Tuesday, February 21, 2012

Free market for medicine?



One of the comments to the post called "Halachic Basis for Medicare" said, in part (check the thread to see the rest of the comment and my answers to it), the following:
In fact, Health Care is a great example of an industry that likely confounds the free market. 
Consider: For thousands of years, health care operated with free market principles. Yet, there was very little relationship between the amount of money spent on a treatment and its efficacy. This is because health care providers have something I like to call a "Confuse-opoly". 
The product they are selling requires a lot of specialized knowledge to detect quality. As a result, customers have a very hard time making rational market decisions. The best treatments fail to work many times, and patients often recover without any medical care, so it is super-hard to separate out the value of the care being offered.
I would like to ask the author of the comment to provide evidence for what he is talking about, but I assume he is talking about practices like bloodletting.

Back in the day, when a person felt sick, he went to a doctor. The doctor looked into the current medicine books (which were based on pseudo-scientific Aristotelean view of the world) and opened up the patient’s veins to let some blood out. Obviously, this did not help the patient, but he still paid for the service, because the doctor said it was the best treatment.

If a patient was richer, he might have ordered more blood-letting services, like leeches. Or maybe some smelling salts. Or, if he was in China, he might have ordered accupuncture or tiger-bones soup, which were also not helpful.

So, why were these patients paying for bad treatment? Why didn't the free markets improve the quality in this service?


First, I urge everyone to read this article: "Socialized Healthcare vs. the Laws of Economics".

And these are my answers to the above argument:

1. I assume my friend would be able to tell a difference between healthcare in Russia (back in the day or now) vs. China vs. county hospital in the US vs. a private clinic. I assume the same about most people. And it's not just about the fact that some hospitals have Au Bon Pain in their lobbies.

2. Yes, some treatments hoodwink people into paying for them and thinking that they got better as a result of the treatment. But some treatments do make them feel better because they treated the symptoms. So, just because people sometimes get confused about the quality of the service they are receiving, doesn’t mean that they are always confused. I.e., if the population selects (with their money) the services that they think make them feel better, sometimes they will have false positives (and false negatives), but on average, they will select for improvement of the services.

3. My friend's argument is making a value judgement. It’s similar to saying: "Some people buy cars that have velvet seats and nice A/C and eye-pleasing color. Fools! A good car is a good engine, brakes, transmission, etc. How is the free market controlling for car quality?" Well, who says velvet seats and nice A/C are not products?

Perhaps the doctors who did leeching and accupuncture provided the patients with a sort of psychotherapy or a comfort therapy. They did not cure the disease (because they didn’t know how), but they provided them with a peace of mind (not to mention the possible placebo effect). It is not different from someone today doing pain management as opposed to curing the actual cause of the disease.

4. Yes, the doctors were only able to provide mumbo-jumbo treatment when there was none better available. But as soon as science and technology improved and the better results of the new treatments were clear, the patients were not so stupid as to stick to bloodletting and ignore vaccination, penicillin, and surgery. In the late-19th-century England, the free markets drove out the country doctors who practiced medicine the "good old way", because younger Sorbonne-educated doctors produced visibly better results. Plus, they explained their treatments, and many people (first of higher and middle classes, then even the rest) were educated enough to know the difference.

Going back to the car example, there are people who like "red cars" that have nice leather seats and good stereo system, and there are people who like Italian sport cars that are stripped of everything except the basic parts and have a really powerful engine.

Which brings me to my next point:

5. The markets are only as good and as efficient as the people who fill the markets. The product that the markets select for depend on the people's preferences. If people have bad taste in movies, you will get American movie industry. (Here, I know, I am making a value judgement.) So, if people are uneducated, they might select for the mumbo-jumbo comfort treatments.

We know, however, that with time, people's education improves and certain scientific facts and ideas enter the population's mind (partly because there are people who profit from spreading knowledge, either directly or indirectly). This should improve the effectiveness of judging the quality of medical service.

The assumption that people are going to stay on the same level of medical knowledge does not seem founded for me. That certainly has not happened over the course of the 20th century. (Most people know today about risks of strokes, the importance of exercise, and if someone got cancer at the age of 80, it's probably not because of the cell phones, but because of the old age. There are mythbuster TV shows and books everywhere that tell people that obsessively washing hands with antibacterial soap is bad and that we use more than 10% of out brain.)

6. It's very easy to point out the problems with something. But when one does so, one should point to a better alternative. Otherwise, all one is saying is that life is not perfect.

What’s the alternative? Ivory-tower sages deciding what is "really" the best treatment and what is "really" the best hospital? But it’s these ivory-tower sages that have historically told their patients that bloodletting was the way to go. Nowadays, ivory-tower medical giants recommend getting epidurals while giving birth, even though that increases the health risks for the mother  and oftentimes makes the necessity of a C-section more probable, which presents the risks to the fetus and decreases the future fertility of the mother. (My wife who has little background in Biology found this out by reading various medical sources by herself.)

Also, how do we control for the quality of the ivory-tower sages (the Surgeon General and the likes of him)? These people are appointed by bureaucrats and politicians who, like everyone else, can have trouble distinguishing between good treatment and the bad. (I mean, they definitely have a hard time distinguishing between good science and the bad in the area of climatology.) And how do we know that the politicians are doing a good job? Who controls them?

I guess it comes down again to the people. So, if the politicians appoint bad Ministers of Healthcare who make bad decisions about the medicine, people can always vote the politicians out, right? Basically, that's the system in Russia today. Except, of course, this doesn't work, since many people are not single-issue voters ("de gospitals are vorse, but Putin brot stability to de kantry"), because the alternative may be worse, and so on.

Also, how are the people to decide whether the politicians are doing a good job? They can look at the statistics, but they can also at the individual hospitals' statistics.

The bottom line is: people can control the quality of healthcare through a complicated system of bureaucracy and politics which is extremely inefficient (it's like trying to ride a bicycle while standing on ten-meter-high crutches), or they can "vote" for the efficiency of the hospitals and doctors directly, with their money.

7 comments:

Michael said...

Let me be clear: In general, I am against government over-regulation, I recognize that when government gets involved in something it leads to overspending, ridiculous inefficiencies, etc.
This is certainly true in the arena of healthcare as well.
However, it is neccessary for a clear-minded person not be an extremist and to recognize that you can't just rely on simple principles in all cases. Otherwise, you are no different front the sheep bleating four legs good, two legs bad.
So, you can't just always say things like "the free market always rules, government has no role."
To be sure, most government regulation and licensing is there to cartelize the industries, and make sure that incumbents continue to earn their share of the profits. And, for the most part, there is nothing wrong with the government saying that people can choose their own sources of goods and services and only intervene when fraud or mischief occurs.
However, there are certain factors that increase the need for governement regulation.
Those factors are:
1) Informational assymetry.
2) Degree of consequence for a wrong choice.
3) The vulnerability of the chooser.
4) The amount of time that the chooser will have to make his choice.
When it comes to health care choices, all four of these factors are skewed in the direction of government regulation and price control being needed.

Michael said...

Finally, in your previous post, you talked about there being no difference between health care, and say, cell phones with regard to whether socialism was the way to go.
Here is the problem:
As science gets better, it becomes possible to spend more and more money on health care. 100 years ago, the health care solution to the vast majority of cases was "Yisgadal V'Yiskadash..."
Today, medical innovation has made it possible to save many of those lives, at very high cost. So, this gives rise to a dilemma.
If poor members of our society can't afford the latest cell phone technology, they will be deprived of good call quality.
If poor people can't afford the laest health care inovations, they will die (sometimes).
So, as a society, we have to ask ourselves: Are we OK with letting people die because they can't afford treatments that we, as a society, have available.
Or, should we, as a society, take money from some members and use it to provide life saving care to people that otherwise could not afford it?
It seems reasonable to me to say that Halacha would hold that the second option is the moral and correct one.
Although the crazy libertarian that you have become will start fuming about the "immorality" of taking from one person to give to another, and the "slippery slope" that once you start giving a good away for free, demand skyrockets and the only way to control costs is to impose shortages for everyone.
Halacha would answer in two ways: 1) The whole concept of taxes being immoral is a silly, juvenile idea.
2) In Jewish societies in the middle ages, there was free public charity, paid for by forced charity "confiscated" from the wealthier members of the community. This charity paid for education, food and shelter for the poor.
And, the poor respected the society that was caring for them enough not to do what all the libertarians are sure would happen in socialized medicine.
So, perhaps Halacha would ask the wealthy to give forced charity, and the poor to respect their own society enough not break the system.

Certified Ashkenazi said...

The reason why I "blindly" believe in the "free market is always better than the government" motto is because of the "calculation problem" argument raised by Ludwig von Mises. The government has no way of calculating which way to allocate the capital most efficiently, unless it has some neviim on board. This applies to managing the whole economy as much as micro-managing specific economic aspects such as interest rates or micro-managing specific industries.

However, there are certain factors that increase the need for governement regulation.
Those factors are:
1) Informational assymetry.
2) Degree of consequence for a wrong choice.
3) The vulnerability of the chooser.
4) The amount of time that the chooser will have to make his choice.


1) Please explain what you mean.
2) Why is that worse for medicine than, say, for food safety? Would you argue that we need FDA? I hope not as a daily user of the multiple private (inter-) national hashgacha services. (Btw, there is significantly fewer proportion of food poisoning cases from OU– vs. FDA–checked food.)
3)Please explain.
4)Again, please explain.

Not only am I asking you to explain what you mean, but I am also asking to explain why medicine is any different from the rest of industries, and why the government needs to be involved in it.

Btw, what price control? The government involvement drives the prices up. If you price-control any industry, it will lead to shortage of services. It's no different from shortage of bananas, soap, toothpaste, and other items for which there was deficit in the USSR.

I was going to quote the last few paragraphs from this article, but you can just read them yourself: http://mises.org/daily/3586/Socialized-Healthcare-vs-The-Laws-of-Economics

'[T]hanks to nationalization, price controls, and government rationing of healthcare [in Canada and UK] — thousands of people die needlessly every year because of shortages of kidney dialysis machines, pediatric intensive care units, pacemakers, and even x-ray machines. This is America's future, if "ObamaCare" becomes a reality.'

Certified Ashkenazi said...

Re: second comment: the problem that you're ignoring is that if there are only fifty apples on an island that has one hundred people, there is no way to make everyone have an apple.

1. Under free market, fifty wealthiest people on the island get the apples. The apple-producers get paid at the highest possible price they can charge due to the supply/demand curve, invest much of their profit as the capital, and plant more trees. Next year, sixty people will be able to afford the apples. And so on.

We see this with any industry — as times goes by, things become more affordable because of the capital investment.

2. Under socialist price control, there are still only fifty apples per one hundred people. So, instead of the richest people getting them, the luckiest people (or people with connections, or people who rise early in the morning) get them. This is no less arbitrary than the first case (in fact, the fifty wealthy people got wealthy by providing others with goods and services; the fifty lucky people are in no way special). But — in this case, the apple growers get much less capital (if any); they don't get to expand their industry, and the apple market stagnates, with apple shortages continuing forever.

Certified Ashkenazi said...

Re: tzedaka: I am not against tzedaka at all, chv"sh. I am against society-run tzedaka.

1. There is no reason that tzedaka cannot be a private business. Obviously, it is already one. The same problems that the government-run car or TV industry has, the government-run tzedaka has.

2. Yes, there is a moral component. I have an obligation to provide first for my mother. Then, for the poor people of my town. Etc. I do not have an obligation to send poor black kids from Bronx into terrible schools that make them into uneducated criminals. Nor do I have an obligation to send poor people of New Mexico to state-run hospitals. I certainly can do that, but that should be my choice.

In Jewish societies in the middle ages, there was free public charity, paid for by forced charity "confiscated" from the wealthier members of the community. This charity paid for education, food and shelter for the poor.
And, the poor respected the society that was caring for them enough not to do what all the libertarians are sure would happen in socialized medicine.
So, perhaps Halacha would ask the wealthy to give forced charity, and the poor to respect their own society enough not break the system.


First of all, these charities were mandated by Halacha, a positivist law coming from Hashem. That trumps any utilitarian arguments or rights-morality.

Second, I am sure there were Jewish doctors who did blood-letting. And doesn't Rambam himself say to ignore medical advise found in Gemara, because nature (or knowledge) changed? The same argument can go for economics and economic tools for healthcare and charity. To figure out the best "system" of charity and healthcare, we need to look to modern economic knowledge (and I don't mean Paul Krugman), not to the practices of the past.

(In fact, I assume child labor was also an ok thing in those communities. As was spanking children and depriving wives who were "rebellious" of food.)

Third, I am sure these charities operated just like private charities of the 19th century. As I said, the situation has moved on.

Certified Ashkenazi said...

(Sorry for a string of comments.)

Look, do you think the Rebbe would say that we should pray for the welfare of the Nazi government? That Russian communists were an extension of the people and therefore need to be respected and adored? Obviously not.

In an ideal world, the government is beneficial to the people and the people don't abuse the system. This is not the reality we live in.

If I wanted to make a similar argument in the realm of Zionism, in an ideal world, Jews promised not to rebel against the nations and not to return to E"Y by force, and the nations promised not to oppress the Jews. After the Holocaust, this argument has become academic. (I don't know how much this argument makes sense in terms of Halacha, etc.)

Certified Ashkenazi said...

> However, there are certain factors that increase the need for governement regulation.

Also, it is really unclear to me why all these factors (whether uniquely applying to medicine or not) increase the need for government regulation. Why is it a job for a monopoly with lots of guns to step in and correct them? Why can't we have many for-profit private organizations doing it?

Insert examples of OU, OK, Star-K, etc., vs. FDA.