Episode: 2385
Title: HPR2385: Healthcare Costs
Source: https://hub.hackerpublicradio.org/ccdn.php?filename=/eps/hpr2385/hpr2385.mp3
Transcribed: 2025-10-19 02:04:55

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This is HPR episode 2,385 entitled 20,170,620 interaction part 7.
It is hosted by AYUKA and is about 13 minutes long and carry my clean flag.
The summary is what on a cost-pressure in healthcare.
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Hello, this is AYUKA, welcoming you to Hacker Public Radio and another exciting episode
in our little mini-series on healthcare policy in the United States.
Which I'm doing for a number of reasons but one of them is there's a lot of it in the news right now.
So now what we want to talk about today is healthcare costs which is a key part of this whole thing.
I mean one of the things that motivated the government to attempt the Obamacare reforms was that
healthcare costs were just rising unsustainably and so something had to be done.
Now I don't think that's a problem unique to the United States because everything I've seen
says that the factors that we're driving costs in the United States are to some degree
operative in any other country.
They're just a question of fundamentally how the economics of healthcare works.
Every country faces increase in healthcare costs.
The differences are in degree and in how each country responds to those cost pressures.
Now the first place to look for cost pressures is what is known in economics as
bowel and bowens cost disease although frequently bowen gets dropped out and they just call it
bowel loss cost disease. He's the more famous of the two.
And I've got a link in the show notes to Wikipedia page. You can get more detail on this.
But this insight comes from understanding why some costs tend to fall over time and other
is don't and why is that. So let's take something that I think a lot of people in
hacker public radio are familiar with. Moore's law in the computer industry.
Continual decreases in the price of semiconductors even as performance increases.
This is marvelous but what does the underlying cause?
If we look into it almost all of the decreases in prices of products over time
are due to the increasing application of capital.
Increased automation.
In the case of semiconductors take a look at it costs billions of dollars to build
a semiconductor foundry. It's not something you can do in a garage here.
If we take a look generally through manufacturing factories that once employed thousands of
workers now employ hundreds and can as a result reduce prices while increasing employee pay.
Now the employee pay part is true in theory however in the United States pay increases were decoupled
from productivity increases in the 1980s and have remained uncoupled. That's a topic for another
day. We take a look at another sector of agriculture. Agriculture used to employ virtually
80-90% of people in the United States were involved in agriculture and if we go back in time similar
things in other countries and then agricultural productivity increased. How did it increase?
Again artificial fertilizers produced in factories, tractors,
in other words a lot of capital went into it to the point that now in the United States it's about
2% of our population is engaged in agriculture and that 2% not only feeds everyone in the United
States but produces a surplus for export but we do it in a highly capital intensive way.
So we're just not using that much labor to do agriculture anymore.
Now that's fine in industries like agriculture and manufacturing where automation is comparatively
easy to implement but Balmolin Bowen noted that the service sector is not that type of industry
generally. Services tend to be people-to-people interactions. When you go to a
concert you want to hear real-life musicians. If you're going to college you want contact with
a real-life professor and when you want health care you want to deal with a real-life doctor.
Our notions of quality all depend on this but these are all cases where automation is either
not feasible or would notably reduce quality. Everyone working in the service sector has to earn
money for doing so and even though they are in a sector that does not raise productivity very much
they're looking at a wage scale determined by the overall labor market.
So for instance if you work in a good job and your pay increases due to productivity improvements
you will shortly find that your children's teacher is also looking for a pay increase.
But teachers find it difficult to actually improve productivity. One way they could in theory
increase productivity is by increasing the size of the class but that would be seen and rightly so
as a decrease in quality. And in health care this productivity puzzle is equally difficult to
reconcile. We sometimes talk about how good our doctor is or isn't by discussing something we
call their bedside manner which is simply a way to say we value the person-to-person interaction
that cannot be automated. Indeed that is one of the few metrics most consumers have available
to them to evaluate quality in this sector. Chances are we don't ask the doctor where did you go
to medical school? What were your grades like? How well do you keep up on the latest trends?
And would an average consumer even know how to evaluate the answers to those questions?
You know there's a joke I used to work in the health care industry for a while and the joke is
what do you call the person who graduates at the bottom of their class from medical school?
The answer is doctor. Now just today as I'm writing this I saw and I'll put the link in the
show notes for you an article on CNET with the headline Cancer Fighting Robots Still Need the Human
Touch. Robots can improve breast cancer diagnoses but shouldn't diminish the patient experience.
The point being robot can do the job as well as a human but it affects your experiences
as a patient to have the robot do it would diminish the patient experience.
Now what about quality improvements? I think this is another factor you have to keep in mind there
can be quality improvements that have an impact on costs as we discussed in a previous episode we
don't do exploratory surgery anymore and that's all to the good but that quality improvement came
from increasing capital investment in very expensive imaging technologies like CAT scans, PET scans
and MRIs. This is a particular case of the more general problem economists deal with in trying to
create price indexes to measure inflation. The price is not the only thing that changes over time
the technology employed also changes so a straightforward comparison of prices in two different
times is very tricky. A late model automobile costs more than one purchase 20 or 30 years ago
but also incorporates a lot of safety features that were not even available back then.
And health care also brings in quality improvements due to changes in our scientific
understanding of medical and health problems. We are using new technologies such as CRISPR
which is a gene editing technology to address diseases which may let us cure or
ameliorate diseases against which we were previously helpless but this can add costs to the
equation as well. Just in the last generation we have seen organ transplants save many lives but
that has a cost. Now we're looking at being able to 3D print and grow organs from our own stem
cells which would be even better but that costs money too. So there are several market forces
driving costs up. First is the entirely natural and rational move on the part of companies
to find profitable niches. For instance drug companies have largely abandoned the search for new
antibiotics because there's not enough profit there. Instead they look for market niches where
they can charge a high price and for a drug that people will take daily for many years.
In a profit-oriented market economy you should not be surprised at this.
Examples of this include cholesterol reducing drugs,
impotence drugs and so on. There is already market of people who will pay for these medications
and in many cases it will be covered by health insurance. Of course that drives up insurance
problems but insurance premiums I mean but that's not a problem drug companies are interested in.
Hospitals look to improve their appeal to patients by purchasing all of the latest technology
and that means their costs rise. Once you have an MRI machine you start
tending to use MRIs more and kind of the way it works. Doctors tend to specialize in niches where
they can earn more. Leading to a situation where we have plenty of cardiologists but a shortage of
primary physicians. Another market force is consolidation. If we look at the landscape of the
healthcare market we see hospital chains growing through mergers and buyouts.
Larger hospital chains gain market power to negotiate better reimbursements from health insurance
companies and on the lower level if I can put it that way there are fewer individual practices
by doctors. Instead they are consolidating into larger groups and often those groups are merged
into or allied with hospital groups. At the same time health insurers are merging and consolidating
to improve their market power. Market power matters in all of these cases because different layers
are competing to get a larger share of the healthcare money available but in the course of their
competition prices inexorably rise. I'll put a link in the show notes that gives some data on
healthcare expenditure per capita by country and what is clear is that spending in the US is
higher and is rising more rapidly than in other countries. One final note. Some years back
not that many but I was working in the finance department of a major university hospital
back when Obamacare was being discussed and that caused a certain amount of unease among many
of my co-workers simply because it represented change and you know what's going to happen. What
is this going to mean for us you know we're working in the healthcare industry is as good as it
bad you know nobody knows and there's all sorts of stuff going on and I remember the chief
financial officer of the hospital said remember the present system is unsustainable so it will
have to change and that is of course what happened with Obamacare and so we want to take a look at
that next. So this is Ahuka saying thank you for Hacker Public Radio and reminding you as always
to support free software. Bye bye.
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