Market Won't Solve Healthcare Without Public Option

Conservatives love market solutions, but healthcare has no hope of ever being an “efficient market." Here's why.

September 8, 2009 -- The September issue of The Atlantic has a feature article by David Goldhill, a business executive who lost his father due to a hospital error. Goldhill’s analysis of what’s wrong with the quality of our healthcare is impeccable, but not his solution.

This executive advocates an even more market-based health system relying on personal savings for low-probability, but costly care. He believes informed consumers who spend their own money will demand better quality, and providers who fail the test will be dumped —part of the skin in the game theory.
A guest editorial in the Portland Business Journal (Aug. 28) talks about how a public option would threaten healthcare reform. Its author, Mary Grealy, is president of the Healthcare Leadership Council in Washington D.C., which represents CEOs of healthcare companies.
Grealy cites, among other things, the “innovation gap” between Medicare and the private sector. Her example: It’s taken the government 40 years to offer prescription drug coverage to seniors. But Grealy doesn’t mention the failure of private insurers to deal with the unfettered prescription drug prices or the role of industry lobbyists who first delayed a drug benefit, and then prevented Medicare from negotiating prices for drugs.
A market that effectively manages quality, prices and services must be an efficient market. Anyone who invests in the stock market should be familiar with this term. Stock markets that work correctly are efficient because the same information is available to everyone, and the market rewards good performance evidenced by rising stock prices, when a company’s profits increase because of better products and services.
Without significant regulatory reform, our healthcare system has no realistic hope of ever becoming an efficient market because we don’t have an unbiased way of comparing the value or the cost of specific medical procedures, devices or pharmaceuticals – and sharing that information with consumers.
Dr. James Weinstein, a surgeon who left a prestigious position at the University of Iowa to join the fight for better health policy at The Dartmouth Atlas Project, asserts that we don’t have informed consent for medical procedures. What we have is “informed persuasion” -- one-sided information, with a bare minimum of down-side discussion of the risks and failures to please the lawyers—but we don’t fully inform the patient.
The research speaks for itself. When consumers were given thorough and well-balanced information about a surgical procedure, they chose surgery 25 percent less often, according to Dr. Donald Berwick of the Institute for Healthcare Improvement. I’ve reviewed the patient information that Berwick cites, and it is a world away from current informed consent information. It’s what all patients should see.
Yet the market has been reluctant to follow Berwick’s lead, and we constantly hear from experts who give biased information online and in other media. This kind of a market will never be “efficient” nor lead to the best care.
An hour-long video by Maggie Mahar based on her book -- Money-Driven Medicine -- was featured on Bill Moyers’ Journal (Aug. 28). Mahar described how hospitals advertise their high-tech, high cost marquee services -- cardiac catheterization labs, fancy imaging facilities and cancer centers. Yet these same hospitals fail to mention the medical or cost downsides.
Pharmaceutical manufacturers use the most egregious advertising practices, telling consumers to “ask their doctor,” who must either write the prescription or spend a lot of unreimbursed time explaining why a certain drug is not the best choice for them.
A public option, accompanied by better regulation of health care advertising, comparative effectiveness research, and widespread use of balanced and thorough information to consumers, is an absolute must. Only then can we begin to create a more efficient market and make better medical decisions.
Unfortunately, for many of the market advocates it’s entirely about their own personal economies. Given the tremendous unmet health needs in our society, their arguments are almost devoid of ethical values.
It’s time for our leaders to do the right thing – to take a courageous stand for all of us – and demand a public option as an essential component of healthcare reform.
Dr. Thieman is an experienced board-certified family physician and a medical director with long experience in both medical practice and health plan leadership.
For Thieman's earlier commentary on the influence of money on the insurance industry click here.
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I have long supported the necessity of a "public option" to add "market" pressure to correcting the oligopolistic woes of the private sector. Isn't it an odd contrast to argue a "market" rationale for an ideological choice based in centrism and non market views? The "public option" needs to be vastly different than what appears to be on the table. If we merely expand public enrollment to purchase services from the private sector at deeply discounted rates, it is a wrong headed "public option". One local hospital CFO told me Medicaid in Oregon is paying his institution approximately 15 cents on the dollar. The rest of us are absorbing the shortfall in a very unaccountable fashion. Unfortunately summarily reducing or simply freezing provider reimbursement is the primary methodology of balancing budgets, fully understanding it is handy way to execute a "tax" of sorts on the private sector without any overt requirement for public affirmation. If the new "public option" were to compete on a "level playing field" with the private sector, it would need to compensate the system on par with the private sector as contrasted to depending on it for subsidy. The interesting conflict in turning over this rock is if the public option must pay par, why not Medicaid and Medicare? Since most health care expense is tied to someone's take home pay, a public option must not only challenge administrative costs which its advocates desire, but also all other expenses including professional incomes. Why should any physician take home more than a generous $200,000 a year or some other declared standard? Similar examination should be confronted throughout the entire food chain. Absolutely, bring on the public option, but let's be thorough in how it is designed and how it will control its costs. We already have a public option in Oregon, called the Oregon Health Plan. OHP proudly rations care (probably to little consequence). Are the protocols of OHP to be the ideal for a new public option? Do we consider its protocols as having been financially effective? Do we know? Has it ever been independently and thoroughly studied? If we are to be on a high horse about administrative costs, what are the consolidated administrative costs of OHP, reflecting State and health plan costs? Do we know? On its face, it seems like those costs because of the doubling of bureaucracy would be significantly more than your vanilla insurance service. If a "public option" was an organization in hot and continuous pursuit of the value proposition it could be an absolutely wonderful and game changing organization. If I had to place bets, don't think the spirit of that is in the cards.

Let me add the following to a great article: the details of the so-called "public plan" must in fact allow "choice" in order to get sufficient enrollee numbers into the plan so it has the power to encourage better quality and lower costs. The current language in the primary House bill, HR 3200, fails to do that. The general public has no "choice" to enroll. Only the "uninsured" and employees of "small" business will be able to elect the public option. Wide-spread generalities about "choice" are meaningless if you look at the actual wording. It also appears that premium payment subsidies will be limited to some degree to conform to this effort to impede enrollment into the "public plan." Larger business will not even be allowed into the "Exchange" until 2015 at the earliest, and possibly as late as 2018. Only the "Exchange" may offer a "public plan." Look at sections 102, 202 and 242....and pay attention to the definitions of "larger" business (>20 employees) and who is entitled to "affordability credits" (subsidy). To say the current "public plan" language is watered-down is an understatement. To say "all Americans" will have "choice" of a public option, as many do, is simply not honest. Policy folks need to raise awareness of this problem. rand dawson Siltcoos Lake

Choice should be universal and cut all ways. Medicare recipients should be able to opt out of that program, electing "approved" options. What kills a public plan which I support is the likely attached requirement that it compete on a "level playing field" with the private sector. That should mean paying providers on par with the private sector. This in turn will bait the question if the new public segment is obligated to pay par, why not Medicaid and Medicare? This daisy chain blows up everything. Public programs are absolutely dependent on deep discounts and cost shifting to the private sector to sustain their financing. Discounting is the principle cost saving strategy of the public sector. As they say, it is what it is.

Don Thieman's response to Steve Gregg's critique on the risks of the public option, and the need to address ALL :"overpayments" in the system, including those of many physician subspecialists: I fully agree with the latter. Those who chose their field with high incomes in mind (they know who they are) are not serving the purposes for which private and public funding was given, so as to reduce the cost of our medical education. A specific point about hospitals needs rebuttal, however. When the quoted hospital CFO said public programs pay him "15 cents on the dollar," he was talking about the "retail" dollar. As my favorite large system CEO has said, a hospital sets retail prices anywhere it wants to, knowing only a tiny percentage of people will actually pay those rates. They are regularly used to counteract the effects of contractual percentage discounts, creating an Alice in Wonderland pricing environment. When someone in that role says a thing like "15 cents on the dollar" without including this explanation, it is simply disingenuous. Sure, public pricing sometimes undercuts private, in noncompetitive markets (most of them, when it comes to price), so the CFO has a point--but a much weaker point than he would like.

Regarding the statement Medicare causes hospital cost-shifting to the private sector...I simply say: prove it. The facts suggest Medicare pays a fair price...a price that is above costs. Costing information is difficult to find in the physician sector since doctors are not obligated to actually lay out their costing structures (how should we value a physician's time?). On the other hand, hospital costing information is available and is used by respected organizations like the Commonwealth Fund and their reports do not support the myth of Medicare cost-shifting. If people want to find an excuse for the poor performance of the private sector they need to find some other horse to beat than Medicare cost-shifting. The public is well-served by Medicare leveraging lower prices from hospital providers, as a whole. Taxpayers (think families and businesses) deserve that level of service. rand dawson, Siltcoos Lake