The Corporate Law Group

Controlling Costs

What controls costs? That is a big question in our country today regarding healthcare. Seemingly out of control costs are bankrupting our government (which spends 50% of each healthcare dollar through Medicare and Medicaid and the VA). And if you actually pay for your own healthcare (you are “self-pay”) massive discounts are offered for coughing up money at your visit. Sadly, most physicians have entire teams of people doing nothing but prying money lose from insurance companies and Medicare.

Well, like everything else innovation is forced and costs controlled by competition; only by competition. The less competition the less incentive to control costs. Maybe “free market” should be replaced by “competitive market” as a more accurate descriptor.

Sam Walton built a half-trillion dollar annual revenue empire by cutting costs. Jeff Bezos famously said that, “Your margin is my opportunity,” referring to whatever profits others were able to eke out of their business. The one aspect of healthcare not slathered with insurance and government is LASIK. In 1998 the average price of LASIK was $2,200 per eye. Today it is $1,350. And that decline is on top of both innovations in LASIK and inflation.

Henry Hazlitt wrote a book called Economics in One Lesson in 1946. Its stories are dated and it is as dry as dust but it is also incredibly insightful. The “one lesson” Hazlitt delivers is that everything we do; everything government does as ‘one size fits all,’ produces untold unintended consequences.

We have often wondered what innovations the market would have created had United Airlines been allowed to go bankrupt after allowing its planes to be flown into buildings in 2001. Certainly no one would know who Dr. David Dao was. Similarly had GM been allowed to go bankrupt in 2008, who knows what innovative car companies would have emerged from that wreckage? Instead we got ignition switch and other quality problems. How about education? We spend more and more for calculably worse results.

Want decreasing costs? Introduce competition. Without it, it’s all guesswork, eggheads, self-proclaimed ‘experts,’ and ivory towers.