Health care price escalation: Deregulation is the ONLY answer

For those of us who are old enough to remember, airline travel was unaffordable for most people up until Ronald Reagan got elected President. What did Reagan do to make airline travel affordable for most people? He deregulated transportation in the US. Before transportation was deregulated in the US, airfares were regulated, union wages were priced into the airfares, and airline seat prices went up continuously. Once Reagan ordered deregulation of transportation, Southwest Airlines found ways to cut seat prices (as did other cut rate airlines) and prices came down. "Cut rate seat prices" were NOT LEGAL under the old system of regulated transportation. Under deregulation, whoever could deliver the lowest cost product got the business.

You can only expect higher prices in a regulated monopoly environment. You can however expect creative competitition and lower prices in a "deregulated" environment. How does airline travel and transportation deregulation relate to our current debate on health care? Economics 101: Health care in the US is a regulated monopoly. Expect higher health care prices until we deregulate health care in the US. Deregulation is the ONLY answer to health care price escalation. Without free and open competition there will be ONLY one price direction, up.

I hate to use this next example to illustrate my point, but this is a pretty powerful case in point:

Marijuana in California is now legal. As amazing as it may sound, we now have "witch doctors" in California prescribing marijuana for just about every ailment imaginable. You can have a hang nail and one of these clowns will write you a prescription for marijuana (for a $100. fee of course.) OK, so what is the point? The point is that pot prices in California have collapsed because the monopoly is now gone. Realize that to make marijuana illegal under the old "narcotics regulation" system, the pot dealers operated under a de facto monopoly. In that case it was not the FDA protecting the dealers from competition, it was the DEA protecting the dealers from competition. Different federal agencies, same affect on prices. I hope people take this example seriously because the message is very strong. Do you recall the scene in the movie, "American Beauty" where Ricky Fitz is telling Lester Bernum how much his pot cost? I believe it was $1100. From what I understand, that same quality pot is available today "over the counter" in LA for about $100. What has changed? Answer: The market has become deregulated thus bringing in many new competitors. Prices of any product can be expected to drop in a deregulated environment.

This next example I had the pleasure of seeing first hand on a trip to China.

China has what is considered "universal health care". Do they really? Well probably yes, but not on the level that you and I would consider acceptable. How is it different? Well, when you see a doctor in China, chances are good you are actually seeing a paramedic. What if you REALLY need to see a doctor in China? They will probably let you see a doctor. The point is that most of the health care work is being done by field paramedics and practitioners and not doctors. How does this apply to the discussion of health care in the US and my argument that deregulation is the ONLY answer? Well, how can you expect health care prices to come down in the US if you hand a monopoly to prescribe medication to ONLY doctors? Doctors have a government issued monopoly to prescribe medication in the US and as such, we have no choice but to pay their prices! This is a classic example of a monopoly at work. Expect higher prices until this monopoly is broken. Can the paramedics in China prescribe medication? Probably yes, but more importantly, most of the medications that people need are sold over the counter so that the common person has access to medicine without paying someone dearly to "prescribe". Can you sue these "field paramedics" in China when their medical advice doesn't work out correctly? I assure you that you cannot sue these people for assisting you, regardless of the outcome. There is a very real message to be learned here from China. Tort reform would go a long way in the US in solving our health care crisis. (More details on tort reform below.) Again, deregulation of health care in the US needs to take some HUGE lessons from China.

The next example is concerning the drug company monopolies in the US.

I have a friend who is a pharmacist in Los Angeles. This pharmacist told me that he has checked the prices of his drugs in Canada and found that the Canadian product is about 25% the price that the US drug companies charge! He told me further that it is "illegal" for him to sell the Canadian product. (He claims that he looked into selling the Canadian drugs but ran into a serious legal blockade.) OK, so the US has given a monopoly to US drug companies to sell drugs for 4 times what the foreign product costs!? Yes. This is absolutely amazing to me, but appears to be very true. Another example of how we can only expect higher prices until we deregulate medicine and allow the foreign drug products to be sold in competition with the US drug products. Perhaps if the US drug companies were forced to compete with the foreign drug makers, they would lower their prices.

This next example is concerning the legal system in the US and how it relates to health care prices.

Realize that legal contingencies are illegal in most of the world. Legal contingencies are illegal in Japan and in most of Canada. The rest of the world cannot believe that we have a system in the US that actually incentivises attacks on one another. So how does this issue affect the health care debate? Well here is a good example: I have a doctor friend who told me that he recommends procedures EVERY DAY that are probably not necessary. Why? Because in that one chance in 1000 that the patient may have something REALLY wrong the doctor may be subject to a legal attack. From his perspective, why take the chance? For anyone who has ever been "in the cross hairs" of a legal attack, this doctor cannot be blamed for operating defensively in our predatory legal environment. I drive to work and see advertisements on the back of buses by lawyers looking for plaintiffs and lawsuit targets. I go to Las Vegas and see commercial after commercial on TV of lawyers looking for plaintiffs and new targets to attack. Eliminating legal contingencies in the US would cut health care costs enormously, but just eliminating the threat of attack would influence doctors to prescribe fewer procedures. Obama has said publicly that "tort reform" would only save 5% of health care costs. This is not the case. 5% savings would probably represent cheap malpractice insurance avoidance. 5% would just be the beginning. The real savings would be in procedures that would not be prescribed just to avoid litigation. Deregulation of health care must include some form of protection from liability so that the doctors and the medical establishment are motivated to be at all cost conscience. Now the incentive is very much in the opposite direction.

This next example is very personal, but may be the best argument of all for deregulation of health care in the US.

I recently needed back surgery. I am fully covered by Anthem Blue Cross in California, but the surgery I wanted (and concluded that I needed) was not available in the US. The surgery is a disk stabilization procedure called PercuDyn, and is used to correct a condition called "Degenerative Disk Disease". The PercuDyn company is a US based company but because of "regulation" has not been able to get the procedure approved "yet" in the US. They claim that the "clinical trial" process in the US will cost them over 70 million dollars and as such, they have chosen to get approval abroad. The long and the short of it is that I got my surgery in Mexico by a surgeon who has done over 300 of these surgeries and with great success. (My back pain is GONE at last! This sounds like a PercuDyn commercial.) So what is the point with respect to deregulation of health care? Well, why do I need to go to Mexico to get my back surgery performed when I am insured in the US? The reason is regulation. Get the FDA off the back of the medical device makers and their product will be cheaper, and AVAILABLE in the US! Further, (Please focus on this next point:) when I asked Anthem Blue Cross to assist me in my $11,000. surgery in Mexico, they refused. Realize that the same surgery in the US would have cost Anthem Blue Cross close to $30,000.! (If it were available.) Unbelievable. They insisted that I get the $30,000. product! I spent my own money and purchased the surgery in Mexico for $11,000.

Ok President Obama, so what do we need to do to solve this problem? Deregulate, deregulate, deregulate. If the US Government wanted to bring down the cost of heath care over night all they would need to do is insist that insurance companies pay for either the US medical procedure OR pay for the same foreign procedure if the patient were willing. The competition from New Delhi India alone would be formidable. I know because I researched India for my back surgery. If the US providers needed to compete with for example Shanghai China medicals clinics, you would see procedure prices drop FAST. Prices would drop under the weight of the new foreign medical competition. Further, China would quickly set up clinics to handle the US load. Did this happen to bring down the cost of clothing at Wal Mart to struggling families in the US? It certainly did, and the same affect would happen to health care prices if we had the sense to properly deregulated it in the US.