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Trump is focusing on the wrong thing in fixing Obamacare

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A man is suddenly struck by a heart attack and lies dying in the street. A crowd of people begins to gather in hopes of helping him. Then, one of them naturally shouts: "Can't you see a man is dying?!? Quick! Someone call a health insurance adjuster!"

Does the above scenario sound ridiculous? Of course it does, because it is. But it sadly mirrors the biggest problem that arises every time a politician or policy "expert" talks about health care in America: They almost always confuse things and turn it into a discussion about health insurance.

In his otherwise triumphant speech to Congress Tuesday night, President Trump did the same thing. He spoke all about coverage and risk pools and making sales across state lines. And he conflated better insurance choices with better care. It wasn't unexpected, because this is where we are in America right now, but it was still a disappointment.

Because no matter how great a job the government or even the private sector does in fixing our insurance coverage issues, that effort is not going to make a real dent in health care costs or provide people with better care. The only way to do that is to focus on something President Trump the businessman must surely understand: The law of supply and demand.

Just like everything else that can be bought and sold, the price and availability of health care is dictated to by this basic economic rule. So let's look closer at how supply and demand is affecting health care and health care costs in America and consider an idea or two on how to fix them.

Simply put, regulations and monopolistic practices are choking off supply at the worst time. Obamacare and the aging of America have boosted the demand and at least perceived access to health care by massive levels. We have millions more Americans who now expect care, so where are the new hospitals, doctors, nurses, and drugs to treat them?

Nowhere.

The supply problem all starts with too stringent entrance requirements and sky high tuition prices for U.S. medical schools. Why any hard working American kid skilled in the sciences would choose medicine in the first place compared to the much faster path to riches in tech or quant investing is really a mystery already. The result is America's hospital residency programs can't even fill all their slots with the existing pool of U.S. medical school graduates year after year.

"Obamacare and the aging of America have boosted the demand and at least perceived access to health care by massive levels. We have millions more Americans who now expect care, so where are the new hospitals, doctors, nurses, and drugs to treat them?"

And for those already in medicine, much-needed areas like primary care don't pay competitive salaries. Malpractice insurance premiums for almost all physicians are high. Exploding regulatory requirements like using electronic health record systems are costly and time-consuming. And board certification testing requirements have also increased and become more burdensome. The list goes on. Nurses don't face the same level of high-cost barriers to entry, but they don't generally get compensated enough to make many of their sacrifices worthwhile. The result is there's more of a need for nurses across the country now than even doctors.

The simple solution to this is to tear down as many of those barriers to entry as possible. The government and the medical school community need to relax some of their more questionable requirements, and even allow for the return of the old medical "night schools" that offered cheaper and more fast-track training for internists and other less specialized areas of medicine. And once people do become doctors, tort reform and the elimination of some of the costly regulations needs to happen as well.

But med schools aren't the only monopolies at work. Hospitals and larger physician groups have almost unlimited pricing power throughout most of the country and they've been consolidating and merging at a rate that would make the big banks blush. As I wrote late last year: Since 2010 alone, we've seen an average of six major hospital mergers per year with values of $1 billion or more, according to researcher Kit Kamholz, managing director of Kaufman Hall. And those are just the biggest ones. From 1998 to 2012, the 5,000 or so hospitals in the United States saw 1,133 mergers and acquisitions, according to the Heritage Foundation.

Breaking up some of these monopolies, or at least slowing down the pace of the hospital mergers is the simplest way to ease this pricing pressure. But another priority has to be to slow the hospitals from their current blistering pace of buying up and consolidating private physician practices. A good way to do that would be to ease the financial and regulatory burdens on doctors listed above. Freed from some of those burdens, fewer doctors would agree to be bought out by the hospitals in the first place.

Now as to why President Trump should be the guy for this health care market job. First off, he knows all about barriers to entry, competition, and pricing pressure. His entire career began when he decided to break into the high cost, monopoly-dominated Manhattan real estate market. He's also talked regularly about supply and demand and surely understands all the variables at play.

Second, he did at least talk Tuesday night about removing regulatory barriers and improving competition in the prescription drug arena. But most importantly, he's made his ability to get prices down a special point of pride for his entire adult life. The man who prides himself on his negotiating talents must realize his health care price negotiating position will be a lot stronger if he can increase the supply of the items up for sale.

But for now, President Trump only seems to be applying that wisdom to health insurance. That's the wrong place to focus. If the White House can help the country gain more doctors, nurses, hospitals, and medical innovators, then the cost of the care will indeed come down and care will improve at the same time.

Commentary by Jake Novak, CNBC.com senior columnist. Follow him on Twitter @jakejakeny.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.