Health Care and Insurance and Technology

ECONOMIC ANALYSIS: Beware of battles brewing among health care giants

June 5, 2006

Coming up with simple metaphors and images that faithfully represent the issues involved in the way we pay for health care in our country is a challenge. But one keeps coming to my mind: the kitsch Japanese sci-fi classic "Godzilla vs. Rodan," where two giant monsters duke it out breathing fire and smashing buildings as the residents of Tokyo quake in fear, waiting to see who will win.

Some similarly big battles are brewing in the health care business these days. Insurers face off against hospitals. Hospitals wrestle with doctors. Medicare and health care providers stare each other down. And law firms take on just about everyone, with drug companies getting special attention of late.

In the world of business, that's not exactly news, of course. Goliaths go at one another for profits and market share everywhere you look. But what emerges in the wake of those battles is usually a better mousetrap. Who will win as Vonage faces off against Skype, BlackBerry goes head-to-head against the Treo, or Google and Microsoft duke it out?

It will be customers, ultimately, who make that call.

But since most of us don't pay for the health care we consume-at least directly-the final shakeout from these battles between health care goliaths isn't so benevolent. Consumers are like those terrorized Tokyo bystanders in the 1950s movies: fearful because no matter which monster wins, there will still be a monster on the loose.

And in health care, we're all afraid of the same thing: mind-boggling costs. Increases have been built on things we value-use of new products and procedures that ultimately promise to improve our lives-but it's a train wreck in the making, nonetheless. And it's not clear whether the battles between the big players in the marketplace are making the situation better or worse.

Consider, for example, the rapid growth of specialized, suburban health care facilities in our state's urban areas. These investor-owned, for-profit facilities are going up in the places where both the doctors and the paying customers increasingly live-in the suburbs. In a world where serving those with private insurance is profitable and where serving patients on Medicare or Medicaid is not, they make perfect business sense. And technology is helping to make it all happen.

But one of the supreme ironies of health care is that competition usually drives costs up, not down. Newer, well-marketed, conveniently located facilities increase the total consumption of health care for all facilities, especially for elective procedures.

Likewise, the more frequent use of expensive technology in newer facilities-sometimes at the order of physicians who are also part owners-tends to increase costs as well. Since we all pay for it all, through private insurance premiums as well as tax support for publicly funded health care, it's hard not to notice.

And that's just one side of the equation.

Older, general-care, not-for-profit hospitals are heading into a world where their market will consist of the business nobody else wants: indigent, self-pay and Medicare/Medicaid patients. All those populations are growing, ironically, since health care costs are pushing premiums up to the point where it is no longer affordable to some employers.

The better-managed not-for-profits have been busy joining the game, setting up forprofit arms and improving their own new facilities to capture part of the business they seem destined to lose, anyway.

It's a crazy world, clearly, but is it a better one? Perhaps. But a comparison of any of the objective measures of the output of the American health care system-from infant mortality to life expectancy-to what we collectively spend may surprise you. We spend at least 50 percent more per capita on health care than other industrialized countries, yet we rank no better than average-and often worse-than our peers.

Maybe it's time for the giants to step aside and let the smaller voices of consumers be heard.



Barkey is an economist and director of economic and policy study at the College of Business, Ball State University. His column appears weekly. He can be reached by e-mail at pbarkey@ibj.com.
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