Supply vs Demand

The Health Beat has a great read on Supply vs Demand.

This is a great read and encourage anyone reading this to head over there and read it.

The basis of the argument is that supply is leading the charge of increased costs.

As I have often discussed on this blog, it is usually suppliers, not “patient demand,” that drives health care inflation. The big ticket items are not the ones patients ask for; they’re the ones companies advertise—or that doctors and hospitals tell us we need. Few chronically ill patients ask to be hospitalized; not many cry out for dialysis, or the chance to spend thousands on cancer drugs; it’s the rare person who asks if he can die in an ICU. 

Let me give you my  perspective as a  physician.

The supply story is not the whole story.

Let's imagine a closed town of 10,000.

Let's imagine that there is one hospital in town that does heart caths.  Let's imagine that in the average year  100 heart caths are done.  A utilization rate of 1 cath per 100 people.

Now, for the sake of argument, lets assume a physician owned cardiac center opens up down the street to compete with the full service hospital.  They promise a better experience.  They advertise the heck out of their hospital.

What happens? 

Patients learn of the new gig in town and think, because of the advertising, that they will get a better experience at "The new heart hospital, where dreams come true."

Now,  lets assume the patient needs a heart cath.  Do they go to the full service boring hospital,  or the hospital where dreams come true.

Let's assume they go to the Mc Dreamy hospital.

Well,  what we have here is an example of shifting market share.

Now, the heart hospital may see 50 patients a year and the full service hospital may see 50 patients a year.

This concept assumes that the total number of patients who need a heart cath  year remain constant at 100.

The supply side argument would say that when a new hospital with new services opens up,  the utilization of those services will increase regional costs.  In other words,  above and beyond the gain and loss in market share among the regional hospitals.  I would say, to some degree, this is true, as with any capitalistic venture, but I would argue, it is not the major factor.

You might get 110 caths, but you won't get 200 caths.

If you want to compare the Bush tribes of Africa and their utilization of CT scanners with the utilization of CT scans for America, one could easily make an argument that supply side drives the equation.

With out CT scans, the Bush people simply can't get one.  In the true sense, supply drives demand.  You need to have access to a CT in order to get one.

But what about ubiquitous services in America?

CT's

MRI's

Cath

Surgery

ER

Pretty much anything you can imagine is available in the high tech world of American medicine.

Everywhere

All the time.

Always.

There is no,  "we don't offer that"

Does that mean supply to technology drives the cost of care?

Well,  yes and no,  not really.

I think our unmanaged patient expectations and "standards of care" have created a culture of both patient expectation for technology, and physician expectation of technology to protect their ass.

The fact that the CT technology is ubiquitous even in the smallest of  10 bed hospitals in the middle of nowhere is proof positive that the availability of the technology has established it as the standard of care.

The easy access to CT's and the quick nature and accessibility has created an explosion in CT utilization rates.

Abdominal pain?  CT.  Headache?  CT. 

But to blame the number of CT's available as the root cause of rising costs is unfair.

Their easy access has created a standard of care mentality in the patient and physician's protect my ass practice style.    The hand had been played,  the order had been written long before the 20th, or 30th or 40th CT scanner came to town.

Imagine it like this.

If our town of 10,000 people had 1000 CT's done a year at the local hospital.  And then a new radiology group came to town and opened another CT scanner.  And the primary care office opened their own CT scanner.  And the pulmonologist opened their own CT scanner.

How many CT's would get ordered that year.  The supply argument would say, maybe 4000.  Each office would try and justify the existence and price of their technology.

They  would create market share out of thin air.

In reality, 

While some extra scans may get ordered by nature of the build it and they will come,  I believe that in general, more of a shifting market share would occur with each extra CT scanner.

Eventually, market saturation would prevail.

You see, the same 10,000 people existed when there was one CT scanner as there are with 4 CT scanners.  So instead of 1000 CT's being done at the hospital, there may now be 275 being done at each facility that owns the CT.  A little more than 1000, but not the beast of supply creating demand.

The supply is ubiquitous.  It is the standard of cover your ass care that permeates in our physician culture.  

The standard of care IS technology.  It IS heart caths and CT's and MRI's and scope.

Any doc dragged through a lawsuit on the basis of:  "Why didn't you order X".

Failure to diagnose.

Failure to diagnose leads the charge.

Look only toward the ridiculous 60 million dollar  plus Ritter lawsuit on the basis of very rare and an almost universally fatal condition.

Would a cardiologist order an extra cath because he/she owns the hospital?

Maybe,  and possible so,  but I argue that wouldn't be the driving factor, nor the major factor in out of control health care costs.  It is but a small part.  That I'm sure.  Not the supply leads the charge argument.

I would argue that, more likely,  the doc would instead order the insured patient get a cath at his/her hospital and leave the uninsured for the boring full service hospital.  A redistribution of market share.  Not the creation of market share.  The total costs to the system would remain fairly neutral and slightly elastic.

Imagine if there were 2 heart hospitals, then 3 heart hospitals, then 4 heart hospitals.  In our town of 10,000, would it be able to support 300, 400 or 500 heart caths a year, when only 100 were done with the original hospital.

The supply leads demand argument would say yes.  That every heart hospital built would create demand.

I disagree with this premise.

For any regional population,  there exists a market share.  A somewhat flexible, but fairly rigid finite medical need.  

Apply the same rational to endoscopy.  

Apply to surgeons.

There is not an unlimited supply of disease.

The population comes with a set of diseases.  

The basis of technology utilization (the supply argument) will depend more on the referral patterns of the primary care physicians, and the expectations of the patient and the mentality of the cover your ass physician culture.

If primary care utilization increases, costs go down because if you send a patient to a hammer, you get nailed.  If you send a patient to seamstress, you get sewed.  If you send a patient to a bricklayer, you get mortared.

In other words, when you send a patient to a specialist,  they get specialized.

You get technologized

You get proceduralized.

But this doesn't happen because of supply.  It happens because hammer=nail, needle=sew, brick=mortar.

That's the nature of the specialist.  That's their bread and butter.  That is their life blood.

In the purest sense of the argument where supply leads demand,  one would have to argue that the Bush men of Africa don't see cardiologists and don't get echo's because there are no cardiologists.  In this case, the lack of supply= a lack of demand.  Lack of access to supply is controlling costs.  Supply leads demand rules the day.   The lack of demand is the result of a lack of supply.

In America,  we don't lack anything.  You can't use this supply argument to blame rising costs.

The supply is already here and has established itself as the standard of care.

The supply argument walks a fine line between having a supply of something (access)  and having a too much of a supply of something.

Does the supply argument state that access to CT scans increases costs?

Or does the supply argument state that access to to many CT scans increases costs?

It's the Bush men of Africa argument.  They don't have CT's so they don't get them vs,  they have 20  CT scanners.   Is it access or to much access that drives the supply side argument.

In America, one would have to argue that because cardiologists exist, their supply is the driving force behind sky rocketing costs.

Their supply drives costs only in so much that primary care docs drive referrals to cardiologists for appropriate reasons for sure, but also because of cover your ass mentality and  patient expectations, both managed and unmanaged.

You can't blame a cardiologist for doing a heart cath on a patient with chest pain, since that's what cardiologists do.  It pays well, and that's how they cover their ass.

Lets go back to the scenario of the African Bush men.

Imagine if they had one CT scanner.  Imagine it cost the equivalent of 2 cattle to get a CT.

How many CT's do you think would be done?

Now, imagine, if the government of Bushman Nation promised to cover the cost of CT scanners.

How many CT's do you think would be done?

When you look at supply from a payment stand point, one need only wonder:

How many heart caths would be done if the government stopped paying for them.

Or only paid 1/2 their cost.

It doesn't matter if there is one cardiologist or 100 cardiologist in our town of 10,000

It doesn't matter if there is one CT scanner or 100 CT scanners in our town of 10,000

As long as somebody else is paying for the service,  it will get done.

You will get CT's up the wazoo because they are paid for.

You will get Echo's heart caths, elective cataract, knee scopes, replacements up the wazoo because they are paid for.

You will get medical care up the wazoo.

When somebody else is paying for it.

How much of it is medically necessary?

Well,  when somebody else is paying for it,  the answer will always be:  All of it.

The supply of expensive technology is met head on by the unrelenting spigot of the Medicare National Bank and all third parties, who simply pay the bill and jack up the rates the following year after year after year.

The physician, in all their education, training, expertise and compassion will never sacrifice their career and their financial well being for the good of the system.

They will not take the fall.  

Physicians are selfish like that.

As long as we continue to have a system where everyone is a potential lawsuit,  where everyone demands the best, where anything less than expensive is considered below standard of care.

Where primary care is forced to refer to specialists based on their time factor and protect their ass mentality.  

Where specialists do procedures, because that's what they do, and it pays well.

As long as we have a system that pays for all this,  essentially, without asking questions. 

We will always have demand that meets the supply head on.    What ever that supply may be.

I remember when PET scans first came out, and nobody paid for them?  I remember case after case of,  "we could do a PET scan, but Medicare won't pay for it".  Guess what,  they never got done, because they were expensive.  And few were built because none were paid for.

Now,  paid for, and ordered often.

Necessary?  Sometimes yes.  Sometimes no.

But did the supply  of PET scans drive up the costs?

I don't think so.  When they were paid for by third parties,  the demand took off.

Supply leading demand in medicine?

I don't think so.  I think supply is the result of the demand, which is a result of the open spigots of money paying for our unmanaged expectations of our medical culture.

Just another way to look at things.