Email of the day on the cost of healthcare
Comment of the Day

January 06 2014

Commentary by Eoin Treacy

Email of the day on the cost of healthcare

I was unaware you had moved to the US and in particular the West Coast.  I assume this allows a better lifestyle while preparing end of the day US financial market reports.

The "Gate Keepers" to the US medical system is in theory the big US medical services insurers.   This role as Gate Keeper is rather misguided since as a insurance company these public companies are really only concerned about their combined ratio.  That is premium income plus investment income less claims and overhead cost.  

Medical insurers are also essentially indifferent about picking a fight with the powerful medical services providers like the AMA.  The AMA is an industrial union by any definition they have a great deal of political clout and well financed public relations departments.   Any public slanging match between a service provider and a big insurer would not look good for either party.   Also for the insurers it?¡¥s very difficult to claim the service charge for any medical procedure is plainly excessive.

Since I have a son in a very senior role in corporate medicine we often have long discussions over the dinner table if there are adequate competitive forces within the medical services system.  That is competitive forces that don't quash either innovation or patient care.   Frankly nobody appears to have yet come up with a good solution to this problem.  

I do recognize many doctors provide excellent care and support to their patients.  I see it as pointless to question anyone's integrity or values in the whole medical care process.  Any solution to dealing with the spiralling cost of all medical services would surely require all parties to participate in the hope of a fair and lasting outcome.  

?See you soon in Sydney.

Eoin Treacy's view

Thank you for this informative email. Both you and your son were lively contributors to discussions at our last Sydney seminar in 2011 and I look forward to your participation at next month's seminar and additional Strategy Session. Now in its 45th year The Chart Seminar has become, for some, a transgenerational event as highly successful parents seek to enhance their children's financial markets and crowd psychology education. 

Yes, I've always been an early riser so moving to the West Coast of the USA has allowed me to make more efficient use of my day. An additional reason for moving is that I believe that while the USA has a number of challenges ahead (what country doesn?¡¥t?) that it is a great place to live, work, raise a family and is likely to be among the greatest beneficiaries of the technological innovation. 

Discussions on health insurance tend to get emotional because it is so difficult to come to a value judgement. Individual perceptions of the quality of care provided can differ considerably even when dealing with an individual physician, so when one begins to talk about a hospital, therapy or course of treatment there is a ample room for disagreement. The size of the industry as you point out has resulted in a substantial number of groups with vested interests in sustaining the status quo. 

However everyone can agree that the cost of healthcare has increased and that as populations' age, the cost of treatment, on aggregate, is likely to continue to trend higher without some form of disruptive influence. If we look at the cost of healthcare as a whole, two major sources of inefficiency appear to stand out. The first, at least to my eye, is the cost of malpractice insurance which is passed on to patients through higher premiums. Reform of tort law in this case would remove a considerable number of obstacles to lower costs. 

The second is the fact that diagnosis is still very much dependent on human interaction. A human being is presented with facts and makes an interpretation. In an ideal situation, a human asks the right questions, gets the right answers, comes up with the correct diagnosis, the patient responds well to the prescribed treatment and recovers. Despite huge advancements in treatment, healthcare remains one of the most labour intensive industries. It would seem that if costs are to be reduced meaningfully, the reliance on human interpretation of facts and human labour in provision of care will need to change meaningfully. The application of innovative technology will eventually ensure that when humans are relied upon, that their performance is enhanced through more accurate diagnostic tools or that the diagnosis is supported by comprehensive data. 

IBM's Watson super computer is increasingly being devoted to attempting to solve these types of problems and may offer a window to the future of medicine. Here is a link to IBM's discussion of the subject. 

IBM trended lower for much of last year but rallied last week to break the progression of lower rally highs and to test the region of the 200-day MA. It will need to sustain a move above the MA to confirm a return to demand dominance beyond the short term. 

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