One way capitalism can make health care worse and more expensive

"likely to reflect an absence of the ideological furniture on which the fact could sit."

Nope
Brooks simply has too much of the ideological bit that in fact does the sitting on the furniture.

Anybody seeing an opportunity in peddling placebo drugs?

Placebo effect is real > Good marketing can induce a Placebo effect > Lots of money for drug companies + healthier populace

Or am I missing something?

"Matthew Yglesias takes the right tack by comparing the medical industry to the shoe industry."

Luckily (for supporters of socialized medicine) he didn't take the wrong tack with a comparison to the IT industry.

@cs r:
I have trouble believing that there is a straight comparison between the healthcare industry and the IT industry. To make just one example, there are few instances of format lock-in or service contract-based models in the medical industry.

M.S., you are ignoring the most critical element that distorts the medical market -- the 3rd party payer problem.

A pure capitalistic, free-market in medical care WOULD provide goods and services far more efficiently than a government run system if it were run like a normal free market, with a simple buyer and seller. However, the U.S. system of medical care is a tripartite one -- the buyer, seller, and payer are all different, which completely distorts the free-market dynamic.

The patient does not bear the direct cost of the medical care, so he or she has no incentive to reduce frivolous or unnecessary consumption. The doctor is being reimbursed on a fee-for-service basis, so he or she has no incentive to reduce the amount of service provided. The insurance company is not primarily concerned with cost control, because as long as their inflows (premiums) match their outflows (reimbursements), they dont care -- they make money from the underwriting fees and the float.

Because the payments are divorced from the supply and demand, the free market system has problems providing medical care efficiently. The solution is not to junk the free market system, but to junk the 3rd party payer problem.

Liberal-progressives keep saying that socialized medicine is cheaper than free-market medicine by pointing to the costs in France, Britain, Canada etc. compared to America.

But guess what: we don't have free-market medicine here in America, we have byzantine-market medicine. The cost comparison only tells us byzantine-market medicine is unduly expensive.

Surely this has been explained to M.S. a thousand times.

I would criticize the Brooks piece from the right. Of course price controls control prices. Conservatives shouldn't hesitate in acknowledging that. But there are other consequences to price controls which is why we don't use them.

MS's piece is much worse though. According to him, we should prohibit advertising in non-status goods like cell phone service, food, razors, movies, toothpaste, plumbers, etc. because advertising adds no value. BTW, is status even a value we want to protect? Why not ban sneaker advertising?

Advertising creates competition and reduces search costs. Yes, advertising lowers costs. There are countless examples of price wars waged over the airwaves. It's amazing how much fast food you can still get for a dollar.

Now I'm not against Consumer Reports or peer-reviewed journals. They also reduce search costs. I'm not against denying reimbursement for the useless. I am against price fixing. Have your advisory boards but let the market signal the price.

Ah Beng, I agree there is no straight comparison between the IT and healthcare industries. My point is that Yglesias cherry-picked an industry that also is problematic as a comparison.

DiA said: "But beyond the added expense, why would anyone think that a system in which marketing plays such a large role is likely to be more effective, to lead to better treatment, than the kind of process of expert review that governs grant awards at NIH or publishing decisions at peer-reviewed journals?"

- Lets see, because entrepreanurs who start a company and which may fail is the capitalistic way determine winners and loosers. Does it work perfectly all the time...heck no, but under your preferred system having a expert board you are at the mercy of their decisions. What happens when you have board members are corrupt or have deals with other makers and don't approve a new drug/method/equipment because it would hurt their system. What about all the new stuff they don't give a shot because their statistical models suggest don't work. Capitalist methods may waste a lot on their failures, but I feel over time their success's outweigh their failures. Why? Because new companies are willing to gamble on new stuff that a board of experts wouldn't. Those entrepreanurs do this because they may make boat loads of money!

@cs r:
Ah, I see. Thanks for clarifying.

DiA said "The reason a pair of Jordans was vastly superior to a pair of nondescript Soviet sneakers in 1989 was only partly that they were more durable, or had better support and traction. Most of the added value wasn't there. It was in the interplay of marketing and fashion."

- Ok, sure the value added for that pair may not be leaps and bounds better, but look at massive more variety of shoes available in the market. Your logic is that its ok for marketing in other products like shoes, but healthcare its not. Let me turn the tables and ask, why not have a independent board of experts say what shoes can be produced?

Another point on marketing. What happens when Nike releases their new shoe, which may only be marginally better in real performace and makes most of their sales in advertising. Another shoe company comes along and says, well Nike just too market share so we have to up our game to get those customers back. They revamp their advertising, but they also may revamp their shoe and try new inovations to get ahead. Inovation occured because of advertising and the good old goal of making money.

I suppose your stock answer will be that instead of spending money on advertising, a single payor system would spend that money research. Fine, but what is the most effective research? Do you want to try and cure some rare form of cancer, or a develop new gene therapy to cure a common but non fatal disease. My point is that advertising is one more way business interact with customers and one more way they ultimatly determine what most people are willing to pay for/really want. An independent expert board may release surveys, talk to other experts, but I question its ability to really flesh out things like this.

@RestrainedRadical:
"According to him, we should prohibit advertising in non-status goods like cell phone service, food, razors, movies, toothpaste, plumbers, etc. because advertising adds no value."

He says no such thing. He says that it's a waste of scarce resources, that if we really cared about controlling health care costs, such expenditure should be made unnecessary, not prohibited.

@cs r:
"we don't have free-market medicine here in America, we have byzantine-market medicine"

That's an astute observation. The problem with making that observation is that at no time in the recent debate has a truly free market for medical services been on the table. It's a choice between expensive, broken, privatized Byzantine healthcare and slightly less expensive, Byzantine semi-privatized healthcare. And people treat it like it's freedom vs slavery.

@RR

I think you're taking M.S.'s implication too far here. He's not saying that it's somehow wrong or inappropriate to value goods based on status in markets, just that status is not something the government should be paying for. I think the better analogy would be the advertisements all over the DC Metro aimed at defense contractors to sell cargo jets, night vision goggles, and other military goods. People should be free to waste their money on whatever they want, snake oil and brand names included, but the government shouldn't.

On a side note, I still think advertising for prescription drugs is ridiculous. By definition, non-doctor consumers aren't able to make an informed judgment on whether/which to use.

If "a board of 15 experts" suddenly took over all decisions for the health care industry, does anyone believe that marketing (or lobbying efforts) will no longer play a role? Do you really think your IPO-pal will happily sit on his hands and hope for good results from "peer reviews"?

Of course he's going to market this thing as much as he possibly can. And if he can't market it to the 15 experts, then it won't get done at all, much to all of our detriment.

LexH,

Third party payment systems are something of a problem, in that middlemen rarely cause the cost of a product/service to decrease. But your thesis has what appears to me to be a fatal flaw:

Most people aren't qualified to determine which medical procedure/product is the optimal product to treat their ailment.

When you buy a car, you know roughly how much power you want, how much storage, etc. You can look to Consumer Reports to gather reliability data and dealer cost. You can negotiate with the dealer based on this information. Similar story with most consumer goods.

When you have a dread disease (one of a bazillion maladies, not a few dozen as with most purchasing decisions), there might be uncertainty among doctors whether it is indeed disease X, or maybe Y or Z.

Once you (kinda maybe) know what the problem is, which treatment is best? Even among doctors who agree on the disease, they may think that treatment A, B, or C is most effective based on their research, year of graduation, etc.

Thus, even if all doctors and practitioners were equally adept, you would still need to navigate the diagnosis/treatment thicket. But they're not equally adept, and there's no Consumer Reports to provide data on reliability, outcomes per thousand operations with doctor X in hospital Y.

In short, consumers are ill-equipped to treat medical care as if it was any "normal" market. We just don't have the expertise to do it. And thus we are even more susceptible to the recommendations of the "experts" as to what to do than we are with a pair of sneakers.

When the doctors make decisions based on marketing rather than the studies of a non-profit board of researchers and domain experts, guess what would happens?

Something approximating the American "system".

If the government, as a third party payer, was to assume responsibility for payment of all non-cosmetic, non-discretionary medical care and base decisions on what a non-profit board of researchers and domain experts recommend as cost-effective treatment and then leave the rest to private insurance, guess what would happen?

Something approximating one of the dozens of countries who spend far less than we do and achieve superior public health results.

I did take MS's argument to its logical conclusion. Maybe MS believes status to be a social good that justifies the additional cost though I find that to be out of character. Maybe he accepts that advertising reduces search costs but he explicitly states that panels are just as effective. That leaves competition as the only remaining socially valuable purpose of advertising but MS rejects this. Therefore it logically follows that if you have a panel reviewing non-status goods, banning advertising is actually a good thing.

Now, I'm not saying that Medicare should pay for everything. In fact, I said the opposite. But I strongly object to this notion that a monopolistic purchaser fixing prices is the pain-free panacea to our health care problems that progressives make it out to be.

Jaylat also raises the good point that giving the decisionmaking power to the government would cause sellers to shift resources from advertising to lobbying.

What about state of the art medicine that the government can't afford to provide to every single person? Does that type of stuff disappear?

Brooks' method is to set up straw men and knock them down. The straw men are his creations and bear little resemblance to reality.

M.S.,

You use an interesting and I believe very instructive example. Essentially, what you are saying is that this company's product is as good, maybe even better, that the competitors' product, but that the market has undervalued it. On what are you basing that assumption? A molecular biologist told you so. In other words, you have chosen to believe that the concentrated wisdom of your one expert is better than the disaggregated wisdom of the market.

Perhaps it is true that David Brooks is hopelessly confounded by his pre-existing belief that markets outperform experts, but it seems quite clear that you suffer from the opposite. You seem to take it for granted, at least when it comes to all things health care related, that experts outperform markets. What's more you seem to hold up the supposed superiority of the European models to the American models as some sort of absolute proof, while completely ignoring the fact that we really don't have a real free market in health care in America.

It may well be true that a board of exports picking and choosing which treatments will be funded, and under what circumstances, would outperform a system where individuals had direct control of their healthcare dollars and made those decisions for themselves. It is, however, an empirical question and one to which, at this point, we have no definitive answer.

Just out of curiosity, RR, why do you think the single-payer system they have in many other countries, that works so well to reduce cost in the countries that implement it, would not work in America? I'm only asking, because I wonder if you actually have an answer to that question, or if your opposition to it is rooted in a fear that another country may have gotten right what America seems to be struggling with.