Innovate to cut health costs

Universal healthcare may sound appealing, but deregulation and the free market would lead to better solutions.

By Shirley Svorny

October 6, 2008

We've been hearing a lot about universal healthcare. But before you give up on market competition, consider that government regulation of hospitals and medical professionals makes medical care much more expensive than it need be.

We seldom hear about difficulties in finding a doctor, rationing of services and poor-quality care under universal healthcare schemes -- even though such problems are already happening in government-run programs in California. Individuals insured by state Medicaid programs have "insurance," but because of low reimbursement rates, they are too often unable to find physicians and specialists who will care for them.

It's even less often that we hear about another option, the only good option: Using innovation to make healthcare cheaper and more accessible.

When I say cheap healthcare, I don't mean we should pay physicians less. I mean delivering high-quality care in less-expensive ways. Annual physicals don't need to be done in a high-priced medical office, for example. And we need to oppose the move requiring audiologists to have doctorates. Patients should have low-cost options when it comes to getting a simple hearing test. Likewise, we need to repeal laws that require physician assistants, physical therapists and nurse practitioners to have master's degrees.

One of the reasons healthcare costs are growing is that lobbyists for medical professionals and hospitals use such laws to protect their members from competition. If they keep blocking cost-saving innovations, it could backfire on them. The public will get so frustrated with the high cost of care that they will demand universal healthcare, which won't be a picnic for the industry or the rest of us.

The success of retail clinics across the country gives us a glimpse of what innovation can do for patients. Those "convenience clinics" are popping up in CVS pharmacies, at Wal-Mart and Target. Wal-Mart's new retail clinics will be "co-branded" with local hospitals. Staffed by nurse practitioners, convenience clinics provide routine care at affordable prices. (You don't need an MD to diagnose pink eye or an ear infection.)

The innovations will keep on coming -- but only if we let them. Advances in software and other diagnostic tools can dramatically improve medical diagnosis and treatment. They also will make medical care more affordable by allowing less-expensive, mid-level clinicians to diagnose and treat more illnesses.

The physician lobby fights those innovations, and many doctors argue that software will miss some diagnoses. Do they mean that they never miss anything? The experts disagree. "Studies of autopsies have shown that doctors seriously misdiagnose fatal illnesses about 20% of the time," writes David Leonhardt in the New York Times. "Misdiagnosisis killing thousands of Americans every year."

For all its faults, America's healthcare sector has its advantages. It produces some of the highest survival rates in the world for cancer and other serious illnesses. Patients generally don't have to wait a year for a hip replacement. Being 70 doesn't make you ineligible for a kidney transplant. And U.S. medical innovations benefit other countries that suffer from the lack of them in their government-run schemes.

Rather than give up on all that, let's deregulate medical care so that providers can find innovative ways to deliver high-quality care cheaply. Let's eliminate the increasingly strict education requirements for clinicians and let medical professionals offer walk-in physicals or other services at competitive prices. Like Wal-Mart and MinuteClinic, they will rely on brand name and reputation to assure quality.

We also need to better promote health savings accounts, which put spending in the hands of consumers and encourage them to shop around for low-cost alternatives.

Retail clinics are only the first step. My hope is that the increased access and reduced costs will quickly become evident and will build support for additional innovations -- and the deregulatory policies necessary to make them possible.

Universal coverage sounds appealing, but it means government will be running the trains. Here and abroad, government does not have a good record when it comes to access, oversight or innovation.

Before we give up on free markets, let's actually give them a shot.

Shirley Svorny is a professor of economics at Cal State Northridge and the author of a new Cato Institute study on medical licensing.