The Myth of Consolidation: Bigger is Not Always Better
The current healthcare system is burdened by needless administrative costs that consume over 30% of our healthcare dollars. This is no small change and amounts to billions of dollars of wasted money and resources. Advocates of a single payer healthcare system claim that consolidating the fragmentation of third party requirements into a single payer system is the only way to recapture this wasted money. These people remind me of corporate managers who believe that the only way to improve their prospects is through mergers and acquisitions. Unfortunately, evidence and history have shown us that most mergers and acquisitions fail and, as James Surowiecki in a recent New Yorker article puts it, “corporate marriages only rarely end in bliss.”
Most corporate takeovers are motivated by maximization of efficiency and management utility reasons, rather than by the maximization of shareholders wealth (Mallikarjunappa). I’m afraid that even if we achieved better efficiency in a single payer system (highly unlikely), we won’t be able to maximize our shareholders wealth, i.e. the health of our patients. The health of the public can best be served by new innovations and value creation driven by competition among providers. We need to shift the balance of power from insurers to providers, whose objectives are best aligned with patients’ needs. Single payer systems, just like corporate mergers, are anti-competition. They are more concerned with size and control than value and quality. As Surowiecki observes “while acquisitions, almost by definition, boost a company’s growth rate, they too often make it bigger without making it better.” In reconfiguring our fragmented healthcare system we have to try our best to make it better, not bigger.
More info: The New Yorker
Filed under: Health Policy
Errors and omissionsin Dr. Khozin’s post demand comment.
First, the waste of 30% of our healthcare premium dollars is indeed “billions of dollars” —not per year, as implied, but per week. In fact , it is over $1 billion per DAY, or, for each of the 100 million persons now covered by private health insurance, more than $10 per day, well over $3,000 per year. Calling it “no small change” very much understates its magnitude. In ten years, $3 trillion down the drain: “no small change” indeed.
Second, it is not “highly unlikely” that almost all of this waste would be saved by moving to a single payer system. Invoking the James Surowiecki New Yorker piece to support this notion is just plain mistaken, since Surowiecki points out that mergers whose objective is cost saving are most likely to succeed , whereas those done in pusuit of increased market share via an ephemeral “synergy” often fail. The move to single payer would be undertaken first and foremost to achieve savings of those wasted administrative dollars. Major savings would indeed be achieved, as proven both by the experience of other countries with single payer systems, and by our own experience with Medicare, a single-payer system whose administration costs are a tiny fraction of those imposed by private insurance. So to say that savings in admisitrative costs are “not likely” is just plain wrong.
Finally, in writing that “the health of the public can best be served by new innovations and value creation driven by competition among providers”, Dr. Khozin perpetuates the myth that single payer eliminates competion among healthcare providers, and therefore eliminates innovation. Both are untrue, though often unwittingly accepted even by advocates of single payer insurance, e.g., the late Sen. Paul Tsongas, whose life was extended by a bone marrow treatment he reluctantly allowed was unlikley to be developed under a single payer system like that of Canada. He was unaware that the very procedure that prolonged his life had in fact been developed in Canada, under their single payer system. So much for single payer destroying innovation.
For more, see “A Second Opinion”, by Arnold Relman, M.D., or http://whatsnotso.blogs.com
Tom,
There are many ways to provide cheap care, but as we all know cheaper is seldom better. We can save a lot of money cutting out the middlemen, which includes the government. Cutting costs elsewhere can be dangerous and counterproductive. A single payer system leads to rationing. There are a lot of Canadians who get their elective surgeries and chemotherapies in the US and they are now having private options available to them in their own country. Even the Canadian government has acknowledged that delays in access to care in their system can lead to pain and suffering, even death.
Having a single payer system goes entirely against everything that our country stands for. It’s oppressive and draconian. Why would anyone spend $200,000 to go to medical school and end up being a government employee? Socialized healthcare systems such as Canada heavily subsidize medical research and education. Is our government willing to do that under a single payer system? If so, where will the money come from? Higher taxes?
Free market principles and belief in individual liberty and responsibility have made our country the envy of the world. Let’s stick with what works and we know best.