Driving Supply and Demand for Healthcare, part 2

President Obama has created a quagmire with his health care initiative. Building on his earlier mistake with the stimulus package, Mr. Obama again laid out a talking points framework for health care legislation and allowed the “firm” of Dodd, Pelosi, Reid, & Waxman to craft four or five pieces of health care legislation. In addition to allowing the Congress to run wild with the legislation, Mr. Obama has been transmitting a confusing message to Americans regarding his health care policy. On the one hand, Mr. Obama wants to make health care more affordable while driving down the cost of health care. He then throws in a desire to address Medicare’s increasingly negative impact on the budget, laying partial blame for our deficits on the increasing costs of administering Medicare. His particular beef is with the payments made to doctors and other providers who are paid too much for providing an uncoordinated health service that is based on quantity of service versus quality of service.

It is a tall order, especially when you are trying to figure out what the president is really trying to provide; what are his true priorities when it comes to health care. Are we merely trying to provide a new insurance plan? Is our goal a single-payer system? Are we really just interested in reducing the deficit by mandating that every American purchase health insurance? The president appears to be saying all of the above and if so is merely putting a lot of old junk into a closet that the American public will eventually have to open one day.

The president is still in a position to put the truck in reverse and move back from the abyss. He can start by rewriting the legislative packages that Congress has produced within the basic economic rules of supply and demand. As demand for health care services increases, the cost for service, whether a doctor visit or brain surgery, will go up. Doctors, nurses, nurse practitioners, and physician assistants will provide more services when you pay them more. Mr. Obama will only be able to effectively rewrite legislation if he looks at the health care issue as pure market failure. While I have discussed the demand side of the market equation earlier, Mr. Obama can probably address the supply side a whole lot faster.

In her testimony on July 15, 2009 before the House Small Business Committee, Lori Heim, president of the American Academy of Family Physicians, pointed out that health care reform would not work without an increase in the supply of primary care physicians. According to Dr. Heim, 31% of physicians in the United States were primary care physicians while the remaining 69% were specialists. Dr. Heim noted that a physician pool that was 45% primary care would be adequate. Dr. Heim also called for an increase in primary care physician compensation. An increase would attract medical students to the primary care field. In her testimony, Dr. Heim also expressed support for incentives to medical students such as loan forgiveness and an increase in the number of scholarships. http://www.aafp.org/online/en/home/publications/news/news-now/government-medicine/20090715heim-sbc-tstmny.html

The General Accounting Office appears to agree with Dr. Heim on the issue of financing primary care. In testimony his February 12, 2008 testimony before Congress, the GAO’s director of health care Bruce Steinwald, pointed out that financial support for primary care medicine is declining. The health care delivery system, according to Mr. Steinwald, is less efficient because of its reliance on specialty care versus primary care and that signals from the market indicate that there is lesser value placed on primary care services versus specialty services. If America wants better health outcomes, according to Mr. Steinwald, then there needs to be a greater reliance on primary care services versus specialty care.

To Congress’ credit, it has not ignored the need for attracting medical students to primary care or incentivizing entities to provide primary care training. For example, HR 3200 attempts to increase the number of doctors providing primary care in rural areas through the National Health Service Corps. Students can meet the requirements for loan repayments by serving on a half-time basis in the NHSC. The bill also provides for an additional $254 million in FY 2010 for loan repayments. HR 3200 also establishes another loan repayment program, the Frontline Health Providers Loan Repayment Program, where students can meet repayment requirements while working in for a solo or group practitioner or clinic.

HR 3200 may be a start but by creating a competing health insurance plan, it forces the president and members of Congress to be distracted from focusing on solving the failure in the market for health care services first. Hopefully Mr. Obama can step back from the abyss before it’s too late.

About Alton Drew

Alton Drew brings a straight forward and insightful brand of political market intelligence. Alton Drew graduated from the Florida State University with a Bachelor of Science in economics and political science (1984); a Master of Public Administration (1993); and a Juris Doctor (1999). You can also follow Alton Drew on Twitter @altondrew.
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