Saturday, November 12, 2005

Good Thinking from the Newt!

There is an interesting exposition of a correct Smithian response to a real world situation in today’s Washington Post from a notable conservative. He at least understands Adam Smith’s legacy and refrains from the usual distortion we have come to expect from this quarter on matters pertaining to markets.

The problem is the growth of speciality hospitals in the USA. These specialize in certain procedures (heart disease, for instance), treat the ‘easy’ cases, but pass on ‘difficult’ cases to local Community Hospitals. This boosts individual doctors’ incomes and hospital profits but burdens those landed with the ‘awkward’ cases with greater expense without compensatory incomes from easier cases.

“A Health Threat We're Not Treating: Don't Let Doctors Rig the Market for Specialty Hospitals by Newt Gingrich, Washington Post (12 November 2005).

“The greatest dangers arise when doctors have a direct financial interest in a specialty hospital. It's just human nature for them to increase their own income by the simple act of giving the specialty hospital -- with which they are associated and from which they draw compensation -- all the easy and inexpensive cases, while sending everything risky and expensive to the larger community hospital. It's not hard to see the financial damage this could do to community hospitals

As a free-market conservative I strongly favor competition. In fact, I think Adam Smith's description of markets creating more choices of higher quality at lower cost was one of the great breakthroughs in human productivity. His publication of "The Wealth of Nations" in 1776 was as liberating as our own Declaration of Independence the same year.

Yet Smith recognized that sellers often try to create phony markets. He warned that when businesses get together they are often conspiring against the consumer. Businesses can see a financial interest in rigging the market so that it minimizes competition or sets prices. This same temptation to conspire against the consumer can be found in the emerging specialty hospital movement.

Congress should act now to protect our health system by establishing the right rules for fair competition.”


I agree with Newt Gingrich's approach (I thank him for not relying on the usual false attribution of laissez faire to Adam Smith; an approach worth copying by other conservatives) though I cannot comment on his remedy (Congress establishes rules for 'fair competition') until I see the details of what he proposes.

Separating doctors as employees from rights to ownership in an enterprise appears to me to be difficult to legislate about without causing problems of supervision, legal oversights and unfair penalties. However, the problem should be addressed, though it is probably present in other sectors too. Worth watching, in my view.

[Newt Gingrich, is a former Republican representative from Georgia and speaker of the House. He is the founder of the Center for Health Transformation.]


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