Medical Markets Can’t Work?
Dr. Darshak Sanghavi, an academic pediatric cardiologist who (like all physicians) financially benefits from the cartelization of medicine, explains in Slate, the online magazine, that health care markets can’t work because of the information asymmetry between physician and patient (“Talk to the Invisible Hand”). So we need the cartel. This is not particularly surprising; most physicians think that. But it ain’t so.
Through several examples Sanghavi attempts to demonstrate that a medical market with the customer/patient in charge just doesn’t make sense. With the U.S. government now paying half of all medical bills and consumers paying only 10 percent out of pocket, it is not surprising that Sanghavi can show that marginal efforts to move toward a market without making any fundamental changes in the system do not always work, but let’s look at his examples:
In 2004 President Clinton developed chest pain, was diagnosed with coronary artery disease (CAD) and treated with coronary artery bypass grafting (CABG). Sanghavi notes that Clinton, savvy though we know him to be, did not study New York state’s database of hospital- and surgeon-specific death rates from heart surgery. Had he done so, he might have thought twice about having the surgery at Columbia-Presbyterian in New York City, which the database lists as having “the highest death rate of any of the 35 hospitals doing bypass surgery.” Sanghavi sees this as evidence that even savvy consumers cannot deal with the complexities of the medical marketplace. But is it?
First, in a true medical marketplace, hospitals might find it profitable to advertise the results of the database, something they have little incentive to do now, when patients remain rationally ignorant of the quality of hospitals not covered by their employer-chosen insurance. More important, the database in the form developed by New York state is crude. Are you better off going to a cardiac surgeon who does 50 CABGs per year, restricting his surgery to only otherwise healthy patients with mild CAD, and has a 1 percent complication rate, or are you better off going to a cardiac surgeon who does 500 CABGs per year, takes patients refused surgery elsewhere because they’re viewed as “too risky,” and who has a 2 percent complication rate overall (but among otherwise healthy patients with mild CAD has a complication rate of 0.4 percent—though this breakdown is not in the raw data offered by the New York database)?
How can one obtain such detailed analysis of the data? One can do what Clinton did: Go with the recommendation of the cardiologists he entrusted with his care. In a true medical marketplace he’d have even more options: Businesses would develop that analyzed such data and provided their analysis for a fee (or perhaps it would be available for free on the Internet, paid for by ads, like Google searches).
Sanghavi questions whether it helps for consumers to “have skin in the game”—that is, pay some health care costs directly so they no longer treat it as essentially a free good, overusing it and driving up costs. He acknowledges that the famous RAND Health Insurance Study (1982) showed that when patients paid 25 percent of costs, overall medical spending dropped 20 percent.
But Sanghavi is concerned. He notes that consumers “cut back equally on highly effective and largely pointless treatments.” He fails to say this means that under the highly regulated system he defends, where medical experts are in charge of determining what is needed without worrying about patient cost concerns, “largely pointless treatments” are still available. Of the RAND results Sanghavi notes with a concern that can only be felt by physicians: “The cost savings came from mostly avoiding doctors altogether.” But most people who see doctors have transitory complaints that resolve on their own, caused by problems or pathologies that are never determined, no matter the expense of the workup (headache and back pain being the two most common complaints). So it is good that “the cost savings came from mostly avoiding doctors altogether.”
Most important, the RAND study showed, though Sanghavi didn’t mention it, that with few exceptions, seeing doctors less often and spending 20 percent less overall “had no adverse effects on participant health.”
Of course, if we had a competitive market in health care, with all its implications for easier access to information, broader advertising of various options, direct price competition, easier access to medications, and more, I would expect that consumers might better distinguish “highly effective” from “largely worthless” medical practices. They seem to make good choices now when given the opportunity, in areas like Lasik and plastic surgery.
For Sanghavi, “The usual rules of the marketplace seem not to apply to health care” because doctors apparently know more about medicine than patients do. So doctors control the interaction. So regulations are needed. So the argument goes.
But this argument proves too much. Information asymmetry is the norm not the exception. Car dealers know more about cars than consumers do. The guys behind the Genius Bar know lots more about computers than Apple customers do. Are consumers always being ripped off? Sanghavi the pediatric cardiologist claims—correctly, I’m sure—that no parents ever questioned him when he ordered a special type of color Doppler cardiac ultrasound on their child. But he unfortunately seems to believe a medical marketplace is everything we have now—all the regulatory burdens, supply restrictions, informational prohibitions—except patients will pay more out of pocket. He ignores various other innovations that may help consumers get what they need despite information asymmetry. For example, competing cardiologists trying to simplify matters for patients might offer flat fees, including labs and imaging, so the consumer could compare physician costs more easily and not need to know whether a specific lab or ultrasound was “needed.” Alternatively, consumers could go on the web and use the services of Medical Cost Advocate. Such services would be more commonplace in a truly free market in health care.
Some say that health care is different, and if by that they mean the health care market has been artificially restricted, segmented, regulated, and distorted by government interventions dating back more than a century, they are right. Only the educational and financial industries come close in the degree of government regulation, which doesn’t speak well of regulation’s success. But if they mean health care is more complicated than anything else offered in the marketplace or that health concerns don’t respond to supply and demand or that medical services can only be provided when medical cartels battle government payers while insulating patients from the true costs of care . . . it just ain’t so.











Comment by David from New York on 21 January 2010:
I have used Medical Cost Advocate through my employer. Using the support of a Medical Cost Advocate, consumers have a place to go to try to save money on medical bills.
Comment by Terri K on 23 January 2010:
“They seem to make good choices now when given the opportunity, in areas like Lasik and plastic surgery.”
Yes indeed, and look at the costs too. Locally, Lasik surgery prices have come down about 60%; doctors advertise, run specials and compete. It’s a beautiful thing.
I don’t know how any doctor can defend or promote the health care monster we have today, nor can I understand why they’d want more government intervention and control. From purely a self-centered standpoint, why would anyone go to years and years of schooling to become a doctor only to have their potential for income regulated and dictated by a third party?
Comment by Jerol on 24 January 2010:
Medical markets can’t work as long as insurance monopolies are distorting the market.
Comment by ruraldoc on 12 February 2010:
Medicine is way to over regulated. The doctor patient relationship is being destroyed by the gov and the insuracne industry. Free market competition along with patients being responsible in their health care decision will drive costs down. Patients need to be aware of the costs involved and understand the risks vs the benifits so as to make good decisions. Yes medicine is very complicated but that is why people should have a good primary care doctor to advise them on how to get the best care for their money. Currently there is no price transparency and no motivation not to do the most expensive work up that is available regardless of the risk vs benifit ratio. Ct scans are done way to often and increase the overall lifetime risk of cancer. Ct scans are done all the time to decrease the malpractice risk of the doctor and the patients are happy to get them if the insuracne company will pay for it with little expense on the part of the patient. Patients want to feel that they got something for the premium dollars they have paid and do not care about the costs.
In may practice location if someone has a closed head injury it is the standard of care to get a head ct done even though it is not warented of justified. Malpractice attorneys know we have to practice in accordance with the standard of care. So if you had a head injury with no reason to have a ct in my area and we did not do one and 10 years later you are found to have a brain tumor that is unrealted we can be sued. Why can we be sued? The lawyer will argue that we may have found the cancer by accident and may have been able to treat it if we had followed the unjustifiable standard of care in our area even know the cancer would not likely be present at that time due to the duration of the head injury vs the time of discovery.
we are regulated on everything we do at the peril of the courts or the gov. If I have a self pay patient and charge them less than the medicare allowable I have broken the law. My cost of delivering the care to a self pay patient is much less than it is to deliver care to the medicare patient since I do not have to submit and collect a claim.
The ama has helped increase the cost of healthcare by creating coding data that is changed often for the benifit of the insuracne industry so the industry can find ways not to pay us. When a large portion of the care is not paid for then the charges that are paid for have to be higher to meet overhead expenses and lead to cost shifting.
The lobbing from the american hosptial association for certificate of need leads to less competition for hospitals from outpatient facilities for the sole purpose of decreasing competition and maintaing higher profits
The antitrust exemption for the insuracne industy has lead to monopolistic behavior that has increase the cost of care.
In some states the insurce cost are much higher due to the state gov mandating coverage for things such a gender changing operations ect that cause all insured individuals to have to pay for those costs.
If you want to see cost go down then people need to be able to buy insurance across state lines. they need inexpensive catastrophic options with hsa’s. if you need a surgery and have a high deductable why not have a health creditcard that you can pay off over time. Why not allow money in an hsa be rolled over tax free into a retirement plan. how about getting rid of erisa protection from lawsuits for the insuracne industry to motivate them to make decsions that are medically in the best intrest of the patients and not to their bottom line
The ave person spends less than 200$ a year at their primary care doctors office yet spend huge sums of money for comprehensive health care with most of the money being spent on administration and not on healh care.
there are some good solutions to improve health care in washington but they are being ingnored by the polititians in power.
look up hr 3400 which is a plan submitted by the republicans to see an example.
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