that could introduce wasteful (borderline fraudulent) cost inflation, but as presented, the profit motive at the clinic level should suffice to counter most of this.

Two ideas:

1. Advanced market commitments and related ideas have the potential to spur innovation at lower cost than patents. I'd love to see AMCs for a number of medical breakthroughs. As long as Medicare and other government programs buy so many drugs and devices, I think the government could promise to buy millions of a new cure for something and then put the IP in the public domain once done paying.

2. More research on cost-effectiveness -- especially on daily behavior change. Three domains seem to have enormous potential
a. The gains from getting everyone to take their medicine for high blood pressure, asthma, cholesterol, diabetes, depression, etc.
b. Getting people to eat one more serving of vegetables instead of soda each day and walk up stairs.
c. Getting doctors and other caregivers to follow evidence-based standards unless they have a reason to deviate.

Patents do seem to spur innovation and diffusion:

**Attempt at dumb meme-killing to follow**

Alex T. and others on this thread seem to be ignoring 1) supplier-induced demand and 2) reimbursement when they talk about increasing supply. The reason that payors (both private and CMS) don't campaign for more residency slots / med schools / foreign immigration is that more providers = more costs without improving outcomes. This relationship is particularly obvious in a place like S. Florida where there is a glut of doctors, NPs, PAs, etc. and salaries aren't massively lower (but utilization is). Moreover, since reimbursement for providers / hospitals is the roughly the same (Obamacare actually mandates this in some cases) no matter who provides the service nurse without a college degree or doctors with 10 years' post-college), any gains merely increase hospital profit margins.

If you don't change above (e.g., by allowing differential pricing of MDs vs. NPs vs. PAs, getting a better handle on utilization, etc.), then you are condemned to re-run the failed experiments of the past where massively increasing the supply of medical providers in the 70s (with D.O. schools) led to spiralling costs for payors

The non-libertarians in the health care payor world have learned these lessons ...

ChromaDex announced last week that the results of its 140 person trial of those taking Nicotinamide Riboside (NR), a vitamin B3 derivative, at 100mg, 300mg, 1000mg and a placebo, will be put up on its website in June or July.

Glucose levels, cholesterol levels, blood pressure, heart rate and a 6 minute walking test were measured over an 8 week period. At current prices, that would cost $0.40, $1.20 and $4.00 a day for a compound that is already known to have amazing effects in mice. If they carry over to humans, one would expect a drop in risk for diabetes, heart disease and cancer.

Last December, Elysium put up on its website only how much 250mg and 500mg of NR raised NAD+ levels, which decline from a persons late 30s, in 120 healthy adults aged 60 to 80 (40% and 90%, respectively) and has sent the detailed results off for publication.

And that is just NR. A lot more is coming in disease prevention.

(A few years ago before I heard of NR I wanted to bet Hanson that anti-aging/health pills were coming by around 2020 and he naturally wanted a specific bet, but I was uncertain on the year and couldn't easily come up with terms I thought he would agree to where I was almost certain to win, so I decided not to create the bet.)

Allow end of life patients to be able to decide to end life early and pay half of the estimated savings to their estates.

" if medical research could reduce cancer mortality by just 10 percent, that would be worth $5 trillion to U.S. citizens"
Over how many decades? Or is it dozens of decades?
Lets see if 10% is 5 trillion then 100% is 50 trillion and that is three times annual GDP.
And yes this wacky number has been put out by various groups but never justified.

Estimates for the total economic cost of cancer in the US are typically around 1% of the GDP (available via open access: Cancer Epidemiol Biomarkers Prev. 2011 Oct; 20(10): 2006–2014; J Natl Cancer Inst 2008;100:1763-1770)
Have to keep in mind that most cancer deaths are for folks > 65 as well as many other factors and that any 'cure' is unlikely to be cheap. To get into the trillions have to assign a value to 'quality years of life' lost and 'willingness to pay' estimates.

Accidental deaths are a bigger economic factor, well over $200 billion/year in work lost costs (injuries cost even more). For example, having someone die in their twenties is really expensive since their upbringing and education have been paid and there is no return. The 'quality years of life' lost cost is also enormous.

The whole batch of responses is TLDR. However, one comment in the OP in particular strikes me as being demonstrably false: " The net gain would be especially large if we could reduce cancer mortality with new drugs, which are typically cheap to make once discovered. "

In the US, due to the market structure, new drugs cost the consumer unreal tons of dollars. There is no "cheap". The new drugs are so expensive (monopoly pricing) that the word expensive no longer fits. Exorbitant just barely touches the extremes that is demanded as payment for these drugs. So, "cheap" production does not matter. As far as the market is concerned, there is no cheap product - all the "cheap" goes into making a magnificent profit for "big pharma".

That circle has to be broken before the consumer can feel any benefit from technological advances in drug production and discovery.

The AMA is basically a trade union for physicians. By maintaining a physician scarcity they ensure high incomes for their physician members.

David Sinclair of resveratrol fame told the Washington Post in 2015 that he thinks compounds like NR, NMN, rapymicin and metformin, etc could cut heart disease, diabetes and cancer by 10% in the near future and new drugs based on those would then slash those three major diseases by 50%, which would be huge.

If the NR trials show significant good results at 250mg or 500mg a day, then at current prices improved health would cost $0.90 or $1.80 a day. In the case of NR, the monopoly Chromadex which owns manufacturing patents more than doubled the price after Sinclair published his NMN study on mice where if human, muscle cells went from that of a 60 year old to a 30 year old after one week.

Sinclair has also been saying for years that he expects the first health pill by a pharmaceutical would cost about $3 a day but when off patent would be as cheap as aspirin.

The sort of people who opposed GMOs will immediately demand that this be banned until long term trials in humans are performed to ensure that there are no unknown long term effects.

Dems wrong with their supply side orientation related to labor markets. GOP is wrong with their supply side orientation related to financial capital markets. The are both ignorant of, and will hopefully be enlightened as to, the need for supply side orientation related to cutting edge knowledge. More science, more research, open sourced to a very literate public--a public that can read mathematical arguments--calculus and linear algebra level--and organic and biochemistry nomenclature.

Pay docs by the minute. Allows them to use their time on patients rather than on gaming the billing code system.

Something needs to be done to address defensive medicine and its associated costs while maintaining legal protection for patients.

If anybody figures that out, I'd also like to know your thoughts on the location of the Holy Grail.

Do you suppose a drug company prefers a consumer who takes a daily dose for the rest of his life or for ten days. Those would be statins and antibiotics. The latter will require more government research subsidy than the latter.

Why not just bid out all medical tests to reduce costs? When a doctor orders a test, the test should be automatically bid out to all suppliers in a 10 or so mile radius. The patient should be given the result of the bid so he/she can pick the best one.

The same thing with prescriptions. When the doctor writes a prescription for a drug. It should automatically be bid to all the local pharmacies.

Nixon was going to beat cancer with the national cancer institute. all he did was start another ridiculously expensive, bureaucracy who's main interest is getting more money for more ''research''. finding solutions would end their gravy train. tens of billions have been wasted on another D.C. pig trough. no more tax $ should be sent down that bottomless pit. but good luck with that. deleting a government department, no matter how much sense it makes, never happens. government grows bigger and bigger. it never shrinks.

why import more Pakistan physicians? how about training more Americans? what a novel idea. there is always a huge number of very talented, motivated students who apply to med school and are turned away for lack of a spot. probably only 5% are allowed a chance. importing foreigners to be docs is a kick in the groin to those rejected American students.

tons of cheap, generic meds skyrocketed in price thanks to the Obama version of the FDA.

of course his suggestions for streamlining the FDA process and price transparency make sense. but some of what he said showed a frustratingly naive, misinformed view.

you are welcome to share my feedback with him.

what if instead of price controls we do a single payer system, but instead of price controls and rationing we use its bargaining power and ability to buy in bulk to lower costs? this would greatly reduce medical costs, which is abundantly clear because of how much cheaper healthcare is in the rest of the industrialized world compared to here. hospitals would remain private and the government would pay for each procedure, doctor's visit, and drug. hospitals could also be given bonuses for how good their outcomes are or how fast they are improving.

Comments for this post are closed