Making the healthcare industry more like the music industry
Few people would suggest that the music industry is as healthy as it once was. Record companies have been badly bruised by the internet. Online radio, iTunes, and other technological innovations in both music distribution and production, have led to a shift in the relationship between big record labels and the artists they produce. For years now, people have been predicting the collapse of the industry. And yet, music itself has not dried up. Rock and roll is not dead. Indeed, in many ways quite the opposite is true.
If anything, MySpace and other online venues have given bands of all stripes more access to consumers and fans than ever before, making the music market wider and more diverse than it was even a few years ago. The ability to purchase music cheaply and a la carte or to share it over the internet for free has put downward pressure on the cost of music, while at the same time drastically increasing the supply and diversity available to consumers.
Where fifteen years ago a kid had to shell out twenty dollars for one album only to discover that only a handful of the songs were any good, that same kid in 2010 can pick and choose only the songs they like, and pay a dollar or less for each. And whereas in 1995 there were only a handful of bands with access to radio stations and music stores across the country, people today can listen to bands from all over the world just as easily as they can listen to the big hits. Satellite radio and the numerous online music services have led to a new diversity in music that the old industry was never able to provide.
All of this has not been good for the music industry if you consider it to be nothing more than a handful of big record labels. For musicians, it’s been more of a mixed bag. Gone are the days of the super-stars, and the prospect of getting rich by selling millions of records has fallen off dramatically. But that was never a very good bet for most musicians in the first place.
Now local bands can distribute their music much more widely than they ever dreamed possible, and what was once a garage band with a demo tape can become an internet phenomenon overnight thanks to Youtube and other online music and video sites. Bands may still sign on with record labels, but the asymmetrical relationship between those labels and the musicians is fast becoming much more mutually beneficial. New recording technologies have helped as much as these new forms of distribution, giving amateur musicians the ability to put together quality recordings at a fraction of the cost.
In this sense, though the industry’s old players have suffered serious economic downturn, the industry as a whole is undergoing a renaissance of sorts, with music cheaper and more abundant than ever before. This is true of both the supply of music, as more and more independent musicians gain access to the market, and to consumers who have more money than ever to purchase more music than ever before – and who, for the first time ever, can pick and choose the music they like and how they’d like to purchase and consume it. Indeed the number of online music providers increased from around 50 in 2003 to over 400 in 2009. Digital music sales increased from just $20 million dollars in 2003, to over $4.2 billion dollars in 2009, and now account for 40% of total music sales, a number that is rising yearly. Between 2004 and 2009 digital sales of music increased over 940%. The music market as a whole, however, was down 30% in the same time period, according to the IFPI’s latest report [pdf]. As music has become more accessible, it has also became cheaper, cutting into industry profits but leading in turn to new waves of innovation and competition across the board.
Now let’s look at another industry dominated by old players and constricted by prices far too high for most consumers to bear: healthcare. Hospitals and doctors are paid in what is referred to as a “fee for service” model by insurers and Medicare, meaning that those providers are paid for each service rendered rather than for the results of those services. This is similar to being charged $20 for a CD, even if that CD only has three good songs on it. The analogy isn’t perfect, but the general idea holds up – when you go to the doctor you pay for services you don’t need, and there’s no way for you, the consumer, to get around that.
As more and more unnecessary services are rendered, the bill to the insurance companies grows accordingly, leading the insurers to charge ever higher premiums and ever larger deductibles to their customers. You don’t see this increase directly, but it creeps up each year – long after those unnecessary services were made on your behalf and without your knowledge.
Since healthcare consumers are usually not in control of their own health insurance but rather receive employer-provided benefits, these consumers have very little say in what services they receive or how those services may affect their premiums and other costs.
In this sense, consumers of healthcare today are much more akin to consumers of music back in the 80’s before CD burners began to change the face of music forever, and before Napster and the internet began their assault on the big record labels.
The difference, of course, is that while you can choose to simply not buy music, when it comes to health there almost inevitably comes a time when going without insurance will come back to haunt you. And also unlike purchasing music – even expensive music – purchasing healthcare to cover a catastrophe, or even a monthly premium, can be hugely and sometimes catastrophically expensive.
So how can we make the healthcare industry of 2010 less like the music industry of 1985 and more like the innovative, accessible music market we have today?
Let’s look at the changes which led to greater supply, access, and lower cost of music today:
First, the old players – the big record labels – have lost their control over the market, and thus their control over the prices in the market.
Second, musicians have greater access to production and distribution of their own music, giving them increased control over their product. Some established musicians have signed on with music venues instead of record labels. Others, like Radiohead, have released their music for free (asking only for donations, and reaping most of their money from live shows.)
Third, music has become decentralized. Now it can be produced and distributed almost as easily on a living-room PC as in a studio in Los Angeles or Nashville. This has lowered the barrier to entry for music producers, giving amateurs inroads into an industry they were previously excluded from.
And last, consumers have more control over which music they purchase, and can generally sample whether they like the music before purchasing it; similarly they are no longer bound to industry-generated hits played on traditional radio, but have access to a plethora of online radio stations and other music services. Increased demand for music has led to an increased supply, which has in turn led to better prices and better music for almost everyone involved.
Could these basic changes be applied to the healthcare industry?
Currently the industry is dominated by a system of provider cartels, bulwarked by a thicket of government regulations, and insulated by monopolistic insurers. The solution to this problem is not to subsidize the broken system or prop up the current industry, but rather to find ways to strip away restrictions which have led to a constricted supply and poor competition. This does not mean ending all regulations in the health care industry, but it does mean we need to reevaluate some of the ways regulations have played a role in our healthcare thus far.
First, we need to break up the cartels by repealing unnecessary regulations on who can provide our healthcare in the first place. A doctor should not be the only person in town who can provide you with stitches. The cost of that doctor’s tuition and malpractice insurance is reflected in every stitch, and that translates into higher premiums for everybody in the system. Barefoot doctors, nurse practitioners, midwives, and other low-cost providers should be freed up to provide cheaper services instead of relying entirely on doctors. It should not be more expensive to have a home birth provided by midwives then to have a birth in a hospital provided by a team of nurses and a doctor and all their expensive equipment, insurance, and so forth – but it is for most people because the system is set up to benefit doctors and hospitals over alternative care providers.
Pharmaceutical companies need to be exposed to greater competitive pressure as well. There is no reason we should pay more for our own drugs than Canadians pay for the same exact product. Allowing generics to enter the market quicker and removing many of the protectionist hurdles that stifle competition between drug companies and their generic competitors could go a long way toward breaking up the pharmaceutical cartels.
Second, we should do away with special tax-treatment for employer provided healthcare. If you receive benefits from your employer, you do so tax free. If you purchase insurance yourself, you have to do so with after-tax dollars. Ending this imbalance would push insurance toward a personal, portable model. Soon people would no longer lose their insurance simply because they also lost their job. This would lead not only to greater economic security, but to greater economic mobility as well. People should not refuse to leave a bad job for fear of losing their health benefits, but this is all too common in America today.
Making insurance personal would also place health-related costs more directly into the hands of the people making the actual healthcare decisions, leading to a more rational system of pricing and self-rationing. Fee for service would quickly shift to fee for result, as consumers would quickly grow tired of paying for unnecessary treatments, and would refuse to purchase policies that subsidized these unnecessary treatments.
Third, allow healthcare providers to operate like other businesses. There’s no reason we shouldn’t have low-cost, private health clinics staffed with low-cost providers who can do many of the simple check-ups and preventative care that the uninsured currently use the ER or walk-in clinics for. If these were in Walmarts or shopping malls across the country, or even in the local pharmacy, we’d suddenly have a lot more access to basic healthcare services – much as consumers now have to music via the internet. To get to this step, though, you have to break up the cartels. Otherwise these cheap, private clinics would need to be staffed by expensive (and highly insured) doctors instead of much cheaper nurses and nurse practitioners.
And finally, we should decentralize medicine. Allow for more competition and, paradoxically, more cooperation between providers of healthcare. Let insurance companies operate nationally rather than confining them to states, and let consumers have more choice over not just their insurance but also their providers. Here, as in the music industry, the internet may also play a vital role, as transparency in costs and treatments becomes more and more widely available to consumers. When patients learn that an MRI across town costs five hundred dollars less than the one at their hospital, they’ll start asking questions.
Making the healthcare industry more like the music industry will not be easy, but if we ever hope to contain costs while drastically expanding coverage, we have to also increase supply and access. Placing more and more onerous regulations and restrictions on providers and insurers, while at the same time trying to fix prices on insurance at the federal level is not the way to increase either access or supply, as fewer and fewer people will see any net gain in becoming a provider of health services.
This is what the current legislation in congress will do – increasing subsidies to consumers, while doing nothing to address the supply shortage, and doing far too little to address concerns over access to actual healthcare providers. Throwing money at the problem will inevitably lead to it getting more expensive. Imagine if the best solution to making music cheaper was simply regulating the music industry more while giving handouts to low-income consumers of music. It’s preposterous. But that’s what Congress is doing to fix healthcare.
We don’t need lots more highly-paid doctors to make healthcare better, any more than we need lots of big, famous rock bands to make music better. What we need are more providers across the board. Indie-rock has changed the face of music, now indie medicine needs to change the face of healthcare.