Fast forward to the current debate in the United States over how to reform our increasingly unaffordable and dysfunctional health care system. Do we have any blind spots as this debate boils over such fundamental issues as the roles of the free market vs. that of government, and whether health care is just another commodity to be bought and sold on the open market?

Based on the content of the debate swirling around these questions and how the mainstream media are covering the story, we have two major blind spots in American culture today concerning health care — continuing denial that markets fail the public interest in health care, and that market failure leads to serious adverse economic, social and moral consequences. These two blind spots are interrelated and mutually reinforcing.

This recent statement by Rep. Paul Ryan (R-WI) illustrates the extent of our ideological blind spots about our market-based system. Commenting on a report by government analysts that health care spending will grow by about seven percent a year to a total of $4.3 trillion in 2017, he has this to say: “These are not signs that the health care market has failed.  In fact — and it is crucial to understand this — they are the predictable results of vast distortions imposed on the market over decades.  The government is the single greatest contributor to this problem.”

But markets in health care do not work the way they may in other sectors of the economy.  Here there is much less competition than market advocates proclaim, extensive consolidation within health care industries, wide latitude to set prices at what the traffic will bear, and pervasive conflicts of interest throughout the system encouraging over-utilization of wasteful, unnecessary and even harmful care.

The wreckage of markets in health care is all around us. Private insurers pursue their profits by many strategies to exclude or limit coverage of the sick. Their goal is to keep their medical loss ratios (the industry’s term for payments for medical care) below 80 percent, whereby they can retain at least 20 percent of premium revenue for overhead, profits and returns to shareholders. Whether hospitals, HMOs, nursing homes or mental health centers, investor-owned care has been documented by many studies to be more expensive and of poorer quality than not-for-profit care. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 has proven itself to be a bonanza for the drug and insurance industries. The government was prohibited from negotiating the prices of drugs as the Veterans Administration does so effectively, and the costs of drugs (the problem the bill was supposed to address) continue to surge upwards. Meanwhile the unregulated marketplace allows widespread profiteering through overuse in such areas as imaging centers, many of which are owned by the very physicians ordering the tests.

All this is predictable and of no surprise.  Joseph Stiglitz, Ph.D., Nobel Laureate in Economics and former chief economist at the World Bank, has this to say about markets: “Markets do not lead to efficient outcomes, let alone outcomes that comport with social justice.  As a result, there is often good reason for government intervention to improve the efficiency of the market.  Just as the Great Depression should have made it evident that the market does not work as well as its advocates claim, our recent Roaring Nineties should have made it self-evident that the pursuit of self-interest does not necessarily lead to overall economic efficiency.”

Our market-based system breeds costs, not restraint.  Despite the claims of their advocates, all of the various multi-payer proposals being considered in Congress, intended as they are to preserve a dying private insurance industry, have no effective methods to contain health care costs. With by far the most expensive system in the world, we ration care based on ability to pay. Despite the money we throw at health care, the quality and outcomes of our care compares poorly with many industrialized countries around the world that spend far less than we do.

And our societal blind spot extends as well to the social and moral consequences of our pro-market policies. As the income gap widens between the rich and poor and as the middle class falls into increasingly difficult straits in affording health care, our sense of social solidarity continues to erode.  Medical costs are now responsible for 62 percent of personal bankruptcies, most of whom were insured at the onset of their illness or accident.  All this while our supposed safety net, already frayed, further deteriorates in the face of increasing federal and state deficits.

So it is now time to take off our blinders and recognize these problems for what they are.  The government needs to play a greater role in health care, starting with a public system of financing that incorporates and builds on the strengths of our private delivery system.  Single-payer financing along the lines of the Conyers bill (H.R. 676) is an essential first step in the reform of U. S. health care for all Americans.

Whether we yet realize it or not, future generations will look back and wonder how we don’t see past our blind spots, in the same way as we find it hard to imagine the blind spot about cancer in France more than two centuries ago.

Adapted from The Cancer Generation: Baby Boomers Facing a Perfect Storm, 2009, with permission from the publisher Common Courage Press.  Order link

John Geyman, M.D. is the author of The Cancer Generation and Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, 2009 by John Geyman. With permission of the publisher, Common Courage Press

Buy John Geyman’s Books at: http://www.commoncouragepress.com/

“Greater reliance on individual choice and free markets are the solutions to what ails our health care system . . . A handful of policy changes that harness the power of markets for health services have the potential to give patients and their physicians more control over health-care choices, create more health insurance options, lower health costs, reduce the number of uninsured persons—and give workers a pay increase to boot.”

If competitive markets are so effective in controlling health care costs, how is it that these costs continue to soar at rates three or four times the rates of cost of living or median family incomes?  Here are five reasons why markets fail, and can never succeed, to control health care costs.

There is little actual competition in health care markets.  Instead, we find widespread consolidation, whether among hospitals, pharmaceutical companies, other suppliers, nursing homes, dialysis centers, or insurers.  As examples, Tenet, the second largest hospital chain in the country, controls 80 percent of hospital beds in El Paso, Texas, while private insurers have near-monopolies in 95 percent of HMO/PPO metropolitan markets (raising antitrust concerns by the U. S. Department of Justice). One-half of Americans live in areas that are too sparsely populated to have any real competition.  And of course, when people are seriously ill and require the most costly care, they find it difficult or impossible to comparison-shop for physicians or hospitals.

On the supply side, providers and suppliers have wide latitude to set prices.
Much of the health care industry is investor-owned, from insurers to hospital chains and drug companies. As such, they are obligated to their shareholders to maximize profits and have wide latitude to set prices independently. In California, for example, Tenet hospitals have set charges for drugs ten times higher than state averages, while Ovation Pharmaceuticals hiked its price for Cosmegen, a chemotherapy drug for a kidney cancer in children, by more than 3,400 percent (not a typo!) in 2006.  So-called not-for-profits can also set their own prices, as illustrated by a recent Wall Street Journal report that the “nonprofit” Carillion Health System in southwestern Virginia charges $4,727 for a colonoscopy and $1,606 for a CT scan of the neck, levels three to ten times higher than charged by other local facilities.

Our fragmented system works against bulk purchasing.

In such a fragmented multi-payer system as we have, there is little opportunity to achieve sizable discounts through bulk purchasing.  Indeed, bulk purchasing of drugs was specifically prohibited by the Medicare Prescription Drug, Improvement and Modernization Act of 2003.  That legislation was crafted by conservative legislators and lobbyists to protect the pricing prerogatives of the drug and insurance industries and to avoid discounts on drugs of 40 percent or more as are achieved by the Veterans Administration.
Distorted reimbursement policies favor gaming of the system.

We have entrenched policies with a wide gap between physician reimbursement for procedures and cognitive services (ie., the face-to-face listening and talking part of medicine as is typical in primary care, geriatrics, and psychiatry).  Procedures are over-reimbursed while time-intensive cognitive services, including coordination and continuity of comprehensive care, are under-reimbursed.  It is well documented that higher-reimbursed areas of the country attract larger numbers of specialists with more specialist visits, more hospitalizations and ICU use, more inappropriate and unnecessary care, and worse outcomes than are seen in lower reimbursed parts of the country with fewer specialists and more generalist physicians.  Other providers game the system as well.  For example, HCA, the largest hospital chain in the country, has inflated its revenues by “upcoding” the severity of patients’ diagnoses, falsifying billing ledgers, and bouncing patients among its hospitals, sub-acute facilities, and home care agencies in order to bill multiple times for each episode of illness.

Demand for health care is not very sensitive to prices.

Although conservative theorists tell us that patients overuse health care if they are insured (moral hazard), that premise has been discredited as a major cause of health care inflation.  We don’t see runs by patients to unnecessary care.  Most medical care is ordered by physicians, who themselves are largely responsible for an estimated one-third of health care services that are either inappropriate or unnecessary.  As for price sensitivity, a  2005 RAND report found that spending dropped by only 17 cents for every dollar increase in price.

What can we conclude from all this?   Based on three decades’ experience with our deregulated marketplace, we have to conclude that markets cannot control health care costs, and in fact are themselves a big contributor to health care inflation.  Market ideology in other kinds of markets do not apply in health care.  Managed care of the 1980s and 1990s not only failed to contain costs, but also brought further complexity and turmoil to the marketplace while disrupting relationships between patients and physicians.  It has become obvious that reining in the costs of health care and at the same time increasing access and quality of care will require major reform, including a larger role for government.  Joseph Stiglitz, Nobel laureate in economics and former chief economist of the World Bank, puts it this way:

“Markets do not lead to efficient outcomes, let alone outcomes that comport with social justice.  As a result, there is often good reason for government intervention to improve the efficiency of the market.  Just as the Great Depression should have  made it evident that the market often does not work as well as its advocates claim, our recent Roaring Nineties should have made it self-evident that the  pursuit of self-interest does not necessarily lead to overall economic efficiency.”

In our next post, we will look at how inflating health care costs driven by market forces
cause financial insecurity and economic hardship for a large and growing part of our population.

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Adapted from Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, 2008 by John Geyman. With permission of the publisher, Common Courage Press.

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