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Sunday, January 31, 2010

Haiti aid- Ramblings regarding planning, healthcare pricing, allocation, and distribution

In today's paper, there was a story about the state of Florida saying "uncle" regarding further transfer of injured Haitians to Florida hospitals. Obviously this was met with dismay from the legions of volunteers in Haiti who are committing their time and effort in an heroic effort to save as many lives as possible. However, trauma care in the US is a contracting resource and there is every reason to believe that the Haitian crisis has saturated the Florida system, putting them in a position which could be completely anticipated; that is it was not whether if they had to say no but in fact when they had to put the brakes on how many patients they can care for.

Trauma care in the country is one of the major areas which has been crippled by administrative pricing structures and unwise regulatory incursions. These are well delineated in a 2004 document published by the National Foundation for Trauma Care.

The bottom line is that trauma care loses money and that financial losses will lead to continued closing of trauma centers. It is completely unrealistic to believe that any planning efforts related to natural or man made (e.g. terror) catastrophes can be dealt with if the main bottleneck is the capacity to handle injured or sick people.

Trauma care loses money because of a variety of issues including the impact of uninsured patients. However an additional factor is the administrative pricing structure of payments. In particular, it the inappropriately low reimbursement from public insurers (Medicare and Medicaid) which is sinking trauma centers. Even if all the uninsured were covered by public insurance, trauma care would still be a money loser.

 In order to avoid stinting of an already scarce resource, the Federal government created EMTALA. Unfortunately the unintended consequence of EMTALA is to further disincentivize hospitals from providing trauma care. When services lose lots of  money, the business case for discontinuing such services becomes overwhelmingly compelling. Business entities which sustain losses for extended periods have one thing in common. They cease to exist.

I often hear arguments that we live in such a wealth country that there should be no poverty or want. This mindset focuses on the allocation aspect as a determinant of wealth or poverty. Haiti should stand as a stark example that allocation is only a small piece to the "why are people/places rich or poor" question. The major piece is creation of the resources which determine wealth.  We are no in a position to offer unlimited trauma hospital resources to the injured in Haiti because those resources have not been created and even if they had been created in the past, we have created economic incentives to dismantle them.

The lesson is you cannot allocate what has not been created and that which is valued at less than the costs of production does not get created.  At the heart of this problem is the information transmitted by an administrative pricing structure which predictably undervalues some things and has no reliable mechanism for self correction. You cannot centrally predict which specific things will be undervalued and the shortages that will result, only that many things will be priced wrong. You cannot legislate critical resources into existence although it appears that you can readily legislate them out of existence. It is inherently easier to destroy things than to build them.

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