OP-ED

Improving the Harvest: Farming and Health Care

I love Atul Gawande’s writings on health care.

He has a rare talent for describing technical details of health care, insurance and finances in terms that most people can understand. His recent article in the New Yorker discussed the current health reform bills’ approach to curbing costs, using the agricultural industry as a potential model.

One of his basic points is similar to one I have made before. He describes two kinds of problems: “those which are amenable to a technical solution and those which are not. Universal health care coverage belongs to the first category . . . Problems of the second kind [referring to rising health care costs], by contrast, are never solved, exactly; they are managed.”

I would frame it somewhat differently. The two basic kinds of problems are those, which are amenable to a government solution, and those which are best addressed using decentralized market forces.

There are two serious shortcomings in our current health care system: lack of access to health care and insurance coverage for many low-income people, and the rising costs of health care. While private market forces do have the potential to address cost issues –”efficiency” in the jargon of economists – they don’t do very well at handling issues of “equity”. Specifically, private markets can’t do the following very well in the health care system:

Provide access to insurance or health care to low-income or very ill people. Ensure that reliable standardized information is available to consumers. Maintain the appropriate balance of power between providers and consumers

This means there is an important role for government:

  • Ensuring that coverage or care is available to low income and very sick people
  • Providing information is reliable and available
  • Maintaining healthy markets.

In the latter role, it is appropriate for government to establish the rules for the structure of the market in order to create:

  • Real choice
  • Healthy competition
  • Incentives for improving value (quality/cost)

Government can also play a role in providing financing for innovations (i.e., start-up funding for pilots). After this point, however, it’s probably better for government to get out of the way and let the market do what it can do best – drive improved value for consumers.

So far, so good. I basically agree with Gawande’s observation that different problems should be addressed by different means. But is Gawande correct in using the developments of the agricultural industry as a model for what might occur in health care? While there are a lot of parallels (e.g., fragmented and inefficient production, resistance to change), I am concerned that there are some important differences between agriculture and health care. I won’t offer a critique of the outcomes of U.S. agriculture (lower prices, yes, but also the growth of corporate farming at the expense of family farms and small town economies, as well as serious concerns about food safety); I want to focus on two other issues about the relevance of the agriculture model to health care.

First, the economic incentives in agriculture seem much more direct and consistent with consumer welfare. If the farmer can find more efficient ways to produce crops, it will result in higher net income. Lower production costs also allow the farmer to reduce prices, gain market share and increase revenue. Other farmers then have a strong financial incentive to adopt better production methods; otherwise they will lose market share, revenues and profits. This healthy competition results in lower prices and improved value for consumers.

In the health care world, however, the financial incentives for improving efficiency are much weaker. The knowledge about how to be more efficient is available, but the adoption of these methods is very limited. Simply introducing the health care equivalent of USDA extension agents and financing a lot of pilot projects are unlikely to change this. The incentives are weak for a variety of well-known reasons: health insurance, which shields most consumers from the real costs of health care; federal tax policy, which excludes employer-sponsored health benefits from personal income taxes; the ability for insurers to use risk management strategies to avoid high-risk enrollees; the ability for providers to use payer-mix strategies to avoid low-reimbursement patients; the well-entrenched use of fee-for-service payments that reward volume instead of outcomes, etc. Unless we make structural changes to address these issues, the financial incentives will not be aligned in a way that will cause the health care industry to embrace more efficient production methods.

The second potential problem is the difference in relative market power of buyers and sellers. In agriculture, the sellers (farmers) are much weaker than the buyers (consumers and middlemen), which forces the farmers to compete aggressively on price and quality. In health care, however, the sellers (physicians, hospitals, drug manufacturers) are more powerful than buyers. There are several reasons for this: providers have professional knowledge and expertise that consumers rely upon, and many areas have a high concentration or even monopolies of providers. Even if the provider payment incentives were aligned with consumer interests, health care providers would probably still be able to charge relatively high prices.

How do the current Senate and House bills line up with the issues raised by Gawande and my analysis? The underlying philosophy of the legislation is consistent with the two-sector approach described above: government helps low-income people to get access to health care and sets the rules for the health care market, while private sector providers and insurers compete to offer the best value to consumers. The bills also begin to address the issue of financial incentives, by encouraging alternatives to fee-for-service, eliminating the use of risk skimming by insurers, and taxing high cost health plans. Not surprisingly, the bills do not directly address the market power issue, although the proposed strengthening of the Medicare payment commission would be a small step toward curbing costs.

Will all of this work? We don’t really know, but at least the bills are built on a framework that has some chance of success. We do know, however, that the current system is cruel in human terms and unsustainable in economic terms, and we have to try something. We will have more work to do to get this right.

Bill Kramer is an independent health care consultant, focusing on health care management, finance and public policy. Bill served as a senior executive with Kaiser Permanente for over 20 years, most recently as Chief Financial Officer for Kaiser Permanente’s Northwest Region. More information about Bill may be found at his website. You can read more of his commentaries on health care management and policy at his blog, ” Now’s the Time, where this post first appeared.

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RMichaelSam5SP LegalanonBarry Carol Recent comment authors
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RMichael
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RMichael

I hate to be a pessimist, but I have to think back to my Disease Management days, where it became very clear that any patient’s willingness to change typically goes through several stages including pre-contemplation, contemplation, preparation and action. What we found, as many others have, is that about 80% of the population with bad habits (smoking, excesses in various things, obesity, etc) still live in the world of pre-contemplation or contemplation — ie: just haven’t thought about it, or haven’t thought about it much. And even with professional work and face-to-face coaching, you may only get about 5-10% to… Read more »

Sam5
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I don’t know if any of our medical experts can calculate how much of our heal thcare charges is for trying to diagnose the patient’s issues and how much is for actually treating the issues or, if it’s a chronic disease, administrate it.
Can we manage things -in this important field- with more transparency?

SP Legal
Guest

Did anybody read about James Bain? Released today after spending 35 years in prison for a crime he didn’t commit: http://www.cnn.com/2009/CRIME/12/17/florida.dna.exoneration/index.html
This is just the latest example of our nation’s moral and financial legalcare crisis. Demand Affordable Accessible Legalcare for All! http://www.SinglePayerLegal.org . Read the damning article exposing our two-tiered legalcare system at http://www.jpands.org/vol14no4/rice.pdf

rbar
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rbar

No Nate, boob jobs and other consumer elective surgeries (e.g. Lasik) are very standardized projects in rather healthy and young people. This is not healthcare, these are selected procedures (and I don’t even know whether there is true price competition for cosmetic surgery, I rather doubt it). I would admit that there are quite a few procedures that are fairly standardized and that could be made more affordable with increased competition (e.g. carpal tunnel or cataract surgery… but that does not work well in healthcare as we all know that in the medical field, providers can, to a certain degree,… Read more »

anon
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anon

Barry is wrong. There is absolutely one way to dramatically decrease total overall expenditure on healthcare in our economy. Pay for every medical student’s education with a stipend. Suspend admissions to all residency training programs except general internal medicine, fmaily medicine, pediatrics, general surgery and OB/gyn for a period of ten years. The money saved from suspending those programs will more than pay for subsidized med school training (which at 21 bil/10years without stipend by the CBO estimate is a literal drop in the bucket by health reform standards) and the PCP/specialist ratio will be turned on it’s head, resulting… Read more »

Nate
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Nate

rbar when your brother’s car made an odd sound then your car made an odd sound all the same comparisons stick. Same with hiring an attroney, fighting one DUI and winning doesn’t mean you can beat the next one. Sunday morning 5am your locked up and barely remember your name you going to comparsion shop bail bondsman? Driving through X inner city late at night and car dies you going to call 5 tow companies to see who has the best price? The fact that we usually don’t pay for all of our care was my point, the problem is… Read more »

Barry Carol
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Barry Carol

I wonder if any of the medical experts can estimate how much of our healthcare spending is for trying to diagnose the patient’s problem and how much is for actually treating the problem or, if it’s a chronic disease, managing it. Treating a medical problem, with drugs, surgery, or lifestyle changes lends itself quite well to pricing in advance of treatment. Diagnosing the problem is trickier. While we can price some services like imaging and blood tests in advance, we often don’t know how much testing will be necessary before a diagnosis is determined. Moreover, care delivered under emergency conditions,… Read more »

Gary Lampman
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Gary Lampman

I have spent a little time checking sites and looking at the USDA Site on Approved antibiotics. See if you recognize some of these antibiotics and if they are methicillin Based”….new studies have found a link between deadly methicillin-resistant Staphylococcus aureus (MRSA) bacteria and CAFO practices. ” Now imagine that “70 percent of all antimicrobials used in the United States are fed to livestock. 1 This accounts for 25 million pounds of antibiotics annually, more than 8 times the amount used to treat disease in humans.2” I think there is a strong link between Agriculture antibiotic resistance and antibiotic resistance… Read more »

rbar
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rbar

Nate, your last questopn is easily answered. Apart from the fact that a lot of medical care is not subjected to a purchase decision in a competitive market (as geridoc pointed out), the benefit from a lot of medical services is far from obvious (while the value of a competent dental- or boob job or Lasik is quite clear): is the suggested back surgery a good deal for back pain? Your brother swears it is, but did he have the same mechanism of nerve root compression? And he was 58 while he had his surgery, and you are 77 and… Read more »

Margalit Gur-Arie
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Margalit Gur-Arie

I was hoping someone would post something about Dr. Gawande’s latest installment. I don’t know where he gets the pastoral descriptions of rolling green pastures, happy cows and earthy farmers. They fixed agriculture by turning it into, heavily subsidized, agribusiness and there is nothing pastoral about it. They loaded supermarket shelves with cheap, unhealthy, chemically treated “stuff” and conditioned us to love it starting at the age of 2. And, Nate, bumper crops are fine since there is a bottom price. Anything below that and the government pays the difference. We even subsidize tobacco!! And let’s not forget who is… Read more »

Nate
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Nate

“those which are amenable to a technical solution and those which are not. Universal health care coverage belongs to the first category” Everything is amenable to a technical solution if you ignore the negative outcomes. When actual results don’t matter it’s easy to legislate outcomes. The fact those outcomes are seldom to never acheived by the legislation never seemed to bother the left, it has always been about saying you did it not actually doing it. Insurance and healthcare are two very seperate things, the failure to differentiate them is why so many proposals make things worse then fix them.… Read more »

Peter
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Peter

“First, the economic incentives in agriculture seem much more direct and consistent with consumer welfare.” Only if you discount the massive government subsidies that produce fattening, sugar rich foods which are not consistent with consumer welfare. “In the health care world, however, the financial incentives for improving efficiency are much weaker.” That’s because efficiency lowers cash flow, bonuses and profits. If you look at the marriage of agriculture and healthcared it is the perfect self sustaining scam. The government subsidizes food that makes us unhealthy and then the healthcare industry (also not without government subsidy) charges us to treat the… Read more »

Shirley
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Shirley

I loved your article, it has great information! I think you and your readers might be interested in another article I found, about health and dry eyes.
http://whatistheeye.wordpress.com

geridoc
Guest

This is one of the best analyses of the some of the real issues facing health reform that I have read. I agree with Mr. Kramer that the analogies applying market forces to healthcare have their limits, and that is possible to carry the application to agriculture too far. It seems the difference is that food markets are heavily influenced by direct consumer decisions. Health markets are not. By and large, supporting pilot innovation projects seems that it will be a good thing. But who will decide when an innovation works? Since most health care purchase decisions are not directly… Read more »