Does free market-based medicine save consumers money?

Down here in Oklahoma we have a relative new medical business called the Surgery Center of Oklahoma. This medical store is different from most other business of medicine in that it operates on the principles of the Free Market.

The Surgery Center of Oklahoma does not accept Medicaid or Medicare but will accept private insurance or cash. Because they do not accept Medicaid or Medicare, the government regulations that do not allow the posting of prices on-line do not apply them. This means that customers can check the cost that their Doctor/Hospital charges against the Surgery Center cost. The Surgery Center makes the offer to beat the price of any competitor and thus guarantee the lowest price possible to the consumer. Sounds sort of like the commercials for the furniture stores down on Reno Avenue in Oklahoma City. “Come on down and we will save you a bunch of money.”

Oklahoma County (the county where Oklahoma City is located) switched its medical service to the Surgery Center this year and is saving the county government a lot of money. According to Jon Wilkerson, director of county human resources, “At a conservative level…it looks like we will save about $1.3 million over 12 months”.

Here are a few facts.

Integris Baptist Medical Center, a nearby local hospital in OKC, charges more than $33,000 for a “complex bilateral sinus procedure.” When the same surgeon performs the same surgery at the Surgery Center the total cost is a bit less than $6,000. One of the ways that the prices are made lower is that the Surgery Center has no administrative employees. The head nurse is responsible for human resources and building maintenance. Over at Integris there are 18 administrative employees that receive an average of $413,000 in compensation (this number comes from their 990 not-for-profit tax form).

Over at the Oklahoma University Medical Center the cost for an ankle arthroscopy is just under $24,000 while the same procedure at the Surgery Center under $4,000.

And if you think this is some back room, fly by night operation the Surgery Center is a state-of-the-art multi-specialty facility owned and operated by about 40 of the top surgeons and anesthesiologist in central Oklahoma. It has been accredited by the AAAHC since 1998.

Dr. Steven Lantier, one of the founders of the Surgery Center, stated that “When we first started we thought we were about half the price of the hospitals...Then we found out we’re less than half price. Then we find out we’re a sixth to an eighth of what their prices are.”

This is just an example of what happens when the market-based, low overhead, consumer driven economy is allowed to work. When third-party payments are made and are not transparent to the consumer the costs will tend to escalate over time because the economic incentives [to make more money] are all on the side of the supplier and there are no economic incentives [to save money] for the customer.

Jerry

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Extricating the World's Economies from this Mess!

"Economists are at this moment called upon to say how to extricate the free world from the serious threat of accelerating inflation which, it must be admitted, has been brought about by policies which the majority of economists recommended and even urged governments to pursue. We have indeed at the moment little cause for pride: as a profession we have made a mess of things.

It seems to me that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences – an attempt which in our field may lead to outright error. It is an approach which has come to be described as the “scientistic” attitude – an attitude which, as I defined it some thirty years ago, “is decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed."

– Friedrich Hayek, from the introduction to his Nobel Prize acceptance speech in 1974

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The Export-Import Bank Saves Small American Business - NOT!

Here is some more data about who the Export-Import Bank "helps". This data is from 2007 U.S. Census and from the Export-Import Bank...there may be some newer numbers out there somewhere but I have not found them yet.

There is a total of 69,676,837 small business jobs in the U.S. of which the Export-Import Bank claims to "support" 205,371 jobs [that is .29% of all American jobs]

There is a total of 6,723,226 small business firms in the U.S. of which the Export-Import Bank claims to support 2,390 [0.04% of all U.S.firms.]

The Small Business Administration and most federal/state agencies define a small business as having less than 500 employees but the Export-Import Bank has a different definition (can you imagine why?). The Bank calls small business those with less than 1,500 employees.

So much for the Export-Import Bank supporters claim that the Bank must be subsidized with taxpayer money for the good of small business in the U.S. Most of these supporters [politicians] receive substantial campaign support from big businesses such as General Electric, Caterpillar, and Boeing.

I am not sure about you, but I don't think that these three companies need the Federal government to loan money to companies in other nations to buy products from these companies. To me this is just a way to subsidize these companies by using a third party to transfer taxpayer money into the hands of these companies.

As far as the economic lesson we should learn from this it is that when the government subsidizes one company and not another company (picks winners and losers) then competition is stifled and the Free Market, such as it is, suffers and when the Free Market suffers, consumers suffer. Government intervention which reduces competition causes a net loss to society not only in monetary terms but also in the development of increased efficiencies.

Jerry

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Luck matters - even if you are Jerry Seinfeld

When the Seinfeld show debuted, it was called "The Seinfeld Chronicles" and NBC was so unenthusiastic about it that the network gave the creators just a four-episode order. Most new pilots at the time got at least a 13-episode order. If the show doesn't perform out of the gates, that order is reduced or the show is canceled. Jerry Seinfeld still has that letter from NBC with the four-episode order. It hangs on his wall ... probably next to all the awards the show won in its nine years on the air.

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The Hockey Stick and the Industrial Revolution

Can we talk about the Hockey Stick? No, not the one that showed that Global Warming is going to cause the planet to become uninhabitable. The Hockey Stick I want to talk about can actually be proven by the numbers to, in fact, be true.

Before the Industrial Revolution the life expectancy of the average person was about 30 years and one in four children would die before the age of five. Today, in the U.S. we can expect to live to be around 80 and the death of a child in the developed nations is about 1 in 200.

Now if you put that information on a graph you will get, you guessed it, a hockey stick with the upturn of the blade starting about 1800. Before the industrial Revolution the life of the average person was not improving. Living standards had stagnated for centuries. 90% of the population worked on the farm producing food and that production was not enough, except in the occasional good year, to feed the entire population. There was mass starvation and disease. Mass poverty was the norm. Few owned more than the "rags" on their back and most were lucky to see a meal that included meat of any kind more than a few times a year.

The Industrial Revolution changed that. Families that were scratching a living out of the ground and living only a bit above the starvation level found that they could move to the city and make enough money in the factories to feed their family and rent a hovel in town which was better than the hovel where they had lived on the farm. The family also found that their children, for the most part, did not have to work full time and so could gain some education thereby improving their lot in life. Was it better than what they had before? Yes, and with each generation their life became better and they lived longer and had more 'stuff'.

So if you graph the living standard for human history you will see that you have an almost flat line until the 1800's but since then the graph has a very dramatic upward slope. A true "Hockey Stick."

Now when you hear folks complaining about how greedy and bad business folks are just consider how far the human race has come in the last 200 years.....

Jerry

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US Exports more than One Million Autos

I have just been reading that the U.S. exported more than 1,000,000 cars in 2012 and last year (2013) it topped that with a 13% increase. In 2009 the U.S. exported only 455,700 vehicles.

What makes this of economic interest, aside from the boost to our economy, is the company that is exporting the most cars. It's not GM, Ford Chrysler.  It's not Toyota or Honda. The company that exports the most cars from the U.S. is BMW. They are sending U.S. made cars/SUVs to more than 140 countries from one plant in Spartanburg, South Carolina. This plant exports more vehicles to other countries than all automotive plants in the state of Michigan.

Now BMW is going to increase their capacity in Spartanburg by 50% (300,000 to 450,000) in the next few years. BMW will have put $7.3 billion into the Spartanburg plant when it is completed in 2016.

The reason that BMW is making more vehicles is that American auto workers (at least in South Carolina) are about 47% cheaper than their brothers in Germany and because of growing energy cost and tightening labor rules in Germany.

Jerry

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Jitneys were the Uber and Lyft Services 100 Years Ago

New news on the ride-sharing front. Uber, Lyft, and Sidecare are all making money and cutting into the commercial taxi trade (where government intervention is not attempting to shut them down). Good news for Mr., Mrs., and Miss consumer......but.....

In Washington D.C. the city council is proposing a new city rule that will require ride-sharing serves to charge at least five times what taxis charge. If you read the proposal it is very clear in its aim to make sure that ride-sharing businesses pose no competitive threat to the taxi business. So far the proposal has failed because of a ground swell of consumer opposition. (Seems to me someone once said "Eternal vigilance is the price of liberty" or something like that)

Chicago has passed rules for ride-sharing and here are just a few of them: Expensive licensing requirements, expensive liability insurance requirements, and prohibitions on pickups made at any airports.

Down in Miami all ride-sharing companies have been banned and the city is using police sting operations to catch Lyft drivers.

Well, looks like "crony socialism" is alive and well. The established businesses are using government to crack down on competition from these new, innovative, young whippersnappers who think that just because we have a free market in this country that they can jump in and start a new business anywhere they want. (I say "free market" with my tongue planted firmly in my cheek.)

Now least you think that this is something new for business and government to work together to scratch each others backs let me tell you about the 'jitney' services. You may not be old enough to remember "jitney" because it happened 100 years ago (1914 to be exact) and heck even I am not that old.

Well, back in July of 1914 in Los Angeles a man by the name of L.P. Draper picked up a passenger in his Ford Model T and drove him a short distance. He accepted a nickel because that was the streetcar fare at the time. That nickel was referred to as a "jitney nickel". By 1915 this spontaneous movement had spread from L.A. to Main. It was operating in 175 cities and it is estimated that 62,000 jitneys were in service. Most of the jitney drivers were unemployed and this allowed them to use their T-model to make money while looking for a "real" job.

Can you guess what happened next? No. Well here is the punch line. Opposition came from: business interests that did not like the increased street traffic, streetcar businesses that did not like the competition, and the cities themselves that did not like the jitney service because they relied on taxes from the private streetcar companies for revenue. Even the newspapers got into the discussion by running stories about jitney accidents and how “pestiferous” (their word, not mine) they were. Because of this outcry, government steped in (intervention) with new rules and regulations. Drivers could only drive a minimum amount of hours a day and they were not allowed to deviate from their routes to pick-up or drop-off riders. Some cities would not allow the jitney service to operate on major urban corridors or on streets serviced by streetcars. Also, in most places, drivers had to pay expensive licenses and bonding charges.

By 1918 the number of jitneys operating in the U.S. had dropped by 90% and a short time later had completely vanished from the landscape.

Well, that is one story of ride-sharing from 100 years ago. I wonder if I can find a ride-sharing story from the Roman empire where private chariots were used to give a "Lyft" to people?

Jerry

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