A good point, sort of...

I love reading Marginal Revolutions. They always discuss interesting things in interesting ways. Today Alex has a description of medical costs not spiraling out of control:

Laser eye surgery has the highest patient satisfaction ratings of any surgery, it has been performed more than 3 million times in the past decade, it is new, it is high-tech, it has gotten better over time and... laser eye surgery has fallen in price. In 1998 the average price of laser eye surgery was about $2200 per eye. Today the average price is $1350, that's a decline of 38 percent in nominal terms and slightly more than that after taking into account inflation.

Why the price decline in this market and not others? Could it have something to do with the fact that laser eye surgery is not covered by insurance, not covered by Medicaid or Medicare, and not heavily regulated? Laser eye surgery is one of the few health procedures sold in a free market with price advertising, competition and consumer driven purchases. I'm seeing things more clearly already.

Of course he is a little carried away there. One reason prices are low is because laser eye surgery can be deferred, and you can shop around on the basis of quality and price. This isn't easily available to people having a heart attack, though it is available for long term or maintenance issues. It is worth noting that laser eye surgery has been steadily improving over the last few years. So as the price goes down and quality goes up, the overall value of the surgery becomes a better buy than even the declining price would show. His basic point remains--people are getting more for less in one of the few health care markets which is open to free competition. Maybe the post should entitled: "Good Point, to consider talking more about..."

Comments

[Urinated State of America (aka Tom)]

"Laser eye surgery has the highest patient satisfaction ratings of any surgery, it has been performed more than 3 million times in the past decade, it is new, it is high-tech, it has gotten better over time and... laser eye surgery has fallen in price."

The emphatic here being "high-tech". I had an MBA classmate, ex-Zeiss, who worked for a laser surgery company, so I can give a stab at an answer.

The medical laser machinery was on a learning curve, so the capital cost of the machines, which was a major component of the cost. Plus the procedure was supplanting radial keratomies, which were more labour-intensive and needed more follow-up care. (Also, you've got the drop in nominal costs as older equipment gets depreciated.)

But you're delusional if you think that this specialized case would indicate the potential to drop the cost of, say, obstetric care. It's an elective surgery, highly mechanizable, and the mechanizable aspect of it drops the specialized training needed.

One case you might look at is the Kaiser HMO in California, who have been able to keep premiums done by more tightly integrating their operations and using information systems to improve patient care and reduce patient visits for routine problems. However, Kaiser looks a lot more like other countries socialized medicine than the typical US provider.

PS. I had the opportunity of having a scalpel-based radial keratomy for free in Moscow almost fifteen years ago. Boy am I glad I declined. I still wouldn't have laser eye surgery for another ten years, or until I personally know an opthalmogist who's had it done to their own eyes. I'm not that in a hurry to be able to see the alarm clock first thing in the morning.

[ScottM]

Agreed. I had the same thought when I read it (well, the same snapshot, though the heart-attack angle didn't occur to me). I wonder which other health markets share the traits you mention above... routine checkups, long-term care (sometimes). It's a good discussion to start.

[cleek]

the majority of cosmetic surgery is probably not covered by insurance, breast enhancement, etc.. (it's not covered by my insurance, anyway). so there should be competition there, no? anyone have the numbers?

[Nat]

On a labor cost per hour basis getting an eye job is very expensive. Although a bargain for the consumer, this process is still very profitable for the physician because of the high volume and high quality automation cited above. There are competing high tech gizmos driving the market as well that has lowered licensing costs.

It is tough to imagine another such medical procedure that has that sort of technical bang for the buck that can support the high volume of procedures at relatively low risk. Lots of cosmetic surgery is risky and labor intensive. My softball induced rhinoplasty was long on hammers and chisels and short on CAD/CAM. Arthroscopic knee surgery might have produced a similar fall in price due to technology, relatively high volume and diminished risk.

[Blar]

The price per laser eye surgery is going down, but the procedure is becoming much more common, so isn't the total amount spent on laser eye surgery going up? And, assuming that laser eye surgery is generally not replacing some more expensive procedure, then isn't the laser technology causing the total cost of eye care to go up?

If we keep coming up with new technologies and they keep becoming more popular, then the costs of medicine can spiral upwards even if each individual technology becomes more efficient over time.

[Catsy]

The cost of eye care isn't really going up--not if you think of glasses/contacts as "renting" good eyesight, and laser surgery as a one-time cost for buying it. A $2700 procedure is replacing eyeglasses: consider how much a modestly nearsighted individual will spend on eye exams and glasses/contacts over their lifetime, and it's actually a pretty good deal.

[liberal japonicus]

The economics of eye care is pretty fascinating. Here in Japan, they have machines that measure refraction and gives the data needed to grind the lenses for a pair of glasses. In the US and Canada, these machines can only be used by a trained optician. (This page discusses an attempt in Brit Columbia to circumvent this.) Result is that glasses are much more expensive in the US and Canada than in Japan. I believe this lower cost here(though there may be possible cultural concerns that I'm not aware of) has prevented laser eye surgery from finding a market here in Japan.

[felixrayman]

A $2700 procedure is replacing eyeglasses: consider how much a modestly nearsighted individual will spend on eye exams and glasses/contacts over their lifetime, and it's actually a pretty good deal.

No, it's not.

The average nearsighted individual will not spend $270 a year on glasses/contacts - nowhere close to it. How many years does the average 4-eyed person wear the same pair of glasses? 5? 10? The cost for that is less than the return of $2700 invested well, no doubt.

[platosearwax]

In the 20 years I have worn glasses I have had 6 pairs. More often in the early years as my prescription changed a bit. Only 2 pairs in the last 10.

[tzs]

I find the above comments about LASIK not being prevalent in Japan amusing because I did, in fact, have my LASIK done there. I paid roughly $2200/eye and was extremely satisfied with the preparation, operation, and followup. I think what has been keeping LASIK from being more prevalent in Japan is a) the ease at getting contact lenses and b) the extra time it takes for US medical technology to become certified for use in Japan. (In fact, the doctor who operated on me used me as a demonstration model for his class of medical students when it came to checking the healing. I would expect to see more LASIK in Japan in coming years.)

LASIK is best used on people like me, with uncorrected vision of 20/200 or worse. Since the level of correction can drift a bit you're never quite sure what the final result will be 2-3 years after having the surgery. And it is surgery, never mistake that. I worry about the "clinics" I see here in the US advertising $500/eye or less. It's like going to a cut-rate plastic surgeon.

[Randy Paul]

Lasik surgery is tax deductible and reimbursible under flexible spending programs such as M-Flex that some employers offer.

[John Thullen]

In this season of giving thanks, I want to give thanks to Sebastian for qualifying Marginal Revolutions' slightly monolithic, tendentious point by raising the possibility that there are different sorts of commodities subject to different sorts of market pressures.

This is what I enjoy about Obsidian Wings. It's not just a shouting match between Ayn Rand and Vladimir Lenin.

"Shopping" for cheeseburgers is different than "shopping" for laser eye surgery is different than "shopping" for emergency liver cancer surgery.

By the way, didn't the horrific Stalinist meddlers at the F.D.A. have something to do with making sure laser surgery is a pretty safe technique? ... he shouted.

[trilobite]

Dern commies! In the land of the free-market in lasered eyeballs, the one-eyed man is king, and that's how it oughtta be!

[trilobite]

Before I get tossed off the blog, let me reassure y'all that my tongue was so firmly in cheeck as to be sticking out my ear.

[liberal japonicus]

I find the above comments about LASIK not being prevalent in Japan amusing because I did, in fact, have my LASIK done there. I paid roughly $2200/eye and was extremely satisfied with the preparation, operation, and followup. I think what has been keeping LASIK from being more prevalent in Japan is a) the ease at getting contact lenses and b) the extra time it takes for US medical technology to become certified for use in Japan. (In fact, the doctor who operated on me used me as a demonstration model for his class of medical students when it came to checking the healing. I would expect to see more LASIK in Japan in coming years.)

I'm not sure how to take the 'amusing' there. I was in Australia a while ago and there were places to do laser eye surgery in the mall. I live in Southern Japan, and I haven't met any Japanese who've had it done, nor have I found any places to do it here (though I haven't been looking). Unfortunately, a lot of people think that Tokyo is Japan. It ain't.

About ease of getting contact lenses, if you get your prescription in the states, you can order your lenses on the internet, which is what my wife does if the yen is strong.

I also (as I tried to obliquely mention in my previous post) that there might be some cultural hesitancy in getting the surgery as it appears to be a 'vanity' surgery. Japanese seem to be very embarrassed to reveal that they have undergone cosmetic surgery (and there have been a spate of shows showing how common such surgery is in Korea, which is either a cultural difference or part of an organized campaign trying to get Japanese to give it a try)

[Hal]

Hmmm. At my last company, I distinctly remember sitting with the fine people we had hired to do our health benefits packages. We had just seen a double digit increase in our employee's coverage costs, and the next few years would see similar increases.

What is happening was that more and more people were being shuffled into lower quality plans and less and less were able to afford the high quality plans. Eventually, the fine gentleman who handled such things for us said, the high end plans were simply going to vanish.

So we have a situation where people are being pushed into plans that do less and less and still cost them more.

Who the heck cares how much laser surgery costs drop when the cost of just having a baby is getting higher and higher?

I do find this worship of technology amusing, though. Most of medicine is man-power costs, not technology. Highly skilled people are never cheap, and the one resource that has consistently gotten more expensive over recorded history is the cost of people. And people are simply not going to be replaced by robots any time soon.

[Urinated State of America (aka Tom)]

" In the US and Canada, these machines can only be used by a trained optician. (This page discusses an attempt in Brit Columbia to circumvent this.) Result is that glasses are much more expensive in the US and Canada than in Japan."

Naw, there's more going on than this. Glasses are much cheaper in the UK than in the US (about 80% more expensive in the US), but glass perscriptions can still only be given by an optician [optometrist in US parlance].

"What is happening was that more and more people were being shuffled into lower quality plans and less and less were able to afford the high quality plans. Eventually, the fine gentleman who handled such things for us said, the high end plans were simply going to vanish."

On a related topic: I used to have Kaiser as my healthcare provider. However, Kaiser is a regional, not a national, healthcare provider. The company I work for was acquired by a nation-wide company. The company gets told by the national healthcare plans that they'll refuse to bid *at all* if Kaiser was in the bidding. So the company has to drop Kaiser, even though Kaiser is cheaper for California employees, as the company had to have be able to give health benefits on a nation-wide basis.

[liberal japonicus]

Naw, there's more going on than this. Glasses are much cheaper in the UK than in the US (about 80% more expensive in the US), but glass perscriptions can still only be given by an optician [optometrist in US parlance].

That's because of National Health, I think, though that has probably been cut back (voucherized IIRC?) I also think this means that the base cost is set, though I'm not sure.

There's also a difference in the US between optometrist and optician, given here

There also seems to be a difference in the UK, described here but it may be a new distinction that attempts to replicate US usage

[radish]

Only slightly off topic, Florida enacts a medmal three strikes law.

I have pretty mixed feelings about this, because it enforces by fiat a weeding process which I think would be much better guided by the "invisible hand." But since doctors and insurance companies aren't exposed to normal market forces anyway, combining this with a reduction in percentage of awards that are available for legal fees makes for an absolutely fascinating experiment.

[Sebastian Holsclaw]

The Florida case will make large settlements even for plaintiff cases which are almost certainly losers even more inevitable than now. This will increase medical malpractice insurance costs which will be passed on to consumers. Defending against suits requires an iron-clad paper trail, which will also be a cost passed on to consumers. Florida also has a larger number of old people--who are likely to have bad medical outcomes even with good treatment. These will still make for quite a few malpractice cases, which under other systems would have been taken to trial, but which now are far less likely to end up in something other than a large settlement.

It isn't going to be pretty. But this is what I love about federalism. We don't have to have bad ideas like this ruin medicine in the whole nation.

[felixrayman]

Florida also has a larger number of old people

Yes, and they voted for the amendment, for some odd reason. Perhaps they are all senile? No? Must be something else...

And you bring up the old canard about the costs of malpractice insurance. Tell me, what is the total cost of malpractice insurance as a percentage of health care costs? Isn't it less than 1%? Hasn't it been less than 1% for decades, and hasn't it in fact dropped significantly over the last few decades? Why yes it has.

Is it possible that the residents of Florida are quite aware of the arguments, and are willing to trade an increase in the cost of malpractice insurance premiums of say 0.6% of health care costs (2002 numbers) to perhaps 0.8% of health care costs (SWAG) for a reduced incidence of medical malpractice? I think that is a distinct possibility, can you rule it out?

And do you have any suggestions, under the current health care system, of ways that the residents of Florida could, more cheaply, reduce the incidence of medical malpractice? Given the demographics of Florida, it makes sense that this is their goal and that they would be willing to pay to achieve it.

But I take note of your doomsday predictions. Costs of medical malpractice insurance may well explode, ruining medicine in Florida. Forever. I mean if the cost of malpractice insurance doubles, a $100.00 X-ray will cost...let's see...$100.60. Who will be laughing then?

[Bernard Yomtov]

This strikes me, so to speak, as a silly law. Backwards induction suggests that the impact on the number of physicians in Florida might be greater than expected.

A doctor with two adverse judgments cannot afford to go to trial, so must settle virtually all claims. This is a pretty strong incentive to go elsewhere once the second case is lost. So you are under pressure to settle even if you only have one judgment, etc.

Certainly chronic malpractitioners should be booted, but this doesn't seem like a sensible way to do it.

[lacordaire]

My grain of salt: I got a Lasik eye-surgery 8 years ago in Paris in a Top-notch public hospital (les Quinze-Vingt) for less than 500$/eye (worst case! maybe for half of that, I can remember the sum but not if for one or both eyes).

I would have pay about twice as much by a private medical practice.
I believe the price went down in France too since. But it has a socialist health-care system, beyond liberal, it can't be taken in consideration for an economic analysis.