THE JOYFUL REDUCTION OF UNCERTAINTY

Cost Disease In Medicine: The Practical Perspective

Sometimes I imagine quitting my job and declaring war on cost disease in medicine.

I would set up a practice with a name like Cheap-O Psychiatry. The corny name would be important. It would be a statement of values. It would weed out the people who would say things like “How dare you try to put a dollar value on the health of a human being!” Those people are how we got into this mess, and they would be welcome to keep dealing with the unaffordable health system they helped create. Cheap-O Psychiatry would be for everyone else.

Cheap-O Psychiatry wouldn’t have an office, because offices cost money. You would Skype, from your house to mine. It wouldn’t have a receptionist, because receptionists cost money. You would book a slot in my Google Calendar. It wouldn’t have a billing department, because billing departments cost money. You would PayPal me the cost of the appointment afterwards – or, to be really #aesthetic, use cryptocurrency.

The Cheap-O website would include a library of great resources on every subject. How To Eat Right. How To Get Good Sleep. How To Find A Good Therapist. The Cognitive Behavioral Therapy Workbook. The Meditation Relaxation Tape. But the flip side would be that Cheap-O appointments would be brutally efficient. If you had problems with sleep, I would evaluate you for any relevant diseases, give you any medications that might be indicated, then tell you to read the How To Get Good Sleep guide on the website. Boom, done. Small talk would be absolutely banned.

How little could Cheap-O charge? Suppose I wanted to earn an average psychiatrist salary of about $200K – the whole point of cost disease is that we should be able to lower prices without anyone having to take a pay cut. And suppose I work a 40 hour week, 50 weeks a year, each appointment takes 15 minutes, and 75% of my workday is patient appointments. That’s 6000 appointments per year. So to make my $200K I would need to charge about $35 per appointment. There would be a few added costs – malpractice insurance would probably run about $10K per year – but this is the best-case scenario.

$35 per appointment isn’t bad. Most existing cash-only psychiatry practices charge at least $150 per (thirty minute) appointment, so we would be less than a quarter of the going rate. I think a lot of insurances charge a $40 copay per psychiatrist visit, so even uninsured Cheap-O patients would be paying less cash than insured patients anywhere else. Create Cheap-O style psychiatry offices, primary care offices, etc, all around the country, and maybe (aside from catastrophe insurance, which should be cheap) having health insurance would no longer be such a big deal.

My job is great and I love it, so I’m only slightly tempted to do this myself. The reason I bring it up is: why doesn’t anyone else do it? And if it’s possible to provide cheap health care like this, then how does health care still cost so much? What am I missing?

I don’t know. I’ve never run a business and it’s probably much harder and more expensive than I think. One of the reasons for my Cheap-O fantasy is so that I could find out. But here are some speculations.

Part of the reason might be because there’s a shortage of doctor-entrepreneurs, and the few existing doctor-entrepreneurs are busy finding new ways to make ultra-boutique-super-premium clinics that they charge rich people $500/hour for the privilege of entering. And they’re doing that because it pays way more than $200K/year. $200K/year is the standard salary for an average psychiatrist who wants a zero-risk job in the current system, and the privilege of never having to worry about the business side of things.

Another part might be that insurance is squatting in the mid-range market. Even in America, most people are insured. So unless your cost can beat the insurance co-pay – which even Cheap-O barely does under ideal conditions – most people will go to standard insurance-accepting practices unless you give them a good reason not to. And the best reason not to will be that you’re claiming to be better than insurance-accepting clinics – which means you’re aiming at the high-end market. And insurance-accepting practices can’t lower prices because insurances make you follow lots of rules before they’ll work with you, plus you need a small city worth of administrators to deal with the insurance companies.

(also, seeing a patient every fifteen minutes is exhausting; one of the advantages of hour-long appointments is that most people don’t need an hour and so you can take the last twenty minutes to write notes or answer messages or work on blog posts)

Right now the only way I can imagine the niche getting filled is somebody doing it for the lulz as an act of political protest. Imagine if someone started Cheap-O Psychiatry and it worked. All of this stuff I’m saying about how socialized health care might be better than our current system but isn’t the real answer, how it’s just locking in entrenched cost disease and a truly free market could find better alternatives – instead of vaguely gesturing at it, there would finally be some evidence.

(well, there’s already the Surgery Center of Oklahoma, which does exactly this and costs about a fifth as much as surgery anywhere else. But maybe if there’s more evidence, people will stop ignoring it.)

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308 Responses to Cost Disease In Medicine: The Practical Perspective

  1. Aqua says:

    you should try tweeting at elon musk, maybe he will take it up

    I actually have heard of apps/services online for therapy (haven’t tried any though). I think at the moment they still feel like you are getting an inferior service, compared to going and seeing someone in person. Video consulting also seems to exist. Sounds like this business model could be pretty viable.

    • Scott Alexander says:

      I think therapy is worse for this than psychiatry, because there time really is the active ingredient. I think a good psychiatrist can do a simple med management appointment in fifteen minutes, but I’d be suspicious of a therapist who says they can do therapy in that amount of time.

      • Inty says:

        Context: I work for a company which exclusively provides online therapy, so I’m likely to be biased in favour of it.

        Part of the advantage to online therapy is that it reduces one of the major bottlenecks to people getting therapy -a shortage of therapists -because it enables therapists to work more hours. This should cut costs because it drives up the supply of therapist hours.

        Also one of the reasons therapy is so expensive in the US is that you guys have no concept of ‘recovery’ like we do in the UK. Here, recovery is a well-defined metric and the aim is to get patients to reach it. In the US people just seem to stay in therapy until they aren’t in it anymore. This leads into another advantage which is that online therapy enables international competition.

        • 1soru1 says:

          Here, recovery is a well-defined metric and the aim is to get patients to reach it

          Surely that can’t be good for your customer retention metrics?

          • Inty says:

            The patients are not customers; the company is paid by branches of the NHS and by insurance companies which use it. Different contracts have different pricing models but as far as I’m aware none are priced according to number of sessions delivered. Also more sessions means paying the therapists more, so greater cost.

          • Watchman says:

            If healthcare companies have customer retention metrics, then we’ve perhaps figured out a major element in cost disease.

            That’s a more serious point then it might appear. It’s perfectly viable to aim for customer satisfaction instead of customer retention and to have a churn of customers. Every industry I’ve been involved in (tourism, primary and Higher education, retail and politics) is probably definable as happy to retain but focuses on expanding customer base even if you substitute one low-value existing customer with one higher value customer (note definitions of value will be case specific). Trying to hold on to existing customers at the expense of others is not a good sign as regards sensible direction for an organisation so if healthcare is focused on this then I’d suspect an oligopoly is in place, hence the ability to raise costs.

        • Garrett says:

          I’d also add that most insurance providers won’t accept therapists unless they have Ph.D. in clinical psychology. Apparently, they will sometimes authorize masters-level psychologists if they specialize in something like eg. addiction counseling.

          But given how little predictable value therapy has outside of cookbook approaches (eg. CBT), it would make a lot more sense to support/allow people with a bachelor’s degree in psychology plus, say, a year of additional clinical training. Getting more people into the market at a lower expense/risk level would reduce costs and open up access.

          • alwhite says:

            The Ph.D. requirement isn’t true. Insurance panels love masters-level psychologists because they’re cheaper than Ph.D.s and just as effective. The real reason for being denied a panel slot is that your area is over saturated. The real reason more people aren’t on panels is that insurance pays less than you can get through private pay and has a massive paperwork load.

          • FLWAB says:

            I’d like to second @alwhite’s observation. Location has a huge impact on whether insurance will accept therapists. I work at a psychotherapy clinic in Alaska and there are so few therapists up here that insurance companies are practically begging LMFTs, LCPs, and LCSWs to join their networks, and they all just have master’s degrees. If you want to make bank as a therapist (and are willing to take the risk of running your own practice) Alaska is a good place to do it. But if you’re in a major metropolitan area, it’s a lot harder to compete if you don’t have a doctorate.

        • alwhite says:

          I don’t think your recovery concept is correct. The most popular therapy method in the US is CBT which is a brief intervention, 8-16 weeks, and has a definite structure that moves towards completing therapy. Most insurance companies only pay for 6-8 sessions.

          Additionally, a shortage of therapists is a very contextual topic. Psychotherapists working in agencies in the US make a quarter to a fifth what a psychiatrist makes. There just isn’t enough cash in the system to afford more therapists and many therapists can’t afford to live on the typical salary.

          Psychiatrists here are in short supply and don’t have the salary problem. But that’s a different profession.

      • eqdw says:

        Until I moved out of the bay area, I was seeing a psychiatrist at the clinic you work in (not sure if it was at the same location). I was pretty much just seeing her to get adderall scrips, as I have a good idea of what I need and I didn’t want to have to go through the motions of pretending that therapy was worth trying.

        After a while of seeing her I transitioned to video call appointments. It was super convenient for prescription renewal appointments. It was great.

        On the other hand, I’ve _also_ done tele-therapy. I feel it was a gigantic waste of my time and money. Although to be honest, I felt that regular therapy was also that. Tele-therapy felt too constrained to be useful.

    • RKN says:

      Once AI can routinely provide quality treatment, seeing a human therapist or psychiatrist in person will seem sooo yesterday.

    • Ketil says:

      I occasionally listen to Ellen Hendricksen a.k.a. Savvy Psychologist podcasts, she runs ads for a service called Talkspace, with online therapists. Googling turns up some more. I notice Scott’s reply here, but I suspect the word “therapy” is just used for legal ramifications or perhaps marketability of “psychiatry”, rather than referring to some long-term regime of sessions. I would not be surprised if most of this is just life advice, e.g. how to sleep better. The main issue isn’t reducing time (which is charged by the hour anyway), but administrative costs and overhead.

  2. Yaleocon says:

    How long does everyone think it will take for the Surgery Center of Oklahoma to be regulated out of existence? I’d put even odds on around 2 years.

    • onyomi says:

      It’s been around since 1998, apparently, and I’ve been hearing about it in libertarian circles for a while now.

      • gksmithmd says:

        My good friend Paul Harris who loves this blog alerted me that my facility had been mentioned. We opened in 1997 and have survived various assaults from the state and the health cartel by eliminating any leverage that might be imposed on us. We have no debt and accept no government money for starters. The county and state governments, however, pay us for the care we render some of their employees, care which represents astonishing savings to them. They will not easily tolerate future local threats to us, as our continued operation preserves their budgets/bottom line. We have had much success convincing and helping others copy our model and the Free Market Medical Association is the best barometer of the success of this disruptive market movement.

        • Garrett says:

          Do you have any links/references to the types of “various assaults” you’ve faced? This would make for interesting reading.

        • Rick Hull says:

          I broke a couple bones in my wrist and traveled to OKC for my surgery at Surgery Center of Oklahoma. The facilities were excellent. I had a reassuring chat with my anesthesiologist beforehand. Woke up to a friendly staff, went back to my hotel, and hit the road (with help!) the next day. I continued all treatment and physical therapy over a thousand miles away relatively seamlessly. The surgery cost around $5000 all in. If you are worried about your coverage or health network, or getting the right approval on the right timeline, or you have no coverage, there are options.

  3. qwints says:

    Interesting reference to fentanyl in the Surgery Center of Oklahoma link. Always fun to see pre-panic pieces.

  4. caethan says:

    My wife the endocrinologist says she wants a taxi-style meter to turn on when she goes in to talk to the patient. “Sure, talk as long as you want! The meter’s running.”

    • Garrett says:

      Might you provide a bit more detail on this? Is this unique to her practice/field? Or is this something broader?

      • thevoiceofthevoid says:

        It’s a joke I presume; certain patients tend to try to make small talk with their doctors (and vice versa), even if it isn’t actually relevant to the purpose of the visit. A family member of mine is a primary-care physician, and the various doctors at her practice take different approaches to this. Some love to talk to patients about their lives; others get ’em in and out in 15 minutes. The patients tend to self-select the doctor who matches what they want out of a visit.

        ETA: Of course, general talk about a patient’s life (which might bring up general health-related issues) would be much more normal for a primary-care doctor than a specialist. I can imagine why the latter might see it more as a complete waste of time.

  5. onyomi says:

    If I were a not super scrupulous but entrepreneurial MD, I think my go-to strategy would be to write a book peddling an oddball answer to everyone’s weight and/or autoimmune problems (preferably one that tells them something they want to hear, like “you don’t have to eat your vegetables”) and then come out with a line of supplements designed to enhance the “onyomi protocol.” And throw in a line of skin care products just because.

    Sadly it seems the market for this sort of thing is far from saturated.

  6. Brian Patrick says:

    You’d think that a number of startups would challenge the oligopolistic status quo in a number of industries to beat the old titans at their own game and satisfy obvious needs:

    –You’d think someone would pioneer low-cost healthcare.
    –You’d think someone would pioneer truly affordable *and* safe airlines.
    –You’d think some real estate developer would go crazy with the tiny-house model and cream Big Housing.
    –You’d think some drug company would bother to design some modern antibiotics that beat the resistant bugs.
    –You’d think some food producer would figure out how to cultivate a whole field worth of produce/grain/livestock all by himself and some robots and go to war with Tyson, Monsanto, Kraft, etc.
    –You’d think some auto manufacturer would have developed a 600-mpg combustion engine by now.

    And, so on and so on. You’d think, you’d think, you’d think. A lot of the problem is our regulatory/insurance/banking complex which is set up deliberately to keep new blood off the playing field, but I think the bigger problem is that there *simply isn’t that much money* in any of those endeavors. If there was, some Elon Musk-type would have successfully done it by now.

    There’s simply a lot more reliable cash in sitting fat and happy in your designated seat in the cartel or playing their game and working for the cartel–and FAR less work.

    Look at just about every startup that manages to get noticed: once they reach critical-mass and a well-heeled corporate benefactor offers to buy them out, they sell no questions asked. The number of “honest”, made-from-scratch, blood/sweat/tears entrepreneurs who wouldn’t take a huge one-time payout in exchange for never having to work again (see the discussion on BI and all its ups and downs), has to number in the single digits worldwide.

    Scott, this is a second account of my making. I am *not* sockpuppeting. My computer logged me out and I cannot remember my password. That is the truth.

    • fortybot says:

      > You’d think someone would pioneer truly affordable *and* safe airlines.

      Don’t airlines have absurdly low profit margins? (i.e. <2%)

      • Brian Patrick says:

        Not low enough that they aren’t engaged in deliberate cartel action to keep a price floor: https://topclassactions.com/lawsuit-settlements/lawsuit-news/849602-american-airlines-pay-45m-settle-ticket-price-fixing-lawsuit/

        • skybrian says:

          I don’t see how that follows. Wouldn’t fear of bankruptcy (which has often happened to airlines) be incentive for airlines to avoid competing more on price?

          • Brian Patrick says:

            Any business could go bankrupt. (But, both parties have deemed that airlines are Too Big To Fail [registered trademark]. If you opposed the Great American Airline Bailout of 2001, you were viewed by left, right, and center as un-patriotic, virtually in bed with al-Qaeda.)

            But, anyhow… the driving principle of capitalism, assuming it works, is that if you can provide an equal or greater product at a lesser price, you will beat out your competition and by definition greatly decrease your odds of bankruptcy, no?

          • Simon_Jester says:

            That’s the ‘ideal frictionless spherical corporations in a vacuum’ version, I guess.

            In practice, when it comes to airline best practices, the timescale it takes to beat your competitors is in a race with two other timescales:

            1) The timescale for your competitors to figure out what you’re doing and do it themselves, thus matching your prices and stabilizing the situation- but with profit margins no better than you were willing to accept while actively trying to destroy your competitors, and…

            2) The timescale for some random event that turns people off of air travel (like 9/11) to cause a temporary market shock that nonetheless torpedoes your business; “the market can stay irrational longer than you can stay solvent.” Companies engaged in intense, active competition aren’t going to have a lot of margin of error for staying in business under adverse conditions, because such a margin of error puts you at a competitive disadvantage compared to someone else who ditches their safety equipment.

            More generally, you’d expect to see frequent bankruptcies in the airlines in one of three situations:

            a) All airlines are badly run, ALL of them. This is the “second-order idiot plot” scenario, and honestly strikes me as unlikely.

            b) Some airlines are well run and never go bankrupt, but for some reason idiots keep trying to found new ‘agile’ airlines that then promptly go out of business. This is sort of like how Tesla is running into financial trouble on account of having failed to do “optimize the efficiency of your car factory” as well as companies with a hundred years of institutional experience running car factories. They were doing great at hand-assembling expensive luxury cars, but when they tried to go for mass production they were stepping into the ring with people who have a lot more experience than themselves.

            c) As you allude, airlines could already be in competition about as fierce as they can survive, to the point where sacrificing any more of their financial safety margin by charging even lower prices would endanger the companies.

          • Gobbobobble says:

            But, anyhow… the driving principle of capitalism, assuming it works, is that if you can provide an equal or greater product at a lesser price, you will beat out your competition and by definition greatly decrease your odds of bankruptcy, no?

            Not necessarily…

        • William says:

          Low cost airlines compete at the airport level – easyjet doesn’t need to compete on price with ryanair because customers tend to optimize for price given an certain airport not at a city-to-city level. As a result, easyjet avoids buying slots at airports where ryanair owns slots. It can look like easyjet and ryanair engage in cartel behavior, but the reality is that what slots at what airports an airline owns really dominates their pricing behavior. If easyjet and ryanair want to continue to grow, likely they will eventually begin competing on price.

          • A1987dM says:

            For the most part yes, but both Ryanair and Brussels Airlines fly every morning and every evening from Brussels Zaventem to Milan Malpensa, with departure times within about one hour of each other, and usually the prices at a given point in type are pretty close which I guess is a consequence of their scheme where they sell earlier seats cheaper and there are plenty of people booking whichever one is cheaper at the moment they book it.

      • bean says:

        That depends very heavily on oil prices and the state of the economy. Right now, they’re really profitable. That probably won’t last.

        • mfm32 says:

          Really profitable is a relative statement. They’re really profitable compared to historical levels, but they are not very profitable compared to other industries. Received truth in the industry is that airlines do not earn their cost of capital (report saying this has been true on an industry level for every year except 2015). That means that in an economic (vs. accounting) sense, they are unprofitable. Note that you have to look at the return on capital measure over time, since airline capital expenditures tend to be very lumpy.

          Why this might be so is a much more difficult question to answer. One point to note: although airlines are not attractive businesses, many related industries in the aviation sector are attractive and earn arguably outsized returns. For example, equipment suppliers are very profitable, particularly Tier 2 & 3 OEMs that make high-tech systems. Some analysts argue that airline employees also earn above their market value. The point is that air travel as a whole generates a lot of economic value. Airlines are just really lousy at capturing it.

          • bean says:

            I’m aware of the historic profitability of the airlines themselves, but that’s changed very recently, so a 2016 report might well not see much of it (except that they were profitable in 2015, as it notes). Warren Buffet famously said that someone who shot Orville and Wilbur would have done a favor to investors, but he recently moved into all of the US Big 4.

    • Reasoner says:

      IIRC, conventional wisdom among entrepreneurs is that competing on price is not a good way to get rich. Worked for Sam Walton though, I guess. Here’s his autobiography.

      • Brian Patrick says:

        The whole idea behind capitalism is that you can get rich by undercutting your opponents. Whether that ever actually works in real life is highly debatable.

        • skybrian says:

          Walmart, dollar stores, many big box stores, Amazon, and Google (giving away Internet services for free) have made it work.

          • Brian Patrick says:

            All of which are very low-end industries–almost all of the above sell already-cheap, basic goods that are easy to mass-produce in China or anywhere else on earth. You can’t outsource a cancer vaccine, or an hour on the couch with a “shrink” (no offense intended), to someone in the PRC or India who earns one-fifteenth what you do but provides nearly-comparable services and skills.

            Even if you could, you would be earning… no more than what the average Chinese all-but-slave worker does. That’s unattractive to the Musks and Bezoses of the world.

          • JulieK says:

            Even if you could, you would be earning… no more than what the average Chinese all-but-slave worker does. That’s unattractive to the Musks and Bezoses of the world.

            The entrepreneur who owns the company is making more than the workers he employs in India or China. Some specialties, like radiology, are already being outsourced. (Outsourcing talk therapy would be more complicated, since you would need a pool of workers who understand US culture and speak English without an accent.)

          • Nancy Lebovitz says:

            Is no accent actually needed, or could the psychiatrist get by with a mild accent?

          • Quixote says:

            I presume one is supposed to ideally have a mild Austrian or central European accent

          • fion says:

            speak English without an accent

            That sounds… challenging to say the least.

          • A1987dM says:

            Usually by “accent” Americans mean “noticeably non-Midwestern accent”.

          • Alexander Turok says:

            Google’s market is advertising, where it certainly isn’t competing on price.

        • FLWAB says:

          Correction: the whole idea behind capitalism is that you get rich by offering a product people want. When it comes to competition that could mean competing on price, but it could also be competing on quality, convenience, durability, or a hundred other factors. The healthcare market is actually an excellent example of a market where competing on price does not always work so well. If you need a heart surgery done, and the cost is $200,000 at hospital A and $50,000 at hospital B, you’re probably going to assume that hospital A is higher quality than hospital B, regardless of whether that is the case or not. As a result (and since insurance is paying for most of it anyway) most people would choose hospital A, since heart surgery isn’t something you want to cheap out on.

          But we can see the same effect even in the regular market: just today I needed to buy gluten free cake mix. I’ve never made a gluten free cake before, and there were two mixes as the store: one was $4.45 and the other was $8.15. It took me a long time to pick because the fact that one was twice the cost of the other seemed to indicate it must be much higher quality. Of course, there was no way to know which was better just by the price tag, but even though I went with the cheaper option I couldn’t help but feel that I probably should have got the more expensive one. And you can bet if this cake turns out mediocre (which, I mean, probably: it’s gluten free) I’m going to have it in the back of my mind that the $8 one was a better bet.

        • Watchman says:

          I think the idea of capitalism is that you offer a product that either a) fulfils a need not being met (innovation) or b) achieves a market share by being more appealing to consumers than other products. So your definition of capitalism already omits one of its major functions.

          Furthermore you clearly don’t understand how capitalism in category b) works if you think it is only about undercutting your competition on price. I suspect that the majority of new products in any capitalist system aim at quality or functionality rather than simply low prices.

      • Ketil says:

        competing on price is not a good way to get rich

        I think this is wrong. There is more money in total in the low end of markets, and if you manage to dominate that, you make loads of money. Didn’t check, but I expect Toyota and VW to be more profitable than Mercedes or Jaguar (although they’re probably all the same concern by now. Same for airlines.) High end customers also tend to be more demanding.

        Although it could be not a good way to get rich due to the many who go broke because somebody else managed to undercut them with even lower costs.

        • FLWAB says:

          You may or may not be right, but as someone currently almost finished earning his MBA I have to tell you that is not what the business schools are teaching. The general idea that is being taught is that the most profitable businesses are those who compete on quality, not price. The main exception to this is grocery stores because food is a commodity to a large enough portion of the population (though WholeFoods shows that the quality strategy can work well there too). That is not to say that companies that compete on price are unprofitable, but the going wisdom is that those that compete on quality are much more profitable.

          • Ketil says:

            as someone currently almost finished earning his MBA

            I’d be interested in hearing more. Could you ask the people claiming this what their evidence is?

            And while you’re at it, another claim I keep hearing is Piketty’s about how interest is what makes people rich these days. This just makes zero sense to me, if you look at the super-rich: Buffet, Gates, Musk, Bezos, Walton, and so on – not one single one of them got that way from interest. A few get rich from inheritance, but that quickly dilutes over a couple of generations. And I think it is fair to say that most get rich by building businesses that were price competitive. (And Musk is losing money hand over fist on Tesla, which competes on quality).

            It may still make sense to aim for quality, since there is room for more winners with more diverse products. If price is the only factor, it’s more of a winner takes it all.

          • NostalgiaForInfinity says:

            @Ketil

            Piketty’s main argument is that you’ll get increasing wealth inequality when the rate of return of capital is greater than the rate of growth of the economy. I’ve never seen him claim that the source of wealth for the very richest is interest – its mostly to do with the value of their share holdings and I don’t think Piketty would argue otherwise.

          • Eric Rall says:

            I’d be interested in hearing more. Could you ask the people claiming this what their evidence is?

            When I was in business school a decade ago, the conventional wisdom being taught was that competing primarily on price risked turning your product into a commodity (or forgoes a potential opportunity to decommoditize something that’s already a commodity), and commodity businesses tend to be much less profitable than non-commodity businesses. But there was also discussion of how to successfully compete on price if your business has or can develop a sustainable advantage over your competitors on cost of production and distribution.

            The difference between what I was taught and what FLWAB is being taught might just be different emphases at different school, or it might be a change in conventional wisdom over the past decade. Or it might be a product of which classes we were each taking: I took a lot of electives in Operations, and I think that’s where I heard most of the stuff about lowering costs to generate a competitive advantage. Which makes sense because Operations is all about getting things done effectively and efficiently.

          • FLWAB says:

            @Ketil

            Unfortunately the particular class that covered that was a while ago, but I do remember there was a study that looked at the most profitable companies in several different categories nationwide, and all but one of them focused on competing on quality instead of price (I can’t seem to find the study though: I’m taking online courses and after the class is over I can’t access it again. I’ll let you know if I can find it.) But what Eric said summed up a lot of the argument for it: if you compete on price you signal that your product is a commodity (ie, your product is comparable to other products of its kind in such a way that the only relevant factor is cost) and that is just unprofitable. This is backed up with the “data” that it appears that the most successful companies in a given industry (in terms of profit) do not market themselves on price. I wish I had that exact study, but for the life of me I can’t find it.

            I think Michael Porter’s idea of the 5 Competitive Forces has also had a major impact on academic theory related to business competition. It doesn’t directly address quality vs price, but an argument can be made that marketing a product to maximize the 5 forces lends itself better to quality over price.

      • Eponymous says:

        Cutting prices without lowering costs is generally not a good idea; it can possibly work as a short-term strategy (drive competitor out of business), but in practice is rarely seen.

        You compete via efficiency: you provide similar value at less cost. Then you can charge a lower price, but still maintain profit margins.

        Companies that make it big via low-price strategies succeed because they first figured out how to lower operating costs. This then allowed them to charge lower prices. But the causality flows from cost to price.

      • Eric Rall says:

        What I remember from business school (2004-2006) is that there’s three main competitive strategies: operational excellence, quality, and customer focus.

        Operational excellence is all about keeping your costs down so you can sell profitably for less than your competitors. Walmart is the standard modern example. Standard Oil is one of the most striking historical examples (they got their near-monopoly is large part by driving the price of oil down by about a factor of twenty).

        Quality is what it sounds like: making a better product than your competitors (reliability, features, etc) so that your customers will pay a premium for your product and like it. This can be at least partially a marketing play: the important thing is that your potential customers perceive your product as being higher quality.

        “Customer focus” covers a fair amount of ground. Part of it can be customer service, but this is also about serving niche sub-markets that are neglected by your bigger competitors.

    • seladore says:

      Some of those are knowledge-limited and some are regulation-limited though, which are very separate domains.

      –You’d think someone would pioneer low-cost healthcare.

      This is regulation-limited (with a limiting factor that providing healthcare to acceptable human standards is always going to be fairly expensive). Most developed countries in the world have lower-cost healthcare than the USA, with equal (or better) outcomes. So ‘someone’ has pioneered this — countries with socialised healthcare, like the NHS in the UK.

      –You’d think someone would pioneer truly affordable *and* safe airlines.

      This is regulation-limited (and is already solved, I think?)
      https://en.wikipedia.org/wiki/Low-cost_carrier

      Airlines like SouthWest, Easyjet, Ryanair, WOW air (etc) are all very cheap and just as safe as the major carriers. From the UK, I can easily get an Ryanair flight to continental Europe for <£50.

      –You’d think some drug company would bother to design some modern antibiotics that beat the resistant bugs.
      –You’d think some auto manufacturer would have developed a 600-mpg combustion engine by now.

      These are all knowledge-limited. These are difficult scientific problems, which are (as yet) unsolved. People are working on these problems, and as soon as they are solved I would expect the results to hit the marketplace.

      • thevoiceofthevoid says:

        Most developed countries in the world have lower-cost healthcare than the USA, with equal (or better) outcomes. So ‘someone’ has pioneered this — countries with socialised healthcare, like the NHS in the UK.

        I don’t think this counts. A European government instituting socialized healthcare, and paying its doctors less than the US insurance monstrosity pays its doctors, isn’t the same thing as a private American healthcare provider deciding to slash its prices. (or more likely, a new provider opening with the explicit mission to keep prices low a la the Surgery Center of OK)

      • Brian Patrick says:

        “This is regulation-limited (with a limiting factor that providing healthcare to acceptable human standards is always going to be fairly expensive). Most developed countries in the world have lower-cost healthcare than the USA, with equal (or better) outcomes. So ‘someone’ has pioneered this — countries with socialised healthcare, like the NHS in the UK.”

        Lower-cost to whom? Maybe to the individual patient but not to the system overall. Socialized medicine just passes-the-buck.

        “Airlines like SouthWest, Easyjet, Ryanair, WOW air (etc) are all very cheap and just as safe as the major carriers. From the UK, I can easily get an Ryanair flight to continental Europe for <£50."

        That's a very short flight… I've yet to see someone credibly and sustainably offer flights from Los Angeles to NYC for $75 one-way.

        "These are all knowledge-limited. These are difficult scientific problems, which are (as yet) unsolved. People are working on these problems, and as soon as they are solved I would expect the results to hit the marketplace."

        The former one would be really easy. Bacteria aren't prions. It's just that there is no money in designing a lifesaving drug people only need once; all the profit is people being enslaved to a bottle for life for lifestyle conditions (type II diabetes, AFIB, high cholesterol, etc.). The latter one is tougher, but doable… it just requires a lot more work than anyone wants to do right now without more incentive than any regime is currently willing to offer (that, and with the current general public and private consensus that a "healthy" oil price is good for the economy).

        • A1987dM says:

          The latter one is tougher, but doable…

          How would you even start going around the physical limitations linked to in Murphy’s comment below?

        • Murphy says:

          >Lower-cost to whom? Maybe to the individual patient but not to the system overall. Socialized medicine just passes-the-buck.

          ???
          You do realize that the NHS spends vastly less per citizen on healthcare than the USA right?

          Looking only at government/taxpayer spending on healthcare the USA already spends almost exactly as much as the UK does on the NHS. You should already have your own NHS-grade coverage for every citizen for what you’re spending in government money before anyone has spent a penny on insurance premiums. But you then go and spend the same amount again.

          In terms of “the system overall”, counting all spending, the NHS is half the price of American healthcare.

          Socialized medicine passes the buck… to a single entity that’s capable of coordinating well enough to deal with various issues and take advantage of various economies of scale if it’s well run.

          You also seem to have beliefs about biology and medicine along the lines of thinking that research is just a magic machine where you put money in one side and get products out the other and while cash supply does help… physical reality is also a strongly limiting factor.

          It’s really really hard to find usable drugs. You can throw 10 billion at a pathogen, do nothing unreasonable or stupid and still end up finding nothing usable.

        • switchnode says:

          [Designing new classes of antibiotics] would be really easy. Bacteria aren’t prions. It’s just that there is no money in designing a lifesaving drug people only need once

          This is just wrong.

          This problem is hard. It’s not just about killing bacteria (which itself is harder than you think); it’s about killing bacteria… by a new mechanism… without killing eukaryotes. Multi-decade, billion-dollar R&D programs at the world’s largest pharmaceutical companies (and startup efforts, and academic efforts) have been littered with failures. It’s not for lack of trying.

        • That’s a very short flight… I’ve yet to see someone credibly and sustainably offer flights from Los Angeles to NYC for $75 one-way.

          Not long ago I was flying from the West Coast to Belgrade. The cost from various providers on Travelocity was well over $1000. Norwegian cost $330, plus whatever their luggage fee was–less than four hundred, luggage included.

          I’m not sure how they manage to do it, but I hope they continue to.

    • po8crg says:

      You’d think someone would pioneer truly affordable *and* safe airlines.

      Ryanair? EasyJet?

      Seems to work well for short-haul, but the several attempts at doing it for transAtlantic (never mind truly long-haul) have been disasters – all the way back to Skytrain / Laker Airways in the 1980s.

      Spirit are doing that model in the US.

      You’d think some real estate developer would go crazy with the tiny-house model and cream Big Housing.

      That’s regulation – minimum lot sizes apply in too many zones in the US, single-family-only zones, etc.

      You’d think some drug company would bother to design some modern antibiotics that beat the resistant bugs.

      And they’d only be used as drugs of last resort when everything else has failed, so the sales volume would be terrible.

      • vV_Vv says:

        Seems to work well for short-haul, but the several attempts at doing it for transAtlantic (never mind truly long-haul) have been disasters – all the way back to Skytrain / Laker Airways in the 1980s.

        Can long-haul be made much cheaper than it already is, or is the price currently close to the profitability floor due to fuel and aircraft costs?

        • bean says:

          There are currently several long-haul airlines trying to make this work. Norwegian is the biggest. So far, they’re bleeding money like crazy.

        • ana53294 says:

          Well, it seems to me like part of the issue is again regulation.
          There are four costs in a flight: the crew’s wages; the fuel; airport fees; and the plane itself.
          The way Ryanair works, they try to save on each of those costs. They carry the minimum fuel possible, so the weight of the fuel does not increase fuel usage. This has turned into several cases of Mayday landings because there was a storm in the destination airport, they were redirected to another airport 100 miles away, and they run out of fuel. It seems incredible to me that most other companies did fine, which means they regularly carry fuel for 100+ miles more than necessary. This does not look like a risk you can take on a transatlantic flight with nowhere to land.
          They go to some of the most ridiculous airports. Ryanair finds underutilized airport within a 50+ miles of any desirable place and they fly there, negotiating low fees with the airports. They also bully local provincial governments into providing subsidies, in order to maintain tourism to that region. Is that possible in the US? I don’t know whether the US has so many underutilized airports that are within 1h by train from a major city. This is possible in europe because of population density.
          As for the plane, thanks to the common airspace, you can fly consecutive flights among any eu countries. Whereas aviation laws dictate that you cannot fly anywhere but to another country and back to yours, so you cannot use the plane as much as they use it in europe. In europe, you could fly from London to Mallorca, then to Brussels, then to Paris, then to Berlin, then to London. That would not be possible in a transatlantic flight, so you have more time when the plane sits empty. Flight acroos the atlantic are also very well timed, so you cannot fly immediately and thus have the plane sitting idle more time.
          I do think that we can decrese the price of aviation by changing legislation, although I am not sure how much we can push the prices down.

          • bean says:

            I suspect the fuel situation on Ryanair is overhyped. I haven’t done a close examination, but the regulators take playing games with that stuff very seriously. It’s entirely possible that those diversions were normal (it happens to everyone) and just got used as a stick against Ryanair.

            Re airports, things are a bit different internationally. In general, the farther/longer you’re going, the further away the airport can be, and nobody who’s flying Norwegian/WOW et al is going to be doing weekend trips to Europe. There’s been significant use of 737MAXs and A320neos to fly to minor airports on the East Coast. Stewart in New York is a prominent example. People are more willing to drive for a deal, and you can fly narrowbodies, meaning you don’t need too many people. That’s not possible further west.

            Aircraft utilization is a bit more complicated. You make a good point that it’s going to suffer, and in some cases very badly. (Icelandair has a 757 sitting on the ground in Seattle for 23 hours, which is just insane.) But the planes suitable for transatlantic flight are rarely the ones you really want flying the sort of short-haul stuff you’d be using to fill in between transatlantic hops, and the airlines seem to be able to manage. Particularly if you’re targeting the low-cost market, timing matters a lot less than with the traditional business-focused flights.

          • ana53294 says:

            @bean
            Good point about the excessive hype about Ryanair fuel. This happened in 2015, and it has not happened since, although there have been storms since then. Flight prices have not increased, so the extremely thin margins were probably not that important.
            I don’t know well how airports in the US work. Are they privatised? Do they compete with each other?
            It seems to me that, in at least the flying business, the EU massively deregularized and simplified the market, making the competition easier. They forced the privatization of airports and national airlines, as well as the removal of subsidies, which helped competition.
            Because intra-EU flights are classified the same as intra-national flights, you don’t need international airports. I have never been in the US, but from what I have heard, the international clearance of passengers is a very long, unpleasant and probably expensive process. So if we could remove that, costs could be reduced. Would using something like the Dublin airport’s US pre-clearance system allow to fly to cheaper, national airports?
            About the timing, I meant that, if I understand correctly, the North Atlantic Tracks are very well timed, so you have to time the trip well.
            It is true that using the big planes for small flight doesn’t make sense. However, isn’t the US big enough that a NY-LA flight would justify using a 757?
            It just seems to me that a good way to make flight would be to de-regulate, allow foreign companies to fly internal flights. This is what has allowed the EU flights to make the prices cheap, while getting better consumer protection. link text>This would not happen in the EU, especially with a cheap flight. If you suffer a 2h delay due to overbooking, you get a 250 euro compensation. In cases of overbooking, companies sometimes ask for volunteers who want to get the compensation. My cousin, when he was a student, would pay a 50 euro ticket, go to the check in at the last moment, and if he got overbooked, he would recoup his flight x5. He even made a bit of money from flying home by learning which flights get overbooked.

          • I don’t know whether the US has so many underutilized airports that are within 1h by train from a major city.

            Norwegian flies out of Oakland which is, I think, the least used of the three major Bay Area airports.

          • bean says:

            @ana53294

            Sorry about not getting back to you sooner. I was moving over the weekend.

            I don’t know well how airports in the US work. Are they privatised? Do they compete with each other?

            No and yes. The only private airport with any kind of commercial service I know of is the one in Branson, MO.

            It seems to me that, in at least the flying business, the EU massively deregularized and simplified the market, making the competition easier. They forced the privatization of airports and national airlines, as well as the removal of subsidies, which helped competition.
            Because intra-EU flights are classified the same as intra-national flights, you don’t need international airports.

            Very much so. The EU put intra-Europe aviation on about the same basis as intra-US flying has been on since deregulation. This is an unambiguous good thing from my seat.

            I have never been in the US, but from what I have heard, the international clearance of passengers is a very long, unpleasant and probably expensive process.

            Going through customs and immigration is not a fun process. I’ve done it a couple of times. Singapore was wonderfully smooth, China was really annoying. But the big difference is the size of the US vs most European countries. The US is as big as Europe, which shifts the balance dramatically towards air travel. And I can fly to California or Maine with no need for international controls.

            So if we could remove that, costs could be reduced. Would using something like the Dublin airport’s US pre-clearance system allow to fly to cheaper, national airports?

            I’m not sure what you’re getting at. International airport status isn’t that hard to get here, and I think the government generally pays for it instead of the airport (this might be a stupid way of handling things, of course). The only place I know that’s failed is Long Beach, and that was stupid city politics. And it’s not like the inhabitants of Long Beach are short on options for international flights. (Long Beach is within an hour (when the traffic’s light) of at least two, possibly three, international airports, including LAX.)

            About the timing, I meant that, if I understand correctly, the North Atlantic Tracks are very well timed, so you have to time the trip well.
            It is true that using the big planes for small flight doesn’t make sense. However, isn’t the US big enough that a NY-LA flight would justify using a 757?

            In theory, yes. In practice, business travel depends on high frequencies, which means that airlines would rather run 3 737s than 2 757s. Which is why the 737 is everywhere and the 757 isn’t.

            It just seems to me that a good way to make flight would be to de-regulate, allow foreign companies to fly internal flights.

            Cabotage is a standard protection everywhere. And even if the company was allowed to fly, it wouldn’t change much. Ryanair US would still be under US regulations, and would have to hire US workers. And they’d have to face US airline unions. Foreign airlines do better by facing different circumstances and having different rules.

            This is what has allowed the EU flights to make the prices cheap, while getting better consumer protection. This would not happen in the EU, especially with a cheap flight. If you suffer a 2h delay due to overbooking, you get a 250 euro compensation.

            One aspect is that there seems to have been a race to be the lowest bidder in terms of regulation. And the consumer protection is not coupled to that. There are rules in the US on compensation for being bumped, too. There isn’t the blanket delay payment, which is good and bad.
            Re the UAL incident last year, it was more complicated than it looked. The flight wasn’t overbooked, UAL found themselves needing to move crew urgently, and an idiot doctor met idiot police officers to cause a fiasco.

            In cases of overbooking, companies sometimes ask for volunteers who want to get the compensation.

            That’s not a European innovation, either. I’ve actually taken one of those offers on a US domestic flight. It lets the airlines pick how much to pay, although I might have gotten more than I was legally entitled to in that case. (Cheap ticket, and I got in pretty close to schedule. I think Southwest had a blanket policy on voucher offers.)

            My cousin, when he was a student, would pay a 50 euro ticket, go to the check in at the last moment, and if he got overbooked, he would recoup his flight x5. He even made a bit of money from flying home by learning which flights get overbooked.

            That’s clever. In the US, the compensation is set as a multiplier on the price of the ticket, probably to stop that happening.

            @David Friedman

            They won’t be able to. Norwegian is bleeding money very badly, to the point where there’s serious question how long they’ll survive.

      • Gobbobobble says:

        You’d think some real estate developer would go crazy with the tiny-house model and cream Big Housing.

        That’s regulation – minimum lot sizes apply in too many zones in the US, single-family-only zones, etc.

        Also the part where the market for 100sqft shoeboxes is not as large as its proponents would have you believe…

        • knockknock says:

          Shipping-container housing seems to be enjoying some trendiness and cachet, at least in certain sectors of the press. Those are usually 160 sq ft, although the more affluent buyers often link or stack many of the containers rather than living in just one 8 x 20 unit.

    • A1987dM says:

      –You’d think someone would pioneer truly affordable *and* safe airlines.

      Just curious — do you consider Ryanair not truly affordable, not safe, or both? If so, how much cheaper/more reliable should it have to be to count?

      (I assume by “safe” you also mean near-certainty of making it to your destination on time and with your baggage intact, not just of not getting injured, because the latter is already pretty much negligible with any commercial airline AFAICT.)

      • Brian Patrick says:

        “Just curious — do you consider Ryanair not truly affordable, not safe, or both? If so, how much cheaper/more reliable should it have to be to count?”

        Flights from England across the Channel are (relatively) extremely short. There’s a big difference between hopping from one W. European country to the next and going from LAX to JFK… or either one of those to Shanghai, Tokyo, Moscow, etc. Nobody seems to have the desire, or ability, to figure out how to do the latter.

    • Murphy says:

      “You’d think some auto manufacturer would have developed a 600-mpg combustion engine by now.”

      Sometimes physics itself gets in the way

      https://dothemath.ucsd.edu/2011/07/100-mpg-on-gasoline/

      Even using intentionally absurd numbers and design even this guy tops out at 466 MPG in his hypothetical and that’s when excluding rolling resistance.

      You’d think some drug company would bother to design some modern antibiotics that beat the resistant bugs.

      Good antibiotics are hard to find and the ideal use model for using new antibiotics effectively is exactly opposite to the ideal profit model under our current patent system. The patent system doesn’t mesh well with “this is so incredibly awesome that we should almost never use it at all for the next few decades”

      Why would farmers go to war with Monsanto? They’re at different points in the supply chain. it would be like IBM going to war with a silicon mine.

      • S_J says:

        About physics, internal combustion engines, and MPG: that link is very informative.

        I was a little amused when the math got to this point.

        A more practical set of limits given our behavioral and aesthetic preferences might be A=2.5 m^2, c_D=0.2, and 30% engine efficiency. This puts us at 84 MPG. Not a bad place to be, but shy of the magic 100 MPG. And even this is not a snap: note that we are nowhere close to this mark at present.

        There is a vehicle platform that has 73-MPG fuel economy results. This platform is much closer to the “fish” shape than most cars. It’s not the 84 MPG result that the author of that piece gave, but it is much closer than most cars.

        That vehicle platform is a motorcycle. Not all motorcycles make 70-plus-MPG. The ones that do are typically scaled-down versions of the sport-bike platform (example here). Often, they have engines that are just enough to get the motorcycle to freeway speeds, and bodies that are smaller and lighter-weight than is typical for American motorcycles.

        Generally speaking, motorcycles are much more fuel-efficient than automobiles. However, that is because the narrow two-wheeled body has much less drag from the air than a wide four-wheeled body.

        This is practical confirmation of the estimates in that article: for a modern vehicle run by internal-combustion, typical highway speeds have a practical upper limit on fuel economy. Fuel economy in the 70-to-80-MPG range requires a narrow body with a good Coefficient of Aerodynamic drag.

        • hexane360 says:

          There’s a little bit of flawed reasoning here. MPG is an extensive property: it depends on the size of your vehicle. Getting 1-2 people from A to B will usually take less energy than getting 4-7 people from A to B. Because of this, buses are actually much more fuel efficient than motorcycles per person, despite their wide body.

          • S_J says:

            I do admit that the reasoning is limited to one-or-two-passengers, which is bundled into an unstated assumption of “personal vehicles compatible with most use-cases of the modern world”.

            Buses are more efficient when measured by miles-per-gallon-per-person, but that article (and my comments) are assuming miles-per-gallon for one-or-two-person-traveling scenarios.

            With motorcycles, cargo is also limited…but I think that goes along with the comment that cars can achieve much higher MPG if we don’t make them with two-or-three-people-wide seating areas, and if we don’t include an a large, boxy area for cargo.

            Aside from all those details, a use case that involves typical use in 100-kmh highway environments puts a hard upper limit on fuel economy. An almost-as-hard upper limit is in the design constraints of internal-combustion engines, as it is extremely hard to extract all the thermal energy of combustion and turn it into mechanical energy in the engine.

            These design constraints, and the typical coefficient-of-aerodynamic-friction seen in practice (partly due to vehicle-crash-survivability rules), severely limit the range of possible improvement in vehicle-MPG.

      • A1987dM says:

        Even using intentionally absurd numbers and design even this guy tops out at 466 MPG in his hypothetical and that’s when excluding rolling resistance.

        Yeah, I originally stopped reading Brian Patrick’s comment right after the point about airlines, but now that you quoted it the one about car does sound only slightly less ridiculous than “You’d think someone would pioneer time travel.”

    • Paul Zrimsek says:

      keep new blood off the playing field

      Whatever sport that is, I’m not planning on taking it up.

    • eqdw says:

      > –You’d think someone would pioneer truly affordable *and* safe airlines.

      I don’t know what you’re talking about, because airlines are affordable. They are _super_ affordable.

      Three data points for consideration:

      1) They are significantly more affordable than they were thirty or so years ago

      2) They are significantly more affordable than they are in other countries (go look up what it costs to fly Air Canada some time)

      3) The last time I planned a road trip, I priced out a flight. The cost of gas just to drive from where I was to where I wanted to be was more expensive than a flight there. This held true for ten or so other cities that I checked as data points.

      Flying might not be trivially cheap in absolute costs, but it’s about as cheap as it can be.

    • eqdw says:

      > –You’d think some real estate developer would go crazy with the tiny-house model and cream Big Housing.

      Cost effective tiny houses already exist, and they’re called apartment complexes. The cost of physically constructing a house is not a meaningful factor in the high price of housing in most expensive cities. It’s the cost of the land. And you’ll be able to fit significantly more housing units onto a given plot of land if you physically connect them and stack them 10 high, rather than building as many 500 sqft bungalows as you can on it.

      • Nancy Lebovitz says:

        Tiny houses appeal to people for some reason– probably dramatic difference from the usual.

        They don’t work if you have limited mobility. Or if you want guests. Or don’t have nice outdoors handy.

        I assume someone is working on sensible small houses, but it just doesn’t get the publicity.

    • bean says:

      You’d think someone would pioneer truly affordable *and* safe airlines.

      Lots of people have called this into question, but airlines are one of my interests, so I’ll join in.

      First, safety is a given. Even the least-safe jet airline in the western world is safer than taking a bus or a train, to say nothing of a car. Seriously, if you doubt this, or think that they need to do better, show your work. (I worked in airline safety for two years. I really doubt you’re going to surprise me.) This applies to low-cost carriers, too. Since ValueJet (over 20 years ago), they’ve had a safety record as good as the Legacy carriers, maybe better.

      Second, air travel is very affordable. Yes, there are days it looks like United, American, and Delta are all colluding (they’re not, AAL and UAL are just being run by lemmings), but Southwest resolutely follows its own path, which limits how much the other three can crank up prices. And they don’t make as much money as you think. Sure, they’re profitable now, but all three of the legacies have gone through bankruptcy in the past decade. Show me where the money is sitting on the table, particularly with Spirit et al nipping at everyone’s heels.

    • Bond says:

      –You’d think some real estate developer would go crazy with the tiny-house model and cream Big Housing.

      20 million people live in mobiles homes / manufactured housing here in the US. Low-cost, tiny homes are already an efficient multi-billion dollar business, and near-universally despised.

      • hollyluja says:

        Tiny home villages are just a wildly inefficient use of urban land, but if hipsters need to rebrand trailer parks to feel better about living in one, ok. I grew up in an area with well run senior trailer parks and they seemed…. really nice! not fancy but affordable to retired teachers and such. Communal pool, game room, etc.

    • Alexander Turok says:

      “–You’d think some real estate developer would go crazy with the tiny-house model ”

      Trailer parks?

    • Thomas Jørgensen says:

      Air travel pays out way below the cost of capital most years. Always has. Its a business people go into because they think they can do it cheaper, then they find out that “Nope, harder than it looks” and go bankrupt. They do this at a faster pace than profitable airlines make money.
      https://www.iata.org/whatwedo/Documents/economics/IATA-Economic-Performance-of-the-Industry-mid-year-2015-report.pdf
      It is a sector of the economy with a lot of positive externalizations, but the people operating the planes are not collecting rents.

  7. Nicholas Weininger says:

    Kaiser Permanente primary care, in the Bay Area at least, is getting pretty close to the Cheap-O model. They encourage you to do phone or video appointments instead of coming in person, and the appointments are friendly but, as in your model, short, efficient, low on small talk, and high on pointers to Kaiser’s official documentation on various common ailments and aspects of wellness. I have no idea what their cost structure is like, because they bundle it into the total Kaiser package– their way of “not having a billing department”– but if I wanted to follow your dream the first thing I’d do is try and find someone who’se worked there and knows how it works out, cost-wise and otherwise.

    As someone who could afford “take an hour to really get to know you” cash-only concierge care, I have grown quite fond of the Kaiser approach, because it is obviously evidence-based and very respectful of my limited, expensive time. As an engineer, the engineering that’s gone into their system appeals to me. But very likely I am weird and not representative of any large-enough market to be worth serving.

    • JulieK says:

      There’s an idea- instead of one practitioner trying to offer a consultation for less than the insurance co-pay, the insurer offers a cheap-o consultation for reduced/no co-pay.

      • Garrett says:

        In an insurance policy which is fee-for service, a provider not charging a co-pay is likely to be committing insurance fraud. Now, the insurance provider could waive the co-pay for cheap-o consultations with a corresponding reduced reimbursement for the provider (net result is the same), but that takes away one of the major benefits to an insurance company, namely discouraging over-use.

    • Worley says:

      Yeah, but you’re really odd. I read somewhere, about thirty years ago, “A thousand surveys show what what patients want is a good bedside manner, to be treated with deference and respect.” The patients with money want you to spend time on them — the exceptions are engineers out on the ASD.

      • Watchman says:

        Whilst a good bedside manner is ideal that doesn’t mean not being efficient. I’m not an engineer or very far on the spectrum, as I enjoy social interaction and can be very good at it. But for primary care I don’t want to spend time making small talk. I want an intelligent and concise discussion of possible causes of whatever is ailing me and then a similar discussion of what to do., and I get a better discussion if my doctor is focused on this rather than chatting about the weather.

        I think this is one of those things where popular culture has a lot to do with expectations, as the Doctor, especially outside a hospital environment, is almost always portrayed as a friendly, avuncular (or whatever the female version of avuncular is called) figure whose authority is vested partially in their ability to communicate. So good medical care is perceived as being care delivered by this type of doctor, who will put you at your ease and has time for you as a person.

    • hollyluja says:

      Up here in the PNW, they do very low or no copays for telephone visits. I talk to my psych, primary care, and urgent care docs that way and love it. However, they aren’t lower cost than other HMO style plans in general. My theory is that it’s because they have to purchase labor and supplies from the same pool everyone else does.

      Full disclosure: I do work for them but in population health reporting, not financial.

  8. idontknow131647093 says:

    As a patent attorney, I know that one of the main problems with a plan like this is that clients (in medical patients) are humans that are impossible to work with. I presume this is why doctors have staff and waiting rooms.

    If I budgeted 15 minutes for a meeting (or even 30) and tried to keep to that schedule for even half of a day, I would be behind by 11:00am on 90% of days. A guy could come in with a hammer from Home Depot asking to patent it and what should be a 15 second “no”. Ends up being 30 minutes of him complaining about me not taking him seriously and blah blah blah. So, in reality, your “projected” 200k a year is actually down to 100-150k because you have to build in huge buffers to your timeslots.

    Then sometimes people accuse YOU of taking too much of their time just to tell them “nothing at all”, and of course you have the payment problem where you end up with these micro-transactions and non-payment by dis-satisfied customers somehow ends up being 20%+ of your projected revenue even if you do a perfectly good job, because bad news is part of the job.

    So, really, we are talking about a guy earning less for a more stressful job. And thus, we see the only solution to this particular case of the cost disease is dynamite.

    • Anonymous` says:

      It’s online, so you don’t have to worry about physically getting them out of your office. You charge them when they schedule their timeslot, not afterwards like Scott says in the article. You get on Skype when their timeslot begins and get off when their timeslot ends, regardless of their behavior.

    • Scott Alexander says:

      I already see lots of patients every day, and I’ve never had problems with them taking more of my time than they should (except during real emergencies)

      • Robert Jones says:

        That seems extraordinary. Do your patients never spend 5 minutes telling you something you’ve already read from their notes?

        • Garrett says:

          I think part of the idea of a “doctor-patient relationship” is that you both have an idea of what the other person knows so you don’t have to keep bringing it up.

          On the complete opposite side of things, when I’m volunteering on the ambulance, I frequently get people who won’t tell me eg. what medications they are on or what medical conditions they have. “They have all that at the hospital” or “my wife takes care of that”. Sure … but I’m not the hospital, and your wife isn’t here.

          • arlie says:

            On the complete opposite side of things, when I’m volunteering on the ambulance, I frequently get people who won’t tell me eg. what medications they are on or what medical conditions they have.

            They probably don’t know. The ability to remember similar sounding names correctly is limited. If I’m preparing for a medical appointment, I can create a list of what I expect to be asked. But in an emergency – or if I’m wrong about what they’ll ask – that’s difficult.

            A case in point – a discussion of antibiotics I had with a veterinary specialist. My dog had a persistent infection; she’d been on several antibiotics by that time. They’d all been prescribed by one of 3 veterinarians, and were all in her records – but apparantly not as an organized list. So I wound up saying something like “chlor-something” The vet made a suggestion; I said “no, not that; it’s the nasty one that’s really dangerous to humans – I had to wear gloves”, and he said something like – “oh, chloramphenicol.”

            The dog had been on a lot of medications by that point. So my memory was more challenged 😉 I do better with my own medications, but sometimes it’s “some statin or the other” rather than “atorvastatin”. And please don’t ask me the exact dose of each of my own regular meds, let alone all the ones that dog has been on.

        • Randy M says:

          Maybe Scott doesn’t go in and ask them to repeat everything the receptionist had them write and the nurse had them repeat already.

      • thevoiceofthevoid says:

        There’s a difference between 60-minute appointments not running late, and 15-minute appointments not running late.

      • beleester says:

        By your own admission, you’ve got 30 minutes or so of buffer planned into every appointment.

    • Matty Wacksen says:

      >So, in reality, your “projected” 200k a year is actually down to 100-150k because you have to build in huge buffers to your timeslots.

      Can’t you get around this by selling flexible timeslots where the doctor calls *you* within a specified time-range. Kind of like a waiting room, but one that lets you wait wherever you want….

      • idontknow131647093 says:

        Possibly, but that is going to end up with very low patient satisfaction ala when the cable company gives you a 4 hour window in the middle of a workday.

        That is the other “benefit” of waiting rooms and receptionists. They give the illusion of a full service experience. Even if Scott only actually give a patient 10 minutes of his time for a $40 co-pay, they feel like they got a lot of service before that, which merely culminated in a brief exam from the doctor.

        I know people who are NPs in practices that operate similarly to the Cheap-O model, and they have tried doing online consults to supplement the in person consultations, but they have failed because of patient dissatisfaction.

        • Murphy says:

          Some other elements:

          I know some people who’ve worked in NHS direct. Basically the idea is a call center staffed by nurses and doctors that people can call 24/7 for things where they want a medical consult.

          Common use case is non-nurse old folks homes staff or carers calling in because a resident got an overdose/underdose/wrong meds or Bob snuck in some alcohol and is now loopy because his meds interacted with it somewhat.

          So they call and the nurses/doctors/pharmacists can check symptoms and drug interactions etc etc etc then advise. That might be that they send an ambulance right away or it might be that they tell them to take 2 paracetamol and only call if symptoms get worse.

          It works pretty well as a resource for non-medically qualified carers.

          Unfortunately trying to work over the phone or over skype can be a bit of a nightmare.

          Patients calling for themselves can neglect majorly important things like “oh btw I’ve been bleeding from my ears all night and I’ve been having chest pains all week” and if they then drop dead the nurse/doctor can end up in coroners court being asked why they didn’t ask about whether the patient was bleeding from their ears… even if there were few clues that they should in that case.

          If Scott implemented his scheme I suspect it wouldn’t be long before he had a few cases where a patient flipped out and cut their own wrists mid-session and then he’d find himself in court where a lawyer for the deceased’s family would declare that

          “Had Dr Alexander held his (sometimes emotionally tough) sessions in a real physical office with sufficient staff on hand (like non-negligent doctors!) then Mrs Deceased here would still have her husband with her and little Deceased Junior would still have a father! But he’s dead! and for what? to cut down on expenses and increase profits for Mr Alexander!”

          how many such cases Scott’s insurance could absorb would be interesting.
          No matter how reasonable it is to save money it’s an easy way to get people to side against someone.

      • hollyluja says:

        Kaiser does this. They give you a telephone appointment time, and the doctor calls you within a window of ~15 min or so. If they miss you, they’ll usually keep trying through the end of the day.

  9. TracingWoodgrains says:

    That sounds a lot like BetterHelp. I think there are a couple of similar services as well, but that’s the one I’m familiar with. It’s designed for counseling instead of psychiatry, slightly more expensive ($65/week), and not specifically committed to ruthless efficiency, but it follows the same principle of long-distance, flexible, and cheap service. As far as I know, it’s been a successful business model for them and hasn’t run into major problems (other than the obvious of weaving through licensing laws of each state).

    I guess a lot depends on how comfortable one is with video or phone chat as compared to in-person communication, but it doesn’t seem substantially worse than in-person. It even carries the side benefit of being able to write down and send specific concerns and questions any time, rather than being limited to the at-most-one-hour-a-week of actually talking to someone.

  10. TracingWoodgrains says:

    That sounds a lot like the website BetterHelp. I think there are a couple of similar services as well, but that’s the one I’m familiar with. It’s designed for counseling instead of psychiatry, slightly more expensive ($65/week), and not specifically committed to ruthless efficiency, but it follows the same principle of long-distance, flexible, and cheap service from licensed professionals. As far as I know, it’s been a successful business model for them and hasn’t run into major problems (other than the obvious of weaving through each state’s counseling laws).

    I guess a lot depends on how comfortable one is with video or phone chat as compared to in-person communication, but it doesn’t seem substantially worse than in-person. It even carries the side benefit of being able to write down and send specific concerns and questions any time, rather than being limited to the at-most-one-hour-a-week of actually talking to someone.

  11. Fossegrimen says:

    I would definitely prefer going to conferences and hold talks about how I helped 6000 people last year compared to whatever number the average is because that sounds worth bragging about tbh.

  12. Taymon A. Beal says:

    Obligatory link to Siderea’s series “Why You Can’t Find a Therapist, No, Really”, which seems at least tangentially relevant to this issue.

  13. Carl Shulman says:

    Teladoc and similar services do this pretty well in my experience for many non-emergency doctor visits (and they are promoted to me in mailings from my health insurer, and many millions of customers including hundreds of corporate clients).

  14. benwave says:

    I would presume that the startup world is not interested at all in such things because there’s risk involved and no possibility of a 10x payout. Capturing the benefit created by this is difficult, as naturally it is spread only to patients. You could capture benefit by charging more, but as you point out that brings you into the tension between insurance covered visits and non-insurance covered visits.

  15. dlr says:

    “I would evaluate you for any relevant diseases, give you any medications that might be indicated, then tell you to read the How To Get Good Sleep guide on the website. ”

    You say that the appointments would take place via skype. So you don’t need to see the person ‘in person’ to evaluate them for any relevant diseases? If that is true you could get mega rich. Money isn’t a driver for you, but just think, you could use it to set up a billion dollar foundation to cure some dread disease, a la Bill Gates.

    Step one, replace all the boring brochures that no one will actually read with fun interactive computer based learning modules, a la the Khan Academy, with lots of iteration, lots of active learning, lots of active practice. Maybe have a couple of different versions, one for people who have IQ’s of about 100, and one for people who have IQ’s about 1 SD up and down.

    Step two, WRITE DOWN, in infinite detail, exactly all the decision points in every possible interaction with a patient you could have. The ultimate checklist. One you could follow with confidence. In fact, one you hammered out, if necessary, by trial and error, over the course of a few years medical practice, and some introspection : (what would I have done if the patient had answered this; what would I have done if the lab report had come back that, etc) ; ie, a complete step by step description of what you, as a psychiatrist, do, on your best day. But you would do it ONCE, not over and over again for 30 years.

    You aren’t a coder, so you hire one, or 6, they are dirt cheap in Bangalore, or so one hears, and computerize the entire front end of your 15 minute appointments. The entire back end too, with all the advice you would have given. Probably if a prescription has to be written you, or one of the doctors working for you would have to come on line for the last minute or two, double check all the data the computer collected, including lab reports if they were needed, and write the prescription. Mostly for legal reasons. You, or one of your colleagues would only see the patient after the computer has extracted all the information you need from the patient, via question and answer, and sent him off for lab tests, got the results back, etc, everything. So, instead of $15 minutes of your time, it would be 2 minutes of your time. And then only if they actually needed a prescription. Plus, you could sell a copy of the program to all your peers, or just access to your web site as the front end for their interactions with their patients. Probably be worth real money to them. Or you could just hire some psychiatrists yourself and expand. There isn’t any reason that I know of why you couldn’t roll it out coast to coast.

    I expect you would be risking jail though. The crux of the problem would probably be writing the prescriptions. I don’t know enough about the law to really have an opinion though. But if you can legally write a prescription for someone after just talking to them via skype, then it seems like it would be legal for the computer to gather all the data on the front end, and submit it all to a psychiatrist, with a default recommendation. But, obviously, a legal opinion from someone who actually was a lawyer would be the way to go.

    Step three, as soon as the cash flow started up, hire some talented linguists from third world countries. Hire doctors licensed to practice in each country, so the patients could get legal prescriptions, and start expanding to every third world country there is. You wouldn’t make any money, but, you would help a lot of people who would never get help any other way.

    • Matthias says:

      Your business plan sounds like you want to pass the Turing Test first?

      • Garrett says:

        But you don’t need to be able to that completely. A lot of questions can be yes/no or a range. Eg. how many nights per month do you have a hard time getting to sleep? Do you consume caffeinated beverages after noon?

        A *lot* of basic diagnostics to filter out the common stuff can be done via a questionnaire like that. And doing it electronically means that you aren’t spending clinician time watching someone fill out the paperwork for eg. a depression screening questionnaire.

        So it’s totally possible to vastly improve the doctor efficiency. I just doubt that most people would be interested going through that process. “Why am I answering 100 pages of questions about toe fungus when I’m just sad my mother died!?”

        • Edward Scizorhands says:

          You can also have someone who isn’t a $200K doctor go through all those questions.

          • cuke says:

            At the largest medical practice in my city, 1st year residents in family medicine (not psychiatry) are doing all the face time, prescribing, and medication management after a one-time consult with a psychiatrist. I assume there’s some other supervision going on for this 1st year resident, but nearly all the patient care is being done by the resident. What does a 1st year family practice resident earn I wonder?

    • Worley says:

      I’ve been told that the clinics in the US military use a diagnostic book of yes/no questions to do exactly that. And I’ve read that such books are better than all but the best diagnosticians …

  16. behrangamini says:

    I’ve thought about this as well for Radiology, which seems even more ripe for tele-medicine. I suspect a lot of docs do. The whole thing sounds very attractive until you consider the hidden costs. In your example, some things to consider before you jump in:

    Only 2 weeks of vacation per year for a doctor is low. You’ll burn out. Even if you can handle it, you’ll need to scale, and very few docs will work for 2 weeks of vacation per year.

    Is Skype/GoToMeeting/Webex secure enough for HIPAA purposes?

    Do patients need to sign intake forms like we all do when we see a doc? Add some cost for setting up a user-friendly document signing process or patient portal. Do you have to have an EHR and patient portal if you don’t take medicare/insurance? May be good to check the Affordable Care Act regs to make sure.

    Add some method (and time/money) for making sure the patient lives in the state(s) you’re licensed to practice in. Could be as simple as show me your driver’s license, but that takes time that either cuts into your 15-minute session or cuts into your non-clinical time that should be used for prepping for repeat patients. What if the patient is in Ohio and still has a CA driver’s license? You just need one patient to screw you over like this and you’re in a heap of trouble with the state medical guilds. Will you get licensed in multiple states? Add some cost for makingsure you’re meeting each state’s CME and other requirements.

    Do malpractice insurance companies have a risk pool for SkypePsych (TM)? Is 10K per year a good estimate?

    And related, consider setting aside some PR money if/when one of your patients harms herself or others and the press finds out she was getting counseled on the cheap by a 1%-er psychiatrist making “hundreds of thousands of dollars per year” (technically 200K is not 1%, but close enough for the class warriors in some segments of our press).

    The best way to test the idea is to actually do it. You can set up a patreon for people who are supportive of the idea to provide a cushion in case things go wrong. I think a lot of people would support this experiment (I would). Even if it fails on some dimension, you may get a publication out of it in a year if you can find an IRB and include consent in intake forms (if not, maybe just a popular press article).

  17. jhertzlinger says:

    IIRC, Lucy van Pelt charged 5 cents.

  18. Steve132 says:

    So I think your numbers are a little off. You are discounting corporate taxes (25%) (https://taxfoundation.org/us-corporate-income-tax-more-competitive/). Then you legally need the corporation to pay yourself a salary, and the salary cannot legally be less than what would be considered a less-than-fair-but-not-steal market value for the role that you play in the company (in your case, you need to probably pay at least $100k because $200k is the median pychaiatrist salary). When you pay yourself $100k as a salary, the corporation pays %7 employment tax and you pay %7 employment tax and then you pay %7 in fica on that, plus your normal income tax rate for $100k as an individual which is 24%. Then, for the other $100k from the company the company can pay you as a dividend but you need to pay a %15 dividend rate.

    https://www.thetaxadviser.com/issues/2014/sep/case-study-sept2014.html
    (https://taxfoundation.org/dual-tax-burden-s-corporations/)

    All told, $200k hits your company bank accounts. $150k is left over after corporate taxes (ignoring the cost of running the website and local taxes). $75k funnels to you through individual income tax laws, of which $47,250 remains, and $75k funnels to you through corporate distribution tax laws, of which $63000 remains.

    You make $200k in gross income, and even ignoring local taxes and operating costs, and regulatory registration costs or other labor, you get about $110k in your personal bank account.

    Running a small pass-through S-corporation has an average tax rate of ~%44. If you want to make $200k and you want to hire one employee to make and run the website for you, you will need to charge 3-4x $35 per session. You’ll need to charge $100/session at least.

    At which point you run into the insurance problem and all the related administration costs that it comes with.

    Taxes are simply too high for running a small business to be practical and competitive with big companies who can negotiate tax breaks directly from congress.

    • tossrock says:

      This seems like a pretty clear case for a sole proprietorship, where all income from the “business” (which is not an incorporated entity) is personal income of the proprietor, and taxed thusly.

    • Kevin says:

      Umm, both income tax and pass through entities use exactly the same rate schedule (the two sources get summed and then the income tax rate schedule is applied). The law is set up so it makes literally zero difference from an _income_ tax perspective whether you get a $200K salary or $200K of pass through income.

      Now, there are minor differences in the payroll tax situation. You have to pay both employers and employee share with a pass through entity, but only employee share if you work for somebody else. Employer payroll taxes are just under 12% to start in California, but drop to 7.6% at just $7K/year salary and then 1.4% at $128.4K/year.

      http://www.edd.ca.gov/pdf_pub_ctr/de202.pdf

      Now, if I punched these numbers in right, for a $200K salary, that’s an extra $11.15K/year = 5.6%, which adds just $1.95 to a $35 appointment. Note this is an upper bound because in practice you can always shave your salary at least a little and take some as profit, which avoids payroll taxes.

      The Web site isn’t an issue either. You get a WordPress site for $1-10/month, pay somebody $10K to set it up for you (amortized over say 3 years) and then also pay some service to do the admin on it. As far as I tell from a little Googling, you can get a very nice admin package for $500/month that includes some consulting every month. All this adds less than $2 to each appointment.

      So you’re definitely fine at $40 per.

      Sure, you’d have to generate the content, but that’s your initial investment of effort and it has some expected value in and of itself, as I’m sure if it works, you can license it to others.

      And your sentence makes no sense. Small businesses thrive in the US. There are roughly 30M and they account for almost 50% of all employment:

      https://www.sba.gov/sites/default/files/advocacy/SB-FAQ-2017-WEB.pdf

      • Big Jay says:

        Yeah. I’m a CPA, though it’s been a few years since I did tax, and I’m pretty sure using a pass-through entity (S corp or LLP) would solve the income tax issue. You’d have to pay the employer contribution to FICA and FUTA, which would add about 7.5%.

        Ironically, the biggest practical obstacle might be trying to get health insurance for yourself (and an admin, probably).

        OTOH, I have no idea what was in Trump’s tax bill, and maybe it changed things here.

      • wfenza says:

        Also, let’s remember that running a small business lets you take a lot of tax deductions that you otherwise couldn’t get (and basically puts you on the honor system in terms of reporting your income)

    • Jon S says:

      Others have more relevant replies than me, but I also wanted to point out that 24% is the marginal rate for someone making $100k, not the average rate. Someone making $100k and taking the standard deduction pays $15,400 according to a random internet calculator.

    • vpaul says:

      This comment is wrong and definitely not written by a tax professional. The link is to an article on dividends which would not be applicable, anyone who set up this kind of business would set it up as a pass through entity, and tax rates would be virtually identical to the taxes you pay on a salary. Actually, there are significant tax advantages to being self employed like deducting the cost of your computer, internet connection, part of your electrical bill and heating bill, home office “rent”, possibly your smartphone and wireless plan, any software you use, trips to conferences, and travel generally etc.

      A bigger problem with your comparison is that the 200,000 salary at a normal job doesn’t include the value of “fringe” benefits like health insurance or anything else, so an equivalent self-employed salary would actually be higher than 200,000, depending on the value of the health insurance and other benefits (you could also make this argument for the employer’s share of SS taxes – technically you are paying it even though you don’t see it). The benefit issue is a common mistake when looking at average salaries and changes in salaries over time – the value of health insurance alone could change the “value” of a salary by 5-10% or more.

      Also, LemonAid is pretty similar to this idea for a lot of stuff.

    • the verbiage ecstatic says:

      Corporate tax rate isn’t a problem here, even if you are a C corp. C corps can deduct pretty much any business expense, including employee salaries. In practice, you’re only really taxed on profits at the corporate level as long as you are spending your revenue on your business. So you pay yourself a salary equal to your profits: as long as you can reasonably argue it is not ridiculously above market for a doctor / business owner, which 200K is certainly not, you do not pay corporate taxes.

      Source: I run a small C corp. I am not a tax lawyer or accountant.

  19. Brian Patrick says:

    Another thought on cost-disease: part of the ongoing problem is that in every field, the bar is set higher and higher every year.

    Look at videogaming: in the ’80s, just about any fool with ten hours of programming and able to pay a nominal licensing fee to Nintendo or Atari (or not) could churn out a more-or-less playable title. Just look at sites like questicle.net to get a feel of the vast array of product that was cranked out. Most of these games were mediocre or below, it’s true, but some were hidden gems. People in the industry could make them without that much expertise or investor/corporate backing–that is the bottom line.

    In 2018, the standard for gaming is to produce graphic and scrolling masterpieces on your small screen that rival the most sophisticated CG films. Obviously not every punk kid who has played around with DOS can pull that off. Compare the latest CoD title to the most state-of-the-art blockbuster that Hollywood produced just a decade ago. You need a team of crack, top-notch programmers with advanced graphic degrees to make that happen and it shows in the output of today vs. the eight-bit “heyday”.

    Likewise with medicine: in 1950, the average doctor delivered babies, gave penicillin shots, listened to your heartbeat, set broken bones. Sophisticated diseases like cancer were hopelessly out of reach, so physicians did very little with them, and what they did could be easily learned. In 2018, even a GP has to be, relatively speaking, an expert on everything from prions to insulin resistance to what NSAIDs do the least kidney damage to what the latest claims of the anti-vax movement are. It takes a lot more IQ, it takes a lot more medical school, it takes a lot more life investment, it takes a lot more cash.

    I still think a lack of real financial gain is the biggest ceiling to low-cost competitive medicine, but this reality is right up there with it.

    • Aevylmar says:

      I’m not qualified to comment on medicine, but when it comes to videogames, I think you’re overlooking a RPGMaker, Ren’py, Starcraft II maps, and, generally, the entire modding scene. You can’t make a profit on all of these things (well, I suppose you can sell RPGMaker or Ren’py games if you’re good) without moving up and learning some real programming, but you can absolutely make terrible ten-hour games today with very little budget so long as you’re happy with Patreon being your main source of income.

      And I think you’re also underestimating the indie game industry. Undertale and Cave Story sit comfortably at the upper end of what a single person can do, today, without a studio, and still make a profit at, if the creator is good and dedicated enough. And Undertale sold over a million copies. (According to Wikipedia, at least.)

      • Brian Patrick says:

        Okay… it’s not absolutely impossible but it’s much, much harder. Many of the successful “homebrews” now are ROM hacks/mods of the sixteen-bit/early modern era which was much simpler than today, and I’d reckon that the majority of them are purely a hobbyist exercise and no way to seriously earn a living.

        • Bugmaster says:

          Well, here are some of the most memorable games I’ve enjoyed in the past few years, in no particular order:

          * Bastion, Transistor, Pyre: excellent games by a small indie studio. Low budget, but whatever they’re paying Logan Cunningham, it’s not enough.
          * Battletech: Kickstarted. It’s definitely a bigger-budget game, but nowhere near what EA would spend. Off to a rocky launch, though most of their issues have recently been fixed.
          * Slay the Spire: Still in Early Access. Looks like something made in someone’s basement on a shoestring budget. Plays like digital crack.
          * Endless Space 1 and 2: A shallow yet incredibly polished 4x game. I respect the sheer amount of effort the studio put into it.
          * Cultist Simulator: A glorified text adventure with the level of writing that would make Lovecraft himself weep. From the makers of likewise excellent Sunless Sea.

          I could keep going on and on like this, but I think you get the idea. None of those games are ROM hacks or mods. They are all cheap, original, and excellent; and most of them assuredly make a good living for their creators. Battletech, for example, raised about $2.7M.

        • silver_swift says:

          Eh, I’d argue that if anything, the problem is that it is too easy to release an indie game these days. Because every hobbyist can now hack together a game in Unity/RPG maker and publish it on steam it becomes much harder for the hidden gems to get noticed.

          In general though, we do see a lot of indie games that are able to turn decent profits eventually (even if they start of as mods or hobby projects). In addition to the already mentioned Undertale and Cave Story, there is PubG, Stardew Valley, Banished and Papers Please, all of which started out as one person projects (and that’s just the ones that are popular enough that I know of them).

          Your argument is valid for AAA titles, though, where some games have such stupid high budgets that they lose money even if literally everyone in their target demographic buys the game.

          • ADifferentAnonymous says:

            You’re definitely right about indie games, and that’s to say nothing of mobile (Flappy Bird made $$$$), but my understanding is that the commercially viability of the one-person game basically did die, it just happened to have a rebirth later.

        • what about indie games like slay the spire? Clearly those Don’t involve huge development teams, and they seem to be occupying their own space in the scene.

      • Bugmaster says:

        Also, Unity. Most indie games are made with Unity, and it’s pretty cheap (free for non-profits, AFAIK) and easy to learn.

    • rahien.din says:

      Another thought on cost-disease: part of the ongoing problem is that in every field, the bar is set higher and higher every year.

      But that’s just capitalism at work. Zero-sum competition, technological advancement, subfield sprouting.

      Your claim kind of collapses down to the suggestion that capitalism’s ceiling is cost disease.

      [Anyone can take this as an invitation to comment.]

      • quanta413 says:

        Yeah, the original claim doesn’t really work because that’s not usually what happens.

        Some videogames might cost more to produce but they’re still comparable in price after inflation. Basically, games got better, but the price stayed the same.

        Computers have gotten better and cheaper over time. Orders of magnitude better and cheaper. Computers are an extreme example of capitalism working as everyone would like.

        A more reasonable example might be food. Food costs less as a fraction of the typical person’s wages than it did in the early 1900s and it’s arguably tastier, but it’s not orders of magnitude cheaper or better.

        On the otherhand, lifespans and health aren’t that much better than in 1960.

        But maybe other things are getting so great that dumping tons of money into marginal health gains so you get more time to do other things looks better and better to each individual over time.

        Of course, if people rationally made that sort of choice, they’d eat healthier and exercise more, so we know that explanation is pretty shoddy at best on its own.

      • arlie says:

        Is the bar really higher, in general? Or is the new ‘improved’ modern product simply more expensive?

        I’m currently playing computer games from the mid-90s, because I like them better than what I can get today.

        Companies supplying niche markets regularly get purchased by generalists, who adapt their formula to advertise the same virtues as before, but actually supply the same product as everyone else.

        It’s hard to find newspapers (or equivalent) as good as I remember, and their current financial models make them a lot more expensive (in wasted time), though seemingly less profitable (oops).

        This strikes me as capitalism in action – the goal is to get the biggest profit possible, and one excellent way to do that is to supply less; another is to raise prices. Colluding with your competitors and/or erecting barriers to entry and/or regulatory capture frequently seem like more effective ways ways to make that profit than providing a good product.

        I actually think that the ceiling is the bare minimum product customers will buy, at an ever increasing price – complete with irrational customers buying the more expensive version because they see price as indicating value – and others buying the more heavily advertised version for similar irrational reasons. (Money put into advertising isn’t going into quality.)

        But I’m cynical, and it’s been a long stressful week.

        • quanta413 says:

          Videogames are also art, so better is somewhat subjective. But even ignoring things like graphics and world size, AoE2 has nice interface features that are an update over AoE1 (like being able to queue up farms for replanting). I think starcraft 2 similarly has a more convenient interface than starcraft 1. Of course, if you like having to manually command every barracks separately, you may think the new interface takes skill out of the game (skill meaning ability to mash keyboard and mouse faster).

          Either way, new games are about 20-50 bucks which is they same as they cost in nominal terms decades ago. So prices have not gone up which doesn’t match the trends in health care. Old games can be really cheap on steam when on sale. Like 5 dollars or less. So the market is totally willing to supply old games at a lower price too. It’s pretty hard to get cheaper medical care with older technology outside of generics which sometimes vanish from the market altogether.

          Computers are so obviously improving over time in almost every way, that I think they are a pretty strong counterexample to your claim that the ceiling for capitalism is the minimum viable product. Internet connections in the U.S. used to suck almost everywhere. Now they are pretty good in some places. I can now run significant much larger scientific or mathematical calculations on my desktop or laptop than 20 years ago. Even my phone crushes most desktops of 2 decades ago. It’s also a camera and connects to the internet. It cost $150. I can buy a raspberry pi for $35 if I want a cheap hobbyist computer (although I’d need to have a monitor, keyboard, mouse, and cables already). I remember my windows 95 hard crashing all the damn time. My new computers rarely crash although programs still do.

          I don’t know how far back you’re thinking for newspapers, but I haven’t noticed much change in 15 years. There has been a decrease in local coverage, but that’s largely because people don’t care. And I don’t think Hearst was terribly interested in good journalism 100 years ago. I think what’s “good news” is sort of orthogonal to what most people here are interested in. In a sense, the news market probably isn’t for you.

      • e.samedi says:

        On a theoretical note, capitalism could be viewed as a special case of a more universal model of change. That model is: copy, change, test the change, then go back to the beginning. For example, imagine someone sells widget X and it does well in the market. A competitor copies the widget, makes a change, and sells it as widget Y. Widget Y now sells better than X, so competitors now copy widget Y, make changes and sell them. Some sell well and these feed the copy-change cycle, some sell poorly and are forgotten. Such a process continuously selects for products that meets the demands of the market.

        I use the term “select” because the process I’m describing is analogous to evolution by natural selection in the biological domain. Science and art follow the same model. The process is the same in all these domains, only the selection mechanism differs. I’m not making any kind of moral claim, I’m describing the model of change these domains follow naturally; that is without interference. The degree to which you think interference is needed is a matter of personal opinion.

        I tend to think that the evolutionary model (or algorithm) is quite good at optimizing and hence I prefer, in most cases, to enable rather than hinder it. Intellectual property laws, for instance, are problematic as they inhibit the copy-change cycle.

  20. Bugmaster says:

    I know nothing about psychiatry, but I know a little bit (not much, admittedly) about running small business; so…

    Cheap-O Psychiatry wouldn’t have an office, because offices cost money.

    That’s an excellent cost-cutting measure, but then, how many employees does Cheap-O Psychiatry have ? How do you coordinate them all ? If you’ve got 10 people or so, you can just hold Skype meetings; beyound that, you will quickly run into bottlenecks that only a physical office can solve.

    You would Skype, from your house to mine.

    How many patients would be comfortable with Skyping you their most embarrassing secrets from their apartment, where the neighbours can hear every word, and/or where the noise level drowns out your soothing voice ? Come to think of it, how many of your patients have functional computers and/or cellphones ?

    It wouldn’t have a billing department, because billing departments cost money. You would PayPal me the cost of the appointment afterwards – or, to be really #aesthetic, use cryptocurrency.

    Oh, the IRS is going to love you, come tax day.

    The Cheap-O website would include a library of great resources on every subject. How To Eat Right. How To Get Good Sleep. How To Find A Good Therapist. The Cognitive Behavioral Therapy Workbook. The Meditation Relaxation Tape.

    This is an excellent idea; but then, how are your educational materials different from every other self-help book out there ? As a customer, how would I know that ?

    each appointment takes 15 minutes

    Wait, really ? Is that the industry standard in psychiatry ? That doesn’t sound like enough time to even say hello, let alone fix some deep-rooted psychological issues !

    There would be a few added costs – malpractice insurance would probably run about $10K per year – but this is the best-case scenario.

    You’re going to need insurance, yes. You’re also going to need an accountant (unless you are the accountant, in which case, you’ll have a lot less time to spend on appointments). You’re going to need some kind of a customer database. You’re going to need a lawyer for when that database inevitably gets hacked, because you didn’t spend nearly enough time on expensive niceties such as information security, seeing as you do all your business over Skype anyway. You’re going to need marketing, because word-of-mouth won’t get you the customer volume that you need. You’re going to need accreditation, because, as a customer, I want to know that my shrink is an actual shrink, and not some New Age woo-peddler. I’m not sure if you’re planning on prescribing drugs, but if you are, you’ll probably need to jump through a lot of annoying little hoops that are designed to prevent you from just dispensing opiates like a gumball machine… You’re going to need a lot of stuff, and all of it costs money.

    • Scott Alexander says:

      “How many patients would be comfortable with Skyping you their most embarrassing secrets from their apartment, where the neighbours can hear every word, and/or where the noise level drowns out your soothing voice ? Come to think of it, how many of your patients have functional computers and/or cellphones ?”

      I already see a lot of patients by videochat.

    • wintermute92 says:

      Wait, really ? Is that the industry standard in psychiatry ? That doesn’t sound like enough time to even say hello, let alone fix some deep-rooted psychological issues !

      The average psychiatry appointment doesn’t even try to fix deep-rooted psychological issues; most people would be at a psychologist or other therapist for that. (There are psychiatrists who do lots of therapy, but they’re not the standard case.)

      The average case might be something like an intake or follow-up visit for a patient who’s moderately depressed or anxious, in which case they get asked about suicidal ideation, given first-line SSRIs, and sent on their way. Also, lots of abusable drugs in the US need follow-up appointments every time a new script is issued, which creates a ton of ‘filler’ appointments that can be kept very short. “Still have ADHD? Still benefiting from treatment and not snorting your meds? Here’s your new script.”

      • Bugmaster says:

        Ok, that makes sense — but then, how did the patient get that ADHD prescription to begin with ?

        • Eric Rall says:

          Also from a psychiatrist. Typically, new-patient appointments are more in depth, scheduled for a longer timeslot, and billed at a higher rate. At the new-patient appointment, the doc takes something like 30-45 minutes to interview you, maybe run you through some exercises to evaluate you, and then diagnose you and discuss treatment options. This usually happens after your primary care physician has referred you, so the psychiatrist has your PCP’s notes to work off of as well, and it’s fairly common to give new patients screening inventories to fill out before they come in, so you’re not paying the doc to watch you fill out a three-page questionnaire.

  21. Quibbler says:

    “Cheap-O appointments would be brutally efficient.”

    Are many people going to choose brutally efficient psychiatric care at any price if they have any reasonable alternatives?

    It’s a big country, and I can’t say there’s much that would surprise me at this point, but “6000 appointments per year” does seem awfully high.

    For fun, just imagine the Saturday Night Live commercial for “Cheap-O Brutally Efficient Psychiatry”.

    • Seppo says:

      Data point: I would, with passionate enthusiasm.

      I once spent an entire year attempting to get psychiatric care while unemployed; this consisted of seeing a doctor, who immediately referred me to another doctor, who referred me to a psychiatrist, who referred me to another psychiatrist, who had a policy of not treating anyone unless they first met a list of conditions that were impossible for me to meet given the specific problems I was trying to get help for. Also everyone’s schedule was pretty full, so each of these referrals took about three months. At no point did anyone get around to officially diagnosing me with anything, let alone suggesting any treatment. (Upside: thanks to my country’s health care system, I at least didn’t have to pay any of them.)

      After all that, if I were ever to try a shrink again, I would strongly prefer a Brutally Efficient one, probably even if they were slightly more expensive than the regular kind.

    • raj says:

      Just imagine paying (copay + indirect insurance costs) $150 for a guy to look at your chart for 15 seconds and scribble his name on a piece of paper so you can keep getting your medicine.

      Why shouldn’t that process be made brutally efficient?

  22. Confusion says:

    Cost disease is not caused by a lack of competition or entrepreneurship. Proof: healthcare in Europe. There is hardly any competition here, yet care, including wages for practitioners, are reasonable.

    I admit it may be a *solution* to cost disease in the US, but really, it seems like a hard solution, until the whole ‘consumers can easily, quickly and reliably compare practitioners and switch between them’ is solved.

    • Scott Alexander says:

      I’m not sure this is true. European countries look good in relation to the US, but they’ve still had costs triple or more over the last fifty years.

      • Bugmaster says:

        Are those absolute costs, or costs normalized by quality of care ? MRI machines and brain implants are way more expensive than penicillin and radium pills; but then, they are incredibly effective. I can’t even say that they are more effective than old-timey medicines, because these technologies open up entire new avenues of treatments for previously untreatable conditions.

      • peterispaikens says:

        Tripling over 50 years sounds reasonable and not a ‘cost disease’.

        I have no idea about how health costs have actually changed, but assuming your statement is true and it’s inflation adjusted (if not, then it would be below inflation, ~2.2% annual over 50 years = tripling), then GDP per capita and average wage increase has *also* tripled or more over 50 years, so if we assume that nothing changes, it takes as much medical labor, and medical labor compensation is in the same level socially, then we’d expect the costs to triple or more over 50 years.

        The industries where you might see inflation-adjusted costs being stable over 50 years are those where there were *major* changes due to automation, needing much less labor. For industries that don’t have such a labor reduction, there’s the Red Queen’s race – you need to run (triple price over 50 years) to stay where you are.

        • Eric Rall says:

          then GDP per capita and average wage increase has *also* tripled or more over 50 years, so if we assume that nothing changes, it takes as much medical labor, and medical labor compensation is in the same level socially, then we’d expect the costs to triple or more over 50 years.

          That’s pretty close to a textbook description of cost disease. Cost Diseased goods and services remain as labor-intensive as they’ve been in the past, so their prices go up with the wages of their workers. Non-cost-diseased goods and services are those where improvements in equipment, process, training, etc make labor more productive so there’s fewer hours of labor going into each thing, so per-hour labor costs can go up without driving a similar increase in per-item costs.

      • Ketil says:

        I think the main thing that is driving costs, is that the customer isn’t the one who pays the bills.

        To simplify a bit, in European welfare states, the government pays directly, in the US, it is paid by insurance companies, whose premiums in turn are paid by employers.

        For governments, it is really tough to draw the line when newspapers publish tear-dripping narratives about some poor child who doesn’t get the brand new magic gene therapy that just might work, because some cynical people (as pointed out), put a price tag on human life or suffering. Nobody wants to be an unsympathetic miser, especially not politicians that want to be reelected, and especially when it’s somebody else’s wallet anyway.

        Insurance companies prey on fear, what if you get , surely you would want the very best care, internationally renowned experts and 65″ TV’s in your suite? And all manner of tests and scans, even if there is no medical benefit or diagnostic value. Similarly for companies, providing the very best medical insurance is an important recruiting tool.

        • arlie says:

          Similarly for companies, providing the very best medical insurance is an important recruiting tool.

          No, claiming to provide that is the recruiting tool. I work in tech. I make excellent money. And while my medical insurance is “good” by the standards of people with minimum wage jobs, I’ve spent a lot of money buying care out-of-pocket because the expletive-deleted insurance people have inflexible rules that aren’t even well designed for the purpose of making them money.

          My favourite example is a medication they flat out refused, because I’d had a relapse on the generic, and they wouldn’t allow the doctor to prescribe the brand name. After a year of doing things like ordering it from an international pharmacy, my doctor found another medication that looked likely to do the same thing for me. In that case, the generic works. But if the pharmacy is to be believed, it’s a lot more expensive. In particular, the generic is costing the insurance company more than the brand name form of the prior medication would have cost them, even without their higher copays for brandnames.

          Meanwhile, I’m not allowed to have preventative care for periodontal disease, with which I have a long history, because I haven’t had it get out of control while on that insurer’s rolls. I can either pay out of pocket, or have a relapse, with the attendant health risks, and then they’ll pay for dealing with the emergency, and for future preventative care. Probable cost to them: about the same.

          They may – or may not – do a better job with things that had no effective treatment at all in my childhood. But anyone who calls this “good” insurance is judging by the competition, not by any objective standard.

      • JulieK says:

        Megan McArdle wrote (in an article I can’t find write now) that the growth rate of health care costs is pretty similar in the US and Europe, and the main factor in the difference is that the US started from a higher baseline, 50 years ago.

      • broblawsky says:

        I’d like to know the precise number for European countries. General inflation in the US, as measured by the BLS, has increased prices (for everything) by a factor of 7.26 over the last 50 years; by contrast, the inflation index for medical care specifically has increased prices by a factor of 16.36.

      • hollyluja says:

        Have doctor salaries tripled compared to inflation over the past fifty years in European countries? or just medical costs in general? Because doctor pay is what you’re trying to control for in your thought experiment if I’m not wrong.

    • eightieshair says:

      I have a naive question about this: why hasn’t Baumol’s cost disease effected barbers?

      When I get a no-frills men’s haircut at my local barber it costs $17. According to google, the average cost of a men’s haircut in 1981 was $5, which is about $14.5 in 2018. So a cost increase of about 14%.

      But standard hair cutting seems to fit all of the criteria for Baumol’s cost disease. It takes just as long to get a haircut today as it did in 1981, and it requires just as much human labor (1 barber for one costumer). So why hasn’t the price of a standard men’s haircut gone up by nearly 300% since 1980 like college tuition has?

      • Matthias says:

        That’s an excellent point. I wonder if any economist has looked into this?

        I’d expect it has something to do with barriers to entry?

        • eightieshair says:

          I thought about lower regulatory burden as a possibility, but thinking about I don’t think it holds up. It’s not like hair cutting is conspicuously under regulated compared to other activities. Licensing requirements for hair salons are one of libertarians’ favorite go-to examples of out of control state regulation.

          Besides, Baumol’s original study was about musicians in symphony orchestras, which is not a particularly regulated business.

      • Douglas Knight says:

        I saw this before, but never got around to answering…

        First of all, what are you asking? Are you confusing Alexander’s Cost Disease with Baumol’s Cost Disease? Lots of people do and it’s terrible that Alexander stole the name. Alexander’s is a question and Baumol’s is an answer. Medicine and Education costs have risen way faster than haircuts and way faster than Baumol predicts, and that is Alexander’s mystery. Probably it’s because they employ more people, but why? (It is also unclear what happened to income. For example, teacher pensions are opaque. It might be that we’re paying today for teachers decades ago that we pretended were cheap.)

        Or are you asking about a small discrepancy, why haircuts have risen slower than Baumol predicts?
        But what does he predict?
        Cash incomes for poor, and maybe middle class people have just risen with inflation, so if haircuts have risen at that rate, then they’re a constant proportion of poor budgets. So maybe that’s what he’d predict. But that means that the barber is poorer because he has to pay for healthcare out of pocket and that has shot up. That’s a violation of Baumol’s prediction: why hasn’t he raised prices to keep up his position in society? I don’t know, but some jobs rise and others fall, so I don’t think that there’s that much to explain. If healthcare expands and squeezes everything else, someone has to pay for it. Is it the barber or the customers? Should you really expect a theory to answer such fine-grained questions?

      • mobile says:

        Because there is no third-party payer with haircuts. Set up a universal long-hair insurance program, or have a norm of employer-provided haircuts, or have barbers receive funding from a complicated mix of government subsidies, insurance payouts, federal loans, and the occasional co-payment from the guy getting the haircut, and the haircutting sector can enjoy the same kind of bloat as health care and education.

        (ETA: there are productivity improvements in the haircut sector — clippers have seen increased adoption since the 90s, a few larger firms (SuperCuts, Great Clips, etc.) have emerged which produce some economies of scale)

      • Watchman says:

        I’d suggest you’re missing the improvements in labour unit efficiency, as whilst one person can’t cut more hair (unless we have more bald people…) the unit of labour becomes more efficient if the inputs they are utilising improve. And one set of inputs has clearly improved : the tools of the trade. So you see clippers nowadays and you don’t see people sharpening scissors in between cuts anymore. Chairs are much more usable; even the broom which sweeps the hair up is easier to use efficiently (try using a 20-year-old broom compared to a modern one). So each unit of labour (barber) is more efficient due to better tools: seems a reasonable hypothesis does it not?

  23. Nate the Albatross says:

    In France going to therapy is one of the most expensive types of medical visits. But there are also therapy sessions available with a Psych Nurse. A nurse doesn’t need to make 200k a year. They don’t even need to make 100k a year.

    Basically if your primary physician or a psychologist determines that you are poor and have garden variety depression and anxiety they send you to the psych nurse for free therapy. This lets the doctors concentrate on more difficult patients thus making doctors more money per patient by diverting all the Cheap-O patients to a nurse who makes/costs less. And if things deteriorate the nurse can always send you to the doctor.

    I don’t know if or how this would work legally in the US, but it seems like you could train nurses to handle a lot of basic clients. Essentially you supervise the nurses and they screen out all of the Cheap-O clients. And you should be able to scale up the practice with LOTS of nurses. And insurance companies would like the low cost approach.

    • Worley says:

      “How it would work legally in the US” is that psychiatrists would fight like the devil to prevent state laws from allowing psychiatric nurses to treat patients.

      Right now there’s a fight in Massachusetts. The proposal is to provide some dental hygenists with extra training so that they could do drill-and-fill of simple cavities. The dental society is vigorously fighting this attack on their monopoly the quality of care.

      • cuke says:

        Psychiatric nurses in the U.S., working independently, do treat patients. In our mid-sized city, there are more private practice psychiatric nurses than there are private practice psychiatrists. From my conversations with patients, my sense is that the average person seeking outpatient med management is often not aware of when they’re seeing a nurse practitioner versus an MD. Kind of in the same way many people aren’t aware of whether their talk therapist is a psychologist, LPC, MFT, LCSW or what.

  24. Jack V says:

    Excellent question.

    Ideas off the top of my head — you’ve pointed out before the number of medical residencies is controlled, if there’s not a pool of unemployed doctors, there may be little incentive to compete on price. For a fair comparison, you’d need to *not* work a lot harder.

    It may be, it lowers the mystique of medicine, so has difficulty getting various sorts of official approval?

    One way of evaluating cost disease, which I wish I had more energy for, is to look at a budget breakdown of similar practices between countries. Even if they all have SOME cost disease, do ones that are ultimately cheaper pay their doctors less after all? Or pay less malpractice insurance? Or have fewer support staff? Or pay less for medicines? Or what? That’s not easy because you need quite detailed accounts and there’s a lot of subjectivity in how to compare between countries. But it feels like the right place to start finding out. If you know even one doctor of a similar mindset working in another country you could start there.

  25. kgp says:

    This has at least some parallel to primary care in Australia. The going price for a 15 minute appointment is about $75, though the government gives everyone a cashback of $37, claimable after the visit. Practices can, rather than charging patients at time of care, accept that $37 directly from the government as full payment for their services, so the patient has no out of pocket costs involved.

    I don’t have any numbers handy but a growing number of practices are adopting this model and, to maintain income, are increasing patient volume so that consultations will often last 6 or 8 minutes. Works fine for a lot of things which can be quite adequately diagnosed and managed by competent doctors in that time but struggles a bit with rapport building and long term patient relationships, and the doctor takes an income hit if they do want to spend more time with a particular patient. It’s been well adopted though and I believe the majority of clinics now run under this model.

    There are certainly a group of people who devalue the care provided because it is “free”. Some people have two primary care doctors: the “free” one they go to for sick certificates, the one with a cost for more complex problems. This can lead to fragmentation of care, though I don’t know how much of a problem it actually turns out to be in most cases.

  26. CG says:

    I see a psychiatric nurse practitioner who charges $50/session for patients without insurance. She has an employee who runs benefits and files claims etc. Her office is swanky af. No idea what her situation is re: malpractice, but she prescribes me an anti-depressant that actually works (as opposed to the meds protocol calls for, about half a dozen of which we tried first) but plenty of MDs are skittish about using because of overblown claims about drug/diet interactions. I will add here that the med was my idea after doing a fair bit of research on my own, so maybe someone with x more years of education would have thought up the idea to try it before I did, but I kind of doubt it given prescribing risky meds has a low cost/benefit ratio for them. Doctors are people too. Sorry if this is coming too close to medication advice or somesuch.

    I realize I may be in a unique position that not everyone is privy too but I think in a lot of situations psychiatric nurse practitioners are an option patients might not be aware of and can serve as a good workaround for cost barriers. If this became a more common practice maybe it would be just the incentive for the driving down of costs we all would like to see. Maybe there’s a route to Cheap-O Psychiatry through free market competition rather than righteous revolution.

    Note: what I know about economics, I could fit in a thimble, but I have the vague understanding that if psychiatric nurse practitioners are not currently driving down the costs of seeing MDs, there is a good chance there is a reason for this besides it not being a well known alternative. Maybe someone can explain to me what I’m missing here.

  27. sohois says:

    A few people have already raised some obvious problems with the business plan, but another quite large issue is going to be filling your schedule with customers. Whilst there is probably sufficient demand for the customer numbers the idea proposes, you really can’t rely on them to fill out your schedule in a neat and easy manner for you to give appointments. Most customers are going to have distinct time preferences, which i would guess would be early morning/lunch/evenings so as to fit around work hours, and you’ll probably find yourself with stretches during the day where you have no appointments. Except, you won’t be able to fill this time up with admin, because there will inevitably be some old retiree who books right in the middle of your open timeslot and disrupts any chance you had of getting business stuff done. Then, there is the issue that if your day, every day, isn’t filled with appointments then you are very quickly going to miss your revenue targets.

    And, as anyone familiar with airports or train stations will know, when you pack things in to a really tight schedule like that, slight delays can very quickly snowball into massive disruptions for the entire day. Let’s assume that the brutal efficiency extends to cutting off patients mid speech to enforce your deadline, which probably wouldn’t be true, but even with that you’re still at risk from technology. Skype and other video platforms are generally pretty shitty and it’s highly likely that a number of calls will drop, completely fail, or be affected by human error (especially likely given a lot of older patients). What then? Do you simply cancel the appointment once the 15 minutes runs out, and thus lose the revenue? Or do you let the appointment overrun, and then have to alter your schedule for the rest of the day to fit that in. Bear in mind that the first option will invariably have reputation damage and in the long run will swiftly drain you of patients.

    • Robert Jones says:

      I agree, that revenue target couldn’t realistically be hit with this model.

      The model also seems to be based on having zero costs, because Alexander equates $200k of revenue with $200k of salary. But zero costs is a silly goal. You want to employ someone to do your admin (including billing, which you actually do need), otherwise the goal of spending 75% of working time seeing patients is unachievable. If you keep costs reasonably lean, you probably want something like $250k of revenue in order to pay yourself $200k.

      Even if you charged $100 for a 15 minute slot, you would still be a lot cheaper than paying a psychiatrist in the conventional way, but you run into the problem mentioned with insured patients.

    • JulieK says:

      If you Skype with patients across the US (or around the world) you can fill the unpopular slots.

      • sohois says:

        Worldwide coverage is very swiftly going to run into legal, language and forex hurdles, not to mention that many potential users would be even less inclined to pay the $35 when there is free provision of healthcare in many other countries.

        If you limit it to nationwide coverage, I’d imagine the biggest problem is going to be marketing; it would be easy for Dr. Alexander to set up this pharmacy and just tell current patients/friends/family and rely on word of mouth to get plenty of patients, but to get a lot of patients he would need some way to spread the word quicker, which means extra costs for marketing.

      • behrangamini says:

        You would need a medical license in each state your patients are in when you treat them. Each state has different applications, requirements and costs. That’s simple compared to treating across national borders. In many (all?) cases you’d need to do a residency or equivalent in those countries. I think for a start-up venture, he’d need to stick to treating patients in CA and maybe some states that have reciprocal licensing agreements with CA. Forget about worldwide.

    • Pablo Stafforini says:

      This problem can be solved with a dynamic pricing booking platform that charges differentially depending on demand for different days of the week and times of the day. Clients would pay when the booking is made, and they decide to cancel later, they would be given refund equal to the difference between the amount paid and the expected value of the booked slot at the time of cancellation (i.e. the new price times the probability that it will be rebooked). And disruptions can be entirely avoided by having calls automatically terminated when the 15 minutes expire.

      • behrangamini says:

        14:59
        Patient 1: “By the way, I think I want to kill myself.”
        Doctor: “What do you mean? Do you have a plan?”

        15:00 Session ends.

        Doctor tries to reconnect. Patient declines reconnection.

        Next appointment is in x minutes. Clock’s ticking.

        Look at patient’s face sheet to find phone number. Call patient. Patient declines.

        Clock’s still ticking until next appointment.

        • cuke says:

          This scenario to me is central to this question about cost cutting specifically in mental health.

          I assess and treat people every week in my office who are in various states of suicidality or who are in other kinds of crisis, the dimensions of which could affect dependent children, elders, spouses, or could simply result in significant longer-term problems (job loss, substance use, etc).

          More time-constrained, higher volume, remote contact with patients who are facing these kinds of risks that are difficult to assess and navigate even in person across an hour seems dangerous to me, to the patient as well as the provider.

          It’s definitely possible to get a reasonably good sense of how risky particular patients are at any given time, at least given a solid baseline. But I’ve had patients move pretty quickly from low to high risk circumstances in a way that might have been hard to pick up in 15 minutes via Skype with a lineup of other patients waiting right on their heels.

          If I knew for sure I was just one provider among several who was laying eyes on this patient and we were all “coordinating care” as we’re supposed to be, I would worry less about this model. But what I see is that there’s very little communication between providers and many patients don’t have regular working relationships with any one doctor. If you’re the only healthcare provider who is seeing someone for mental health issues, it seems very risky to me to have only this casual kind of contact with them.

          If this model were being used to provide post-surgical recovery check-ins for straightforward kinds of procedures or treatment compliance check-ins for lifestyle changes related to diabetes or something, I would see the advantage. But as the main way to provide treatment for people with mental illness using medications that can have unpredictable side effects on one’s state of mind, it seems very risky to me.

          • cuke says:

            I think too about the recent data we’ve all seen about dramatically rising suicide rates in nearly every US state. I suspect more mental healthcare providers are going to be losing clients/patients to suicide. I think that will make us all re-evaluate how we do what we do, not in a way that leads to substantially less ability to assess risk.

  28. chaosmage says:

    Psycho Headquarters – we examine your head for quarters!

    There’s an obvious reason this doesn’t exist that is not in the article.

    This is the kind of business that would get a lot of offers to be bought by the local medical cartel. They want to keep their price floor and they’ll pony up a million or two to do it. And they can credibly threaten all kinds of trouble if the offer is declined. In particular, they can recommend you to the most troublesome patients. The most troublesome patients in psychiatry are surely worse than the most troublesome patients in most other specialties.

    Those Oklahoma Surgery folks are ideologues – I imagine that’s the only reason they have declined all the offers that they must have received.

    This could be a way to exploit the system for profit, or alternatively a way to produce even more evidence about systematic corruption, but it doesn’t make it easier.

  29. Robert Jones says:

    I’d be surprised if there was a tax problem with this (except for the bit where you don’t bill). It seems like the sort of thing where any decent accountant could set it up such that your tax bill was less than it would be as an employee (simply because employees have very limited options for tax optimisation). You could even relocate to a low tax jurisdiction, since you’re providing the service remotely, although there may be some regulatory issues.

  30. JulieK says:

    What percentage of medical costs are for office visits to doctors, and how much is for hospital care, pharmaceuticals, nursing homes, etc.?

  31. Rachael says:

    If your target market is low-income people with psychiatric problems, many of them won’t have the computer literacy (or even computer access) to use Google Calendar, online billing, and Skype; some of them won’t have the literacy to read your advice documents; and many or even most of them won’t have the executive function to follow the advice.

    • Nancy Lebovitz says:

      You’re right that there are a lot of people like that, but I expect there enough people with lowish incomes who could manage to use Cheap-O

  32. tgb says:

    I have the same reaction to this that Scott has to guaranteed jobs p rograms: stop putting you dystopia in my Utopia! Fixing cost disease should end with us getting largely the same experience for a quarter of the current price, not in us rushing to say everything in fifteen minutes. I.e. I don’t think this counts as solving cost disease,, just as sweeping it under the rug.

  33. Freddie deBoer says:

    I have been telling anyone who listens for years that I could start a system of five federal public universities that would be tuition-free and provide a strong education. It’s totally doable.

    • AnarchistMiracle says:

      Would you care to expound? Or, if you have a blog article or something already, link?

      • Freddie deBoer says:

        Bear in mind that I wrote this 5 years ago. Doesn’t exist online anywhere I think but it was included in a book on the future of the university.

        *****

        One thing that I want to point out is that the madcap desire by so many universities to attract the most competitive students— expressed, at its most perverse, as an out-and-out desire to reject more students every year— is implicated in this process. Colleges (and by that I mean their administrators) are desperate to attract the students with the best high school portfolios. But unfortunately, high school students are not that moved by the abstraction of instruction quality. They are, instead, largely moved by the tangible “ooh” factor of dorms, gyms, and dining halls. That’s what the internal research of a lot of colleges says, anyway. It’s kind of amazing that these young people (many of whom I’ve worked with) are so mercenary in pursuing getting into an elite college and so systematic in their applications, and yet can make decisions based on such ancillary reasons. But then again… they’re 18 years old. Asking them to not just make major life choices but to make ones that specifically require delaying gratification and choosing fiscal sobriety over prestige is a recipe for unhappiness.

        Perhaps what’s really irrational is having this massive system that depends so much on the whims of teenagers. But listen. There is rational assessment and then there is irrational panic, and when it comes to discussion of college there’s far too much of the latter. As Noah Millman says, things that are unsustainable won’t be sustained. Reform is possible, and indeed, is far more likely than the doomsday scenarios announced by those who are typically animated by anti-academic resentments.

        So how to address the problem? I’ve made some arguments before about what individual schools can do, and I think they stand up to scrutiny. But we’ve got to look at some structural changes. The bottom line is that while a university shouldn’t be run like a business, and can’t if it’s to fulfill its fundamental mission, universities have to compete on price for the good of everyone.

        I’m not going to address the MOOC argument here, largely because it’s not my focus here, but also because the MOOC argument is so empty as an argument. It’s the ultimate example of The Borg Complex; so often, I interact with people who express no coherent argument beyond “it is inevitable.” MOOC discussions have frighteningly little to say about if they work, don’t reflect on the rampant potential for cheating and fraud, and don’t recognize that most undergraduates have no interest at all in living in their parents basement’s for their college years. MOOCs can be a great resource for nontraditional students. Anyway. “There is absolutely no inevitability as long as there is a willingness to contemplate what is happening.”

        The first thing: uncapped student loans need to go. The sentiment is noble; the results, terrible. As long as there’s loose money tied to the impulse control of people in their teens and early twenties, people are going to find themselves under mountains of debt. As long as students can borrow, colleges have no direct incentive to compete on price. I know: our message has been the sitcom family fantasy of “you can go anywhere you can get into.” That just doesn’t fly anymore. Yes, it’s nice to go to an expensive university, just like it’s nice to have a luxury car or a nice house. It is not responsible for government to help people go into debt to buy luxury items.

        Second: the states have to start funding public universities again. The cuts in the last decade have been incredible. The states are good about expressing pride in their universities, but pride doesn’t pay the bills.

        If the state U’s can claw some funding back and compete on price, that’s a big start. But we should make the competition to lower costs while providing quality instruction even fiercer. Here’s my dream: a system of five federal universities. Northeastern American University, Southeastern American University, Central American University, Southwestern American University, and Northwestern American University. They would be explicitly oriented towards providing a cheap, quality education in the traditional sense. I’d like to shoot for a tuition of $0, and I think that is a achievable goal with the right governmental funding, charitable support, and ruthlessness about unnecessary amenities. I would settle for $2,500 a year for any student from within each geographical region and $5,000 for any students who want to go to a university from outside of their region.

        Alan puts the essential bargain better than I could:
        How about this? Maybe someone could have the imagination to say: By the quality of our teaching. I am waiting for some bold college president to come forth and say, “You won’t find especially nice dorms at our college. They’re clean and neat, but there’s nothing fancy about them. We don’t have a climbing wall. Our food services offer simple food, made as often as possible with fresh ingredients, but we couldn’t call it gourmet eating. There are no 55-inch flat-screen TVs in the lounges of our dorms. We don’t have these amenities because we decided instead to invest in full-time, permanent faculty who are genuinely dedicated to teaching and advising you well and preparing you for life after college. So if you want the state-of-the-art rec center, that’s cool, but just remember that the price you’ll pay for that is to have most of your classes taught by graduate students and contingent faculty, the first of whom won’t have the experience and the second of whom won’t have the time to be the kind of teachers you need (even when, as is often the case, they really want to be). Our priorities here are pretty much the reverse of those that dominate many other schools. So think about that, and make a wise decision.”
        Here’s the bargain students make. As Alan says, you don’t get all of the stuff you get at so many universities. No vortex pool; no sushi chefs in the dining hall; no dorms designed by Frank Gehry. You’ll get what you need. We’ll have computer labs, but they won’t be at every corner of the campus like they are in most. Your dorms will be like dorms from the seventies: utilitarian, not very big, but serviceable and homey. And, sorry: you don’t get the truly endless amount of student services on offer at most colleges now. That set of clubs and activities and events that could fill a phone book, we don’t have that here. Not just because they cost money in and of themselves but because they take staff, and a huge part of the current tuition crisis boils down to the explosion in administration. You can organize clubs and activities and we’ll give you spaces in the common areas to do them, but it’s gonna be a shoestring affair. You’ll have to make things work with your own fundraising and effort. Intramural Ultimate Frisbee sounds doable. Intramural crew does not.

        And I’m afraid you’re going to have to settle for intramural and club teams you can cobble together, because there will be no NCAA varsity sports in this university system. None. Sorry. Despite what most people think, college sports are a money loser for the vast majority of schools. And getting new teams up and running would be even more needlessly expensive. No giant stadiums, no rooting for the old college team. Can’t afford it. Can’t afford it!

        So if they’re giving up these things, what do they get? They get a school that is dedicated to providing excellent teaching and career and personal development at a tiny fraction of the cost of many major universities. They get a university system that believes that the actual education should represent the value of attendance, not the name on the degree. They get an education that is based on the idea on personal growth, not on “having an experience,” which is best left to Disneyland. More than anything, they start their adult lives equipped with knowledge and skills (having had fun!) without the crushing debt that so many others have faced.

        The bargain with faculty is easier. The academic job market being what it is, there’s tons of published, talented people who are eager to teach and research who would leap at the chance. Here’s the case we make. Six figure salaries are not in your future here. (Most humanities and social sciences profs are laughing out loud at that, as that wasn’t in the cards for them anyway, but for some in the STEM disciplines, it’s a legitimate concern.) You don’t get the gleaming palaces. The amenities available to you will not be equivalent to what people at many schools get. That is a special concern for those in fields with major physical and infrastructural research needs. What you get, instead, is a university where the faculty are still the heart of the university. You won’t feel outnumbered by administrators, or feel like you’ve become a cog in a machine you don’t control. The faculty senate will be able to effect real change in policy. You’re not going to find your control over essential university functions increasingly being taken by miscellaneous admins.

        I genuinely believe that there are many fantastic faculty members who would want to be a part of a university system like this.

        The discussion of teaching versus research in the contemporary university is complicated, and I don’t want to go too into depth about it here. I do think, in broad terms, that the dilemma is a false one. It is the case that in my fantasy university system here, in order to maintain a commitment to tenure-track faculty teaching as large of a percentage of the classes as possible, professors will have to teach a somewhat larger load than those at R-1 universities. It’s also true that, in an effort to keep administrative costs low, many jobs previously done by faculty members will have to be taken up by them again. I believe that there is a balance that can be struck where faculty are given credit for research and given opportunities like sabbatical to undertake it, while maintaining the focus on teaching. I also believe that it’s perfectly legitimate for individual universities to develop research, teaching, and administrative tracks within their professoriate, and that compensation and benefits can be tweaked in a way that makes all three of these necessary elements respected and valued within the school.

        We’re living in a time of deep anti-academic sentiment, some of it fair, much of it not. What I observe in my daily life and want to share with others, more than anything else, is just how many people are deeply committed to the fundamental job of the university: to create and house knowledge, skills, insights, and ways of knowing, and to share those with people who want to learn, so that they might better themselves and their society. I will fully admit to a deep and abiding romanticism towards the university. But then I should. Because while I have seen the worst of the academy, I have also seen the best, and I believe in what it can mean for individuals and for our society.

        The dramatic increase in tuition, the collapse of public funding, and the attendant rise in crushing debt represent one of the great moral challenges of our lifetime. That challenge can be met, with dedication and with a commitment to the great tradition of societal investment in education and self-improvement. All of us who consider ourselves academics have a deep and personal responsibility to helping college students to graduate with the prerequisite skills and knowledge, and to do so without permanently damaging their economic future. I know of no academic I talk to regularly who does not lament the spiraling costs of college attendance. But we have little direct control. We have to confront this problem through politics, through charity, and through private responsibility. It is possible. This country once had great universities that could deliver education without incurring great costs. It can again, if we work for it. The university, at its heart, is a community of teachers, students, and administrators. That community can represent a great benefit to all involved. It’s an idea worth fighting for.

      • Freddie deBoer says:

        Hmm I tried to repost here but it looks like it got flagged/deleted. Maybe I’ll republish it someday.

      • Douglas Knight says:

        Here is an early sketch. No numbers, but it clarifies what is the point (eg, to answer baconbits).

        • baconbits9 says:

          I think the diagnosis of the problem is at least partially incorrect. The nice dorms, good food and better recreation came after tuition had already shot up (certainly they came after in my specific school in the late 90s). I think they were more a response to students and parents saying “if we are going to pay $20,000 a year in tuition tied to a crappy social experience we might as well pay $25,000 a year with a good social experience”. While increasing the costs I think these are the marginal cost increases. Talking to people who work in universities and looking at the numbers it appears that administration is eating up most of the cost increases and the proposed system has the potential to be an administrative nightmare. For such universities to have a significant impact they would have to be on the order of 2-10x the size of the largest universities now. 100-500,000 undergraduates, with the top end only serving about 15-20% of the undergraduate population (assuming it doesn’t draw in more total students, which it probably would). You aren’t going to be able to afford to put it in a city of any size, you are probably talking about doing what Ohio State University did, buy farm land next to a smaller sized city and sort of merge with it, only much bigger. You aren’t running a university anymore, you are running a university and a city simultaneously. Utilities, trash removal, security beyond what most campuses have, your health and human services is going to need a literal hospital, and maybe (definitely) its own ER. A couple of students out of 250,000 dying of alcohol poisoning because its a 20 drive to the nearest ER is going to be terrible for the school.

          Logistically planning classes for a university of this size is going to be nuts. I don’t just mean getting a list of courses and matching students, but getting students from one course to another that is on the other side of campus, and the other side of campus is several miles away. Now you are running small scale mass transit and students are going to need more than just a day of orientation to find their way around, you are going to have seniors showing up on parts of the campus they have never been to. Additionally there is going to be a much wider gradient of student ability coming in (if the scheme works) you aren’t planning classes for a group of students who all got within 250 SAT points of each other with a handful of outliers, you are going to have a 5-600 point range (guessing) or higher range of kids to service. Your 101 classes are going to have to be split into 101a 101b and 101c or you are going to lose masses of students to boredom/moving to fast.

    • stevphel says:

      Been a professor for 25 years and I agree Freddie. This blog makes for interesting reading Anarchist: http://professorconfess.blogspot.com/

    • baconbits9 says:

      I assume you mean online universities?

  34. regularjoeski says:

    Low cost health care is harder than it seems. First who is your target market? Is it the uninsured? There are fewer of them who need care than you think. Many of these can get free care from the city/state/free clinics. Hard to compete with free. Otherwise your fee must be below the co-pay of the insured patient. High deductible patients. Well you must be on their plans to count. Now you have all the costs of accepting insurance. What are your costs to clear 200,000? I assume you will pay SSI, would like health insurance, and plan to retire. Now we have added the employer portion of SSI up to the limit, health insurance (need employees to not be looking for individual plan), and 15-25% extra to fund IRA (depends on type). Call it an extra 25% minimum. How do you collect? Credit cards add the processing fees. Cash, now you are seeing people in an office and need a receptionist/bookkeeper (call that a “spouse” to keep it cheap). Do not forget internet/phone costs, malpractice insurance, record keeping costs, etc. The movement for “concierge ” medicine tries this. Next, how do you signal quality? Most people do not want to pay for “cheap” healthcare. Taking insurance was a quality indicator in the past. Nice office? More costs. Charge more? The advice in the past was that failing Doctors raise their price to above the market rate. People assume high cost equals quality. It worked like a charm. Assuming you solve these problems can you scale. HBR says there is no reduction in costs with scaling in medicine. The average hospital losses 197,000$/year on each employed physician. Hospital chains have gone bankrupt because of it. Next how will you compete for Docs with people who overpay by 197,000$? The old answer was H1B physicians( or whatever the designation was). Now you could try FMGs plus women MDs who are married. Of course the hospitals will still be overpaying them also. Maybe impaired MDs who can not be hired? Another can of worms. Of course psychologists or NP will be cheaper. How do you plan to compete? The easiest way to “solve” cost disease is called capitalism. No insurance except high deductible, eliminate EMTALA/Stark/CON. Medicare just pays X, you can bill whatever you want. All “non-profit” hospitals must be owned by counties or religious organizations. Administrators are paid on the GS scale. All hospital MDs are included in the flat fee for hospitalization. In other words pre-1964 billing. Sorry to be a bummer.

    • fr8train_ssc says:

      You would book a slot in my Google Calendar. It wouldn’t have a billing department, because billing departments cost money. You would PayPal me the cost of the appointment afterwards – or, to be really #aesthetic, use cryptocurrency.

      Is Skype/GoToMeeting/Webex secure enough for HIPAA purposes?

      Do not forget internet/phone costs, malpractice insurance, record keeping costs

      While getting a secure phone-bridge isn’t too much of a big deal for HIPAA, I know Google Docs (Hosted on the cloud) and Paypal aren’t. However, I wouldn’t despair too much. If Scott was willing to put in a little work he could get a managed HIPAA compliant cloud server for not much more than a regular cloud server and run Bedework or some other open source group calendar software on it.

      • cuke says:

        HIPAA compliant distance therapy and med management, along with all the aspects of scheduling, intake, payment, and so on, have been worked out in terms of technology. We’re already there.

        The pieces that haven’t been worked out, as far as I can tell (as a provider who’s been following this):

        1. Cross-state or uniform federal licensing of providers;
        2. Clinical issues having to do with some aspects of risk assessment, ethical considerations, and adequacy of distance treatment that are still pretty untested;
        3. Insurance companies by and large don’t cover distance treatment, outside of some limited circumstances (that it sounds like Scott is working within).

  35. brmic says:

    I’m confused by some bits of the description of the current system:
    $200K/year is the standard salary for an average psychiatrist who wants a zero-risk job in the current system, and the privilege of never having to worry about the business side of things
    Doesn’t this seem a bit much for a job which is also per seeing a patient every fifteen minutes is exhausting; one of the advantages of hour-long appointments is that most people don’t need an hour not particularly stressful? And, which per the post could apparently be done at a quarter of the time with some references to premade literature?

  36. wfenza says:

    My guess is that doctors don’t do this because there is very little incentive to do it. I don’t know anything about running a medical practice, but I do run a law practice and I already do a number of these things. I don’t have an office because offices cost money. I don’t have a secretary because secretaries cost money. I often get paid through Paypal. Most client contact is over the phone. The only things I pay for are malpractice insurance, software, a referral service, and someone to go pick up my mail because I hate picking up my mail but also don’t want to give out my home address.

    These costs are very minimal. The last time I worked at a law firm, I billed about 40 hours/week (which meant working 50-60 – a good portion of work is unbillable) and made about $100,000. If I wanted to recreate that on my own, I would need to charge an hourly rate of $50/hour.

    Instead, I charge an hourly rate of $230/hour. Because that’s what the market will support. And if I charge $230/hour and I want to make $100,000, I only need to bill about 10 hours/week. And if I want to make more than that, I can work more. There’s simply no incentive for me to lower my prices other than abstract notions of humanitarianism, and if helping humanity was my goal I would just do more pro bono work and/or earn more and donate it to effective charities. If people are willing to pay a higher rate, why charge less?

    One would think that competitive forces would eventually push the price down, but that’s not how things work in the legal field. The whole point of the attorney licensing process is to ensure that only competent people can be lawyers shield us from market competition. I’m one of the only lawyers I know who discloses his hourly rate on his website. There is very little price-competition.

    From what I understand, there is even less price competition in medicine. If you opened your Cheap-O Psychiatry office, why not just charge slightly less than the going rate? Instead of $35 per session, why not charge $125? Or better yet, charge the same rate of $150 and see if you can get clients anyway who prefer the brutally efficient style. I think the reason that nobody has done this is that the market competition isn’t fierce enough to force anyone to do this. Medicine is notoriously a confusopoly. Why be the only guy competing on price?

    • pharroah says:

      “From what I understand, there is even less price competition in medicine.”

      There is no price mechanism in medicine, so resource allocation is determined in other ways which leads to perverse incentives. For eg, the $100.00 aspirin. Assume that the hospital pays $.05 for the aspirin and bills it for $100. The insurance co agrees to pay $5.00 for it creating a profit of $4.95 for the hospital, but more importantly, it creates a paper loss for the “not for profit” hospital of $95.00. At the end of the year, the hospital is reimbursed by the taxpayers for a percentage of that fictional loss as “uncompensated care”. Meanwhile, the insurance co or third party administrator claims that it negotiated the price down by 95% ostensibly saving the patient $95 which figures into their revenue generation.
      As Scott mentioned in the OP, Surgery Center of Oklahoma has bucked the system and posts their prices online. These prices are all in; facility, surgeon, and anesthesia are included, no surprises. This model is catching on and is creating some long needed price competition in markets where it’s been implemented. I’m cautiously optimistic.

      • AG says:

        There are also softwares doing some price comparisons…but access to them linked to specific higher end insurance companies (because of software licensing fees, I’m guessing), so only the well-off get to benefit from them.

  37. J Mann says:

    Telemedicine psychiatry is a rising trend, so maybe the question is either why don’t telemedicine psychiatrists cut their costs more or why don’t more patients use it. Does anyone have thoughts?

    Lesser considerations: Cross-state licensing is a pain, but manageable. You could limit your service to California residents, and let somebody else cover Nevada, or you could try to navigate the licensing issue for multi-state practice.

    I think the insurance companies are pushing telemedicine, both through their regular offerings and EAP programs. There’s tremendous pressure to keep costs down, both from the large self-insured employers, state medicaid, etc., from competition to keep rates low enough to compete for smaller employers and individuals, and from shareholders who want to see cost control.

  38. baconbits9 says:

    What about shifting to the on demand (cam girl) model? Rather than booking in advance and blocking up slots you are just available in a chat room and people who have preregistered (so you have access to their profile/medical history) can bid for you time. This way the guy you have seen 3-4 times who just needs 5 mins for a refill doesn’t leave you with 10 mins of dead time, and the guy who could genuinely be helped with a 30 min appointment doesn’t blow your whole schedule (or have to be cut off 15 mins in and told to re book).

    • J says:

      And now I have an image of Scott wearing a plunging v neck shirt in a messy room and speaking with a lot of local fry. Thanks a lot.

    • Scott Alexander says:

      I’ve chatted with some people about whether we could skirt regulations Uber-style by having unlicensed therapists bill themselves as camgirls. If anyone ever gets around to trying that, it sounds like you’ve already worked out a business model.

      • John Schilling says:

        So, this is going to look like you are using an internet porn business to front for the business where you hand out adderall prescriptions to anyone who asks for $35 and a phone call. And if you take payment in bitcoin, we can maybe squint and see some “dark-web money laundering” going on as well.

        The obvious question is, can we somehow make this look like a front for an international terrorist cell as well? Being raided by the police is an obnoxious waste of time, but setting a new record for number of different agencies sending SWAT teams to your home office at the same time is at least good for bragging rights.

        • stevphel says:

          Literally LOL – thanks for brightening up my day!

        • Scott Alexander says:

          Therapist, not psychiatrist!

          This was inspired by a former camgirl who said half of her clients really just wanted therapy from her anyway.

          • baconbits9 says:

            I think if you could figure out a 15 min program to help insomniacs fall asleep you would have a real business.

          • John Schilling says:

            Therapist, not psychiatrist!

            Ah, missed the context shift, sorry.

            I do still want to live in the universe where camgirls dispense therapy and adderall, and do money laundering on the side. Just because it sounds interesting, not because I have any desire whatsoever for any of their services.

          • baconbits9 says:

            Drone deliver the adderall at the beginning of the cam show, captured audience.

          • Paul Zrimsek says:

            Why not both at once, as long as you’re courting arrest anyway?

          • cuke says:

            The entire field of “life coaching” is set up to skirt these regulatory issues. If you look at certification programs (unregulated) for life coaches, a big part of their training overlaps with training to be a psychotherapist. It’s not as extensive, but it’s in the same direction.

        • bean says:

          “Our Vodka-powered nicotine gun is now complete.” “Better call the ATF, too.”

      • gryffinp says:

        This is the most cyberpunk thing I’ve read all month.

  39. jaimeastorga2000 says:

    Scott, didn’t you once write a comment detailing exactly why this would be illegal?

    I occasionally get emails from people who have read my blog, know I’m a psychiatrist, and pour out their life history to me and ask me to help them figure out what to do in terms of medication. I usually have to answer “I’m sorry, I can’t give medical advice over the Internet”, though occasionally if I’m living dangerously I’ll say something like “It sounds like you could really use an antidepressant, please talk to your doctor.” After I graduate residency, I would love to be able to just start a business charging $25 to read your short email, ask a couple of followup questions, and then suggest/prescribe appropriate psychiatric drugs, with the warning that this might not be quite as good as they would get if they went to a traditional appointment. I’m not even sure that last part would be true – teletherapy is proven as effective as face-to-face, and bibliotherapy (ie reading a book on therapy) is proven as effective as face-to-face as well. I give an email-sized summary of cases to my attendings all the time, and they tell me what to do based on that summary, so it’s not like that’s impossible. But even if it does work less well than the normal system, that would be their choice.

    I think this would be financially successful. I’d have no costs, and if I can do one $25 consultation every ten minutes, there’s your $150/hour doctor salary right there. But if I tried this, I would be violating all the laws. You can’t legally give advice without seeing a patient. You can’t legally do anything without making the patient sign a bunch of different forms. You can’t legally do anything without keeping a very careful medical record which has to be arranged in very specific ways. You can’t even legally operate across state lines for some reason! I expect there are literally at least a dozen other laws I would be breaking that I can’t think of right now.

    Remember, this isn’t about quackery vs. quality control. After I graduate I will be a totally legal and credentialled doctor. It’s about…well, I don’t know exactly what it’s about. But remember that there are tens of millions of people going without psychiatric care because they can’t afford it – because it would crazy even to try to afford it without health insurance. There are millions more going without care because they can’t physically get to a psychiatrist, either because they’re agoraphobic types who can’t leave the house, because they don’t have a car, etc. This is a giant national crisis. I have what I think is a good solution that would also make me a lot of money, and I can’t try it. Even worse, when I do go into practice, it’ll probably be for a big corporation rather than on my own, because if I did it on my own half of my time would be spent in bureaucratic/legal stuff rather than actually getting to see patients. I will have been successfully transformed from somebody who has a cool idea to solve a health crisis, into a gear in the corporate system creating it.

    • ADifferentAnonymous says:

      The answer there was that it would be illegal. This post seems to comply with the law, but still no one has done it.

    • Scott Alexander says:

      No, because seeing patients by videoconference legally counts as seeing them.

    • cuke says:

      I wonder if your view of this has changed since writing that post?

      In my city, there are plenty of private practice psychiatrists, some who take insurance and some who don’t, some who mix psychotherapy with med management and some who don’t. The ones I know pay 8% to a billing entity to handle the insurance stuff if they take insurance and they have arrangements with a couple of other colleagues to rotate on-call duty for emergencies. They all seem happy to be working outside big organizations and only seeing outpatient people.

      I don’t have the sense that their bureaucratic burden is prohibitive. I do my own insurance billing as a psychotherapist and it’s turned out to be easier to do it myself than to go through the agency that was doing the billing for me. The online claims filing portals are incredibly simple now. It takes a while to get independently credentialed with the insurance companies, but that’s not too hard either. I think it’s really a matter of each person’s cost/benefit analysis around autonomy. I don’t do well in large organizations and really value my autonomy, so I’m willing to pay a bit for that (both time and money). I’m not someone who was great at balancing my checkbook (back when we did that on paper), but I’ve found the bureaucratic part of solo practice to be way less of a big deal than people suggest.

  40. J says:

    I’m on a bronze plan, and afaict it means I pay basically everything out of pocket up to $12k. Which is great motivation to explore alterative services like this. My kid needed vaccinations while we were traveling, so we went down to the county health department which would do them for $20. Nope, turns out they were free.

    I need a blood panel. We went down to the local Walgreens to pick up a cheap prescription (thanks to goodrx.com, Scott you’re awesome!), and they had a mini clinic with a phone kiosk that connects to a call center that confirmed that for $70 I could see the doc right away and he’d order the panel.

    But that’s not necessary, because there are tons of online sites that’ll let me pick the basic/fancy/super fancy thyroid panel for $40-$150 and schedule an appointment at the local lab.

    None of that involved my insurance in any way.

    So yeah, there are actually some pretty neat services like this already.

  41. fr8train_ssc says:

    First, it seems like this is already being done? So I would say Scott is not off, but maybe even a bit late when it comes to this kind of model.

    On another note, I came across this article a few weeks ago on import substitution but I thought it might be relevant. What struck me as interesting was that the community, based on recommendations, managed to get a barber to come visit them by giving them a guaranteed number of cuts. I bring this up because I read a similar article a much longer time ago on Heritage that discussed how in the early 20th century, social organizations and fraternities used to have their own “House” or lodge doctor, the idea being that for most minor maladies, you could guarantee a pool of patients for the doctor to keep them fully utilized while keeping costs low.

    It would seem like the most viable way to decrease cost disease would be to try and emulate that old model: say the SFBay rationalist community house/co-op guarantees at least 20 patient hours a week for Scott, and in exchange for modest health insurance costs, they provide: an office/site if in-person consultation is needed; A place to store records securely; concierge/receptionist services for potential patients outside the co-op. This wasn’t unusual for social fraternities at that time, since nearly all of them had lodges, and also had a secretary or someone to take phone calls or handle other communications. This doesn’t prevent Scott from carrying out his complete on-line side of the business

  42. Doesntliketocomment says:

    I like the idea, but there is really so much wrong with this.

    People have already brought up scheduling. There is no way you are going to be able to keep this machine running at this optimum level without human intervention in the scheduling process. People are going to want to change appointments at the last minute, the schedule will end up having random gaps. “Well, I can charge people for no shows” Well that brings me to my next point…

    If you have no billing you will not get paid. Expect to see people skip out without paying. How are you going to stop them? Cancelling their prescriptions would be the only actual deterrent, and how often would you even notice in time? You are on to the next patient, remember?

    The most difficult problem, however, is one that might cause your business to actually work in the short term. That is of course that you will be the #1 stop for drug seekers. $35, no insurance involved, over skype? You are going to be filling out an adderall prescription for the same girl about 5 times a month. (she’s Cathy when her hair is tied back in the kitchen, Emma in the bedroom with the lights low, Traci with deep eyeshadow and a dark wig, ect.) Maybe one of the pharmacists will have some questions, but when do you have time to talk to pharmacists? You’ve got a patient to talk to in 3 minutes! (if they haven’t cancelled last minute)

    I think the real answer here actually lies in devaluing your profession. If you can do an adequate job in 15 minutes over skype (including at minimum 5 minutes verifying details and filling out paperwork) what service could you be providing that is worth $200,000 a year? Why couldn’t a trained Nurse Practitioner do your job, perhaps with the assistance of some checklists or Watson?

    • Doesntliketocomment says:

      Since I don’t want to come off a solely negative, I will add that I think one of the important things this plan gets right is moving established care away from insurance. The insurance industry is surprisingly incentivized to increase health care costs, as in many cases their profits are limited to a percentage of services provided, not to mention that high medical costs help deter individuals from trying to go without insurance altogether. Moving established procedures to an advertised, fixed-price scheme helps put everyone on the same footing and takes these procedures out of the neverending upward spiral of healthcare costs. I would argue that it is even helpful to those who might need assistance affording the costs, as it gives society a clear accounting on what is required to pay for those in need.

  43. slightlylesshairyape says:

    suppose I work a 40 hour week, 50 weeks a year, each appointment takes 15 minutes, and 75% of my workday is patient appointments. That’s 6000 appointments per year.

    You briefly alluded to this, but I think it bears repeating a bit further — work cannot be just totaled into number of hours. No offense, but I seriously doubt you could manage to do 24 15-minute appointments in a work day for more than a few weeks before completely flipping out.

    EDIT: Steve132 says corporate tax rates on a plan like this would be much higher than income tax as an employee; seems like that must be the problem

    I thought this could be made entire pass-through and avoid corporate tax by zeroing out at the end of the year. Might be a bit out of date though.

    • Scott Alexander says:

      “You briefly alluded to this, but I think it bears repeating a bit further — work cannot be just totaled into number of hours. No offense, but I seriously doubt you could manage to do 24 15-minute appointments in a work day for more than a few weeks before completely flipping out. ”

      I think a lot of doctors do this already. No word on how long it takes before they completely flip out.

      • slightlylesshairyape says:

        My understanding was that doctors in clinics are in the ballpark of 12-15 patients over 10 hours, not 24 over 6.

        • Eric Rall says:

          According to the survey quoted by this article, as of 2012 the average primary-care physician self-reported seeing 19 patients per day and spending 34.1 hours/week (6.8 hours/day assuming a five-day work week) on “direct patient care”. 26.8% reported seeing 21-30 patients/day, and 13.9% reported seeing 31+ patients/day.

          I’m guessing the long tail consisted mostly of nursing home and hospital doctors doing a quick check-in on all their patients and counting each as an patient encounter, or of doctors who counted replying to emails as a patient encounter.

    • idontknow131647093 says:

      Being a pass through is tax disadvantaged compared to an employee for 2 reasons: You pay 100% of the payroll tax yourself (essentially an extra 6% tax), and you can’t pay for health insurance with pre-tax money.

      $200k employee ~= $250k self employed.

  44. HeelBearCub says:

    As others have pointed out, you have a completely friction free model that includes absolutely zero costs. You also are discounting benefits as making up part of an employee compensation package.

    You also seem to be discounting the value of staff in performing either in other knowledge domains (CPA, IT) or more easily available ones (secretarial). As you increase the expected psychiatric output of the psychiatrist, you’d expect staff needs to go up, not down.

    You also are imagining into existence a valuable intellectual property, which is self-serve patient materials that actually perform the work of psychiatrists. But you haven’t included any budget to develop these materials.

    Then there is the simple utopian element of the plan, where nothing goes wrong, ever, while patients mostly do their own work. Perhaps this is built into only 30 out of 40 hours being appointment slots, but it seems like you are expecting the average patient to actually take far less than 15 minutes. This seems like a recipe for providing crappy care or being primarily a vehicle for drug seeking behavior of some sort.

    • baconbits9 says:

      The point of the math here isn’t to demonstrate how the business would work, it is to show just how stark the savings could be. 6,000 patients at $35 a session could be 4,000 at $50, or $40 and a lower cost of living as you don’t have to live in a high cost area.

      • Doesntliketocomment says:

        When trying to make a point based on numbers, you can’t handwave the math. If you are just tinkering with an established formula you can get away with saying things like “if we took this out it would obviously be cheaper” but if you are building something from the ground up you have to show that your model has at least some rigor.

      • cuke says:

        I agree with you about getting the math right. A solo practitioner, even one without an office, will still have these expenses against income:

        1. Liability insurance
        2. Continuing education units to maintain licensure
        3. Re-licensing fees
        4. Costs associated with webhosting, encrypted email/phone/video, scheduling/records software, internet service provision, communicating with other providers
        5. Marketing costs
        6. Educational materials, misc (home) office expenses
        7. Time and expenses associated with billing and collection

        I’m a private practice psychotherapist and at least 20% of my work time is unpaid in the form of managing records, billing, various communications, and other logistical aspects of non-clinical overhead. Paying rent is the least of it for me. Dealing with insurance claims is some of it by no means most of it.

        At current insurance reimbursement rates, my profession is not sustainable. Which is why most of us raise our rates and go out of network. The job is consuming and stressful to do it well. If you don’t do it well, you are wasting people’s time or harming them. A big patient load is the quickest way to not do it well.

        I am dubious that a psychiatrist could do a good job seeing people at volumes that would constitute adequate pay for them, while charging patients significantly less.

        I may have the numbers wrong, but looking at CDC data for 2014, it looks to me like all spending on mental health and substance abuse treatment is about 7% of total healthcare spending in the U.S.

        I think I’d rather look to high drug costs, high cost of labs and procedures, and high administrative costs for areas to cut.

        I’m interested to see what Atul Gawande and Health Venture come up with.

  45. Eponymous says:

    There are plenty of places that try to operate in a minimum-cost way. My wife works at a primary care clinic that serves a poor population. Obviously they don’t use skype in place of office visits, because most of her patients wouldn’t be able to skype (and you need physical examinations anyway). Money is a problem: patients sometimes miss appointments because they couldn’t get $20 together for their copay. Her patient visits are 15 minutes, and she sees 20+ per day.

    There’s very little unnecessary overhead: yes, they have an office and front desk staff, and you need some admin people at HQ to take care of higher-level business matters (personnel, supplies, accounting, insurance). But I don’t see how you could avoid that. There’s a minimum of managers — actually one of my wife’s main complaints is the lack of management.

    The main external regulation comes from insurance companies/government. Doctor salary is based on what you bill for, with rates set in a standard way. There are requirements for documentation, and paperwork for orders and so on, but I think that’s all set by law or insurance companies. It mostly creates extra work for my wife and her nurse. But I’m not sure how you could avoid that.

    Her patients are a mix of uninsured, medicare/medicaid, and a few with decent insurance. But I get the sense that medicare/medicaid sort of set the standards, and the other insurance companies mostly follow.

    Trying to imagine a cheap-o version of this, I really can’t get very far. If you go to cash only (or whatever), you lose out on a huge part of your natural patient population (medicare/medicaid); but if you take them, you’re in the public/private insurance vortex with all its requirements and set billing rates. Maybe you could do a sort of boutique cheap-o thing for middle class urban hipsters who like skype and are pretty healthy, but I don’t think it scales.

    I really don’t see how you can save a lot here over what they do. If there’s some crazy cost disease, it’s upstream of the clinic level (insurance companies? government?).

    (For the record, I’m skeptical of cost disease.)

    • cuke says:

      What you say makes sense to me. I don’t think primary care — which certain kinds of mental health care essentially also is — is the main source of cost disease.

      There’s no question that our per capita spending on healthcare is way higher than other developed countries, while our utilization rates are not significantly higher. So what accounts for the disparity in cost?

      Maybe a little of everything people always raise: drug costs, administration costs, high end labs, procedures, and equipment, inefficiencies from multiple overlapping players, comparatively fewer social services for the lowest SES. We know emergency room utilization went down when ACA and Medicaid expansion happened, so presumably there are still more people who could be using a more appropriate level of care if they could afford it.

      I’m always struck when I look at lists of largest corporations by revenue and United Healthcare and CVS come in at numbers 12 and 13, or higher on some lists. McKesson (pharma and supplies) is number 11 or 5 depending on the list. I don’t know what profit margins are for these firms, but they are some of the largest private sector firms we have. They are publicly traded and their first duty is to their shareholders.

  46. MartMart says:

    I don’t run a business, but I work closely with people who do. The first order estimation rule (although it could be industry specific) tends to be “take your estimated costs and double them”. So I think you should charge at least $70/visit.
    This will provide a cushion should you not be able to fill your entire schedule, or find yourself physically unable to take that many patients, or find that you need more time per patient, or who knows what.
    That said, I don’t think it’s a bad idea, even at higher prices than co-pay, if the business feels more approachable, more likely to simply treat what is needed, and send the patient on their way.

    Side story. Like many, I have back problems. If I don’t stay on top of exercises, things get out of hand pretty quick, and when they do, I go see a chiropractor. The one I started with had a seemingly strange deal, he charges people whatever their co-pay is, and then never files a claim with the insurance company. This was fine with me for some time. Then socially, I met another chiropractor, and went there instead. He charged me nothing. He stopped by house a day later and gave me a tens unit. a few days later a package arrived with 1,000 conductive pads. Then my insurance started calling asking if I’ve been in an accident. 30 days later another 1,000 pads arrived in the mail (for which my insurance was charged $700), and so I kept getting calls form my insurance company asking about the non existent accident. It took quiet some time and effort to stop the packages of pads to stop coming. Even tho that chiro never cost me a cent, I will never go back, even if my current one raises his prices above co-pay.
    Transparency is worth paying for, and the less familiar I am with the business, the more I’m willing to pay for a straight, transparent service.

  47. luxsola says:

    Other people have mentioned the tax problem, and that’s part of it.

    Other people still have mentioned the medical cartels using regulatory capture to destroy CheapO Psychiatry, and that’s another part of it.

    But I think a very big part of it, that no one has mentioned so far, is that there aren’t a lot of doctors who would do this sort of thing.

    You have your doctor-entrepeneurs, who are out to get rich and start concierge clinics charging $500 dollars a visit. And you have your doctor-altruists, who work for free clinics making only 70k a year, because they want to help people.

    But how many doctor-effective altruists do you have? You probably know all of them personally, and most of them have probably made the perfectly logical decision to be doctor-entrepeneurs, get rich, and donate the excess to buy bednets.

    But let’s say you have enough doctor EAs who think that the long term goal of fighting cost disease is more important than the short term goal of fighting regular disease.

    The number one obstacle is, as you’ve mentioned, competing with regular psych clinics, who (for the patients) are almost as cheap as you would be, and provide a service that feels better, even if it doesn’t get them better outcomes.

    So the goal would be to sell yourself, not to patients, but to insurers, who are almost by definition risk averse, and who have long term laboriously negotiated contracts with the existing psych clinics, and with employers.

    Suppose I’m Insuracare’s psych clinic finding guy, and you come up to me with your anti-cost disease clinic with its hair dryer logo, which is right next door to the regular one.

    Your office is barebones, your secretary is an electronic kiosk, you’ve cut every cost imaginable, and you swear to me that it won’t actually reduce the quality of care. What’s more, I absolutely believe you.

    But your pay doesn’t come out of my pocket. And my incentive to cut costs exists, but it’s very slim, and being that I work for an insurance company, I’m a risk averse guy.

    What if I make your clinic our ‘in-network provider’, and then the huge tech company in your city decides that it’s going to purchase insurance from Insurafun next year, because a few of its employees have complained that they like the psych clinic next door better, and are willing to pay the (to them) extra ten bucks a visit to have a nicer waiting room, and a pretty receptionist, and all the placebo-effecty things that normal psych clinics have, and the Insuracare hasn’t (yet) passed our Cheapo Psychiatry savings onto them yet, so Insurafun isn’t even more expensive.

    Even if we had passed on the savings, Psychiatry is such a small chunk of the overall cost of the insurance that it barely affects their bottom line anyway.

    That’s the crux of the issue with Cheapo Psychiatry. It’s a coordination problem. You have to simultaneously convince psychiatrists, and insurance companies, and employers, and patients, that your model is better.

    And while Cheapo Psychiatry saves the system as a whole a lot of money, it only saves each individual decision maker a few marginal dollars, at the cost of taking a risk on an entirely new model of medicine.

    What happens when one of Cheapo Psychiatry’s patients commits suicide after a (completely normal) ten minute visit after which you make a very minor change to their medication that probably had nothing to do with his death, and then you’re standing before a malpractice judge, or the medical board (both of whom notoriously hate change), who have some very pointed questions about your claim that you didn’t reduce the quality of care.

    Even if you have a lower rate of negative patient outcomes than conventional psych clinics, your new model is still answerable for the negative patient outcomes that occur.

    You saw this same thing in Nefazadone versus Seroquel, and The Right To Waive Your Rights. Fault is a tricky thing to assign, and change is risky in a litigious society.

  48. eqdw says:

    Hey Scott

    I know a surgeon (? Doctor of some kind) in the SF Bay Area who tried to do a startup with essentially this business plan. Super cheap, super efficient tele-medicine for people who otherwise can’t afford it.

    His startup failed. I don’t remember exactly why. But if you’d like, I can introduce you to him and you can flesh this idea out more.

    Let me know.

  49. baconbits9 says:

    This is a good spot for my reminder that prices don’t equal costs. Even if you charged the same amount per visit as in person ones you could provide large time savings for your patients. If you could actually get a check in visit in 15 mins then people could do it from work on a short break rather than having to take an hour+ to get too and from the appointment and you gain a little bit of privacy as well.

  50. glorkvorn says:

    We need more people to follow the Undercutters Pizza business model. You could it with psychiatry!

    Imagine waiting outside a really rich, fancy “real” psychiatry place. Maybe you’re wearing one of those suits with dollar signs on it. You see someone coming in wearing fancy clothes, and you ask him what he’s coming in for. You have a quick 15 minute psychiatry session right then and there (I guess in the hallway of the psychiatry building?) and write him a prescription on the spot, for which he pays you 35 bucks in cash and leaves.

    I challenge anyone to find a possible flaw in this business model.

    • glorkvorn says:

      Note: I meant this comment as a joke of course. But I really do wish that more people would start businesses that nakedly compete on price, even if they have to sacrifice a bit of quality for that. I wonder if at some point every business school started teaching “don’t compete on price”, and it’s just been taken for granted every since then that you shouldn’t even try that strategy?

      • Edward Scizorhands says:

        It’s fine to compete on price, but it means that WalMart undercuts you. Until you can grow into a market leader that can dominate on price, you need to distinguish yourself to survive.

        • glorkvorn says:

          Sure, you can’t undercut WalMart because they’re already cutting prices absurdly low. But there seems to be a lot of service industries where no one is even trying to compete on price, they’re all just marketing themselves as the absolute best, bar none, and a lot of them won’t even tell you the price up front.

      • Worley says:

        The problem with competing on price is that any mistake is fatal. And there’s little opportunity to cream off the extra profits that would pay back investors. As the venture capitalists always ask, What is the barrier to entry that prevents others from competing with you on price?

  51. NostalgiaForInfinity says:

    One question I’d have is whether this is the kind of thing people/patients actually want and will pay for (even though it’d be cheaper). I’ve often seen people claim that the provision of small-talk, hand-hold-y stuff is a big reason why people go to alternative medicine. If people value that so highly that they’re willing to go someone who will give them – in terms of treatment – literally nothing but sugar pills, a very efficient psychiatric practice seems like it might be not what [some] people want. It seems like a big step away from something everyone seems to appreciate about healthcare (caring human interaction).

    This doesn’t mean there aren’t enough people to make a sustainable business out of providing actually useful, cheap, effective healthcare (obviously video conferencing helps here). But there will probably also always be a market for terribly expensive and just generally terrible healthcare. And it might be bigger. Which obviously would be a shame, and fairly tragic.
    What markets provide is what people pay for, and what people pay for is not always the most effective provider of what they say they want.

  52. Sigivald says:

    One more reason nobody does exactly that is that … patients suck, because they’re human beings.

    Unless there’s a no-show fee I’d expect a fair number of those tightly-booked 15 minute appointments to either no-show, or be late and somehow expect to be seen anyway (and if you, wisely, refuse, well, you’re not getting paid).

    (Likewise I’m not sure you could fill your schedule 100% anyway, but that’s purely empirical.)

    So you’d have to charge more – possibly twice as much? – to ensure that you got the same net.

    • Scott Alexander says:

      Could you set up something like Google Calendar that requires a payment in advance to book a slot?

      • cuke says:

        I know distance psychotherapists who require Paypal prior to the session or the session doesn’t happen.

        I think this model might work at 30 minute intervals, even if you only meet people for 15-20 minutes. Otherwise the 15 minutes is effectively 5-7 minutes, just given logistics. And maybe could be done at $50-60/session. But at that point, you’re not doing much better than the psychotherapists, and your liability is greater. I suspect at $50-60/session you’re going to lose people who will go with the insurance-filers, even if it just means getting credit towards their high deductible.

        I’ve been doing physical therapy the past couple of months and as best I can tell, my masters level PT works with three people simultaneously across an hour and is billing each of our insurance companies about $250 per visit. That’s $750/hour and the vast majority of that time is spent with all of us on various machines doing our own thing while he takes notes. I wouldn’t want to do the work, but it looks like a good gig and it made all my back pain go away.

      • wintermute92 says:

        Lots of IRL doctors already have high-ish no-show fees which can’t be billed to insurance. It might be annoyingly hard to collect if the patient just takes off forever without paying, but I think repeat no-shows would be rare and cashflow-positive.

        You might get shitty reviews (“I was 10 minutes late and he cancelled and charged me lots of money anyway!”), but presumably the clients seeking this out aren’t likely to bail thanks to a grumpy review.

  53. proyas says:

    But the flip side would be that Cheap-O appointments would be brutally efficient. If you had problems with sleep, I would evaluate you for any relevant diseases, give you any medications that might be indicated, then tell you to read the How To Get Good Sleep guide on the website. Boom, done. Small talk would be absolutely banned.

    Be careful. If Cheap-O Psychiatry gets too successful, someone might get the idea to copy it, but with the “middleman” cut out, thus creating “Robo Psychiatry.”

  54. stevphel says:

    Nice thought experiment Scott. As an entrepreneurship professor, let me throw a few random thoughts out:

    1. Tipping point
    Sometimes there is a tipping point with a new product or service as it gains acceptance. Lots of factors influence the speed of adoption in a product’s life cycle, including:

    2. Signaling
    A lot of people associate low price with low quality. Convincing people you are one of the ‘good shrinks’ is a big problem – particularly if fly-by-nighters enter the industry too. Witness online for-profit education and the race to the bottom in standards.

    3. Industry structure.
    The current system has multiple equilibria – medicare/obamacare, no insurance, or employer-based insurance. If my employer is paying some or all of my bill then what incentive do I have to economize? However, give me a shrink voucher for $250 an hour and tell me I can go to any qualified shrink then I might consider your services at $35.

    Of course, as others have mentioned the low/no insured can’t even afford the co-pay. So, the issue, at one level, is how do I get the well-insured to switch.

    The problem might just solve itself however. My out of pocket maximum doubled this year. I already put the maximum in my FSA but then I have to use it or lose it. At some point, people will just start to self-insure (my premiums, employer contribution, deductibles, FSA, and co-pays currently exceed $12K).

    4. Tax structure
    Note, that if I elect to self-insure under the current system, I would not get a tax deduction until my medical bills exceeded 10% of my income. My employer would also not pay me the (tax free) employer contribution if I opted out of company insurance. This greatly lowers my desire to pay out of my own pocket.

    5. Cost structure
    I agree with an earlier post that you need to double your desired hourly rate for taxes, marketing, admin, legal, accounting, slack etc.

    6. Supply
    The supply of therapists is controlled thus pushing up salaries (and prices). Your calculations should also adjust salaries for risk – $200K with low risk is worth more than $200K with higher risk (including the lost income while ramping up demand for your service). Bottom line: you need to pay more than $200k to have people switch to free lance (or increase the supply of qualified providers).

    7. Regulatory burden
    There are also some regulatory costs to overcome (cross-state licensing/insurance) but successful startups overcome these all the time.

  55. James Miller says:

    A successful Cheap-O medical market might be the market for neurofeedback. I got neurofeedback from a part-time practitioner who also worked as a nurse. She had a small office, no employees, and didn’t accept insurance.

  56. youzicha says:

    You say that you want to do this without taking a pay cut, but then go on to say that working in continuous 15-minute blocks would be exhausting, and standard practice is to only work for 40 minutes per hour and spend the rest writing blog posts, so it seems to amount to a cut in hourly wages anyway.

  57. beleester says:

    Cheap-O Psychiatry wouldn’t have an office, because offices cost money. You would Skype, from your house to mine. It wouldn’t have a receptionist, because receptionists cost money. You would book a slot in my Google Calendar. It wouldn’t have a billing department, because billing departments cost money. You would PayPal me the cost of the appointment afterwards – or, to be really #aesthetic, use cryptocurrency.

    Isn’t part of the idea behind Cost Disease that things used to be cheap, not just that they could theoretically be cheaper? In other words, back in the day, a psychiatrist didn’t have Google Calendar, Skype, had to work out of an office, had to take cash or checks instead of fancy-schmancy e-currency schemes, and somehow was still able to deliver cheaper psychiatry than today. How does that make any sense? Are people just consuming more psychiatric care than before?

  58. hls2003 says:

    Others have pointed out the practical problems with the specific exemplar business model. But it seems to me that the biggest problem is seeking to retain the $200,000 salary. As with most industries that involve any kind of skilled labor, the costs of labor dominate other inputs. Vastly. Compare what a school board spends on personnel versus physical plant. Or the military. Or a law firm. Or a hospital. It’s always the cost of people driving the cost escalation. Medical care used to be a lot cheaper because doctors and nurses and staff used to be a lot cheaper. That’s why you’re having so much trouble making the business model be a money-saver; it’s like trying to balance the federal budget without touching entitlements or the military.

    But I don’t want to pick on medical professionals, who obviously don’t want to see their standard of living cut in half by a 50% pay cut. Those doctors and nurses still need to pay for schools and government services and college and housing and infrastructure and all the other things you mentioned in your original Cost Disease article. Which means that their labor costs can’t get cut in half while everything else spirals out of control due to cost disease. As long as there is systemic cost disease – for whatever reason; I have my opinions but for this point it’s not relevant – you will have no success in trying to cure cost disease in any single sector. Those practitioners can’t afford the pay cut because everything they consume is so expensive; and their high salaries are the biggest part of what drive the cost of medical care (particularly in your example here of therapy / psychiatry, personally seeing patients).

  59. John Schilling says:

    A bit of necessary clarification:

    the whole point of cost disease is that we should be able to lower prices without anyone having to take a pay cut.

    It is mathematically impossible for the cost of any good or service to be cut, without someone associated with that good or service winding up getting paid less. What we typically mean by “without anyone having to take a pay cut”, is really “without anyone we see as central to the product/service having to take a pay cut, but with the parasites being cut out entirely and getting nothing”.

    The armor-piercing question for anyone who proposes to reduce cost, particularly if they are proposing something as vague as “efficiency” or “less waste” is, who gets fired?

    Because almost nobody accepts a pay cut, either in salary or wages or in hours worked, and if they do it’s purely temporary while they look for a new job elsewhere. If it’s purely providers of capital who are being targeted, sometimes you can get them to accept reduced returns without divesting entirely. Mostly, though, demanding people accept less money while still playing their assigned role in producing your good or providing your service causes serious morale and commitment problems, and you’re better off getting rid of a few people entirely than cutting the salary/wages/returns/income of many.

    So, to cut costs, you’ve got to cut people from some part of the process. Tell me who gets fired, and I can guess how much money is really going to be saved. If the answer is “nobody gets fired”, then no money is getting saved.

    In this case, the answer is clearly meant to be “everybody but the actual psychiatrist gets fired, the psychiatrist’s pay stays the same”, which does offer the potential for real cost savings. So that’s good. But it may be unrealistic w/re the ability to run this business with e.g. zero professional accounting support, as others have pointed out, so we have to turn the question around to “who of all those people you just fired, are you going to have to sheepishly ask to come back as contractors?”

    • Eric Rall says:

      A follow-up question to “Who gets fired?” is “Who will do the task that had been done by the people who got fired?”

      “Nobody” is the ideal answer here, but if you’ve got people doing work that won’t be missed if it doesn’t get done, then that’s a proverbial $100 bill lying in the street, and it’s more likely that you’ve misread the situation than that nobody else has seen it and picked it up already. The next best answers are probably various forms of substituting capital for labor: using software and equipment to allow the same amount of work to be done by fewer workers, or improving procedures so the work can get done faster.

      In this proposal, the best candidate for work that can get done by “nobody” is insurance billing. Cash-on-the-barrelhead is a lot more labor efficient than the current process for getting paid by a US health insurance company.

      Appointment-booking is the next best candidate. Scott’s proposing pushing 99% of the appointment booking work out onto the patients, and substituting capital for labor (COTS scheduling software) so this isn’t a big implicit cost to the patients over what they’re already doing. But this seems to be something that’s already happening to a large extent with conventional clinics: about half of the doctors’ offices I’ve dealt with in recent years have some level of self-service automated appointment booking.

      The worst possible answer is probably “A psychiatrist whose market wage is $100/hour will do this, instead of a medical assistant whose market wage is $15/hour”. That trade-off only makes sense if the psychiatrist is at least 7x as productive as the medical assistant at that particular task. For the overwhelming majority of front-office work at a psychiatric clinic, I doubt this is true. But I have only a vague idea of what front-office work there is at a psychiatric clinic other than billing and scheduling.

      • NostalgiaForInfinity says:

        “Nobody” is the ideal answer here, but if you’ve got people doing work that won’t be missed if it doesn’t get done, then that’s a proverbial $100 bill lying in the street, and it’s more likely that you’ve misread the situation than that nobody else has seen it and picked it up already.

        I think a workable metaphor would be an evolutionary one. A peacock’s tail seems like an obvious example of waste: get rid of it and your tail-less peacock should be able to out-compete all these lumbering show-offs. But now none of the peahens will mate with your plain-looking freak. By removing the tail, have you found and picked up your proverbial $100 or not? In one sense obviously yes, because you’ve clearly removed what seems [from the outside] like wasteful spending. But in another sense obviously not, because the situation is not about waste-minimisation, it’s about reproduction – and you can reproduce successfully even when (or even because) you waste a hell of a lot. Waste minimisation in this example is actively counter-productive.

        I think this (or things like it) helps explain lots of corporate bloat.

    • baconbits9 says:

      It is mathematically impossible for the cost of any good or service to be cut, without someone associated with that good or service winding up getting paid less.

      This is not true, you can cut the cost of a good or service and see an increase in wages for the entire industry even because demand can rise to exceed to “losses” that the industry sees in cost cuts. See the Model T, and about 1,000 other examples.

      • Eric Rall says:

        I think John’s speaking on a per-unit-of-work basis. Ford’s assembly line workers may have made quite a bit more per hour than they had before, but they made a lot less per car. The difference is that the assembly line production model substituted capital for labor, in the form of a much more efficient work flow, so cars per hour per worker went way up.

        You’re correct that when this happens in a way that drives up total demand, nobody literally needs to get fired.

        On the other hand, I’m not sure the Model T is a great example here. It’s my understanding that pre-Model-T cars were made by skilled artisans who probably made more on an hourly basis than Ford’s assembly line workers. The artisans got “fired” (indirectly, since Ford Motor Company was a new entrant to the market), and Ford hired cheaper general labor to work his new assembly line. He did pay them a lot more than was customary at the time for general labor, since assembly-line work is mind-numbingly tedious compared to other available general labor tasks, so he needed to pay a premium to retain workers for a reasonable length of time.

        • deciusbrutus says:

          Henry Ford COULD have hired the same people who made vehicles by hand and even paid them more, but he could only have done so for assembly line work.

  60. a_lieb says:

    If you started some kind of practice like this (ideally with other rationalist-minded docs), I would use it for every relevant medical need in a second. If my insurance didn’t cover it, I’d even pay a small premium over using my insurance, just to be part of something cool.

  61. a_lieb says:

    A lot of people are rightly pointing out all the ways that this is hard. But I feel like there’s something to be said for the “crazy outsider” archetype who comes in ignoring all the obstacles (maybe even not knowing about a lot of them) and just does it through sheer force of will.

    Stripe was like that—it was a couple of kids that didn’t even fully understand the payment industry, and didn’t realize how much bureaucracy, regulation and technical debt they would have to slog through to even have a chance at fixing all of the blatant inefficiencies they were seeing. Some combination of that outside perspective and willingness to just plow through and try it, enabled them to beat a new path.

    I’m not saying it would work in this case, but it’s not a priori obvious that it wouldn’t.

  62. joelsol says:

    This is roughly what we’re doing at GYANT -digital healthcare at scale. There are a few twists on how this idea is combined with current-gen AI, specifically:

    1. Patient feels sick
    2. Patient starts the GYANT app
    3. Patient answers a few general questions
    4. GYANT asks the patient for their complaint
    5. GYANT performs a thorough symptom pursuit in on average 25 questions
    6. GYANT displays this for a provider to review while the patient waits. Provider also receives a diagnosis recommendation and a treatment plan (via AI)
    7. Provider decides whether to accept GYANT’s recommendation or to engage in a direct conversation with the patient through chat or potentially video
    8. Provider decides on a diagnosis and treatment plan
    9. If prescription: GYANT asks details about which pharmacy to send the prescription to
    10. Next days: GYANT follows up automatically (symptom tracking, medication reminders, additional home care advice)
    11. If symptoms deviate from expected course, Provider gets alert to re-engage with the patient

    Which makes unit economics significantly lower than direct engagement, keeps provider interaction short & happy, while still maintaining high engagement with the patient, AND unlike current state medicine, it actually has a feedback loop on whether treatment worked.
    (For state licensing reasons, we’re rolling the provider-in-the-loop version out on a state-by-state basis, currently in California -if you’re somewhere else, you’ll get an AI diagnosis with legal disclaimers. That version of the experience is also available on Facebook, see https://www.messenger.com/t/theGYANT )
    (We’re hiring! Software engineers in SF. Email joel at gyant.com )

  63. The Nybbler says:

    My company has been pushing Spring which has a few of these characteristics including therapy via videoconference, if the promo material is correct. Not sure whether you talk to a mental health professional or Eliza-like AI, material wasn’t clear. It bills via insurance company rather than cryptocurrency so there’s a huge extra expense over Cheap-O.

    Haven’t tried it because <makes Gomez Addams face> I’m perfectly sane.

  64. Worley says:

    It seems like the problem is the same one as with most startups: (1) How do you get people to work there? (2) How do you get customers?

    It’s not clear that this model is an attractive alternative for someone who can earn “$200k/year risk-free”. To be safe, you’d have to work out a model that would pay $300k/year, with all risks and inconveniences included.

    It’s also not clear that you could get enough patients of the right type. My experience is that patients are very price-sensitive, even if they make plenty of money (like computer programmers that I know). The people who won’t go to a nicer clinic are ones that don’t have insurance that renders the decision essentially cost-free (to them). But how do you convince those patients to part with cash, when they could just continue to suffer for free?

    I’m not saying this is impossible, but they’re clearly challenges.

    • Worley says:

      One comparison point is how psychiatry is done in countries that have a national health system. That would at least get you proof that your new model can “cure” patients, if some NHS uses a system which interacts with the patients in much the same way you propose. (Of course, it doesn’t tell you anything about the economic/business questions, because most NHSs depend on being able to dictate to physicians what they can earn.)

  65. PLindenfors says:

    I suggest you add some expenses for placebo-treatments. White coats, serious looking office, fancy diplomas on the wall, machines that go ping. Otherwise – great idea!

  66. deciusbrutus says:

    On the Surgery Center of Oklahoma: “For example, both human resources and building maintenance are the responsibility of the head nurse.”

    No, the head nurse does not interact with patients at all if they are also responsible for the backup generator tests, deciding whether an job applicant with a medical condition preventing sustained physical activity is unable to perform the basic duties of the position and CANNOT be hired or has a protected disability, making sure the fire extinguisher inspection tags are up to date, explaining to someone that the IRS says they can’t claim as many dependents as their I-9 says, and properly storing and/or disposing of used fluorescent light bulbs after replacing them. If the head nurse delegates some of those tasks (to nurses? to doctors?), they take even more person-hours than if one person managed to solo them.

    The opposite of cost disease is cost-cutting disease, in which important things are not done because they cost time/money. Cheap-O Psychiatry is going to tell a patient to read and understand the page on side-effects of their prescription, and to make another appointment if they have questions or concerns about those side effects?

    • Anonymousse says:

      Thanks for bringing this up, I thought it was egregious to leave this sentence completely unexplained as well. I don’t see this approach being widely applicable, as I expect it would take either a herculean effort on the part of the person fulfilling the head nurse/building manager/hr department roles (very limited number of people being capable of handling all three simultaneously), or the responsibilities of these roles are very much reduced than in a typical organization. Perhaps they are aggressive in reducing HR, but head nurse and building manager don’t strike me as very reducible positions.

      • deciusbrutus says:

        “Facilities manager” is a position that has a LOT of tasks that can individually be delayed without immediate catastrophic failure.

        For example, the industry standard way to replace fluorescent lighting used to be (it might have changed since I learned it) to wait until ~10% of the individual bulbs had gone bad, then replace ALL of the bulbs in the zone at once. Because the cost of changing one bulb is mostly time getting the ladder and bulbs to the location, swapping out dozens or hundreds at a time isn’t much more expensive, and bulbs from different batches or of different ages will have slightly different color, so as much as possible you want each area to have bulbs from the same batch. Properly dispose of the (mercury-containing) dead bulbs, and properly store enough of the ones that weren’t dead yet to spot-replace other bulbs as they burn out before the mass replacement.

        There’s a juggling act when opening a new building, to get a maintenance schedule that replaces one floor or wing at a go, and eventually spreads the maintenance out evenly over the lifecycle of the lights.

        Or the head nurse can tell the other nurses where the ladders and bulbs are, and have them put the old bulbs in the dumpster. It ends up costing more than having a facilities person do it (because the economies of labor aren’t there), but the cost is spread out over all the nurses and only takes 20 minutes once in a while. And you hardly ever get fined for tossing mercury into your dumpster, because people hardly ever check.

        But hospitals need reliable power. When the commercial grid fails for whatever reason, the things that get plugged into the red outlets need to keep working. Most of them have a little bit of local battery backup, enough for a generator to start up and power the critical equipment power supply. Part of hospital facilities management is making sure that the hospital generator WILL start up and transfer load without any human intervention. Most of the time, that test is completely boring and generates zero maintenance tasks, which looks a lot like “does not add value” to a money-focused board. But the alternative is that an undiagnosed problem DOES develop and WHEN the commercial grid fails the generator ALSO fails. People who need the equipment that gets plugged into the red outlets to live WILL die.

        Either the Head Nurse is also minimally qualified to inspect and load-test a diesel generator, or they are going to have to outsource that task to someone with those qualifications, for more money than having someone in-house. (I’m open to the possibility that it might be more cost-effective to outsource fixing an oil leak; but there’s no way it’s cheaper to outsource checking FOR an oil leak.)

  67. raj says:

    It seems like some strange attractor/local optima/first mover dilemma that is very hard to break free from. I believe there is some hypothetical world where I pay my doctors directly for services rendered, but there’s no way to actually get to that world.

    Nobody is going to use cheap-o psychiatry unless they don’t have insurance (otherwise, they may as well take the $40 copay, 1 hour appointment, in person, since they’re already paying to be insured), but how is that an option, considering:

    * The ACA individual mandate – huge tax penalty to duck the system.
    * Missing out on tax-advantages: employer provided healthcare is pre-tax. Libertarian healthcare is not.
    * Lack of catastrophic insurance: your only option are short-term policies, which can only last for 3 months. I juggled these for a period, it was very stressful and inconvenient. (premiums are AMAZINGLY low when you can discriminate against preexisting conditions, though)
    * Finally, and most fundamentally: lack of doctors willing to negotiate for cost. Some will, but you’re closing off a huge fraction of the actual healthcare apparatus.

    • Ninmesara says:

      > I believe there is some hypothetical world where I pay my doctors directly for services rendered

      Thar worl exists in many African hospitals. They even make you buy the material for the surgeries yourself. It doesn’t wok very well.

  68. legalmeezer says:

    There is sort of an equivalent for this in the law. Private criminal defense attorneys often have contracts with local courts handling indigent defense services for jurisdictions that don’t have public defender offices, or for conflict cases in jurisdictions that do.

    Generally, the amount paid per case is about 10-20% of what it would cost to hire the same attorney privately. While hardly lucrative, many private attorneys seek out these contracts. I recently learned that the contract-attorney list in one large county had a five year wait list to get on it. So how is it that an attorney who requires $10,000 from a private client to defend his armed robbery case gladly accepts $1,000 from the county to do the same case?

    I see the following factors as leading to cost-reduction:
    1) Guaranteed payment. County cuts you a check, it’s good; no risk of getting stiffed on a portion of the bill, unlike with private clients.
    2) Case comes to you–no advertising, no pounding the pavement, no networking. All that takes a lot of time and money which must be recouped in the fee.
    3) Somewhat more limited representation–DUI defense won’t include doing the civil DMV hearing, for example.
    4) No need to impress/ keep client happy. No fancy office, no receptionist, no expensive suit. If client calls you after hours or wants to waste your time on something irrelevant to the case, you hang up and move on. No explaining things to client and then explaining the same thing to his wife the next day.
    5) More cases = more efficiency. A single morning hearing might take 5 minutes, but driving to the court and back takes an hour. If you have one private client, that’s 65 minutes spent on that one case. If you have five government clients set for the same morning, it’s 85 minutes, or only 17 minutes per case.

    There are probably some other things I’m missing.

    • Randy M says:

      Interesting! However, similar to a concern someone raised above about psychiatrist patients going over time, I think your 5 cases in 25 minutes is very optimistic, an assumes the lawyer is booked for successive cases in the same room with very little time in between for shuffling people in and out. Is that accurate?

      • legalmeezer says:

        It’s about accurate. Many hearings, like arraignments and continuances, are quite short. Many courts have a “morning calendar” where all cases are scheduled at 9:00 am, so if you’re there ready to go, you can get in and out quickly. And unlike in the psychiatry example, you’re not spending your whole day in court, trying to do 96 five minute hearings in 8 hours, which would likely drive you crazy.

  69. Ventrue Capital says:

    $35 per appointment isn’t bad. Most existing cash-only psychiatry practices charge at least $150 per (thirty minute) appointment, so we would be less than a quarter of the going rate.

    ($35/15 minutes) * (60 minutes/hour) = $140/hour.

    ($150/30 minutes) * (60 minutes/hour) = $300/hour.

    ($140/hour) / ($300/hour) = 0.4667

    So you’re less than half the price but not less than a quarter of the price.

  70. hollyluja says:

    My appointments with my Kaiser psych are 90% telephone based <5 min.

    There are a ton of direct or boutique primary care docs who don't take insurance. Given the headache of insurance paperwork, I'm actually surprised it's not closer to 90%.

  71. pseudon says:

    I think Atul Gawande’s 2009 article on the Cost Conundrum is relevant here: https://www.newyorker.com/magazine/2009/06/01/the-cost-conundrum

    Incidentally, Gawande was just named CEO of the Bezos-Buffett health care startup. I’m uncharacteristically excited about this.

  72. tocny says:

    How little could Cheap-O charge? Suppose I wanted to earn an average psychiatrist salary of about $200K – the whole point of cost disease is that we should be able to lower prices without anyone having to take a pay cut.

    That is well and good for the psychiatrist, but what about the receptionist that you have put out of work? He would be taking a pay cut!

  73. whateverthisistupd says:

    Short answer: because it’s illegal. Medical industries are highly regulated. The rationale is to keep medicine affordable, but in practice the opposite happens, as the medical/industrial complex destroys competition. I wish I had saved the link, but there was a case of a NY doctor who had his own clinic where he could perform most commonplace operations, catered to a lower income groups of patients, and realized he could offer a much cheaper form of insurance since he didn’t have all the bureaucrtic overhead. It was popular with his patients and worked. So naturally he was arrested. What you tend to forget when analyzing this stuff is that whenever there is a large scale system in place, there are strong incentives to keep the established way of doing things going. It’s why even though having american car plants shut down would have helped carbon emissions, the plants had to be bailed out and americans were pushed to keep buying cars the market says they didn’t want.

    It’a a standard libertarinish critique, but it’s basically true. Once certain structures dominate the market, they will use well meaning progressive legislation to shut out competitors, leading to stagnation, which is a big part of cost disease in general. The more this system grows, the harder it becomes to disentangle from it, and so many people with effective lobying power have an interest in seeing the system continue. The solution always seems to be to try to regulate the problem, which may provide some short term benefit for some, but ultimately serves to further entrench the system.

    It gets to the point (which I think we’re at now) where most people don’t really have a concept of the independent business. I think this is probably a source of cultural malaise as people feel disconected from these large, faceless institutions that they work for and run their lives. The idea of a return to a more decentralized economy doesn’t even really seem imaginable, and people get politically focused on the notion of the state versus the “complexes” as a balance of power deal, instead of seeing them as an intertwined entity that exists beyond human design or control, systems that have emerged and serve their own non-human purposes.

  74. The One with the Eye Patch of Butter says:

    I went through the comments and only saw 1 person (Worley) mention what IMO is the most important problem here. Where are you going to find the patients to fill these 6,000 slots? Scott, you work in a brand-name hospital, yes? Cheap-O, as a new business, would not have any established path for patients to find out about their services. “Build it and they will come” is not really a thing, or at least the word of mouth required to drive lots of people to your business will take years to build.

    Or maybe you hire a marketing person, but that costs money, and most marketing people aren’t very effective so maybe you spend a lot of money on that person and all they do is drive a few extra patients to your business.

    The most likely outcome here is that the business opens up on Jan 31 planning for 6,000 appointments in the year, and by Dec 31 they have filled 1,200 appointments. That’s $40k gross before costs. The business shuts down.

    This probably deserves a post of its own but, I work in venture capital so I run across a lot of newer businesses, and one of the #1 blind spots for people who have never run a business before is the question of where the customers will come from. Setting aside a few once-in-a-generation companies, it’s usually really really really hard for an unproven business to find a large handful people who are willing to pay for the service. Maybe the pent up demand for a service like Cheap-O is so high that the dam could burst any minute, but more likely you are looking at a Year 1 with pretty paltry revenue, meaning that your ownership/doctors need to be OK with having to wait a while for their cash threshold to be met.

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