I. From Hospitals to Integrated Delivery Networks (1811–2000)
The following is a summary of the complex evolution of hospitals in the US from 1811 to 2000, broken into four parts. the State of New York implemented fixed payments per day in 1971. Dranove and Burns report that in this environment, “every provider, even small community hospitals and solo physicians, could price like a monopolist.”Selective contracting in the 1980s changed this: in response to states’ no longer requiring insurers to reimburse all licensed providers, insurers formed preferred provider organizations (PPOs). PPOs arranged networks of providers, and enrollees seeking care outside their network paid high costs; thus, providers had a strong incentive to be network members. The year 1992 saw the election of Bill Clinton. As Dranove and Burns state, “While the Clinton Plan died on arrival in Congress in the spring of 1994, it nevertheless frightened providers into a variety of integration efforts.”One result of these efforts was that in just a few years hospitals turned into massive health systems, or, in the parlance of industry consultants and executives, integrated delivery networks (IDNs).
II. History, Causality, and Integration
Dranove and Burns’s history of the industrial organization of the US hospital industry from 1993 forward is unquestionably second to none. A sweeping and thorough account of recent history, though, in no way necessarily evinces a sound etiology of industry dysfunction. The next section will juxtapose Dranove and Burns’s version of events with the classical free-market perspective, noting the differences and implications.
III. Methodenstreit over Healthcare
The “method struggle” in healthcare that is actually occurring is over how to best treat the sector’s economic malfunctions: high and volatile costs, costly access, exorbitant insurance premiums and high deductibles, pricey and too tightly controlled prescription drugs. A second approach is to examine the state of the industry before these malfunctions arose, analyze what led to each one of them over time, and then base reform on the resulting facts and knowledge. Dranove and Burns clearly embrace a version of the mainstream approach. A. Was All Well before IDNs?Clearly the two accounts (Dranove and Burns’s and the free market version) are not commensurate in their ability to explain the changes in prices, costs, output, and affordability of healthcare over time. Instead of explaining why so many politicians made healthcare a campaign issue in 1991 and 1992 before the IDN wave came about, Dranove and Burns just drop the three candidates’ names on the way to introducing Bill and Hillary Clinton and the Clinton Health Security Act. The experienced reader begins to wonder, Is it me or is it them?
While Dranove and Burns implicitly promise that their book will provide special insights into the pathologies of US healthcare because they are taking an interdisciplinary approach, that assurance could not be more unfulfilled. Chapters 1–6 (at most) form a worthy contribution to the history of the evolution of the American hospital from 1811 to today, with the chronicling of the IDN era from 1993 to the present particularly seminal. However, selective history, regardless of its merits per se, in no way necessarily and accurately identifies the causes of the US healthcare industry’s many serious economic malfunctions. Thus, again, megaproviders are another symptom rather than a root cause of industrial disease. What is a priori ruled out is true market allocation of goods and services. New interventions and de facto central planning inevitably become the only acceptable solutions.
https://mises.org/wire/are-large-hospitals-problem-us-healthcare
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