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Business

A modest proposal to transform health care

In a health care system, hospitals are warehouses. The less time you, the customer, spend in the hospital, the more money the system saves.
Written by Dana Blankenhorn, Inactive on

Maybe I'm crazy, but my recent piece on the Himmelstein study got me to thinking.

How do we create incentives to turn hospitals into warehouses? How can we advantage cost-cutting, so profits flow based on efficiency and market share rather than raising prices?

How, in other words, do we give someone in the medical business the operational control Wal-Mart has over its stores and supply chain?

The answer startled me.

Why not have insurers own hospitals?

In efficient systems, like the Veterans Administration, this is the case. Whatever criticisms you may want to level at the VA, the fact is it provides more service to more people on fewer dollars than any other health care player.

Politicians may say it's because the VA is a "single payer" system. Another way to look at that is to say that the VA has control over its supply chain and its retail channel, plus incentives to be as efficient as possible. (Patriotism, for one.)

Health insurers don't have that. Most are monopolies within their states. The way a monopolist grows its profit is to simply raise prices. Customers will scream but they have no choice. A great way to run a railroad until the regulators show up.

The best way to give insurers the incentives the VA has is to let them own their own stores, and to give them the power to squeeze suppliers. Don't like my using the VA as an example? Think that's "big government?"

OK. Think WalMart. (At some point in the last decade the correct spelling of the company changed from Wal-Mart to WalMart, so I apologize for any inconsistency.)

WalMart uses data collected across its supply chain to keep costs down and bring in more customers. Goods in a warehouse are waste.

WalMart uses sales data to direct suppliers around the globe, who deliver goods it breaks down into pallet-sized lots, which it tracks from port to warehouse to truck to store to shelf to cash register. Wash, rinse, repeat.

In a health care system, hospitals are warehouses. The less time you, the customer, spend in the hospital, the more money the system saves.

Insurers wouldn't just want to own hospitals, of course. They would also want to control health care retail -- doctors' offices, clinics, even pharmacies. They would want as much control of the customer as possible, because this would give them control of costs.

Insurers are already moving in this direction. CIGNA, to cite one example, owns an Internet pharmacy, and it has a health advisor program.  Why not let it own its own clinics and hospitals? What is the difference between that and Progressive Insurance running car repair shops?

If insurers control retail, they also have an incentive to squeeze suppliers. They can buy all kinds of equipment in bulk for the best prices.

Of course, to make this work we have to change how we regulate insurance. We can't do this on a state-by-state level, except perhaps in very large states like Texas and California. We need a national market to gain the greatest efficiency. WalMart has a national market. Why can't CIGNA?

Now, feel free to call me crazy. But the criticism of health reform is government gaining control over the health care system. Conservatives object strongly to this. Letting insurers control their channels will do the same thing government health reform promises to do, and would provide a good counterweight to it.

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