The November 3rd The Health Care Blog features an op-ed piece by Joe Flower entitled Why "free market competition" fails in health care.
Mr. Flower is a speaker, author, and healthcare futurist studying change and the future in healthcare for nearly 30 years. So, given that expertise, it is with much trepidation that I respectfully disagree with him and question whether he has argued his case.
Mr. Flower says, "In trying to think about the future of health care, thoughtful, intelligent people often ask, ‘Why can’t we just let the free market operate in health care? That would drive down costs and drive up quality.’ They point to the successes of competition in other industries. But their faith is misplaced, for economic reasons that are peculiar to health care.”
The structure of his argument seems to be the following:
Free market competition fails in healthcare for economic reasons that are peculiar to healthcare
- True medical demand is wildly variable, random and absolute. Some medical needs are mandatory for life; and, life-saving and life-giving medical need has no correlation with ability to pay
- Medicine is so complex and difficult we depend on the seller (the doctor) to tell us what we need. Whether we buy or not usually depends almost solely on whether we trust the doctor and believe what the doctor says.
- The benefit of medical capacity / infrastructure accrues even to those who do not use it.
If you read my blog, you know that it is my belief that a free market healthcare system is necessary, and its absence is a root cause of what ails us. So, the fact that I disagree with his thesis is, perhaps, not surprising. With respect to his op-ed piece, however, I struggle to even follow his line of reasoning.
First point: It is true that some people get cancer and others don’t. It is also true that one's need for life-saving and life-giving treatment is not related to ones' ability to pay. However, I see no evidence that these facts disqualify a free market healthcare system from being the best idea. To my eyes, they simply underline the importance of high-quality yet low-cost services. And, I can think of no better way to fulfill this need than by utilizing free market forces.
The best way to minimize the number of people who cannot afford the healthcare they need is by having consumers participate in a system that drives down price and increases quality through consumer dollars rewarding skill, innovation and outcomes.
Furthermore, there is every reason to believe that a free market approach would provide business models for true health insurance which – like fire, flood or disability insurance – would offer reasonably priced calamity coverage by amortizing risk over large populations of people who find value in having insurance.
Finally, having a free market healthcare system does not forbid or even discourage public- and private-sector safety nets. The citizenry has generally not minded the use of their tax (and charitable) dollars to take care of the truly needy – America gives more than twice as much as the next most charitable country by dollar and percent of GDP. When capitalism has driven down costs and increased quality, we best utilize those tax and charitable dollars.
Mr. Flower’s argument, to my mind, is an example of arguing with extreme examples as a way of refuting a philosophy. In this case, the philosophy in question is that a free market healthcare system would be good; and the extreme example is “a free market healthcare system, divorced from any other complementary government or private endeavor, in a world where no one placed any value in safety net, charity, intervention or incentive.” In a robust debate regarding the usefulness of a free market healthcare system, one ought to examine whether the free market philosophy offers a better outcome than its alternatives, not discredit it with an unrealistic, extreme and soulless example of a free-market world.
Second point: Mr. Flower says, “Medicine is so complex and difficult we depend on the seller (the doctor) to tell us what we need. Whether we buy or not usually depends almost solely on whether we trust the doctor and believe what the doctor says.” While this might be an accurate observation of the world we live in (we do not have a free market healthcare system), it says nothing about whether healthcare must be this way, nor is this statement relevant to whether a free market healthcare system could work. He is confusing a result of our current system with an intrinsic quality of healthcare which makes it incompatible with a free market system.
Mr. Flower’s observation is likely to be the result of cultural attitudes in combination with not having a free market healthcare system. The original Oath of Hippocrates, circa 400 B.C, includes this very telling line, “I will impart a knowledge of the Art to my own sons, and those of my teachers, and to disciples bound by a stipulation and oath according to the law of medicine, but to none others. (emphasis mine).”
Culturally, we have tended to treat medicine as an arcane art available to only the few who complete the arduous initiations and trying apprenticeships. Add to this the fact that the consumer has only limited power (because the forces of free market capitalism have been disabled), to vote (with their dollars) for better communication and education, it is not surprising that medicine tends to feel unknowable by the lay person.
However, even despite these handicaps, there is good evidence that educating patients can produce informed consumers of healthcare (one of many examples: Computer-based patient education has been shown to be very effective in improving knowledge and clinical outcomes - Lewis, D. Computers in Patient Education, Computers , Informatics, Nursing 21(2):88-96, 2003).
WebMD has made complicated treatment and outcome information very understandable and, if our system allowed consumers to vote with their dollars, clear communication would be valued and improved. Imagine if care delivery organizations and providers competed for consumers along this dimension. Indeed Emmi Solutions (disclosure: I am the former CTO of Emmi Solutions), Krames, Med-IQ, WebMd, Relay Health and countless payor-initiated efforts have already made great strides in disputing the “medicine is too complicated to produce educated consumers” claim – all while seeking to make a profit in the context of the free market paradigm.
Third point: Mr. Flower’s third point seems to be that because people who don’t pay for healthcare get some benefit, a free market healthcare system will fail. He says, “This is the infrastructure argument. Every part of health care, from ambulances and emergency room capacity to public health education to mass vaccinations to cutting-edge medical research, benefits the society as a whole, even those who do not use that particular piece." In this one sentence, Mr. Flower references a number of free market industries that are part of the healthcare system (commodity, transportation, manufacturing, etc.) as a way of saying that free market forces will fail healthcare. Admittedly, I just don’t understand this part of his argument, but I would point out that
- Having a for-profit news industry is good for the entire community. I get many benefits of living in a society which includes this industry even if I don’t buy or consume news. And, even though I get this benefit without paying for it, it survives in a free market system.
- Having free market transportation industries (airlines, trucking, shipping, etc.) is good for the community because it subsidizes the cost of important infrastructure for which we all benefit and provides for lower-cost goods. Even if I never travel and walk to shop for everything I purchase, I get massive benefits from those industries without sabotaging their ability to thrive in our mostly free market system.
Jim,
ReplyDeleteSorry, but I can’t straighten you out.
Mr. Flowers “infrastructure “argument is flawed. It is flawed because it assumes that free enterprise is not part of his examples. For instance, the government doesn’t make the bridges, roads, water plants, transportation systems. Therefore, what he is focusing on is the financial collection of money. That is one side of the equation. The better question for him is to ask, could the government exist without “Free Enterprise? The armed services could not be competitive and fight without free enterprise. Just ask all those communist nations that failed as to why they couldn’t manufacture everything. What drugs or technical innovations in healthcare has the government ever produced?
I would agree with him that Healthcare as currently constructed is different than most other “Free Enterprise Systems”.
However, that does not mean a free enterprise system could not work.
In his article he talks about the Physicians being “sellers or agents of sellers”, (i.e. hospitals, labs, and pharmaceuticals) He is right about this. Most people don’t know that.
I guess the alternative that Mr. Flowers would suggest is that Government should run healthcare. If you like the efficiency of the post office and the effectiveness of releasing H1N1 vaccine, then you will love Government run Healthcare. Mr. Flowers, if socialized medicine works so well, then why do they have a “Private System as well” Why did they not invent the MRI, cancer treatment drugs, and most of all technological advances that have been developed in the free enterprise system in the US?
Try this out for free market enterprise in solving the Healthcare Crisis. The problem with the current bills in Congress is that they focus on the Payment System not the delivery of Healthcare. You can’t control costs without changing the delivery.
The solution to most problems is identifying the problem.
What is the Chief Complaint?--------Healthcare Costs too much.
Who issues the purchase orders and controls the costs in Healthcare?--------------Physicians. (No one can be admitted to hospital, have a diagnostic procedure, have drugs, medical equipment or nursing orders unless ordered be a licensed Physician.)
What is the problem? ----------Physicians are not incentivized to keep people healthy at the most cost effective manner. They are paid Fee for service. The more they order healthcare services, the more money they make.
Solution-------------Pay physicians (as a group) to keep people healthy at a fixed cost and they can keep the difference.
You would see a revolutionary Free enterprise delivery system born over night and we could immediately stop the growth of costs on a per capita basis.
Physicians are very smart people; they can solve the cost problems faster than government or insurance companies trying to tell them what to do can.
Thanks for bringing this to our attention Jim! Good work!
Rick Jackson
Jim - I agree with Mr Flower's observation that "the variability and absolute nature of risk, is clearly to spread the risk over all who share it." I do not agree however with his suggestion that because doctors act as sellers by communicating care options to a patient, that it obviates the patient as a buyer. Patients still need to validate those recommendations and shop the options to get the best outcome for them. Not doing so has been demonstrated to not work out well for the patient either from an outcome or cost standpoint. Similar to a financial advisor recommending certain financial instruments to an investor, the investor is not relieved from their responsibility to confirm the recommendations and shop for the best value.
ReplyDeleteBack to my point of agreement with Mr Flowers on the spread of risk, two practical examples come to mind.
The first example is a self-funded health plan operating under the ERISA guidelines of 1974. The second example is the Fed's management of interest retes. In both examples everyone who is included in the plan benefits from the risk and reward construct, irrespective of how much they need it at any given time. The premise is that if risk exposure is equally managed for a given population, then all members of that population will benefit when they happen to experience personal exposure.
My conclusion from these two examples is that if health utilization exposure was spread over all 350 million American lives in the form of a federal stop-loss insurance program, combined with a standardized retail charge master, then the market could compete effectively without any single consumer or consumer group (employer) assuming inordinate cost exposure.
Take my family for example. In this scenario I could buy an inexpensive federal stop-loss policy with a $20 thousand dollar attachment point in order to reduce my catastrophic exposure. Based upon current high deductible policies I may pay $100 a month for this coverage. The first dollar expenses I go at risk for myself. Under this construct my family and I would now shop for the best value when purchasing the procedures and/or services recommended by a physician. We have every incentive to keep ourselves well, and also to reduce our health care expenditures.
As for the the truly poor, the spread of risk across 350 million lives would create a level of stop-loss insurance savings that would likely fund a similar risk sharing program for them. That is the cost savings power of shared risk in a stop-loss insurance model. The poor could then participate in a similar program as my family, at perhaps at a $5000 stop-loss ceiling, except that their first dollar expenditures would be covered by the savings realized by the improved risk sharing plan. What they do not spend within that $5000 could be converted at end of year to an IRA, so that with such a program social security costs could be reduced as well.
I believe these two examples and the resulting construct represent a more logical conclusion to the premises of Mr Flower's argument, than the conclusion that he purports that a free market health care system would fail without government takeover.
In summary, my conclusion is that free markets have been proven to work, federal takeovers of health care have never worked well in any country that has attempted that strategy. However, individuals within a free market system will need risk and cost protections to prevent catastrophic exposure.
Ben,
ReplyDeleteThank you for your comments. I completely agree with your conclusion. Having a free market healthcare system does not forbid or even discourage public- and private-sector safety nets... or insurance!
What is discouraging to me is that Mr. Flower completely fails to argue his claim. His op-ed piece does not support his claim that a free market healthcare system won't work. It's a sloppy argument.
Jim, I concur and appreciate the rational you outline. If the system is allowed to manifest a truly competitive form, it can only benefit US citizen's and, in fact, the clinicians who, I believe, are truly interested in the quality of their care.
ReplyDeleteSorry for taking a week to respond.
ReplyDeleteThe short answer to your question, "Is Joe Flower wrong?" is "no." But of course, I thought that when I wrote the piece.
You accuse me of sloppy arguing. Allow me to accuse you (and your commentors) of sloppy reading.
You note that I seem to be arguing against a pure free-market solution as a panacea to health care's problems - and indeed I am. You call this a straw man. It is not, for two reasons: 1) There are a lot of people out there making exactly that argument, as silly as it seems, and 2) More importantly, a lot of the rhetoric flying around reduces to that argument, without explictly acknowledging it. One hears people rail against "government intervention" as if all government involvement in health care were bad, and without addressing how much and what kind of government involvement would be helpful. One hears any attempt to tweak the kinds of government involvement we have, no matter how slight, derided as "socialism." These arguments are unskillful, and do not help us move toward any kind of thoughtful, skillful use of governement intervention and free market competition in building a system that works.
You and your commenters (and other commenters elsewhere) accuse me of favoring a "government takeover" of healthcare. The piece never says that. It argues that healthcare is infrastructure, like roads, bridges, and police and fire protection. One of your commenters points out that the government does not build roads and bridges, it contracts it out. Exactly. There are many ways we can provide for infrastructure, but because it benefits everyone, we provide for it through government.
Ben, for instance, paints a nice public/private scenario above, one in which the federal government operates to spread the risk among all Americans (he mentions a "federal stop-loss policy" and then describes a similar program for the poor, in which savings would also accrue to the Social Security system). Then he goes on to a general conclusion that this shows that "free markets have been proven to work, federal takeovers of health care have never worked well in any country that has attempted that strategy." Yet his scenario was not a pure "free market" scenario, and most of the systems out there in the rest of the world are not pure "government" systems either. They are somewhat different mixes of public and private.
Thanks for your thoughtful commentary, though. It is rare in this year when I have been alternately called a "socialist" and a "right-wing nut job," depending on what sentence fragment the reader is projecting his fantasies into.
Joe,
ReplyDeleteFirst of all thanks for responding -- I appreciate that you are willing to put yourself out there and pay attention to the opinions of even the little guy (me).
I agree that there is a vocal constituency that is guilty of 'railing against "government intervention" as if all government involvement in health care were bad, and without addressing how much and what kind of government involvement would be helpful.'
I am not one of those people -- I favor a free market *approach* with some government intervention.
I would love to read an op-ed that challenges both sides to stop using bizarre ends of the spectrum as ways of shouting down the "other" side.
I was responding to your op-ed without giving any thought to any other constituency or political context. I interpreted your op-ed as making a strong claim that the free market will *always* fail in healthcare for reasons that are *innate* to healthcare. If that was sloppy reading than I apologize. However, if I interpreted it correctly than I still maintain that your argument does not show convincingly that the three “factors” which you identified were both innate to healthcare and will always result in the failing of a free market healthcare system.
Perhaps I should have worded my op-ed a little more clearly to say that "free market competition will never be a panacea" for health care - that is, there is no way that you can build a health care system that works completely on a "free market" basis.
ReplyDeleteAnd the reasons I gave are indeed innate to health care (though not necessarily unique to health care). The risk is universal (like the need for housing and food) but unlike those other risks, it is distributed both highly unevenly and randomly, so people do not shape their lives to take the risk into account. Some libertarian types would say (have said to me), "So some people are stupid. Tough luck to them." But realistically, I don't know anyone who realistically assesses and prepares for their lifetime risk of disease and trauma. Just doesn't happen. You want people to have health care, you have to spread the risk for them.
The second argument, that the buyer (the patient) gives over decision-making power to the seller (the physician): You have argued essentially that it should not be that way, and would not with enough patient education. I understand the thought, and am a huge advocate of patient education and involvement, but realistically, that will never be more than a partial answer. The doctor says you better have that operation, how much of an educated patient are you before you say, "Eh, I'll chance it"? The realistic answer here is to change the business model so that the most involved and knowledgable consultant and patient advocate (the physician) does not have a direct conflict of interest built into his or her advice.
And the infrastructure argument I have made.
I don't actually think I have an a priori slant in this debate. Some things really need government. Other things do great with real competition. There are many examples of wonderful competition directed, seeded, and provided with a level playing field by government. We have a huge job to do, and just think we ought to pay really close attention not to some theory but to what actually works.