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Nov 16, 2012

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NKR

"The major cause of exploding U.S. heath care costs is the third-party payer system, a text-book concept in which A buys goods or services from B that are paid for by C. Because private insurance companies or the government generally pick up most of the tab for medical services, patients don't have the normal incentive to seek out value."

Of course, the public option in the original health care reform discussions would have provided a mechanism to fix this a la competition from the government to help push absurd amounts of rent down on medical services and product costs. The government would have been a simple actor in the market (because we all love markets!). The relevant policy issue here is *messaging* - how does the idea of an *option* get labeled as *socialism*? How do we as Christians act as truth tellers in the policy world and help others understand issues instead of participating in the mislabeling of terms for political reasons? Food for thought.

Michael W. Kruse

No doubt it is complex. I think some of the fear about the government as just one competing actor was that government doesn't have to balance its books. They could pay unrealistically low prices, financed by debt, and drive competitors out of the market. There are likely ways to structure "the game" so this doesn't happen.

Markets don't solve everything but I do think the idea of greater cost transparency is central to any successful health care solution.

ceemac

"successful health care solution"

Curious. What do you see as the problem(s) that need a solution?

My hunch is that there is a great divergence in opinion as to what the problems are.

Michael W. Kruse

"Success" is multifaceted but a key piece is economic sustainability. Whatever values we have about other health care dynamics, cost transparency enables all parties to make well-informed decisions.

Can you say more about how where you think there is divergence?

NKR

I think it's already very clear how much certain things in the medical industry cost. Cost transparency doesn't solve the underlying problem of economic rent.

Patent monopolies raise the price of drugs from free market prices of $5-$10 per prescription to hundreds or even thousands of dollars per prescription. They have the same effect with medical devices. The actual cost of using even the most advanced medical equipment is usually very low. After all, the machinery is already there, the only cost is a bit of electricity, the technicians' time and possibly the time of a highly paid medical specialist. Even if we averaged the cost of manufacturing the machine over the number of uses, the cost is still likely to be relatively low. The big cost involved with medical equipment, as with prescription drugs, is the cost of the research that went into its development.

Using patent protection as a mechanism to recover these costs is incredibly inefficient. There are alternatives to the current patent system. As Nobel winning economist Joe Stiglitz suggested with prescription drugs, we could have a patent buy-out system, where the government buys up useful patents and puts them in the public domain. Alternatively, the government could simply pay for research up front, perhaps doubling or tripling the $30 billion a year it now spends on research through the National Institutes of Health.

http://www.cepr.net/index.php/Publications/Reports/financing-drug-research-what-are-the-issues

Michael W. Kruse

The intellectual property issues surrounding the phara industry are indeed troubling. No argument there. But I know two hospital administrators who would not agree that costs are transparent to them. And certainly the patients almost never have any sense of what things cost or an incentive to economize on their decisions. My thinking is that those forces need to be brought into the mix.

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