Mises Wire

Private Medical Care STILL Is a Better Deal Than Government Care

Most people have a negative view of business monopolies. Whether for allegedly exploiting workers, causing inefficiency, or crowding out potential challengers, most government-granted monopolies undoubtedly hurt entrepreneurs and customers.

This basic distrust of monopolization disappears as soon as one enters the floors of the United States Senate or Congress. Government-forced monopolization arises in virtually every industry, but nowhere is it as costly as in healthcare.

Just like the government gives special privileges to big tech companies and massive pharmaceutical firms, the state also has an affinity for big hospitals over smaller independently run clinics. Consider that one of the largest government-funded medical programs (Medicare) would pay private clinics nearly 80 percent less than if the same services were billed by a hospital outpatient facility.

In 2010, independent doctors provided an average set of Medicare services to their patients valued at $141,000 per year, according to a study published in Health Services Research. However, if a hospital outpatient facility had billed for these same services, the gross revenue would have been $240,000. This gap is only increasing, widening by nearly 20 percent in just six years.

What separates Medicare payouts in small private practices from huge government-favored hospital centers can be generalized in two words: facility fees. Every time you visit one of these large centers to get a procedure done, it is billed as an “HOPD,” or hospital-based outpatient department.

When it comes to HOPDs, Medicare not only pays a fee for what the doctor has done but also gives some cash on top for facility maintenance. Private practices do not receive this extra cash for their facilities.

With these double payments, it’s no wonder why more and more doctors are choosing to forgo private practice in favor of employment by these huge firms. In 2019, a supermajority (76 percent) of physicians were employed by hospitals, many by huge healthcare firms. As a result, hospitals face less competition, and the quality of care decreases as prices increase. Monopolies like these simply aren’t good in medicine.

These extra handouts to large hospitals only contribute to the ever-increasing costs of healthcare in the United States. Nearly every minimally invasive procedure would cost less when performed by a private doctor or ambulatory surgery center (which specializes in providing care for individuals staying in the center for less than twenty-four hours) than a hospital.

Colonoscopies, for instance, are 60 percent more expensive in a hospital when compared to an ambulatory surgery center. Other crucially important procedures, such as mammography and cataract surgery, are 32 percent and 56 percent costlier, respectively.

Government policies have contributed to the trend of hospital and doctor consolidation, furthering this decline in healthcare options and rapid rise in prices. The “minimum loss ratio” embedded within the Affordable Care Act rigs the playing field in favor of large, consolidated firms.

The minimum loss ratio rules make it more likely for insurers to merge to have a better mix of products that meet the minimum loss ratio requirements (like sharing expenses) or just to save money on administration through the principle of economies of scale.

Following government regulation is generally quite expensive up-front. These are costs large firms can immediately take care of, while small firms must struggle initially, thus artificially limiting competition. Certificate of need laws also artificially limit an independent doctor’s ability to compete, thus driving up costs and reducing a patient’s healthcare options.

A mess caused primarily by the government can be cured with less government. Congress can start by eliminating programs that have been ineffective at addressing the nation’s health concerns. These publicly funded programs kill two birds with one stone by demanding payment while crowding out the private market (lowering the quality of care, thus harming patients’ health) and by being coercively funded through massive budgets (thus hurting the nation’s economic health).

Reforms to the current Medicare system may be a short-term solution to this problem, one that both sides of the political aisle could agree on. Such reforms could include site-neutral payments, where the state stops favoring large medical corporations with extra payouts. It could even the playing field between large organizations and smaller practices while reducing the national debt by approximately $279 billion. However, only widespread privatization would truly give the power to physicians.

As long as the medical bureaucracy exists in Washington, truly individualized, free-market healthcare will be opposed by a myriad of special interests. Trade (more so lobbying) groups like the American Hospital Association, the Federation of American Hospitals, and the Association of American Medical Colleges have reacted negatively every time the idea of expanding neutral payments has been brought up in Congress.

Government courts have a history of siding with these trade groups, although a growing number of congressmen and even Supreme Court justices see the advantages the system has for taxpayers, patients, and even doctors. In 2021, the Supreme Court decided to side with independent doctors and taxpayers by rejecting the American Hospital Association’s pleas to subsidize their inflated, out-of-control procedure prices.

While this is a step in the right direction, America is miles away from competitive private healthcare. Certificate of need laws, medical patents, physician licensing requirements, and numerous other regulations make it more challenging for Americans to access high-quality medical care.

When an independent physician or researcher wants to compete with a government-backed colleague, state regulators will ensure they fail. Anesthesiologists from across the country faced this issue when the Federal Trade Commission sued US Anesthesia Partners (as well as their private equity partner, Welsh, Carson, Anderson & Stowe) for alleged “anti-competitive practices.” In reality, the firm expanded anesthesia access to thousands of people across nine states, particularly serving low-income communities.

Even European nations are seeing the benefits of cutting publicly funded healthcare and embracing private enterprise. Private healthcare providers in Norway, such as Aleris, have garnered the support of 643,000 Norwegians, with membership growing daily. Over eight thousand doctors have eagerly flocked to the private group too. Numerous studies have also confirmed that privately owned and financed groups (like Aleris) are more efficient than their public counterparts.

While the increased presence of private equity in healthcare management and the more-competitive policies of site-neutral payments are nice, they should not be the final step to curing America’s healthcare ills. Physicians will never truly be independent or free until the healthcare market is truly privatized. When that day comes, America’s healthcare workers will be unshackled, and our markets will become competitive.

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