[ExI] Medical Costs

Rafal Smigrodzki rafal.smigrodzki at gmail.com
Mon Mar 3 23:59:09 UTC 2008


On Thu, Feb 28, 2008 at 8:27 AM, Stathis Papaioannou <stathisp at gmail.com>
wrote:

>
>
> The feedback loops in large organisations are not that different
> whether the organisation is public or private.


### Really, they are. More specifically, the largest difference is between
non-monopolistic organizations controlled through the price mechanism, and
monopolistic organizations which do not use the price mechanism. The price
mechanism with exit option acts as a truthful conduit and integrator of
information with a feedback delay directly related to product cycle. No
society has ever discovered a more precise and faster feedback mechanism for
the organization of economic activity than prices.

----------------------------------------------------------

If the cleaner doesn't
> do a good job, customers or other staff bring it to the attention of
> his supervisor, who either tries to make him work harder or argues to
> his superiors that more cleaners need to be employed. If a bad
> decision is made - too much or not enough money spent employing
> cleaners, or too many incompetent cleaners employed - this comes to
> the attention of management further up.


### What catches managerial attention of a profit-driven entity is the
bottom line. Customer complaints are analyzed only insofar as they indicate
problems that could lead to financial losses, which tend to be immediate,
and roughly proportional to the volume of complaints. Customer complaints in
politically controlled entities are irrelevant unless they reach the
power-wielders in a sufficient amount as to have an impact on their ability
to stay in power (i.e. the strength of feedback is not proportional to the
number of dissatisfied patients), and tend to have very long feedback delay,
measured in years. These are large differences.

--------------------------------------------------------


> By it reaches the board of
> directors it will have become very serious, affecting sales, customer
> complaint levels, or some other outcome measure. Some work will need
> to be done to determine why exactly the customers are leaving or why
> the incidence of gastroenteritis has increased. Ultimately, if things
> are handled badly enough, the shareholders/electors can vote to sack
> the board of directors.


### Exit option for patients is almost immediate in a private system,
extremely limited or absent in a state system. Absent in the sense you can't
ever stop paying, even if you are dead, since money will be taken from your
inheritance as estate taxes. Limited in the sense that you can't go to a
different, independent hospital system without paying double. This is a huge
difference.

More generally, *within* a private organization, especially a large one, you
may have feedback mechanisms that are similar to state ones, that's why
large companies, like GM, may ossify and no longer act nimbly to serve the
customer. However, the loops operating *between* a competitive organization
and its customers are based on price, supply, demand, and easy exit, which
is how they differ from states.

 ----------------------------------------------------

> Maybe a combination of private (to provide competition) and public (to
> guarantee a basic standard) is the ideal.


### Do you think you need state control of facilities (and their prices) to
guarantee a basic standard? Or do you need only the state as a payor of last
resort? These are two distinct positions. I disagree strongly with the
former, and largely disagree with the latter. I also disagree with the need
to have a basic standard (i.e. a guaranteed minimum of access to medical
care).

----------------------------------

> Good for you: you should always question propaganda. But your life
> would not necessarily have been any better had you lived in one of the
> many poor, disorganised countries where the propaganda (and the
> prisons, and the death squads) was intended for the evil socialists.


### The enemy of my enemy is *not* my friend! :)

I know that socialists have been persecuted, tortured and killed by some of
their enemies. Persecuting communists doesn't automatically make you good in
my book (although supporting them makes you bad).  What I am arguing for is
not simply absence of socialism, which is only one form of evil, but rather
a principled rejection of violence. That implies a principled rejection of
the legitimacy of taxation.

------------------------------------------------------------
 There are many commercial situations where you can't readily go to

> someone else, for example if you live in an apartment building and you
> don't agree with the way it is being renovated. You could move, but at
> great cost and inconvenience.


### But the cost is not actively imposed on you by violent means. You have
orders of magnitude more choice among apartment lessors than among tax
assessors, and the latter cost about an order of magnitude more.

-------------------------------------------


>  But yes, if you can't
> afford anything else, and you don't like the variety of the food on
> offer, there is probably no immediate personal gain from complaining.
> It's better not to be poor, if you can help it.


### People who are not taxed tend to get richer than those who are, ceteris
paribus.

-------------------------------------------------

Oddly enough, the Australian taxation system penalises high income
> earners who don't take out private health insurance: they pay a higher
> tax rate, which can work out to many times more than the cost of the
> insurance depending on income, so people have an incentive to take out
> insurance even if they don't think they need it. This was brought in
> as an attempt to curtail public health spending by shifting some of
> the burden to the private sector.


### Jeez, so not only you are being fleeced but you can't get even a bit of
the losses back by using the services made possible with your money! This
adds a whole another layer of injury.

-----------------------------------------------------------


> The result has not been that public
> hospitals are left in the dust by their private counterparts. The only
> real advantage of private insurance has traditionally been quicker
> access to some types of elective surgery, such as joint replacement.
> But even this has changed as public patients have been demanding
> quicker service, perhaps comparing themselves to their private
> counterparts. In terms of research, handling of complicated cases,
> innovative techniques and general prestige, the large public hospitals
> are still way ahead.


### If you have access to extorted monies you can grow much bigger than
somebody who has to earn his keep (and keep paying taxes).

-------------------------------------------------------------

> The Australian PBS
> (http://en.wikipedia.org/wiki/Pharmaceutical_Benefits_Scheme) is not a
> monopsony. Australia is a small market by world standards and drug
> companies are free not to release drugs in that market if they feel it
> isn't profitable, or to release them on a private script only basis.
> You may as well accuse pharmacies of being monopsonies on the grounds
> that they buy medications in bulk.


### Yes, it is a monopsony. It takes money from citizens and *then* buys
medications in bulk, rather than by individual decisions of patients. By
taking your money away and offering "benefits" in return it acts as a strong
disincentive to buy individually (which would be equivalent to paying
double). Pharmacies  buy in bulk *in response* to individual patient demand,
and there are many independent pharmacies, thus preserving individual
patient input into the pricing system. A supplier of goods with very low
marginal cost of production, such as drugs, has a choice - either deal with
the local monopsonist, or else essentially lose the market altogether. As
long as there are enough markets where you can recoup your costs, the drug
maker will survive, but a few more such monopsonies could bring pharma down.

-------------------------------------------

 The majority of the 200,000 Australians with schizophrenia are

> provided with free or almost free second generation antipsychotics at
> a monthly cost to the PBS of $200-$300 per person. I don't see any of
> the drug companies withdrawing their product on the grounds that this
> revenue isn't worth their while.


### Do you think that withdrawal of suppliers from a market is a necessary
criterion for detecting a monopsony?

Rafal
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