One is that there is no quick fix to rising costs in the service sectors. The second is that the universality of rising service-sector costs suggests that rising costs are not the result of institutional problems. The ongoing shakeout among HMOs and practice management firms is consistent with both of these conclusions. In the end, industry consolidation may have had more to do with the cost cutting than anything that the managed care plans concocted. In an article published in a recent issue of the journal Health Affairs, one economist attributed the slowdown in health care premium increases in the mid-1990s to health plan and hospital mergers that led to price competition.
Many insurers set prices well below actual costs to gain market share.
Now those same insurers are raising rates rapidly to catch up. The handicraft nature of care, and the static nature of healthcare services, means higher medical costs are an economic fact of life. As a result, if doctors are going to have anything like a stable standard of living, their services need to become more expensive. Scott Gottlieb, MD, is a former Wall Street health care analyst and a member of the CQ Editorial Board. He is a resident in Internal Medicine at Mount Sinai Hospital in New York.