Why are medical tests so expensive? (1 Viewer)

[Chu Gai]

Don't competing power companies buy and sell their power to other competing power companies?

 

[ChristopherDAC]

Since I'm a casuist and an engineer by nature and by training, I ought to give you a concrete reason why I say that electric deregulation doesn't work (beyond the simple observation that in "deregulated" areas, that is, areas where certain financial interests have persuaded corrupt or ideologically-blinded politicians to give them entree to an industry which had been closed to them, electric prices have uniformly risen, and risen faster than in monopoly areas). First, it's important to see how these "markets" work. Power stations generate electricity, which flows into the grid, and is used up at individual locations. The System Operator, which manages (and usually owns) the lines, meters how much power is being fed in at each generator, and how much power is being used up at each consumer. A market is convened, in which the marketing companies, each aware of how much its subscribers are using, and the generating companies, each aware of how much it is putting into the grid, arrive at a settling price. This system has no obvious advantage over a system in which the System Operator runs the plants itself and bills customers itself, and it has the following principal disadvantages : generating stations tend to be located farther from concentrations of consumers, increasing line losses ; and, electricity not being a storable commodity, sudden alterations in supply or demand can lead to transient spikes in the settling price, as high as several hundred times the basic cost of generation. Now, if you are not an engineer, you will be unfamiliar with the fact that there are two kinds of electrical power. There is resistive or "real" power, which is metered and drives loads, and there is reactive or "imaginary" power, which is not and does not. "Imaginary" power requires real fuel to generate it, and so the free-market power producer has an incentive to minimise his production of a product he can't charge for. Reactive power, however, is what keeps generators in synchronism across a nationwide power grid. Fifteen years ago, the U.S. power grid could boast near atomic clock accuracy — sixty cycles per second meant sixty, within parts per million, and across the whole country. Due to the economic disincentive for open-market generators to produce reactive power, there is now a considerable amount of drift, hundredths of a cycle per second or more, varying from location to location. Of itself, this would be of little concern to anyone but the owners of certain old models of electric clock, which would gain or lose a little more time than usual. The fact is, however, that the reactance of a continent-wide electric grid is enormous and finely-balanced. The slightest un-coordinated change in frequency is sufficient to send great seitches of electricity sloshing from one end of the country to the other, causing overvoltages in some areas and undervoltages in others, often distant from the site of the imbalance. Thus, the occurence of brownouts and blackouts is increased, and the reliability of electrical service is reduced. In addition to the cost of lost productivity due to brownouts and blackouts, and the cost for more-frequent replacement and maintenance of electrical machinery of all kinds, which are indirect costs to society, there is also a direct cost in the rise of electrical rates. Service calls are increased, and the lifetimes of line equipment, including circuit breakers, relays, substation transformers, and the humble light-pole transformer outside your house, are reduced, increasing the cost to the System Operator, which in turn has to increase the proportion it "rakes off" from the transactions in its market to pay its expenses. This is not a theoretical result : it was developed by observing the behaviour of the American grid over a period of several years, and I'm sorry I haven't the reference for the paper it was reported in near at hand. Incidentally, the natural monopoly is, in general, a tendency of fully-developed systems. Obviously, at the very beginnings of electricity, it was possible for for numerous small, non-interconnected and essentially non-overlapping, systems to exist in a large area, each one serving a local concentration of users of sufficiently high value to support it. If each neighbourhood or each block has its own generating station, however, it's pretty much a local monopoly as far as most of the people on the block are concerned, although the fellow at the end of the street might be able to run a line across and pick up his power from the next one over. As service expands, the expence of transmission lines and the economies offered by larger plants encourage an interconnection of existing systems and the construction of central stations, rather than a new utility to arrive which builds its own central station and strings its own transmission lines to customers already served by one set.

 

[JonZ]

"Sure, my insurance will cover most, if not all of it.....And that, right there, is one reason why medical costs have gone up so much. People no longer pay for their own medical costs the way they pay for food and transportation and therefore have few incentives to shop wisely or use such services sparingly."


This is changing as corporations who hire contractors have slowly but steadily lowering benefits. I work at IBM and contractors insurance has been getting worse and worse. Who'd of thought youd have to pay for medical bills out of pocket working for a major corporation????

Their excuse is "Sorry we need to do this is order to keep the contract wih the company".

Mean while you have people who make in the 20-30K range paying for medical out their pocket. In 98 contractors had complete coverage for $35 a month. Now paying $30 a week, it covers nothing. It pays $175 of doctors visits and $175 of tests (x3 a year). Now if you go to doctor get some tests done a xray,etc - it can be a 2k bill. A MRI is how much???They pay $175.They pay $350 of it and you have to pay the rest! No eye coverage(taken away years ago),no prescription plan but fairly decent dental.
Most of these peopel make toomuch to get state assisted benefits but cant afford to pay $400 a month and get their own through Blue Cross or wherever.


Ridiculous.

 

[KurtEP]

Well, there havent been any recent ones due to anti trust laws. While I obviously agree that economics shouldn't be an engineering exercise, the concept of a natural monopoly is still a valid one. Remember, a monopoly doesn't have to be nationwide, it need only be for a given area. Having 10 power suppliers in a city the size of Chicago wouldn't be absurd, if each controlled a few square miles. They wouldn't have a monopoly over the city, but they could certainly be a monopoly in their given area.

Also, in the spirit of not viewing economics as an engineering exercise, there are certainly companies that come very close to a natural monopoly in the country right now. The most prominent is Microsoft. They certainly don't control all of the market, but you'd have a hard time walking into most stores and finding a computer running anything other than Windows out of the box. Why is this, because it's more efficient to have one operating system, since it saves companies from having to write software for multiple platforms. Most of Microsoft's competitors have far less available software for this very reason.

 

[RobertR]

I still haven't seen a real-world example cited. I suspect the lack of a clear definition of "fully developed" is an attempt to reassert theory when faced with reality that contradicts it.

 

[ChristopherDAC]

A monopoly exists when there are barriers to entry of a market, natural or governemntal. A natural monopoly exists when those barriers are economic in nature, and are combined with large economies of scale. The first business in any market will be, in effect, a monopoly, because it has no competitors. If barriers to entry are low, it will be joined by competitors which mean to make money in the market just as the first business does. If barriers to entry are high, it's easier for investors who wish to make money in the market to buy into the first enterprise. With large economies of scale, the enterprise tends over time to get very large, so that simple capital cost becomes an ever-rising barrier ; in the case of something like an electrical utility, there are also other barriers, such as the difficulty of securing right-of-way and easements for lines. Examples of this are more common than you might think. For example, the so-called legacy airlines operate as a monopoly in fact, even though they are nominally competitors. The monopoly's competition comes from the discount carriers, which offer a substantially different product. Airliners, not to mention the thousand-and-one other things involved, are expensive, and they essentially have to be flown even if they're empty ; as a result, each of the carriers could do serious damage to the others without very much benefitting itself. For an example of a market which is not a natural monopoly, we can look at automobiles. Nobody starts a new business to make cars for the mass-market, because the barriers to entry — principally the capital investment needed to make cars on a large enough scale to get the prices down — are very high. The economies of scale, however, run out beyond a certain limit, and diseconomies take over. General Motors has been beyond that limit for a long time, which accounts for a lot of its problems. Then you ought to know what utter buncombe you are talking. What your citation describes exists, of course, but the obvious result is that it puts strains on the distribution network. It has always existed, since it is the reason for the existence of the national and regional grids. These grids, however, were designed primarily for load-balancing among local utilities, mostly small transfers of power to ease temporary, local constrictions of supply. The iron laws of electrodynamics require a great deal of effort to perform large-scale transfers, and in terms of your hydraulic analogy, they come close to bursting the pipe, and sometimes do cause breaks. It isn't physically impossible to change the flow patterns. If I seemed to imply that, I didn't mean to, since it's silly. My statement is that doing so is impracticable because of the loads it puts on the distribution network. It's indisputable that electric-power reliability is down significantly in the past fifteen years, and all evidence points to large-scale transfers as being the principal culprit. To accomodate them would require a massive level of investment on the part of the System Operators, further increasing the cost of power. To give you an idea of what I mean, the Tenessee Valley Authority has a 350 MWe plant at Memphis which has only one purpose : to terminate the long-distance 110 kV lines which feed the city with power from the TVA's other plants. A bigger plant couldn't be built, owing to problems with the supply of cooling water, so power is run in from the big central plants at places like Cumberland and Mussel Shoals, but the power simply wouldn't flow out there without that 350 MW plant, which was a sizable investment. It's a fact that municipal and cooperative electric utilities in Texas have lower rates than any other providers, a gap which is set to widen as "full deregulation" comes into effect. And tell me, how is it a free market when the State tells me that I have to let someone else bill the customers my electric lines run to?

 

[Joseph DeMartino]

I never said fraud doesn't materially affect the market. I said there is nothing inherent in the market that causes fraud, and nothing in non-market systems that prevents fraud. The argument I was responding to tried to paint fraud as something built into free markets. As I pointed out fraud is better described as something inherent in human nature which will rear its ugly head under any ecomonic system (and has) so that "fraud exists" is hardy an argument against markets.

And I can buy six economic textbooks and get six completely contradictory theories on and explanations of monopolies, markets and everything else. It is not only possible, it is likely that in alternating years the Nobel prize in economics will go to people with diametrically opposed views. That's because economics is not a science, it is an academic discipline which is a very different thing. (The same goes for all the other "social sciences".) That's why economics always fails when it tries to move beyond describing what happens when actual human beings actually exchange goods and services and tries to discern patterns and arrive a contingent conclusions about how things work and attempts to prescribe what "should" happen based on the fallacious assumption that it has actually discovered the underlying "truth" of how economies work.

It is because people work and exchange goods and services that we can speak of an "economy". Too many people try to derive the worker from the economy or the business from the market as though these things had an independent existance. The market is not a thing it is a process, like fire is a process. A fire can run wild and destroy, or it can be so banked and choked of oxygen that barely stays alight and doesn't do anybody much good. But either way, it remains a fire.

And the fact that there are both chefs and arsonists tells us nothing about fire.

Regards,

Joe

 

[ChristopherDAC]

I agree absolutely. Every system of political economy breaks down because it stands on a false assumption ; in our society, generally the assumption that man is a rational agent.
It is for precisely this reason that I am for free choice and competition among political and economic systems. For some reason, those who most defend the idea of the free market very rarely think that there should be a free market in such things! We see by evidence that there are numerous systems which have been tried, some of which have worked better than others, sometimes because of an inherent superiority and sometimes because of historical accidents. To dictate that every person in every nation should adhere to the one which happens currently to be dominant is absurd.

 

[Chu Gai]

How about we take a look at the original thread which deals with the costs of medical tests? How can the costs and financial impacts of the tests on individuals be reduced? How much additional costs are built into the tests, what a provider may charge, because of things like government regulations, malpractice insurance, or whatever? Some time ago, I saw the bill my parents got when I was born. I forget the exact amount but it was somewhere around $25. Now that was a little over 50 years ago and I don't know what that translates to in terms of today's dollar but it did include a few days in the hospital.

 

[Joseph DeMartino]

There is a popular misconception that anti-trust laws make it illegal to be a monopoly in the U.S. or to hold a monopoly position in an industry or market. They do no such thing. If I invented the proverbial better mousetrap tomorrow and all the other mousetrap makers went belly-up because nobody bought their products anymore, I would have broken no law and the government would have no grounds for charging me with anything. And I would be able to hold that monopoly until (inevitably) someone built a better mousetrap than mine. That is the one and only definition of a "natural" monopoly - being the only person making a product or providing a service that anybody wants to buy from. Such monopolies are, in their nature, always temporary. (Remember when IBM was "monopolizing" the PC industry? I do.)

What anti-trust laws do is make it illegal to cheat your way into a monopoly position by collusion with competitors or others, threats or intimidation, dumping products on the market below cost (a certain amount of this is permissble as "loss-leader" promotions to establish a toe hold in the market, but regulators watch for abuses) or taking steps to prevent others from entering the market. But they don't outlaw being the first to market (as Christopher describes above) or that last man standing after a market shake-out.

Regards,

Joe

 

[RobertR]

I don’t make the claim that the market has “never really” been tried; there are many examples where it has existed and does exist, and works quite well (and is therefore not contrary to human nature). What I am saying is that you cannot point to a regulated situation (even though it’s labeled “deregulated”) and say “aha! Your free market didn’t work!”. It's false advertising, or, if you will, a strawman.

 

[KurtEP]

I generally agree, however, economics has produced ideas of value, especially when it comes to the ideas of deregulation and laissez faire. Note that this statement doesn't contradict any of my earlier arguments about regulation. I'm arguing that regulation is necessary, but less is often better. I'm strongly against complete deregulation, however, as I have little faith that market forces themselves will carry the day.

Also, before writing off the science of economics, it should be noted that econometrics produces some very strong statistical techniques. There has also been a lot of work with things like matrix algebra, operations research and chaos theory. Economics may not be as hard of a science as physics, but it isn't junk science either.

 

[KurtEP]

Well, speaking to the original topic of this thread, we should probably expect something like an MRI to be expensive. After all, it's post space age technology that can peer inside of the body without cutting it open. On the other hand, routine stuff, like ointment for a skin rash, should be, and is, I'd expect, inexpensive.

There are a few things that always pop up when discussing this topic. First, third party insurance prevents people from rationalizing expenses. For example, when I was born, I had some sort of milk allergy (exactly what it is is still unclear) that involved very significant expense, all carried by insurance. They even had to fly in an expert from Texas to PA. I'm sure this cost quite a bit, but insurance covered it. Had there been no insurance, I'm sure I would not be around right now, as my parents wouldn't have had the means to deal with it. In my Grandfather's day, insurance was limited and pretty much any expense was too much. My prospects would have been much dimmer then, especially knowing that one of my uncles died of pneumonia when he was about six because there was no treatment forthcoming.

The other thing that always shows up in these arguments is malpractice insurance. There seems to be little doubt that malpractice insurance is high. The common argument is to cap awards and such, which is probably not the worst idea. Of course, if you look at some of the worst malpractice cases, you are forced to wonder whether criminal charges should have been brought.

Naturally, if you sit in a business school class with a bunch of medical practitioners (as I have), they'll tell you it's those damned attorneys. If you sit in a law school torts class (as I also have), You'll hear stories of doctors refusing to police their own, and how a small percentage of them make up most of the malpractice claims. You'll also read cases involving some ugly malpractice. Which view is correct, probably both are partially correct, and you can also throw in the insurance industry; when their investments aren't performing as well as they'd like, they have little choice but to raise rates.

 

[Joseph DeMartino]

What? I'm sorry, I'm going to have to ask you to defend this ridiculous and wholly unsupported assertion. Where is you evidence that fraud is necessary to the free market?

And "but that's why I said 'probably'" is not a legitimate response, because I'll just ask to see some evidence that this is "probable".

Fraud undermines the market. It is inimicable to it because the market works best when transactions are fair and benefit all parties. It is because people believe such nonsense that it is so hard to have a rational discussion about economic matters in this country.

Regards,

Joe

 

[KurtEP]

In this case, "it" refers to the market. Hence, you can read this statement to say "the market doesn't cause fraud, but the market is probably necessary for fraud to exist"

Not at all absurd.

 

[RobertR]

Good clarification, but still untrue. There's plenty of political fraud that takes place, as well as fraud not involving any sort of buying or selling ("you didn't tell me you were married!").

 

[KurtEP]

Good point. Lucky I said probably

I would be interested in peoples opinions on malpractice and insurance, though, in the spirit of bringing this thread back to it's original purpose (not like I don't share much of the guilt).

 

[ChristopherDAC]

My preference is for a variety of "summary judgement", namely, in order to bring a malpractice claim, the matter has to be brought before the County Medical Examiner first. If the ME rules that the case is within the normal hazards of medical practice (remember that statement about "medicine is an art, not a science" which they have you sign), the case is quashed. The engineering profession and its closely-associated regulatory bodies (some State-sponsored, some not) are very strong on self-policing — the Black List is alive and well. Unfortunately, the medical professional associations like to pretend that all their members are perfect sons of Asculaepius (the legal profession is not immune from a similar criticism), so they find it hard to impose sanctions on their own. A relatively small proportion of doctors have a relatively large fraction of malpractice suits directed at them. Some of these are bad doctors, but others are doctors who specialise in difficult or esoteric cases. The ME, or a disinterested board of competent physicians, ought to find it ready enough to distinguish between the two.

 

[Chu Gai]

Studies have been done that indicate that the tendency for doctors to be sued is inversely proportional to the amount of time they spend with their patients. Now, we're not talking about nonsensical time, but time to answer the patient's questions, time to explain things, time to act like a human who cares about another human. Patients frankly don't want to sue people they like, hence even if their favorite doctor is at fault, they'd rather sue the anesthesiologist or anyone but.

 

[RobertR]

Similar comments could have been made about the phone system 30 or 40 years ago.