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The Free Market Mostly Doesn’t Work for Healthcare

I recently visited my doctor for an annual checkup.  His practice had recently computerized their records.  As he was going through my medical history he started laughing.  Perturbed, I asked him to explain.  He said “of all my patients no one has had nearly as many diseases and conditions as you, particularly the unusual stuff.”

OK, so starting with birth I’ve endured circumcision, migraine headaches, having my Healthcare moneytonsils out at age 10 and proceeding through 3 broken bones, mononucleosis, dysentery, malaria, a 5-inch splinter embedded in my foot, scrombroid fish toxin, shingles, 2 cancers (both cured by surgery), and the resorption of a tooth – and that’s just a partial list – let’s just say I’ve had a bit of experience with the healthcare system.  I’m here to tell you that the Free Market (cap F, cap m to denote the version worshipped by many of our fellow countrymen) just does not work for emergency healthcare.

Sure, the market works fine for elective healthcare like Lasik eye repair or cosmetic surgery.  That’s because these elective procedures, unlike emergency healthcare, meet the requirements of the free market model, characterized by this textbook definition:  “many buyers and sellers in the market and none of them having the capacity to significantly influence prices of goods and services.”  Free Markets are less effective when the buyer and seller do not have equal information or equal freedom of action.

When you’re faced with a medical emergency you just don’t have anything close to equal information or equal freedom of action.  Just wait until a doctor pops the news that you have aggressive cancer and require surgery within 90 days.  Suddenly shopping for the lowest price healthcare deal just isn’t a priority.  I doubt most people would have the presence of mind to ask their cancer surgeon “how much will this cost?” or “how do you get paid?”, the kind of questions you would want to ask as an actor in a truly Free Market.

Unfortunately for our Free Market principles, if you do ask “how much will my surgery cost?” almost no provider of emergency health care will be able to give you an answer.  I’ve started asking this question and by far the most common answer is, “no one ever asks that, I don’t know.”

The one-sided nature of our emergency healthcare market has opened the door to too many situations where healthcare providers have taken advantage of their unequal market power to charge unconscionably high prices on what is known as “fee for service”, with the fee set by the doctor.  The greed engendered by the uneven playing field in emergency health care has even seen doctors corner the market as providers of over-priced medical tests like MRI’s, which they then turn around and prescribe even when not necessary.  Certainly there are providers who do not participate in the market on a “fee for services” (which translates into “charge as much as I possibly can”) basis, but all too many do.  A number of national commentators have called for reforming, or even doing away, with fee for service.

Now, when I “shop” for emergency health care services I look for doctors who are paid a salary by the hospital systems for which they work, rather than enrich the pirates of fee for service.   I urge you to be aware of the difference and do the same.

About The Author

Jim Robinson

Jim Robinson holds an MBA from the University of California, Berkeley and has extensive management and consulting experience. He managed a team with worldwide product, sales and support responsibilities at AMF before becoming an independent business consultant in 1996. Along with David Propis, he co-founded Hire-Intelligence, LLC in 2011 and today serves as CEO of the company.

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