Einer Elhauge, a healthcare expert at Harvard University, argues that we can lower healthcare costs and cut the deficit by “defragmenting” the system, by which he means replacing small group physician practices with large companies that combine hospitals and salaried physi-cians, similar to the HMO concept, but with fewer restrictions on integration. According to Elhauge, such integrated entities would operate more efficiently than small practices to coordinate patient care, improve quality, and dramatically reduce costs.
Large integrated organizations may indeed generate efficiencies, although liberals like Elhauge may be overstating the potential benefits, perhaps due to wishful thinking. But increased efficiency by providers will not, by itself, solve the cost problem. To lower costs, it would also be necessary to insure that these entities operate in competitive markets because any savings resulting from efficiencies would not be passed along to consumers, in the form of lower prices, in the absence of competition.
Of course, any government can contain costs without relying on markets and competition. It’s just a matter of implementing price controls and restricting access to care. But then what do we get? The historical evidence (as well as theory) shows that central control and planning leads to low quality, stagnation, and eventual decline. In healthcare, this would affect almost 20% of the economy. And the European experience, with apparently lower costs, doesn’t prove otherwise.
Because centrally planned economies do not work very well, the quality of healthcare in European countries with highly centralized systems most likely is not very good. If it seems that quality is high, then we have to suspect the reason is something other than central planning. For example, we might wonder if the quality could be due to free-riding on American innovation and the cost-shifting implied by this. If America goes the way of Europe, however, there will be no one left to shift costs to, and again, we can say hello to stagnation and eventual decline.
So Elhauge is only giving us half the story on controlling healthcare costs, which is very strange in so far as Elhauge, in addition to healthcare, is an expert in antitrust law. The WSJ has reported on the wave of consolidations in the healthcare industry due to Obamacare, yet Elhauge is silent on the prospect that our large, integrated, efficient healthcare companies might turn out to be monopolists in their respective geographic markets. But then again, maybe that’s not an issue for liberals: after all, a small number of large companies would be easier for the central government to control.