Darn Those Stubborn Market Failures

Queues in Massachusetts! A fascinating article [$] in today’s Wall Street Journal reveals that Massachusetts residents wait an average of seven weeks for an appointment with a primary-care physician. The queues apparantly have nothing to do with the new Massachusetts health plan – aside from illustrating that a paper guarantee of “health coverage” does not necessarily translate into health care:

“Health reform won’t mean anything for the state’s poor if they can’t get a doctor’s appointment,” says Elmer Freeman, director of the Center for Community Health, Education, Research and Service in Boston…

“Health-care coverage without access is meaningless,” Gov. Deval Patrick said in March…

“I thought insurance was supposed to be some kind of great thing, but it hasn’t changed” anything, [newly insured hairdresser Tamar Lewis] says.

No, the big question that article raises is, why is the market not resolving the shortage of primary-care physicians?

One hint can be found in the first two sentences of the article:

“Tamar Lewis runs a makeshift hair salon out of her one-bedroom apartment in Roxbury, a low-income neighborhood [in Boston]. She’s 24 years old and has been cutting hair since she dropped out of high school in 2002.”

There’s a good chance that Ms. Lewis is breaking the law. Massachusetts requires hairdressers – yes, hairdressers – to be licensed by the government. Asipiring hairdressers must (a) complete “a course of at least six months, which course must have included 1000 hours of professional training in a cosmetology school approved by the Board,” (b) pass an examination, and (c) pay a fee before they may become an apprentice hairdresser. After completing two years as an apprentice, the aspiring hairdresser must pass another exam and pay another fee to become a licensed hairdresser. Licensing a salon requires paying a fee, having an approved floor plan, and other restrictions that make it unlikely that Ms. Lewis’ salon is up to code. In all likelihood, the enlightened Commonwealth of Massachusetts could nail young Ms. Lewis for cutting people’s hair without a license, operating an unlicensed salon, and employing an unlicensed hairdresser (herself).

Too subtle? Another, much bigger hint can be found in an oped titled “Our Soviet Health System” [$] that the Wall Street Journal ran last month:

The limited number of endocrine specialists is a not a consequence of limited demand – everyone is aware of the epidemic of diabetes we are facing. There are also shortages of generalists and other specialists, and the reason is the absence of market signals – i.e., market-based prices – for influencing the supply of physicians in various specialties…

The essential problem is this. The pricing of medical care in this country is either directly or indirectly dictated by Medicare; and Medicare uses an administrative formula which calculates “appropriate” prices based upon imperfect estimates and fudge factors. Rather than independently calculate prices, private insurers in this country almost universally use Medicare prices as a framework to negotiate payments, generally setting payments for services as a percentage of the Medicare fee structure.

Many if not most administratively determined prices fail to take into consideration supply and demand. Unlike prices set on the market, errors are not self-correcting. That is why, despite an expanding cohort of patients with diabetes, thyroid disease and other endocrine disorders, the number of people entering this field is actually dropping. Young physicians are accurately reading inappropriate price signals.

Darn those stubborn market failures.