A Critique of Central Planning in Healthcare, Moral Profit, and A Superior Alternative - An Essay

A Grand Experiment

America has employed for the last 50 years or so an insurance-based model, and by no stretch of the imagination is it doing well under this model. A doctor’s expert opinion has been placed on a shelf next to first-name bases and house calls. Patients don't see their specialist doctors for more than 5 minutes if they’re lucky, and primary care doctors may stare at their computer for half of your visit. One can imagine a situation where on one hand a faceless insurance company denies covering a basic screening service for someone, yet on the other it justifies covering the cost of a double bypass open-heart surgery for someone else. There is a serious shortage of primary care physicians (https://www.aafp.org/news/practice-professional-issues/20150303aamcwkforce.html), not to mention that Medical Doctors are committing suicide at a rates never seen before (https://www.medscape.com/viewarticle/896257), and despite the massive revenue streams that the pharmaceutical companies and medical schools enjoy, Americans are still sick and paying heavily for it (https://www.marketwatch.com/story/why-americans-are-avoiding-the-doctor-2018-04-04).

Good economic models are vital for any market to thrive. Maybe this is why the current model is failing patients so terribly. It relies heavily on government subsidies, and cronyist regulatory schemes. It relies on patients actually remaining sick rather than incentivizing doctors to get them healthy as soon as possible, or to prevent certain diseases from happening in the first place. Since medical professionals are expected to be compensated greatly for their valuable expertise in the clinic and for their contributions to humanity by research scholars, the healthcare industry uniquely holds a position of power in the marketplace. That also means it holds a position that leaves it uniquely open to double-dealing, fraud, and misconduct. “NGOs,” para-governmental organizations, and non-profits constantly seek handouts from Congress, lobbying for tax benefits and trying ferociously to gain the “regulatory upper hand” so they can pay off their bureaucratic buddies in the AMA, ADA, OSHA, JCAHO, FDA, DEA, and so on. We should get one thing very clear— everyone under the current healthcare model is to blame for its slow churn of counter-productive care and the socialist stranglehold that has been placed on the market. Doctors largely have not rebuked the disease-management model to focus instead on a disease-prevention model. Politicians, D.C. bureaucrats, and the media sold America false hope for a better healthcare system under Obamacare. No matter which way you look at it, the model seems to be hopelessly entrenched in waste, fraud, serious abuses of legal power, and misconduct. And every party is to blame.

But remember, this has only been an experiment.

Planned and Free Economies

To reiterate, the model employed by nearly all practices in America is a fairly new arrangement in the delivery of care. A legal corporation organizes itself such that it can make contractual arrangements with insurance companies in a legal manner in order to levy the costs of care. This would all be fine under a relatively free market system, if not for the addition of the following bureaucratic conundrum. You see, insurance companies use a coding system called CPT codes to categorize and price medical services (http://www.physicianspractice.com/blog/how-medicare-other-payers-determine-physician-reimbursement-rates), but it’s a process managed by 31 bureaucrats (most but not all of whom are specialists) in an organization called the “Specialty Society Relative Value Scale Update Committee” under the loose discretion of the American Medical Association. Most people aren’t even aware that this committee exists. Most people would be appalled to know that something like this exists. It’s been part of something referred to as “grand planning.” This is what happens when central planners and busybodies with benevolent goals and starry-eyed intentions participate in planning for economic scenarios which may or may not ever occur. It is precisely the situation economists use as an example of the economic calculation problem (https://en.wikipedia.org/wiki/Economic_calculation_problem). When everyone has his or her hand in the grand plan, no one can or will ever agree on what is the best plan. Bad or ineffective experimentation never stops because there’s an ever-moving goalpost. It started with Medicare-Medicaid under the New Deal plan to include healthcare for the elderly and severely sick, and has “progressed” into the costly leviathan nightmare we see today.

True progress— whether in business, an economy, or science— is brought about via experimentation and failure, however. Those who favor a grand plan over experimentation fail to understand the role that failed experiments play in creating progress in society. Failures quickly and efficiently signal what doesn't work, minimizing waste and redirecting scarce resources to what does work. You see, the organization of resources, how they are distributed, and how they are eventually tailored toward end-user satisfaction is what creates long-term profitability in any market. Profitability is a reliable signal to which goods and in what arrangement the end-users desire them most. The biggest problem under today’s system is that the end-user under the model is not the patient. It’s the insurance lobby and Congress. So sure, profits are there, and they are signaling one thing for certain— that what Congress and lobbyists desire the most, they get!

A free economy can be thought of as an experimental discovery process, in which business failures are inevitable and any attempt to eliminate them only ensures even greater failures. Businesses that are not allowed to experience natural disruption are very often subject to much more severe shocks and more difficult adjustments later on. For experimental discovery to work, society has to not only design experiments properly but also recognize when it is experimenting, so that we can all limit our bets accordingly. Insurance-based models not only fail over and over again (which is why there is constant insurance reform, drug law reform, billing and coding reform, regulatory reform, etc.) but they put a permanent wedge between the doctor and patient by limiting the types of care from which patients can choose and by dictating how doctors can bill for their services. What the healthcare industry needs more than anything— more than further subsidies to keep afloat the sinking ship of Obamacare, more than additional focus groups, lobbying campaigns, board meetings, or ballot initiatives— is something called creative destruction and a model embedded in value creation.

Value creation is the upside of creative destruction. Creative destruction is what you get when you alter a system so completely that it produces something different but valuable in the end. It makes people’s lives better, thereby contributing to satisfaction and well-being in society. A successful medical practice ought to be valued not necessarily for how well it heals it’s patients, but how well it keeps it’s patients from hopefully ever needing a doctor’s care in the future. A great clinic ought to let patients receive check-ups, diagnostics, advice, and medicine from their doctors on demand, cheaply, and expediently. Simply put, it ought to employ a model that is so superior that customers value it more highly than the alternative.

Immoral and Moral Profit

When Soviet nail factories had their output measured by weight, they tended to make big, heavy nails, even if those nails sat unsold while the country was crying out for small nails! In other words, when governments “grand plan” how doctors organize their labor and services, everybody (except those in power) loses. The role of a healthcare business is to respect and satisfy what patients value, rather than lobbying the government to mandate what can or cannot be considered “healthcare under the following legal definition. Let me explain.” In my opinion, such activity is the ultimate form of disrespect for patients. Any profit made from this type of an arrangement could be considered Immoral Profit. It is the antithesis of value creation.

When an unprofitable business is supported by subsidies or protected by political means, it is not using resources efficiently. Losses to a business indicate that consumers more highly value other uses for those resources, or prefer them in some other arrangement elsewhere. The wasteful use of resources, when replicated throughout society, seriously erodes short and long term well-being in society. Artificially propping up bad businesses is bad for consumers and ultimately bad for the employees of those businesses, since change from worse to better is inevitable. A once robust and confident enterprise, United Healthcare is now crumbling under the regulatory weight and aftermath of Obamacare and it’s disintegration, laying off employees and terminating contracts, for reasons that were completely measurable and predictable ahead of time.

Not only do bureaucratic arrangements result in failure much of the time, but the type of failure it produces can hardly be thought of as good for the experimental discovery process. Political and cronyist modes of profit inevitably transfer goods, services, or money from one party to another by force or fraud. For example, laws or regulations that redirect consumer choice violate the basic rules of free exchange and never hold accountable those who didn't fulfill their side of a contract. Nothing is learned from the failure, other than the fact that distant politicians and disconnected attorneys are capable of making poor predictions about the market and on things in which they have no stake. Who knew!

Moral Profit comes when companies are free to innovate using their knowledge of what they and others value, of what benefits consumers, and therefore what enables them to generate a profit. In a market aimed at maximizing people’s well-being, a healthcare company would only profit morally if it is doing a good job keeping patients OUT of the clinic. It profits morally by listening and responding to the changing needs of it’s patients so they eventually never require a doctor’s care again. A good healthcare business or clinic has patients voluntarily giving their dollars to have on-demand care from their very own doctor— for free checkups, free basic medications, and negotiation for the cheapest diagnostic services. This is true value creation in a market desperate for something new and better.

A Superior Alternative

We’ve known for years now (under the biopsychosocial model) that health is not merely the absence of disease. True health is a long-term, proactive behavior or lifestyle. In fact, there are a multitude of chronic diseases preventable by simply having a superior diet. In the other direction, a multitude of chronic diseases are actually caused by an uninformed or poor diet (https://cspinet.org/eating-healthy/why-good-nutrition-important). So why don’t we employ such a model that incentivizes disease prevention above anything else? If we did, would it ever compete with the current model to turn a profit?

Enter Direct Primary Care.

Direct Primary Care (DPC) services are sprouting up around America rapidly, and they are leading to a dramatic change in the way healthcare is conducted. They are subscription based family care practices that charge a monthly fee which covers the cost of basic services like check-ups, vaccines, an array of medications, and cheap or free diagnostic screening services. All care is conducted by the primary care physicians on staff, or by the nurse. If an order needs to be made for a medication or a procedure, it can be carried out and given to the patient immediately, or in a fraction of the time it would take under the current system. Many DPC physicians start by giving patients an individualized nutrition plan, and tracking their health progress as long as they are a member of the practice. Patients who are feeling healthy after, say, an antibiotic regiment for a local infection can simply opt out of their subscription until they fall ill again, or need the expertise of their primary care doctor on a strange skin rash or a “funny feeling” in their gut. DPC practice are unapologetically profit-driven businesses that rely on satisfying the true and most important end-user, the sick and needy patient.

To view DPC practices in your area, you can visit the following website:

https://www.dpcfrontier.com/mapper/