Mr. Speaker, I rise today to recognize an excellent article recently published in the New Republic. It has been apparent for years that free market solutions will do nothing to ameliorate the healthcare crisis in our nation. This article,…
Mr. Speaker, I rise today to recognize an excellent article recently published in the New Republic. It has been apparent for years that free market solutions will do nothing to ameliorate the healthcare crisis in our nation. This article, authored by Arnold S. Relman, M.D., the former editor of the New England Journal of Medicine, shows us exactly why market forces hinder, not help our attempts to reform the system.
In his article, Dr. Relman explains how free market approaches-- focused on consumer driven health care and individually purchased high deductible health plans--will only exacerbate the problem of the uninsured. The only thing that is empowered by these solutions is blatant discrimination against the sick and poor who will not have affordable access to care. We already have 45 million uninsured in this country, and according to Dr. Relman that number will only continue to grow if we continue down this dangerous path.
Dr. Relman proposes a solution that isn't politically popular but would fix the myriad problems in our current system. It starts with a ``tax-supported national budget for the delivery of a defined and comprehensive set of essential services to all citizens at a price we can afford.'' This universal system would rely on networks of not-for- profit providers supplying all the care covered under the national plan. A new federal agency would administer the plan, generating huge economies of scale and reducing spending by billions. This is the only real solution to our current crisis, and I commend Dr. Relman for taking a tough stand on this difficult issue.
It is with pleasure that I submit the attached excerpts from the article, ``The Health of Nations,'' for inclusion in the Congressional Record. The article originally appeared in the March 7, 2005 edition of the New Republic.
[From the New Republic, March 7, 2005]
Excerpts From: The Health of Nations
(By Arnold S. Relman)
In this past election season, our dysfunctional and
extravagantly expensive health care system was pushed off the
front pages by concerns about the candidates, the fight
against terrorism, and the war in Iraq. And yet the health
system's problems will not go away; sooner or later we will
have to solve them or face disastrous consequences. Over the
past four decades (starting just before the arrival of
Medicare and Medicaid), both the system itself and ideas
about how it should be reformed have changed a lot, but an
equitable, efficient, and affordable arrangement still eludes
us.
During the past four decades our health policies have
failed to meet national needs because they have been heavily
influenced by the delusion that medical care is essentially a
business. This delusion stubbornly persists, and current
proposals for a more ``consumer-driven'' health system are
likely to make our predicament even worse. I wish to examine
these proposals and to explain why I think they are
fundamentally flawed. A different kind of approach could
solve our problems, but it would mean a major reform of the
entire system, not only the way it is financed and insured,
but also how physicians are organized in practice and how
they are paid. Since such a reform would threaten the
financial interests of investors, insurers, and many vendors
and providers of health services, the short-term political
prospects for such reform are not very good. But I am
convinced that a complete overhaul is inevitable, because in
the long run nothing else is likely to work . . .
. . . In 1963, a seminal analysis of the medical care
system as a market was published in the American Economic
Review by the distinguished economist Kenneth J. Arrow. He
argued that the medical care system was set apart from other
markets by several special characteristics, including these:
a demand for service that was irregular and unpredictable,
and was often associated with what he called an ``assault on
personal integrity'' (because it tended to arise from serious
illness or injury); a supply of services that did not simply
respond to the desires of buyers, but was mainly shaped by
the professional judgment of physicians about the medical
needs of patients (Arrow pointed out that doctors differ from
vendors of most other services because they are expected to
place a primary concern for the patient's welfare above
considerations of profit); a limitation on the entry of
providers into the market, resulting from the high costs, the
restrictions, and the exacting standards of medical education
and professional licensure; a relative insensitivity to
prices; and a near absence of price competition.
But perhaps the most important of Arrow's insights was the
recognition of what he called the ``uncertainty'' inherent in
medical services. By this he meant the great asymmetry of
information between provider and buyer concerning the need
for, and the probable consequences of, a medical service or a
course of medical action. Since patients usually know little
about the technical aspects of medicine and are often sick
and frightened, they cannot independently choose their own
medical services the way that consumers choose most services
in the usual market. As a result, patients must trust
physicians to choose what services they need, not just to
provide the services. To protect the interests of patients in
such circumstances, Arrow contended, society has had to rely
on non-market mechanisms (such as professional educational
requirements and state licensure) rather than on the
discipline of the market and the choices of informed
buyers.
Of course, another conclusion could have been drawn from
Arrow's analysis (though he apparently did not draw it). It
is that medical care is not really a ``market'' at all in the
classical economic sense, and therefore that the basic
theories of economics are not relevant to the discussion of
the first principles of health care. But our society assumes
that market economics applies to virtually all human activity
involving the exchange of goods or services for money, and
this dogma is rarely questioned. Most economists would
acknowledge that medical care is an imperfect or
idiosyncratic market, but still they believe that it is a
market, and that it should therefore obey economic
predictions . . .
. . . In 1980, in The New England Journal of Medicine, I
described this changing face of American health care as the
``new medicalindustrial complex.'' The term was derived, of
course, from the language that President Eisenhower had used
(``military-industrial complex'') when warning the nation, as
he was retiring, about the growing influence of arms
manufacturers over American political and economic policies.
Referring to Arrow's analysis, I suggested that market-driven
health care would simply add to the explosion of medical
expenditures and the growing problems of inequity and
variable quality. I was also worried that this uncontrolled
industrial transformation would undermine the professional
values of physicians, which are surely an essential
ingredient of any decent medical care system. Financial
incentives were replacing the service ethic of doctors and
hospitals, as the providers of care began to compete for
market share and larger income. Yet competition on the basis
of the price and quality of services--an essential
characteristic of most free markets--was little in evidence,
demonstrating again the truth of Arrow's argument that the
medical care market was different . . .
. . . In an increasingly profit-driven and entrepreneurial
medical market, piecework payment for specialized outpatient
services stimulated an even greater fragmentation of medical
care and a greater use of individually billable items of
outpatient technological service. Less attention was given to
the continuity and the integration of care, and to preventive
medicine. Decreased payments to primary-care physicians and
increased pressure on them to see more patients reduced the
time that they spent with each patient. As a consequence of
all these developments, the quality of primary care suffered,
and the difference between the quality of average medical
care and the best medical care widened, even as per capita
expenditures rose and the number of uninsured and
underinsured patients increased. This quality ``gap'' was the
subject of a major report in 2001 from the Institute of
Medicine of the National Academy of Sciences, which described
the many deficiencies in the way patients were being treated
and suggested how their medical care could be improved.
Unfortunately, the experts preparing the report were not
asked to consider how the system itself might be restructured
to facilitate the needed improvements.
And so we now live with a seriously defective medical care
system, based more heavily on market incentives than the
health care regime of any other country in the world. The
commercial tone is set by investor-owned insurance companies
(the major share of the private insurance market), investor-
owned hospitals (about 15 percent of all community
hospitals), and investor-owned ambulatory-care facilities
and nursing homes (the great majority of both these
markets). The behavior of many of the so-called ``not-for-
profit'' health care facilities is not much different from
that of their investor-owned competitors, because they
have to survive in the same unforgiving marketplace, which
is indifferent to the social values that originally
motivated most health care institutions. As for American
physicians, their attitude toward their profession has
also been changed by the new medical marketplace. To a
degree greater than anywhere else in the world, our
doctors think of themselves as competitive business
people. As such, they own or invest in diagnostic and
therapeutic facilities (including specialty hospitals),
they form investor-owned medical
groups, and they advertise their services to the public .
. .
. . . Our failure to address the glaring deficiencies and
inequities in our health care system is nothing to be proud
of. A growing number of people are losing their private
health insurance. There are now more than 45 million
Americans without coverage. Much of this is due to the loss
of good jobs, but high costs are also a significant factor.
The financial burdens of those who are insured increase
steadily, as hard-pressed employers reduce covered benefits
and increase the fraction of insurance costs being shifted to
beneficiaries. Rising health costs are threatening the
financial stability and competitiveness of many American
businesses, and are discouraging the hiring of new full-time
workers. The government is also shifting insurance costs to
Medicare beneficiaries, as exemplified by the recent large
increase in the premium charged for coverage of outpatient
medical services and physicians' care (``Part B'').
What really astonishes me is that so many conservative
business and health policy experts continue to hold an
unshakable faith in a market solution for our system's major
problems. They believe that market forces have not been
allowed to contain costs or to improve access and quality
because of government regulation, and because of badly
designed insurance that prevents consumers from playing an
appropriate role. They think that the consumers of medical
care in both public and private insurance systems have not
had enough influence on the supply of services and have not
been sufficiently involved in price negotiations with
providers. These days the ``free market'' is held to be the
solution to most social and economic problems, and it is
commonly believed that in health care the most important
missing ingredient of a free market is the traditional
consumer who has the incentive and the ability to bargain for
the desired price and quality of services. So it shouldn't be
surprising that the idea for improving our health care system
that is currently most popular is so called ``consumer-driven
health care,'' or CDHC.
The term ``consumer-driven health care'' is used to mean a
market for medical care in which patients, as the
``consumers'' of medical services, would have a lot more
responsibility for choosing those services and would share
more of the costs. In the most fully developed proposals,
providers of medical care (physicians, hospitals, clinics,
and so on) would compete for patients on the basis of
quality, price, and convenience--not simply for market share,
as they do now. Patients, like consumers in any service
market, would have access to all the information they need to
make their own health care choices. They would choose and own
their insurance plans. They would select not only their
health care providers, but also the particular
medical services they want. Since they would share more of
the costs, they would have an incentive to make prudent
choices and to demand higher quality. The net result, it
is claimed, would be a better, less expensive health care
system . . .
. . . The assumption of the CDHC system is that such a plan
would moderate health care inflation by encouraging patients
to become more prudent consumers of elective and non-
catastrophic health services, because they would be spending
money they otherwise could invest in their savings account.
It is also assumed that in competing for business, the
providers of medical care would try to make their services
more attractive to patients by improving quality and
convenience, as well as by moderating their prices . . .
. . . There are compelling reasons, I think, to predict
that they will not. For a start, high-deductible insurance is
not likely to produce reductions in expenditures, except
among low- and modest income families, who would feel
financial pressure to cut their doctor visits and their use
of other medical services. There is good experimental
evidence that high deductibles have such selective effects,
which expose the most vulnerable patients to greater health
risks. Higher earning beneficiaries would not feel such
pressure and would continue to use all medical services
freely. Whatever reductions in total expenditures might occur
would be achieved largely through reducing services to those
with lower earnings. Adjusting the size of the deductible in
approved plans to the income of the beneficiaries might
ameliorate that injustice, but it would add to administrative
costs and would be virtually impossible to do properly--given
the difficulties in making fair assessments of financial
need.
If people were allowed to select whatever insurance plan
they wanted, the inequity would probably increase in another
way. Healthy, young families would choose the least expensive
plans with the highest allowable deductible, and those with
health problems would be forced to choose plans with the
lowest allowable deductibles but higher premiums. The
premiums or the required co-payments of the latter plans
would spiral upward because of the greater use of services by
sicker beneficiaries, so it would become even harder for
those with the greatest need for insurance to afford
coverage. In this way, one of the most important values of
insurance--the sharing of risks over a broad population
base--would be lost. Adjusting the contribution of employer
or government to the health status of the beneficiaries has
been suggested as a means of avoiding this problem, but the
relatively primitive state of the art of risk adjustment and
the difficulty in applying it to families make this solution
unlikely. It also would add greatly to administrative costs .
. .
. . . The CDHC plans that are now being advocated by
believers in the magic of markets shift to patients not only
a large part of the responsibility for being their own
doctors, but also the burden of paying more of the cost--and
that burden would be heaviest on the poorest and sickest of
our citizens. This is surely a denial of the ethical
principle underlying universal coverage and the sharing of
costs. But the major payers, government and employers, are no
longer willing or able to shoulder health care's rising
costs, and so they are promoting CDHC. They may justify their
views by arguing that it makes sense to shift more of the
costs to patients because patients are in the best position
to put the brakes on health cost inflation. This might be a
reasonable argument if medical care were like other services
in other markets--but it is not.
For all these reasons, then, ``consumer-driven'' plans are
unrealistic and unfair, and they are not likely to be
politically viable in the long run. There is some
understandable support for the idea that individuals should
be more responsible for the cost of elective or optional
medical services, but most people believe that the
availability of needed services should not depend on ability
to pay. We are a wealthy society, and decency requires that
we make equitable arrangements to ensure at least minimally
adequate health care for all--a goal that is beyond the scope
of market forces. . . .
. . . When that time comes, we should be prepared to
replace a failed market-based system with a better one that
can deliver the health care we need. What kind of system
might that be? The question cannot be confidently answered in
any detail before the market-based system has run its course,
and before there has been some preliminary experience with
non-market-based models--perhaps at first in a few states.
Still, a few general principles and objectives can be
proposed now, based on what we have learned from our
experience during the past four decades and on what we know
about the essential nature of medical care.
First, since we cannot rely on the free play of markets to
control costs or guarantee universal coverage, we should
establish a tax-supported national budget for the delivery of
a defined and comprehensive set of essential services to all
citizens at a price we can afford. Employers should pay an
appropriate part of the tax for their employees. These
services should include both acute and long-term care, and
they should be exclusively reimbursed through a single-payer
national insurance plan, with other elective and non-
essential services paid out of pocket or through privately
purchased insurance. No services covered by the national plan
should also be covered by private insurance plans, but the
latter could insure services, such as ``aesthetic'' plastic
surgery and private hospital rooms, that would not be covered
by the national plan. There should be no billing by providers
and no piecework payment in the single-payer plan, thus
eliminating the huge business costs and the colossal hassle
of the present billing and payment systems in multiple public
and private insurance plans.
Second, not-for-profit, prepaid multi-specialty groups of
physicians should provide all necessary medical care on the
approved list of insured services. The physicians in the
groups should be paid salaries from a pool of money that
would be a defined percentage of the total patient income
received by the group from the central payer. The groups
should be privately managed but publicly accountable for the
quality of their services, and they should be expected to use
standardized information technology that could be integrated
into a national data system. They should be indemnified
against losses due to adverse selection or other costs beyond
their control, assisted with start-up and technology
expenses, and exempted from antitrust restrictions. They
should compete for patients on the basis of the quality of
their services. All groups should be open to all citizens,
although the number of members for a given-sized group should
be regulated to ensure an appropriate ratio of doctors to
patients.
Third, patients should be free to choose their own
physician group and to switch membership at specified
intervals, but everyone must be included in the national plan
and belong to a group--including politicians. (Lawmakers are
unlikely to neglect the needs of a health care system that
provides care for themselves and their families.)
Physicians should be free to join any group that wanted
them and to change their affiliation, but they should not
provide services outside the national system that are covered
by the latter.
Fourth, all health care facilities (whether privately or
publicly owned) that provide services covered by the central
insurance plan should be not-for-profit, and should compete
on the basis of national quality standards for patients
referred by the physicians in the medical practice groups.
Facilities should be paid, and monitored for their
performance, by the central plan. They should have no
financial alliances with the physicians or the management of
the medical groups. Teaching facilities should be separately
funded by the national plan and be paid for their extra
costs, including education. Budgets in all facilities should
include salaries for full- and part-time clinicians providing
essential services.
Fifth, the health care system should be overseen by a
National Health Care Agency,
which should be a public-private hybrid resembling the
Federal Reserve System. It should be independently
responsible for managing its budget and establishing
administrative policy, but should report to a congressional
oversight committee and to the public. It is essential that
the plan be sufficiently independent of congressional and
administration management to be protected from political
manipulation and annual budgetary struggles. . .
. . . Our present medical care system lacks the structure
and incentives to improve the quality of care. A not-for-
profit system of salaried physicians, who work together in
groups that have no financial incentive to do more or less
than is medically appropriate, who compete with other medical
groups only on the basis of quality and their attractiveness
to patients, and whose results are publicly accountable,
could be expected to deliver the kind of health care we need.
The quality of care would also be improved by a system of
competing not-for-profit facilities that are held to national
standards.
As for access and equity, the plan outlined here would
guarantee universal coverage for all essential services and
would allow employers and individuals to share in the costs
through an earmarked and graduated tax. The government would
be expected to pay the costs of today's uninsured, as well as
the contributions it now makes to government insurance
programs. Given the large savings expected in this system,
the change in net costs to government should be minimal. . .
. . . A real solution to our crisis will not be found until
the public, the medical profession, and the government reject
the prevailing delusion that health care is best left to
market forces. Kenneth Arrow had it right in 1963 when he
said that we need to depend on ``non-market'' mechanisms to
make our health care system work properly. Once it is
acknowledged that the market is inherently unable to deliver
the kind of health care system we need, we can begin to
develop the ``nonmarket'' arrangements for the system we
want. This time the medical profession and the public it is
supposed to serve will have to be involved in the effort. It
will be difficult, but it will not be impossible.