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Competition, innovation and the Sorceror's Apprentice
Written by Jeffrey R. Waggoner, MD   

In the heated debate over how American health care should be reformed, the inadequacies of a system such as Great Britain’s NHS are often used as proof of the failure of a national health care system. The risk of such reasoning is that it fails to define the cause for those inadequacies.

In a system of supply and demand, efficiency is contingent upon innovation by the supply side. Innovation is driven by competition.

For example, when the demand side, i.e. consumers, made it clear that they really wanted their own personal computers, within two decades the supply side had innovated, cutting cost, increasing computing power and running out cheap, powerful, and eventually ubiquitous desktops. When the demand side suggested that it would like having a computer that could be carried around, the supply side panted a couple of times, then it geared up and kaboom—behold a laptop.

In health care, the supply side is comprised of doctors, hospitals, physical therapists—those who deliver the service of caring for patients. For 60 years Great Britain’s supply side has not had to compete. Rewards accrued regardless of how medical services were delivered. Without competition, innovation was regarded with a yawn and a nod of the head.

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Thus, even in the controlled environment of a closed HMO of national proportions, health care costs rose throughout the NHS, and quality remained average or worse. Cost and efficiency are best served when the supply side is beating its brains out competing amongst its various components in an effort to gain either an increased market share or an increased price for each unit of products or services.

The supply side must be driven by competition.

But the demand side must be driven by rational decisions. The “wisdom of the market” is comprised of a sum of the decisions of rational consumers. In the example of computers, that wisdom determined what the cost of a computer should be in order that a significant number of consumers would buy one.

There is no “wisdom of the market” with regard to health care. Consumers, i.e. patients, are not wise. They are frightened, sick, and confused. That’s what happens to human beings when they are sick or injured. Patients are irrational consumers, and no amount of arm bending, medical websites, or cajoling on the behalf of medical economists is going to change that.

I would suggest that the medical economists who are also parents are just as irrational when their children are ill as any other human being.

Great Britain’s NHS lacks the competition that drives innovation. As a consequence it is greatly inefficient. America’s unfettered free market lacks the rational “market wisdom” necessary for a demand side to direct the competition of the supply side. Patients are by definition irrational. There is no market wisdom in a health care system run according to the tenets of an unfettered free market. The supply side competes for profit alone, unfettered by any restraints.

History has made it quite clear that supply and demand works better than any other economic system ever devised. For it to work its magic, however, it needs the demand driven wizardry of rational decisions. Without that wizardry, the supply side is like the brooms in The Sorcerer’s Apprentice—ever increasing and dumping more and more resources into an already overflowing well until all America is about to drown in health care costs.

About the Author

J.R. Waggoner, M.D. practiced family medicine for thirty years in Aurora, Colorado. He also worked as a consultant and herded cats as the managing general partner of a general partnership of physicians. Three years ago, he left his practice to study health care policy and write. During his time away from clinical work, he has written two books and worked as a Senior Clinical Content Specialist and freelance writer.

His current book Medical Metamorphosis: The three step cure for America's health care crisis is available at 

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