The article was first published by this author in medium.com
Healthcare costs have grown significantly in America over the last 60 years. Numerous attempts have been made to control costs, but none have succeeded. As of 2019, healthcare expenditures stand at 17.7% of GDP.
Many factors can cause the price of a service to rise. In a free market such as the US, it always comes down to the underlying market fundamentals. So let’s take a quick look at it.
The law of demand says that at higher prices, buyers will demand less of an economic good. The law of supply says that at higher prices, sellers will supply more of an economic good. These two laws interact to determine the actual market prices and volume of goods that are traded on a market
Markets in which prices can move freely are always in equilibrium or moving toward it. For example, if the market for a good is already in equilibrium and producers raise prices, consumers will buy fewer units than they did in equilibrium, and fewer units than producers have available for sale. In that case, producers have two choices. They can reduce the price until supply and demand return to the old equilibrium, or they can cut production until the quantity supplied falls to the lower number of units demanded at a higher price. But they cannot keep the price high and sell as many units as they did before.
Also, let’s take a quick look at what a cornered market is.
Cornering the market consists of obtaining sufficient control of a particular stock, commodity, or other asset in an attempt to manipulate the market price. One definition of cornering a market is â€œhaving the greatest market share in a particular industry without having a monopolyâ€.
The asset we are talking about is healthcare professionals who can provide the service. By reducing the number of healthcare professionals, the supply stays down and keeps the service cost high. This is comparable to the strategy adopted by Gulf states when they formed the Oil cartel OPEC in 1960 to reduce oil supply production. Lack of transparency in the health insurance industry contributes to this problem, but that’s another article.
The supply I am talking about here is new medical professionals. Look at how medical trade unions such as the Texas Medical Association(or American Medical Association) are in a unique position compared to any other industry. They control the supply while writing rules and regulations for their industry.
Let’s take a look at the steps involved in becoming a physician. At the minimum, this is a three steps process.
- Complete Medical School and pass your boards to become a licensed doctor(4 Years)
- Complete Residency(3 â€” 4Years)
- Pass your final boards to practice independently
Medical associations define the standard for all these steps. This is where subtle changes were made to reduce long-term supply. The vehicle for this throttling was the Balanced Budget Act of 1997, championed by President Bill Clinton.
Residency Cap of 1997
US med students pay for the first four years of their medical education either out of pocket or through student loans or combining the two. Once a student graduates, they enter Residency. In the residency phase, they practice care with an experienced physician.
Funding residency training is another whole subject. A significant player in this is medicare. Enter US Congress.
Congress passed the BBA in 1997 partly in order to place some controls on the continuing growth of GME positions. The BBA contains several important changes in the GME funding mechanisms, designed to affect the number and mix of residents trained
We must note that when Congress put the cap, there was a predictedÂ surplusÂ of 70,000 physicians, and some in the medical field were worried about the ramifications of havingÂ tooÂ manyÂ MDs in the United States.
The law’s impact is better visualized by this picture published by a UCH Study. Just wonder what happens to all those on the left side of the funnel.
Texas Medical Association
Coming back to my title, what does the medical association has to do with all of this? Look at the ‘Texas medical association.’
Texas legislature has bills open to change rules around Nurse Practitioner’s ability to prescribe in Texas. The bills in question are
HB2029 : Licensing and authority of advanced practice registered nurses.
SB915 : Licensing and authority of advanced practice registered nurses.
The effect of these bills is that they increase the number of care providers that can prescribe medicines. TMA has started actively opposing this legislation because they believe this is a threat to their livelihood when the market reality is that physician shortage is only increasing due to the throttling of Residency. This is clear from the report prepared for the AAMC by IHS Markit Ltd. a shortfall of 50k to 139k is not something we can fix quickly.
Medical Trade unions effectively destroyed the Crown Jewels of American health care ‘Teaching hospitals’ using the BBA of 1997; they are attempting to throttle the only other source of medical professionals â€” Advanced Nurse practitioners. It’s interesting to see that this medical association has only minimal advocacy going on issues that plague healthcare professionals, such as
- Lack of residency opportunities
- The administrative burden placed by Insurance Industry
As a nation, we need to reverse the supply-side problems to address the sky-high healthcare costs. I am standing in opposition to TMA’s throttling efforts.
We need to turn this map green and keep looking for what we can do to improve care in this nation. Let’s fix the fundamentals of the healthcare market together and build a market-based healthcare solution.
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Notes & References