Saturday, September 5, 2009

Government: Volume purchaser or monopsonist?

You just have to wonder at the Lefties in health care reform who, in calling for a Public Option (a version of which I think would be a good idea), say, “Let’s take advantage of volume purchasing.”

Volume purchasing? I can understand if you call a computer seller and say, “Hey, instead of just sending me one computer for $1,000, how about sending me 20 for $925?” It’s cheaper for them to write up one bill and send out twenty than to take 20 separate orders, so let’s share the savings.

But it’s a lot different if you say, “Hey, there is one big buyer in this market, and it’s me. So I’m offering you a 20% discount on your services. You won’t save any money, because you will still see, treat, and bill each patient individually. But since I’m the only buyer, if you don’t sign up, you are SOL.” That’s monopsony in action.

Now, it is very true that health care is rife with inefficiencies and, basically, overcharging. So if pressure and guidance are properly applied, the system should deliver better care more cheaply. But is just taking a forced discount the best way to do it? Maybe not.

There is a difference between competition that brings savings, and market power that extorts advantage. Maybe there are more sophisticated arguments and understandings that could be brought to bear, but as I see it now, the Lefties are just looking for market power, and talking about the “power for volume discounts” is disingenuous.

Budd Shenkin

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