Kuttner on market-based failure
Market-Based Failure — A Second Opinion on U.S. Health Care Costs
By Robert Kuttner
The New England Journal of Medicine
February 7, 2008
Relentless medical inflation has been attributed to many factors — the aging population, the proliferation of new technologies, poor diet and lack of exercise, the tendency of supply (physicians, hospitals, tests, pharmaceuticals, medical devices, and novel treatments) to generate its own demand, excessive litigation and defensive medicine, and tax-favored insurance coverage.
Here is a second opinion. Changing demographics and medical technology pose a cost challenge for every nation’s system, but ours is the outlier. The extreme failure of the United States to contain medical costs results primarily from our unique, pervasive commercialization. The dominance of for-profit insurance and pharmaceutical companies, a new wave of investor-owned specialty hospitals, and profit-maximizing behavior even by nonprofit players raise costs and distort resource allocation. Profits, billing, marketing, and the gratuitous costs of private bureaucracies siphon off $400 billion to $500 billion of the $2.1 trillion spent, but the more serious and less appreciated syndrome is the set of perverse incentives produced by commercial dominance of the system.
Markets are said to optimize efficiencies. But despite widespread belief that competition is the key to cost containment, medicine — with its third-party payers and its partly social mission — does not lend itself to market discipline. Why not?
The private insurance system’s main techniques for holding down costs are practicing risk selection, limiting the services covered, constraining payments to providers, and shifting costs to patients. But given the system’s fragmentation and perverse incentives, much cost-effective care is squeezed out, resources are increasingly allocated in response to profit opportunities rather than medical need, many attainable efficiencies are not achieved, unnecessary medical care is provided for profit, administrative expenses are high, and enormous sums are squandered in efforts to game the system. The result is a blend of overtreatment and undertreatment — and escalating costs. Researchers calculate that between one fifth and one third of medical outlays do nothing to improve health.
A comprehensive national system is far better positioned to match resources with needs — and not through the so-called rationing of care. (It is the U.S. system that has the most de facto rationing — high rates of uninsurance, exclusions for preexisting conditions, excessive deductibles and copayments, and shorter hospital stays and physician visits.) A universal system suffers far less of the feast-or-famine misallocation of resources driven by profit maximization. It also saves huge sums that our system wastes on administration, billing, marketing, profit, executive compensation, and risk selection. When the British National Health Service faced a shortage of primary care doctors, it adjusted pay schedules and added incentives for high-quality care, and the shortage diminished. Our commercialized system seems incapable of producing that result.
http://content.nejm.org/cgi/content/full/358/6/549
Comment:
By Don McCanne, MD
How many articles have you seen or speeches that you’ve heard begin with the premise that we must first eliminate the waste in our health care system before we can provide health care coverage for everyone?
In this article, Robert Kuttner has provided a concise summary of why those steps must be in reverse order. We will never be able to control the overtreatment , undertreatment, and escalating costs due to the pervasive commercialization of our health care system until we put in place a comprehensive, national, health care financing system.