The theory of regulation presented in George Stigler’s “The theory of economic regulation” is one where regulation is demanded by industries, often as a way to keep or maintain a monopoly. It should come as no surprise then that one of the most regulated industries in America, the healthcare industry, has multiple members that have benefited from regulation.
This past week final regulations came out on accountable care organizations (or ACOs for short). The substance of these regulations, or even ACOs for that matter, is not of immediate relevance to us here. However, the reaction of the industry is quite telling. Hospitals “rejoiced” while insurers worried about further concentration of the health systems that they already view as monopolies. The American Medical Association, or the AMA, came out in support of the regulation. They, perhaps more than any other player in the industry, understand how this sort of regulation can drive business.
The AMA has the sole right to create and distribute “Current Procedural Technology” codes, or CPT codes. These bar codes simply correspond to each different procedure and allow for billing to be uniform across hospitals. Pretty simple right? However, some estimates say they bring in as much as $118 million dollars a year from the selling of these codes and the corresponding books. This is about 40% of their revenues. Regulation surely has helped some players in the health care industry, and so it’s no surprise to see so many excited or disappointed with this new chapter to the library of healthcare regulation that will surely create new monopolies in this industry.
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"When an industry receives a grant of power from the state, the benefit to the industry will fall short of the damage to the rest of the community," writes Stigler on page 10 on "The Theory of Economic Regulation".
Joshua's article reminded me of an issue that I explored one J-term in a medical ethics class. Partly because of the regulation on organ transplantation, seventeen people die each day waiting for an organ . The strict regulation of organ transplantation causes the deadweight loss Stigler states that laws cause.
To give an organ you face losing insurance and having to pay out-of-pocket expenses. As UNOS, the organization that doles out the organs, regulations prohibit the donors from receiving any money from their donation, few can financially support their donation. There needs to be some sort of subsidy to make up for the reduction in private marginal cost of the supplier/donor.
However, if we allow organs to be bought and sold on the free market, we would be changing the order from those who need it the most to those who can pay. But since Stigler credits laws as contributors to deadweight loss, maybe it might be better to know that, overall, more people are getting the organs they need.
It upsets me that regulation cannot produce an ideal solution; it also upsets me that the market cannot take care of this in a way that prevents the poor from losing out on the healthcare opportunity. We have given UNOS authority to dole out organs because, for the majority of us, the cost is low as we will probably never need to have an organ transplant. However, for many patients, the decisions and rules that UNOS make are of life-or-death proportion.
What I am discovering more and more in the readings and during class is that deadweight loss and having a people who lose is inevitable. When this comes down to life or death healthcare, it is especially poignant.
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