Navigating the American healthcare system — Captives
Shelly was driving home from work the same way as usual. Pizza night with the family! Another red light. Typical.
Alex was moving across town. The big truck had all of the furniture. His wife was already in the new home with the baby, making sure Alex Jr. was comfortable. A text. We need more diapers. Typical. He looked up and the light was red. He was unfamiliar with the bigger vehicle.
Alex struck Shelly. The impact sent Shelly into the intersection. She saw the panic in the eyes of another driver, who could not brake or swerve in time to avoid collision. Shelly was hurt, bad. Rescue retrieved her from her crumpled sedan and took her to the nearest emergency department. She ultimately recovered well.
Alex was shaken up but physically okay. He knew he had messed up. Alex was issued a citation and held responsible for the damages to person and property. He did not need to go to the emergency department, but he became a shell of a man for a while. In the meantime his wife was able to pick up the slack and also care for the baby.
Healthcare delivery occurs in a capitalist market. Shelly entered the emergency department without making a single decision. She lived near her work, and worked near where her family lived. She took the most convenient route home. She made no consumer decisions for where she would receive life saving healthcare. She made no choices in regard to the cost of the life saving healthcare.
If you studied business, then you may have been taught how to maximize profits by increasing the price of goods/services and decreasing expenses. This is generally savvy business practice. “Price point” is the term economists use to describe a (price) point on the demand curve at which demand for the good/service stays relatively high. A simpler way to put it: how much can I charge for my widgets without turning off the customers?
In general, if demand for a service is high, then providers of the service can find the higher price point. Likewise, if availability to a service is low, then providers of the service can find the higher price point. High demand and low availability are key ingredients of a captive market. What happens when there is infinite demand?
Shelly was part of a captive market. In other words, she will have to pay something for her healthcare, but has no choices as a consumer. Her demand is infinite. The deliverer of the healthcare, in this case a hospital, could theoretically charge💲♾️ and Shelly will accept the debt in exchange for her life. Fortunately for Shelly it gets more complicated.
Shelly has a long problem list.
Multiple contusions. Multiple fractures. Concussion. A ruptured spleen. Admission. Consultants. Surgery. Post surgical ICU. Step down. Discharge. Outpatient follow up.
How many lifetimes would it take to generate the wealth that provides the structure, training, resources, and availability of a system that saved Shelly’s life like it was another day at the office?
Shelly feels angry that she was injured, but grateful to be back on her feet. She will be working again soon. She knows a good lawyer. The hospital bill is more than she earns in a year.
Imagine if Shelly were allowed to shop around. If given a choice, she will seek the best service at the lowest price. Maybe Shelly would look for services that complete splenectomies laparoscopically and thus have shorter hospital stays. Perhaps she would find the hospital that offers the highest quality neurology service, or surgical service, or emergency service. Ideally, Shelly would identify her priorities and then shop accordingly.
But her life is on the line. She is probably going to receive life saving care at the institution she is taken to, but quality is left to luck.
The United States is a market economy. Without regulation a market will develop monopolies and cronyism. This is considered bad for everyone. The US government regulates the markets. One of the economic regulating factors of healthcare in the US is the Center for Medicare Services (CMS).
CMS is a juggernaut. If a hospital does not maintain CMS certification, then the hospital dies due to lack of funding. Hospitals are incentivized to certify or die. CMS sets the price of each procedure. Certification requires minimum standards be maintained. The prices that CMS has set are reference points for other insurers. If you have ever heard that PRIVATE COMMERCIAL HEALTH INSURANCE pays 110% of Medicare, that means the private insurer pays the hospital 10% better than Medicare.
Here the consumer does have a choice: If you buy insurance that pays MORE to hospitals and doctor offices, will that result in better care? It depends on how captive you are.
Some hospital services tend to break even or lose money. These include psychiatry, pediatrics, and obstetrics. More on that later.
Alex was in a daze. Seeing Shelly so clobbered by his mistake was haunting. Alex went home safe and sound but he wished it had been him had been hurt. His wife, Minnie, told him that was crazy. He needed to focus on the new baby and get back to reality. Alex could not snap out of it. He felt he had financially ruined the family. He was being sued for everything they owned. The insurance would pay for a lot, but Shelly’s hospital bills were expensive. He felt bad every time his lawyer argued on his behalf. He wanted to give up and let Shelly have it all. Minnie did not like that idea. Alex barely felt anything any more, even when holding Alex Jr.
Minnie booked a doctor’s appointment for him. “This is enough moping, you have to snap out of it! We are still your wife and baby. You still matter. You made a mistake but it’s going to be okay. We love you!” Alex said he would go. But the appointment was more than a month away. And it was expensive. Minnie knew they could see someone for less if they used insurance, but those appointments were booking 6 months out. Help was needed immediately.
Alex began drinking more to numb the negative emotions. A couple weeks went by and he decided he was going to skip the appointment.
While the extremely expensive emergency department and hospital will see you any time, rain or shine, the outpatient setting has long wait times. A prospective patient has more choice, theoretically, but remains bound by high overall demand and low supply. The national average wait time to see an endocrinologist, for example, is between 37 and 82 days (depending on the study).
Making customers wait is antithetical to ideal business practice. Ideally, the doctor would much rather meet the patient now than allow disease process to evolve.
There is a conspiratorial way of thinking that suggests doctors do not administer effective treatments because sick patients are paying customers... This is always worth a chuckle. The line of patients goes out the door to the moon and back.
America’s ill are a captive market with infinite demand when emergency care is needed. We are a slightly less captive market when we need non-emergency care.
Alex was very low. He put a combination of words together that got him to the hospital for psychiatric care. It was unpleasant but just as life saving as Shelly’s hospital care. He started some medicine. He felt warmth again. He realized his life was only getting started and he had so much love around him. He held Minnie for a long time after he was discharged. She wept softly with him until they both were exhausted. He was able to get a new appointment and he kept it this time.
The hospital lost money for taking care of Alex. It did a morally good thing but it was bad for business. Economists define “loss leaders” as goods sold below market cost to stimulate sales of more profitable goods. Ever buy the hotdog at Costco?
Psychiatry, pediatrics, and obstetrics are services more commonly populated by the impoverished. The state pays for their medical care through Medicaid. The Affordable Care Act (ACA) expanded access to Medicaid by supplying states with federal dollars in exchange for states lowering the barrier to start Medicaid. As of September 2024, 40 out of 50 states have accepted the expansion. The other 10 do not have any federal subsidization.
One risk reduction factor, time and again, is access to wealth. Everyone can get sick, but the wealthy tend to be less sick less often. If you want more consumer choice in the outpatient setting then I recommend being wealthy. You can literally pay for more healthcare options: buy better insurance or participate in the direct primary care model.
From now on, every time you hear a claim that some habit leads to better health, ask yourself “is it the habit or the wealth that makes the difference?” Playing tennis, eating “healthy foods,” traveling, relaxing, etc. If the social study does not control for the variable of wealth then it probably missed the best explanation for its own findings.
Access to wealth affords the opportunity to overcome better problems. Meanwhile, the single mother has the greatest economic disadvantage. Health disparities follow these economic ways of thinking.
Medicaid is a notoriously poor funder, but poor funds are not a factor in CMS requirements for hospitals. It raises the question: why do hospitals provide services that lose revenue? It is a CMS requirement. If a service in the top tier is provided, then a correlate low tier service must also be provided. If your hospital has a “heart center of excellence,” then those excellent hearts will be subsidizing a Medicaid service. Procedures are reimbursed by Medicare much, much better than other hospital services.
Peds, psych, and OB are hospitals’ “loss leaders,” enforced by CMS — certify or die.
The cost of running a humanitarian service is greater than the revenue generated by providing the service.
Cost > Revenue
Therefore, the quality of the service might be lackluster. The consumer has no say in the matter because the consumer cannot possibly pay.
Captivity.
Shelly and Alex are fictional. Most people have their own true stories of market captivity. Fortunately, dear reader, we live in the Information Age and all of the best health recommendations are freely accessible. Unfortunately, misinformation massively outweighs information. It takes an expert to separate the likely from the dubious.
To be continued.
-Doc