Obamacare and the Theory of the Firm

The fragmented nature of the U.S. healthcare system is quite anomalous. A hilarious video on YouTube makes the point well, asking what it would be like if air travel worked like healthcare.1 In this alternative world, we see an unfortunate consumer trying to book a crosscountry fl ight to Oregon. He discovers he needs to book separately with an East Coast specialist to get him to Chicago and a West Coast specialist to get him to Oregon, then book a separate baggage specialist and fuelist for each leg, all of whom bill separately and require their own paperwork, none of whom publicly post their rates, with the whole uncoordinated mess resulting in an astronomical cost to travel on a day different than when he wants to fl y. You cannot watch the video without thinking “thank heavens we do not live in that world.” But for U.S. healthcare, we do live in that world. Even the physicians who practice in a hospital are typically independent from each other and from the hospital and its nurses. If you are lucky, the hospital will have a case manager to try to coordinate all these actors, but the case manager will have a hard time getting the physicians to pay attention because they are paid separately and the hospital depends on the admitting physician for business. Outside of hospitals, the situation is even worse. The average Medicare patient sees seven doctors a year, ten if the patient has a chronic condition, and no one is paid to coordinate them. The evidence indicates, as I show in Part I, that this fragmentation raises costs and worsens health outcomes. Further, as Part II explains, the eco-