Health Care BS

At first glance, retail health clinics look like a classic “lower-end” disruptive innovation—a medical delivery model that caters to a segment of the market that has been inadequately served by the traditional delivery model. But the RHC phenomenon isn’t really a response to normal market forces. It’s a reaction to perverse incentives created by government price controls.

CMS payment reductions for primary care services have created a situation in which many PCPs lose money every time they see a Medicare or Medicaid patient. And, because such patients constitute a large portion of a typical PCP’s case mix, these government price controls drive many medical practices into the red.

Once a medical practice has reached the point where it loses money on such a large number of it’s patients, there are only two options: close the practice down or stop accepting Medicare and Medicaid patients.  Either way, a lot of patients are unable to easily access primary care. In other words, government price controls have produced a shortage of primary care services.

Enter the RHC. The government-created gap between the demand for primary care and the supply thereof is what the RHCs are designed to fill. Walmart, CVS, et al won’t make much money on their RHC operations, but they don’t expect to. For those retail chains, the RHC is a loss leader designed to get customers across their threshholds. And RHCs will succeed in that role.

If the story were going to end there, it is probable that primary care providers and the rest of the health care delivery system would adjust to the new paradigm and we would all live happily ever after. Unfortunately, the government will soon cast its regulatory net over RHCs. Indeed, it is being encouraged to do so by the AMA. AP reports the following:

The American Medical Association urged state and federal agencies to look into whether pharmacy chain-owned clinics urge patients to get their prescriptions filled on site … Dr. Peter Carmel, a trustee on the AMA board, said “the path of abuse is wide open,” and the clinics need to be better regulated.

Thus, having created th RHC monster by meddling in the health care market, the government is now being asked to tame the beast with yet more meddling. And the bureaucrats will no doubt comply. But this will only create more perverse incentives to which the government will respond with yet more regulation.

This cycle of piling regulations upon price controls upon more regulations has got to stop. It is a far greater threat to our health care delivery system than anything contemplated by “the health care industrial complex.” It has already decimated primary care and it is doing serious damage to America’s hospitals. This is what Ronald Reagan meant when he said:

The nine most terrifying words in the English language are ‘I’m from the government and I’m here to help.’

Amen.