American Medicine: Free Market?

In a recent editorial in the Washington Post, Walter E. Williams states:

Do we want the government employees who run the troubled Walter Reed Army Medical Center to be in charge of our entire health-care system? Or, would you like the people who deliver our mail to also deliver health-care services? How would you like the people who run the motor vehicles department, the government education system, foreign intelligence and other government agencies to also run our health-care system? After all, they are not motivated by the quest for profits, and that might mean they\’re truly wonderful, selfless, caring people.

As for me, I would choose profit-driven people to provide my health-care services, people with motives like those who deliver goods to my supermarket, deliver my overnight mail, produce my computer and software programs, assemble my car and produce a host of other goods and services I use.

His argument is that making the system less free than it presently is will make it even worse, pointing to the Canadian, British, and French system failures.

While I don\’t disagree with the specifics of what he is saying, and the examples from other systems do raise the question of whether a single-payer system will really be better, he greatly oversimplifies the issue.  Perhaps this is because he is taking one of the most complex problems we have in this country and trying to boil down his commentary to an editorial.  Whatever the reason, I think there are some huge facts that he skips over regarding our system and what change would mean.

The market is not free

Physicians don\’t set their prices, insurance companies do.  Yes, I can set a fee schedule for my procedures, but in general, what I am paid won\’t be impacted much by that fee schedule.  Patients cannot generally shop for the best price for a product because of this.

The fact is, there are very few within the system who control the cost or spending within the healthcare system.  Pharmaceutical companies must negotiate what they get paid for medications.  Hospitals are also at the mercy of the reimbursement from the payers. 

The only parties in the healthcare equation who have some control are the payers.  Insurance companies can raise their premiums and lower or raise reimbursement.  They compete for business based on the cost of their product and the quality of their service. 

This renders the comparison of the supermarket to the postal service a false comparison.  Physicians see a small percent of what the consumer pays, and so are not really motivated to offer better service.  The real determining factor on the profits of a physician are the reimbursement rates set by insurers as well as the enormous profits being made off of healthcare by other parties.

The market is not a buyer/seller market.

Williams lays the blame of the non-free market on the presence of government controls:

Our health-care system is hampered by government intervention, and the solution is not more government intervention but less. The tax treatment of health insurance, where premiums are deducted from employees\’ pretax income, explains why so many of us rely on our employers to select and pay for health insurance. Since there is a third-party payer, we have little incentive to shop around and wisely use health services.

There are "guaranteed issue" laws that require insurance companies to sell health insurance to any person seeking it. So why not wait until you\’re sick before purchasing insurance? Guaranteed issue laws make about as much sense as if you left your house uninsured until you had a fire and then purchased insurance to cover the damage.

Again, I don\’t disagree with either of the points, but they do not paint a complete picture.  It is the third-party payment system, the lack of system accountability, and the free reign given to the profiteers in the system that make it inefficient.  Pulling government restrictions off of insurance companies will simply increase their profits, not lower healthcare cost.

There are many layers that stand between consumers and those who sell their service.  A third-party system which is morally obligated to make the highest profit possible off of the system is one that is bound to hurt both consumer and seller of goods.  The transaction between doctor and patient is subsidizing the pharmaceutical, insurance, and device industries.  This means that a large portion of the healthcare dollar is fixed.

Yes, the intervention of the government into the equation does make it more complex, but the fact remains that Medicare uses each dollar it gets far more efficiently than the insurance industry does.  Overhead costs for Medicare are far lower than those of the insurance companies, which is one of the main arguments put forth by those who advocate a single-payer system.

A Free Market In Healthcare is Impossible

Certainly if physicians and hospitals were paid out of pocket by consumers for 100% of their care (like those physicians who no longer accept insurance), it would truly be a free market.  I would suspect that this would greatly reduce the cost of healthcare as well, as the overhead of running a medical practice would go down significantly.

Yet there are very powerful factors causing most Americans to reject such a system:

• The poor.  Should the poor have little access to healthcare services while those with resources can get what they need?  It is one thing to reject a socialized system where there is no way to pay more for better care; it is something completely different to advocate no safety net for the needy at all.  This means that some sort of third-party must exist in the system, hence making it a non-free market.
• The high cost of care.  Since care itself can be so expensive due to the explosion of technology, even those rich enough to afford a medical catastrophe would not want to foot the bill entirely.  I daresay that most wealthy people still carry insurance on their homes and on their cars.  The risk of a financial devastation from medical costs is far greater than the risk from home or car catastrophes.
• No clear concept of "value" in healthcare.  What value is it to get a physical?  What should preventive services be worth?  What are emergency services or hospitalizations worth?  How do you quantify them and say what the cost for these should be?  Since there are many workers within the healthcare system providing value, it is far different from accounting or law, which are often used as the contrast to the payment system in medicine.  When you pay for an attorney, you are paying for their service and perhaps that of their clerical staff.  When you pay for a hospital stay, you are paying for physicians, nurses, medications, pharmacists, administrators, and all sorts of other people (hopefully) adding value to what you get.
• A poor concept of quality.  One of the big cries against the whole concept of pay for performance is the idea of measuring medical quality.  People can\’t agree on what quality is and who should measure it.  Even if it were defined, few physicians have the data collection and reporting capability to make it work (this is why the default measurement of quality so far has been done by the insurance industry).

 

It is now a big Political Issue

Unfortunately, the healthcare industry has not been able to come to a good solution on its own, so it will be a major issue in the upcoming presidential election (perhaps second only to Iraq).  Politicians will be the ones to decide.  Republicans tend to favor a "free" market where the private insurance is made available to all, while democrats tend to favor a more government-run approach. 

The problem is that nobody is going after the root causes of the spiraling cost of care.  To simply call for "more free market" or a "single-payer system" without addressing the incredible waste, lack of accountability, and profiteering by third-parties is simply re-arranging chairs on the Titanic.  It is the unfortunate nature of politicians to take a politically-motivated veneer and layer it on top of a broken system and call it fixed. 

The argument over free-market and government-run healthcare is for the pundits.  The role of the healthcare community should be to turn the focus away from these no-win arguments and to the issues that are really killing healthcare.  If we don\’t engage the argument as a group, we\’ll end up with the worst possible solution: a political one.

I am very interested to know what you think.  Am I right that the captain of the ship is not as important as its seaworthiness?  If so, what are the real issues?