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.”