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The Carriage-Trade Trend

Mises Daily: Wednesday, August 01, 2001 by

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At the doctor's office, we are faced with long waiting periods in crowded waiting rooms, and when the doctor finally sees us, he is rushed for time.  The quality of service and the attention to detail suffer in such a situation, increasing the level of frustration for both doctor and patient.

The doctor's every action is monitored-either directly, by government bureaucrats, or indirectly, by trial lawyers. The regulatory burden faced by doctors is enormous and escalating, requiring them to employ staffs of workers whose sole job is to comply with reams of paperwork.  It doesn't help that the process of becoming an M.D. has been made hopelessly expensive. It is common for young doctors to finish their residencies with debts in the six figures, and that encourages them to enter high-paying specialties and to avoid general medicine.

This is all by design.  Licensure laws and federal regulations reduce the number of doctors in legal markets.  Some doctors may complain about the system, but from the beginning, its purpose was to reduce entry into the medical field so that existing practitioners could maintain more control over their prices.   

A growing number of physicians are seceding from this system.  Frustrated by the regulatory quagmire that affects their quality of service, not to mention their peace of mind, these doctors are jumping on the trend for "carriage trade" in medical services.  Under this system, doctors inform their patients that they are switching to a new pricing system involving a large annual premium that allows access to the doctors' services.  

Patients who pay this premium are entitled to premium services, such as no-wait appointments, same-day lab tests, and home drug delivery.  Depending on the market, these premiums can vary anywhere from $1,500 to $20,000 a year.  Once the premium is paid, however, the prices charged for medical services are the same as those currently charged by the medical profession as a whole.  (Patients who dislike this multitariff pricing scheme are given ample time to switch to another doctor.)

Doctors that opt for this pay-for-privilege service are finding that they have more time to spend with individual patients and give better care as a result, while the patients that can afford the care are able to opt out of many of the problems associated with visits to the doctor's office.  One particular (and reassuring) advantage of the system applies to patients who are prone to medical emergencies.  They can see their personal physician whenever they want.  

One doctor who switched to a carriage-trade pricing scheme told The Wall Street Journal that his patient list dropped from more than 3,000 to about 600 (an 80-percent decrease), and that, for him, the choice boiled down to either switching or retiring.  Under his old practice, he saw anywhere from 20 to 30 patients a day, and the quality of his care suffered.  Now he has more time to engage in the type of activities that attracted him to the medical profession in the first place.

What attracts people to medicine has nothing to do with complying with a myriad of regulations decreed from Washington bureaucracies.  Though cloaked with good intentions, these regulations increase the full cost of providing medical care and produce adverse consequences as a result.  How many doctors retire early instead of choosing continued compliance with Washington's edicts?  How many resources are diverted from increasing the number of medical services offered (and thus from placing a downward pressure on prices)?  How many doctors redirect their human capital investment into high-priced specialties so as to justify the increased costs that accompany a career in the medical field?  

In other words, for any seen benefit of a regulation, how many unseen costs are produced as a result?

Predictably, the trend for carriage trade has caught the attention of those who currently collect economic rents from the existing medical system in the U.S.  After all, such freedom of choice draws attention to the shortcomings of the existing system, in much the same way that the success of Federal Express and United Parcel Service draws attention to the shortcomings of the U.S. Post Service.  Its critics have termed carriage-trade practices "concierge care," in an effort to create class resentments toward those who want to opt out of the current system.  Since socialism can only be successful when everyone suffers equally, the powers that be have come out against carriage-trading.  

For example, Arthur L. Caplan, director of the Center for Bioethics at the University of Pennsylvania, calls the carriage-trade trend "abysmally sad," adding, "We don't want our doctors to be frazzled or inattentive, which has happened by unleashing market forces with inadequate resources.  I might pay a fee to talk to the doctor, too.  But I'd hope we could create a system where the doctor could talk to me for more than a minute without a surcharge."  

What is "abysmally sad" about this statement is its ignorance of the price system.  When the costs for a service such as meeting with a doctor are socialized, then no one individual has an incentive to conserve his consumption of such a service.  The resulting excess demand decreases the possibility that anyone will ever have quality time with a physician.  This, in a nutshell, is why the U.S. medical system is such a mess today.    

But note Dr. Caplan's broader point:  When onerous regulations force firms (or, in this case, physicians) to reduce the quality of their services, the blame must be placed on market forces, not on the regulations themselves.  To suggest otherwise would be committing a secular heresy in our current zeitgeist.  Again, his defense of the regulatory state unmasks ignorance of the market process.  Many of the products we use and take for granted every day were first marketed solely to the rich.  Why wouldn't the same process apply to medical services?

The answer, of course, is that the government, in league with the American Medical Association, won't allow it.  Falling prices mean smaller profits for existing providers.  Any attempts to circumvent the present system, which is really a cartel in health care, must be attacked lest it weakens the system.  

Carriage-trade medical services have already been established in most major municipalities throughout the United States.  They will continue to thrive, provided the medical establishment doesn't succeed in squelching their growth.   

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Christopher Westley, adjunct scholar of the Mises Institute, is assistant professor of economics at Jacksonville State University and is coauthor of Human Nature & Economics: Theological Anthropology and Economic Science (Lexington Books, 2001). Send him mail and see his Daily Article Archive