The Sorry State of Health Economics | John Goodman’s Health Policy Blog |

…there are no real prices in the conventional health care system. There are only artificial “reimbursement rates,” negotiated or imposed by third party payers. A considerable part of the book (Priceless, by John C. Goodman) is devoted to explaining how this creates perverse incentives for all parties and when people act on those incentives they do things that make costs higher, quality lower and access to care more difficult than otherwise would have been the case.

How does a standard health economics textbook handle this issue? To find out, I consulted Health Economics: Theory, Insights and Industry Studies, by Rexford Santerre and Stephen Neun. I am told that this textbook is pretty run of the mill as far as health economics goes. Here is what it does: It tries to force health care into the traditional toolbox of economic analysis. It starts by analyzing demand, then goes to supply and then tries to put the two together. Initially, it shows price determined by the intersection of a supply curve and a demand curve — just what would happen in the market for wheat or corn. It then explains variations on market structure, including monopoly, monopsony, etc. All straight from conventional price theory and all totally irrelevant for what happens in most health care markets.

… So you would think that if economists were going to try to force the economists’ box of tools on health care, there ought to be a few examples of where that actually works.

Take cosmetic surgery, for example. I go to the index…Search under “c”…That’s “c…o…s…” hmm…It’s not there.

Okay, what about Lasik surgery? I go under “L”…That’s “L…a…s…” hmm…No Lasik.

Now I’m on a roll. What about walk-in clinics? No. Free standing emergency rooms? Nix. Domestic medical tourism? Nein. International medical tourism? Nada. Online mail house pharmacies? Zilch. Concierge medicine? No way. Reference pricing for joint replacements in California? Not a word.

In 552 pages ― crammed with type so small my dwindling eyesight can barely see the words ― these guys have not one example of a health care market where conventional tools of economics might actually apply.

via The Sorry State of Health Economics | John Goodman’s Health Policy Blog |