Why Medical Bills are Killing Us, by Steven Brill - Page 18

.........a significant number of Americans believe that the answer to our health care problems — indeed, the only answer — is to rely on the free market. Quite a few seem to believe that this view reflects the lessons of economic theory.

Not so. One of the most influential economic papers of the postwar era was Kenneth Arrow’s Uncertainty and the welfare economics of health care, which demonstrated — decisively, I and many others believe — that health care can’t be marketed like bread or TVs. Let me offer my own version of Arrow’s argument.

There are two strongly distinctive aspects of health care. One is that you don’t know when or whether you’ll need care — but if you do, the care can be extremely expensive. The big bucks are in triple coronary bypass surgery, not routine visits to the doctor’s office; and very, very few people can afford to pay major medical costs out of pocket.

This tells you right away that health care can’t be sold like bread. It must be largely paid for by some kind of insurance. And this in turn means that someone other than the patient ends up making decisions about what to buy. Consumer choice is nonsense when it comes to health care. And you can’t just trust insurance companies either — they’re not in business for their health, or yours.

This problem is made worse by the fact that actually paying for your health care is a loss from an insurers’ point of view — they actually refer to it as “medical costs.” This means both that insurers try to deny as many claims as possible, and that they try to avoid covering people who are actually likely to need care. Both of these strategies use a lot of resources, which is why private insurance has much higher administrative costs than single-payer systems. And since there’s a widespread sense that our fellow citizens should get the care we need — not everyone agrees, but most do — this means that private insurance basically spends a lot of money on socially destructive activities.

The second thing about health care is that it’s complicated, and you can’t rely on experience or comparison shopping. (“I hear they’ve got a real deal on stents over at St. Mary’s!”) That’s why doctors are supposed to follow an ethical code, why we expect more from them than from bakers or grocery store owners.

You could rely on a health maintenance organization to make the hard choices and do the cost management, and to some extent we do. But HMOs have been highly limited in their ability to achieve cost-effectiveness because people don’t trust them — they’re profit-making institutions, and your treatment is their cost.

Between those two factors, health care just doesn’t work as a standard market story.

All of this doesn’t necessarily mean that socialized medicine, or even single-payer, is the only way to go. There are a number of successful health-care systems, at least as measured by pretty good care much cheaper than here, and they are quite different from each other. There are, however, no examples of successful health care based on the principles of the free market, for one simple reason: in health care, the free market just doesn’t work. And people who say that the market is the answer are flying in the face of both theory and overwhelming evidence.

A common argument heard in health care planning and health policy reform debates is that the government should stay out of health care and let the market allocate resources efficiently. It is further argued that government rules and regulations applied in health care markets interfere with proper resource allocation resulting in inefficiency.1 The argument further states that without government interference, the “invisible hand” of the market would allocate resources optimally leading to economic efficiency in health care.

Although interesting, this argument is based on the assumption that health care meets all necessary conditions for an ideal perfect/free market. Unfortunately, this assumption is never articulated explicitly therefore the argument is not fully explored, understood or challenged. It is important to explore fully the argument, the assumptions made about the free market, and the conditions necessary for the “invisible hand” to allocate resources efficiently.2

A market that meets all necessary conditions for efficient resource allocation is an ideal in economic theory, but a rarity in the real world. Markets do fail because necessary conditions for perfect/free markets are rarely met in any industry and least of all in health care.3 When the necessary conditions of the ideal free market are not met, there can be market failures some of which are not easily corrected by the market and therefore require interventions from outside the market.

Another important issue that is also rarely articulated is whether free markets are a desirable feature of a health care system. This issue cannot be easily addressed through economic theory. It is an issue that requires a closer examination of the philosophy behind the foundation of the health care system in any country. It requires an examination of the culture and beliefs of the country about health and health care. Is health care a commodity to be bought and sold for profit, or is it a basic human right that should be accessible to all citizens?

Consumer-driven health care has emerged as a new paradigm in allowing patients to have a stronger say in how their health care dollars are spent.1 Patients are encouraged to consider medical care a commodity that can be bought and sold. Yet health care is a unique industry in which many traditional market principles fail. Consumers of health care do not always have good information about their condition and rely on the advice of professionals. Moreover, studies have shown that total costs and charges at different health care facilities vary substantially for what should be similar services.

We read the article by Hsia et al1 about charges for appendectomy in California hospitals with interest.1 The wide variation in charges was remarkable but not surprising given prior publications.2- 3 Two topics regarding this article are worthy of amplification. First, we assert that the data presented warrant more incisive conclusions. Second, we inquire about further analyses.