Health Care Reform: The Next Stage, Part 1

Free Market Competition Cannot Make Heath Care Efficient: Why Health Care Should Be Regulated, Not By Government, but By Science

Not a few politicians and pundits continue to believe that free market competition offers the best solution to creating a health care system that offers good value for our health care dollars. House Budget Committee Chairman Paul Ryan, for one, argues that if we just give every American a tax credit, and let each person shop for his or her own insurance, consumers would pick the insurance network that offered the best care at the lowest price.

According to free marketeers, unfettered markets aspire toward perfect balance. Producers quite naturally strive to charge as much as they can for their goods and services, while consumers attempt to pay as little as possible, as they shop for the “best buy.” If prices are too high, consumers won’t buy; if prices are too low suppliers produce less, or stop producing altogether. This tug of war between buyer and seller moves the market toward equilibrium—a vanishing point on the horizon where the economy produces just the right quantity of goods and services to satisfy society’s wants and needs at minimal cost.

Note that the theory assumes that buyer and seller enjoy roughly equal power: the buyer knows what he wants and needs, and what he is willing to pay. The seller knows what it will cost him to manufacture the product, and the profit margin he needs to make the enterprise worthwhile.

When compared to this model, the bizarre bazaar where we buy medical products and services fails on both counts. It produces too many goods and services in some areas (primarily in the form of expensive, sometimes futile, high-tech care), too few in other areas (preventive care, palliative care, generic drugs and chronic disease management come to mind), and almost never at the lowest possible cost.

The Affordable Care Act (ACA) takes a giant step toward creating a more rational market by focusing on how Medicare reimburses for care. The goal is to replace a fee-for-service system that pays for volume with one that rewards value (better outcomes at a lower price).  But we are still in the process of defining “value.”  This is why the next stage of health care reform will have to move beyond transforming how we pay for care to considering what Medicare should pay for. As a Robert Wood Johnson Foundation study published in August points out, today Medicare often covers new products and procedures  . . . “with little evidence that they work better than existing treatments. There is even less evidence about which patients might actually be harmed by their use.” The problem is not just that tax dollars are being squandered on ineffective treatments; patients are being hurt.

Ultimately, medicine needs to be regulated, not by government, but by science. The American Recovery and Reinvestment Act of 2009 allocated $1.1 billion in new funding for Comparative Effectiveness Research, (CER), and the ACA has created a Patient-Centered Outcomes Research Institute to oversee trials that will evaluate  competing treatments with an eye to creating guidelines (not rules) for best practice. Private insurers are likely to follow Medicare’s lead on coverage.

That said, medical evidence needs to be interpreted; as I discuss in Part 2 of this post, the process of creating evidence-based guidelines for care is not as cut and dried as it sounds. For one, Medicare needs to leave room for physicians to make exceptions in individual cases. (Though if doctors want reimbursement when they to deviate from what the best available evidence shows, they may well need prior authorization.) Finally, the patient should be included the loop: even in cases where we have good data, there are almost always some unknowns. This is why we need “shared decision-making,” so that the patient’s tolerance for risk can inform his final decision.

Patients Don’t “Choose” Health Care; They Follow Doctors’ Orders

Those who believe that “the market” can solve our problems argue against any form of regulation. Many call for a “consumer-driven” market for medicine where providers and insurers compete for the patient’s business. Here, they let ideology trump reality. There are two reasons why no amount of deregulation will ever turn the U.S. healthcare market into a place where the supply/demand mechanism works smoothly to meet society’s needs at the lowest possible prices.

First, efficient market theory assumes that demand drives supply. Producers ramp up production in response to sales: as long as they are making a profit, they will continue to manufacture more of the goods that consumers appear to want. As a result, “in the traditional economic model, demand is key” explains health care economist Thomas Rice in Health Care Reconsidered. “Supply is essentially along for the ride.”

Conservatives such as Ryan imagine hospitals and doctors vying for the patients’ business in “a system driven by patient choice and centered on patient needs.”  But in the health care market, the consumer often doesn’t know what he needs. This is why he goes to a doctor in the first place, hoping for a diagnosis and a prescription for treatment.

In other markets, the shopper has a fair idea of what he wants.  When shopping for a lap-top computer or a flat-screen TV, the consumer tells the seller what he is looking for and what he is willing to pay. Sellers vie for his business, and the buyer chooses among them.

Medicine, on the other hand, is a complex science, and the patient does not have a medical degree.  Thus the seller tells him what he needs. A patient can share in the decision-making when considering alternative treatments, but he must rely on his physician to explain the medical evidence behind various options as well as the potential risks and benefits that might apply in his case.

There are exceptions: as health care consultant Joe Flower points out: “In some cases, such as cosmetic surgery or laser eye corrections, the decision is clearly one the buyer can make. It’s a classic economic decision: ‘Do I like this enough to pay for it?’” The consumer doesn’t feel that he must sign up for cosmetic surgery.

But conservatives tend to exaggerate the degree to which patients are expressing their “choices” when they “demand” health care. For the most part, Flowers notes, “people only access health care because they feel they have to.” [his emphasis] Or as he puts it: “Recreational colonoscopies are rare.”                         

Uncertainty on Both Sides of the Equation

The problem is not just that patients don’t know what they need; the provider’s knowledge is far from perfect.  Twenty-first century medicine is shot through with ambiguity. As Boston Surgeon Dr. Atul Gawande writes in Complications: A Surgeon’s Notes On An Imperfect Science: “The core predicament, of medicine, its uncertainty, [is] the thing that makes being a patient so wrenching, being a doctor so difficult, and being part of a society that pays the bills so vexing.  . . . Given all that we know nowadays about people and diseases and how to diagnose and treat them,” he adds, “it can be hard to grasp how deeply the uncertainty runs.”

This is the second obstacle to an efficient market: neo-classical economic theory assumes that both the buyer and seller are well-informed about the value of the goods being exchanged. But in recent decades economists have realized that when knowledge is imperfect, markets fail. The health care market falls short of the efficient market model on both sides of the equaion.  Patients may think that they know what they want, but in the most serious cases they usually don’t know what they need.  In theory, a doctor can tell them: we like to think that the physician “knows” what should be done. But in truth there is widespread disagreement among U.S. specialists about treatments ranging from back surgery for regional low back pain to by-pass surgery for many patients.

Physicians often differ even in those cases where we have strong medical evidence favoring a particular approach for certain patients. For example a study published in JAMA earlier this year pointed out that while a number of well-designed clinical trials have concluded that a combination of aspirin, beta-blockers, and statins is just as effective as angioplasty for patients suffering from stable coronary disease, fewer than half of all physicians try the drug therapy before subjecting patients to angioplasty ( a.k.a. percutaneous coronary intervention or PCI).

Researchers are not talking about patients who have suffered a heart attack because of a blocked coronary artery. Rather, the studies involve “stable” patients who have a partial blockage that impairs their ability to get around and carry out the normal activities of life. Currently, about 65% of balloon angioplasties are performed on such patients; yet they fare no better than those who stick to drug therapy. At best, angioplasty offers temporary relief from the pain of angina.

Often it can take a long time for medical evidence to trickle down to practitioners. A September 2010 survey of 153 patients and their physicians at a Massachusetts medical center revealed that just 63 percent of physicians knew that except in emergencies, angioplasties only ease symptoms. And this was three years after the most important study comparing drug therapy to angioplasties had been published and widely discussed.

I should add that I find it difficult to believe that one-third of all doctors don’t read newspapers, watch television, or talk to colleagues in their specialty, and thus had literally never heard of the widely publicized research on angioplasty. I would guess that many just didn’t read or listen to reports because they dismissed the idea that drug therapy was just as good for many patients out of hand. They were already personally and professionally (if not financially) invested in the treatment.

Consumer Reports Health observes that “even those who were up to date apparently often didn’t inform their patients: 88 percent of patients who consented to the procedure mistakenly believed it would reduce their risk of having a heart attack.” I don’t think many doctors would withhold this information from patients if they thought it was true. They just didn’t buy the evidence.

In some cases doctors are skeptical about the latest medical research because it contradicts what they learned in medical school, and the way they and their colleagues in a particular medical community have always practiced.  Physicians take pride in their profession—and rightly so. The downside to this pride is that it becomes difficult to admit that what you have been doing for the past 10 or 20 years has not helped your patients—and may well have exposed them to unnecessary side effects.

At the same time, there is some basis for skepticism regarding the newest “evidence-based” guidelines. As Gawande points out in Complications: “Medicine is an enterprise of constantly changing knowledge, uncertain information, and fallible individuals.”

In part 2 of this post, I’ll explain why professional uncertainty and a lack of consensus among physicians makes it difficult for patients to comparison-shop when looking for an insurance network offering the highest quality providers  at the lowest price. Is the hospital with the biggest cath lab that does many more angioplasties really better?  Or is it over-treating patients? Because health care is not a commodity, consumers who compare hospitals and  doctors are not comparing apples to apples. The products and advice that they offer to very similar patients are different.

Yet, while there are many grey areas in medicine, professional uncertainty is not a reason to throw our hands up in the air, and call for a “laissez faire” health care system that urges every physician to “exercise his individual judgment” while “competing” for patients. (IN part 2, I will also address the idea of “competition.” Doctors should not be competing, they should be collaborating, sharing their knowledge. It is treatments should be “competing” in the head-to-head comparativ effectiveness trials that stakeholers such as drug-makers and device-makers fear.)

Granted, there are reasons to be skeptical about “evidence-based medicine.” As I will explain in part 2, evidence-based guidelines should not be seen as immutable rules. Over time, often they will change. But comparative-effectiveness research (CER) can go a long way toward measuring the value of treatments, particularly when it reveals that a new product or procedure is no better than—and perhaps riskier than—existing treatments. Finally in the second part of this post, I will discuss how Medicare makes coverage decisions today, and how it will be using CER in the future, not to create “one-size-fits all” medicine, but to determine which drugs, devices, tests and surgeries should be covered under specific “conditions.”

6 thoughts on “Health Care Reform: The Next Stage, Part 1

  1. Most physicians really do want to do the right thing, and, with convincing evidence, will change their practice patterns. Comparative effectiveness research is an important addition to the knowledge base.
    Unfortunately, a limiting factor is tremendous information overload. Most physicians are so busy that they can’t keep up with the major journals, much less with reports from the lay press. As only one example, Cochrane Reviews are an excellent resource for state of the art information, yet comparatively few physicians are able to read them because of time constraints
    In my opinion, we need a better central source, perhaps through the NIH, to collate information, and disseminate it to health care professionals in a form that provides maximal targeted information for the minimal allotment of time that busy practitioners can devote to improving their own practice standards. JAMA, NEJM, Journal Watch and all of the others simply are not meeting that need.

  2. Let’s not overstate things. Trying to choose medical providers without having medical degree is not all that different from trying to choose a car or an airline without having an engineering or business degree. We trust in a basic level of competence on the part of automobile manufacturers, airlines or health care providers (and government regulators) to get things basically right (the car works the way it’s supposed to, etc.)then use simple information and subjective preferences to make a decision.
    The difference between choosing health care plans and choosing cars or airlines is not that people are making life or death decisions with health care and routine consumption decisions with cars or airlines. Most health care in the U.S. is related to lifestyle and quality of life factors as is the availability of safe, comfortable and efficient transportation. The difference is the degree of integration: with autos or airlines you are buying a highly integrated product that is the concerted effort of a single enterprise with tight control over its workers and suppliers. With health insurance, you are choosing only a payer that has very limited control over the services provided. If you tightly integrate health care services into a single product like Kaiser, Mayo or Geisinger then a competitive market for this product should work just fine.

  3. Don McCanne, M.D. wrote:
    In my opinion, we need a better central source, perhaps through the NIH, to collate information, and disseminate it to health care professionals in a form that provides maximal targeted information for the minimal allotment of time
    Why can’t computer databases that are accessed from the office provide this latest, updated info in real time. Rather than depend on faulty memories to adsorb and use this enormous amount of the latest evidence later after reading it, why don’t we teach provider technicians to put in diagnostic results in the search line of the database and follow the latest reported guidance. For that matter, I would think a database of complaint input could help greatly on the diagnostic side as well.

  4. Consumerism is finally starting to emerge at the carrier sites for outcome and price for providers and medical centers. We have seen what happens when the government tries to direct commerce (Solyndra!). Of equal importance is the issue of compliance and disease management, which are consumer behavior matters, not provider, medical center or carrier matters. This is where the real cost reduction engines lay. Our data shows a delta of 37% in cost difference PEPY for those employees who actually take care of themselves. Socialist medicine – namely goverrnment direction – will never be the answer. It is a failed model.

  5. Don & Marc
    First, it’s good to hear from you.
    I agree that someone does need to collate the information and disseminate it in a way that funnels the info to busy practitioners
    The Cochrane Collaboration is, as you say, an invaluable source of information, and I would hope that someone (perhaps NIH) will use Health IT to make its research more accessible.
    It strikes me that rather than always pursuing new research we should use more of our resources to consolidate and communicate what is already known –but not widely known.
    Finally, you mention how busy our practioners are. This reminds me that U.S. doctors tend to work many more hours than doctors in other developed countries. This is, in part, because so many work in small or solo practices where they are trying to run a business while also practicing medicine.
    Conceivably, as more doctors join larger organizations where someone else runs the business, doctors who are on salary have more regular hours and more time to keep up with the research in their field. The time they now spend dealing with insurance companies, hiring and supervising staff, etc. etc. might be better spent reading journals. Finally, as we make better use of nurse practitioners working with doctors– this should free up more time.
    If I were a doctor I would like to spend my time see patients and reading journals in my field.
    Unfortunately, choosing a doctor, a hospital or an insurance plan is not as easy as choosing an airline.
    As Kenneth Arrow, the father of heatlh care economics recognized long ago, “asymmetrical information” makes it very difficult for a patient to choose a doctor. The buyer knows far less than the seller.
    Jack Wennberg wrote about the patients’ dilemma a number of years ago: ““In the case of spending decisions,” Wennberg writes, “it is customary to assume that: (1) consumers know what they ‘want’; (2) consumers know the effectiveness of various goods and services in attaining what they want; (3) consumers know the price at which goods or services can be obtained; and (4) each consumer uses this information to maximize his/her total satisfaction.”
    Yet when seeking medical care, he adds, “consumers face considerable perplexity in defining wants, not to mention needs. They cannot discern the value of goods and services. . . or weigh issues of utility in the usual fashion, and thus cannot buy at the lowest price.”
    Going back to your airline analogy, airline pilots follow safety guidelines. Unfortunately , research shows that many Doctors don’t.
    For instance the majority of surgeons still don’t use checklists–even though we know that they save lives. How is a patient to know if his surgeon uses a checklist, and more importantly, whether he and his team just go through the motions., or make meaningful use of it. (Atul Gawande has written about the difference).
    Airline pilots also generally all follow the same rules in terms of how to fly a plane, what to do in certain situations (bad weather etc.) When it comes to flying a plane, there are many fewer “grey areas.”
    Physician practice pattern, on the other more than hand, vary widely. As 20 years of Dartmouth resarch has shown, the likelihood that your doctor will recommend a knee operation, a bypass, angioplasty, hospitalization under certain circumstances, etc. etc. varies depending on where you live. Doctors in different places give very different advice to very similar patients. We know that a large percentage of doctors don’t follow guidelines for “best practice.”
    In addition, airline pilots have someone looking over their shoulder (a co-pilot or co-pilots). The majority of U.S. doctors practice solo or in small groups where no one is looking over their shoulder. It is only at place like Mayor or Kaiser where doctors are all looking at the same chart– and constantly collaborating — that doctors can catch each others’ mistakes.
    For years, I went to a highly respected eye doctor here in Manhattan who told me I had Glaucoma and had me using very expensive eye-drops for years. He also insisted that I see him 3 or 4 times a year.
    He practiced solo. I recall that on one occasion we were talking about health reform and he literally said “I don’t want someone looking over my shoulder.”
    As I explained in a post earlier this year (Guess Who Has Been Over-treated for more than 25 years) it seems that I don’t have Gluaucoma. As it happens, I saw my new doctor today. After 8 months without eye drops my “pressure” is still well within normal range. I’ve passed two “field vision tests” with flying colors, and will have another one in 3 months.
    As for hospitals, their protocols vary as do safety measures. At some hospitals you’ll find that C-sections are common– and women report being pressured into a C-section. Women usually don’t find out that they are in a hospital that favors c-sections until they are in labor. Most people wouldn’t know where to go to find out about C-section rates, and this is not something that hospitals advertise.
    Infection rates at one of Manhattan’s most prestigious medical centers are among the highest in the state. This is public info. (New York is one of very few–perhaps the Only state that publishes these numbers.) But even in N.Y. few patients know where to find the numbers (. I’ve confirmed the high infection rate with a doctor at this academic medical center who explained, “the administration is afraid of the “rainmaker” physicians (who bring in so many well-insured patients for expensive procedures. )So no one says anything if they don’t wash their hands,” or follow other rules to insure patient safety.
    In addition, as I noted in the post, 75 percent of our health care dollars are spent when we are seriously ill. You’re right that staying healthy is, to a large degree, about lifestyle– as well as education and income.
    But all of us will, at some point, die, and most of us will get very sick before we die. Americans over the age of 65 typically suffer from at least 3 or 4 serious chronic diseases. This is where 75% of our health care dollars are spent. And these are the times when it is most important that we have high quality care. (The best care cannot change the fact that eventually, we die, but we can die at 68 or at 75, and we can die well, or in horrible pain, after suffering through a great many futile treatments. .
    These days we are living longer, so we can expect to suffer from more diseases before we die.