Economics

There Is Nothing Free About the Health Care Free Market

Nortin Hadler“Universal Health Care”, “Single Payer”, “National Health Insurance”, “Socialized Medicine” are all semiotics symbolizing the subjugation of physician and of patient autonomy to government control for the sake of the common good. This is not sophistry. Max Weber was a Prussian political philosopher who laid the foundation for modern sociology with such books as The Theory of Social and Economic Organization (1920, English translation 1947) in which he proclaimed, “Bureaucratic administration means fundamentally the exercise of control on the basis of knowledge. This is the feature of it which makes it specifically rational.” (p. 339).

However, Weber knew that the goal of a rational bureaucracy was more often elusive than realized, if it is ever realized for long. As Karl Marx observed in a mid-19th C critique of Hegelian political philosophy, “The bureaucracy takes itself to be the ultimate purpose of the state.” That observation is mirrored in a televised speech delivered by Ronald Reagan on October 27, 1964, “No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we’ll ever see on this earth!”

The upshot is that society has an inherent love-hate relationship with bureaucracy. As I discuss in Citizen Patient, till the end of the 20th Century American medicine contained and controlled its own bureaucracy and was willing to downplay such short-comings as inequities in the delivery and quality of care. Even the legislating of a Medicare bureaucracy had little impact on the medical hegemony; the legislation delegated clinical indications and fees to medicine’s own bureaucracy and much else that is costly to the marketplace. American medicine remained secure in its autonomy. Meanwhile, elsewhere, in nearly all similarly “advanced” countries, the will to tackle inequities in the distribution and quality of care and in cost-effectiveness had come to predominate by early in the 20th C. These countries sought a solution in the evolution of governmental bureaucracies. Several of these bureaucracies, these national health insurance schemes, remain examples of Weber’s rationality. Several of the national health insurance schemes, such as in the United Kingdom and France, are fraying.

The ACA

Enter Obamacare. The Patient Protection and Affordable Care Act (PPACA) – also known as the Affordable Care Act or ACA, and often referred to as Obamacare – is the landmark health reform legislation passed by the 111th Congress and signed into law by President Barack Obama in March 2010. It is America’s attempt to create one of Weber’s rational bureaucracies to the serve America’s ill. The ACA is meant to salve the afflicted who are disaffected and disavowed and all else who were not well served in the 20th C by America’s institution of medicine and the “health care delivery system” it had commandeered. The ACA is a fatally flawed attempt.

The ACA was born of controversy and limps along in controversy, some as a reflection of false starts and unintended consequence. However, more is a reflection of the philosophical divide that was circumvented with compromises rather than confronted. David Blumenthal likens the political process that resulted in the ACA to Jefferson and Hamilton debating against and for a Federal finance bureaucracy. But I disagree. Both Jefferson and Hamilton had principled platforms and constituencies. The ACA emerged from a cacophony of prejudices and agendas, which were further inflamed by compelling but unverified inferences emanating from the academy. David Blumenthal was of the latter ilk and was brought into the Obama administration as the new National Coordinator for Health Information Technology. He was charged with building a private, secure nationwide health information system and to support its “meaningful use”. With unprecedented speed, America completed one of its largest ever, publicly funded infrastructure investments. THCB is laden with posts describing shortcomings and decrying some consequences, many of which must be close to the mark since CMS has now announced an impending revamping of “meaningful use”, which term has gained the baggage of an Orwellian oxymoron.

The shame of this chapter in the history of American medicine is that unlike the Jefferson-Franklin debates and unlike the debates regarding the moral underpinnings of the bureaucracy, the ACA was born out of debates on form and function but not on substance and ethic. Economists, policy wonks, politicians and all the various stakeholders came together to devise an insurance scheme that would be sufficiently granular to define who is at risk, for what and at what price. Health care insurance was likened to an enormous aggregation of personal articles floaters. All we had to do is capture the number of individuals, itemize their valuables, and calculate a premium that would cover replacement costs. The debate was in defining the premium that underwrote the system, not necessarily the premium that indemnified what was of value to the individual. It’s the same mindset that can price a year of quality living at $50,000 or more.

It is a mindset that turns health into a commodity, disease into a product line and physicians into a sales force. It is a mindset that believes that the free market champion those who are ill and in need of caring. It is a mindset that has been fooled. As Søren Kierkegaard said, “There are two ways to be fooled. One is to believe what isn’t true; the other is to refuse to believe what is true.”

The “Free” Market

Every serious student of political philosophy and economics knows of Adam Smith and probably his book, The Wealth of Nations, which he published in 1776. It is a text that remains oft quoted and still stimulates scholarship. I’d recommend a brilliant essay in the New Yorker by Adam Gopnik for starters. Adam Smith believed that a perfectly competitive market would benefit society at large. Further, whenever purveyors conspire with regulators, freedom is at risk. Smith’s dictum is, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

Smith knew that a perfectly competitive market, an unblemished exercise in supply and demand, required “an invisible hand.” Smith never defined this notion; many a subsequent scholar has attempted to fill the void. It is generally agreed that Smith was not a deist. Certainly, his close friend David Hume was an irreligious radical epistemologist. So, you can make what you will of Smith’s “invisible hand”, as many have including the Nobelist Joseph Stiglitz who simply dismissed it as non-existent. “Invisible hand” aside, Smith’s notion of this unfettered free market has influenced important scholars for 250 years. Ever since Friedrich Hayek commanded the rapt attention of the Reagan and Thatcher administrations, an unfettered free market has become a shibboleth for right-leaning politicians and policy. Central authority, it is argued, can never have complete enough information to reliably allocate resources. Society is far better off if it relies on the price of goods and services in a free market to determine allocation. Hayek’s formulation of this principle earned him the Nobel Prize in Economics in 1974.

Caveat Emptor

By its very nature, the ACA is a denial of this line of reasoning. It is assigning the control of the provision of health care to a central authority, even to the extent of defining, demanding and enforcing “meaningful use”. What is not under the thumb of the Federal bureaucracy is delegated to the burgeoning bureaucracies of stakeholders including the “health” insurance and hospital/clinic enterprises along with PHrMA and the device industries. This dialectic stands in opposition to Adam Smith and all the political philosophy that has followed his example, including the powerful body politic that dominates legislatures across the country today. Hence, there was no way to marshal the ACA through Congress without compromise. The compromise that won the day for Obamacare and its myriad bureaucracies was to leave the definition of “care” and the pricing of “care” unspecified in the Act. It was assumed that the free market would work its magic.

Neither Smith nor his “invisible hand” could have imagined the “health care market” that awaited the ACA. Supply and demand is not under the control of the consumer; both are the purview of the bureaucrats who populate the front offices of the stakeholders. I do not mean to imply that these front offices are populated just by greedy misanthropes. Rather, these stakeholders have become the bureaucracies Weber feared and Marx foresaw. They are rational in their collective drive toward self-service but they are irrational in terms of their ethical mandate. As Richard Gunderman said in a recent THCB post, “Financial priorities begin to take precedence over why the organization exists in the first place – to care for patients.” Gunderman ascribes this to “…the growing bureaucratization of healthcare, driven in part by consolidation among healthcare organizations.” This tautology misses the mark. The reason these bureaucracies are immoral is that they are not held to a transparent, definitive and articulated standard of decency because society has been sold a bill of goods in the free marketplace.

More Foxes than Hens in the Henhouse

Despite the FDA and the EBM establishment, much that is sold to patients as beneficial remains a pig-in-a-poke, devices in particular. Much that is licensed and marketed as offering efficacy is supported by data that has been tortured or generated in studies that are too methodologically flawed to be interpreted with any confidence.  Furthermore, much that passes methodologic muster offers evidence for trivial if not elusive benefits. All these shortcomings are overshadowed by aggressive marketing designed to bolster the “margins” of purveyors, salutary or not. It follows that pricing in the health care market is far more a reflection of marketing prowess than of the value of the goods to the consumer. Stakeholders in the private sector garner adulation from shareholders for milking this market. This shell game also results in largesse that hides under blankets that only not-for-profit entities can contrive: minions of highly paid administrators housed in shiny facilities and plied with whatever perks they consider appropriate. All of this is immoral.

To my mind, the most immoral aspect of the evolution of this marketplace in the 21st C is in depriving the patient of access to the evidentiary basis for saying, “Thanks, but no thank you.” What kind of free market deprives the consumer of choice? Furthermore, most purchases are for goods without face value. It’s not as if one is asked to choose between automobiles. One is asked to purchase between putative benefits. That requires an informed and empowered patient, which in turn requires a trustworthy dialogue with a physician. To nurture this dialogue requires a marketplace that considers this dialogue a valuable priority. Rather it is rapidly becoming an overlooked demand and an endangered supply by an ever more irrational bureaucracy and a duped citizenry.

Nortin M. Hadler, MD is a graduate of Yale College and Harvard Medical School. He joined the faculty of the University of North Carolina in 1973 and has been a professor of medicine and microbioogy/immunology since 1985. His assaults on medicalization and overtreatment appear in many editorials and commentaries and 5 recent monographs: The Last Well Person (MQUP 2004) and UNC Press’ Worried Sick (2008), Stabbed in the Back(2009), Rethinking Aging (2011) and Citizen Patient (2013).

 

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AnikVerma86Nortin HadlerRichard LIppinJay LozierPaul @ Pivot ConsultingLLC Recent comment authors
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AnikVerma86
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After gone through your blog post, I somehow agreed with your words. I saw some health care advise of Steven lash here. https://www.youtube.com/watch?v=VKnwKfsuX9E

Nortin Hadler
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Nortin Hadler

Dear Peter, Paul and CAUrgentCare…and the rest of you who were so kind to read this essay so carefully. I am very appreciative. Many of your comments were of a”What next?” or “What now?” nature. Paul cites the latest iteration of the “Health Assurance, Disease Insurance” model I set forth in CITIZEN PATIENT. I’ve been tweaking that boulder and pushing it uphill repeatedly for nearly 2 decades. It’s a defined contribution form of health insurance with a major fiduciary overlay. It is very appealing intellectually and ethically compelling. I even pushed the boulder near the summit for uninsured workers a… Read more »

Paul @ Pivot ConsultingLLC
Member

Dr. Hadler, My skepticism re the Citizen Patient national reform plan was that I didn’t think the Disease Fund could be kept independent and objective for long…..that the political/financial pressure to undermine its integrity would be impossible to resist. However, application of your concept to an employer or industry group appears to be a great way to test it. It would be essential to get around the patchwork of State healthcare mandates which require all kinds of useless/harmful procedures….but I do believe self insured employers are exempt from the morass of state mandates. Is this what you refer to when… Read more »

Richard Lippin
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Hadler is ALWAYS compelling and worth reading. One goal that I hope for along with Nortin Hadler is the informed and empowered patient. But that begs the question of time and energy for patients to become informed as they struggle to make ends meet? Also I can never resist referring to what I call organized medicine’s “BIG LIE” – namely that what organized medicine delivers only contributes in small part to human health outcomes. Hence until this lie is accepted by patients (a long way off) we will continue to see and pay for unnecessary excesses in medical diagnostics and… Read more »

Jay Lozier
Member

A free market transaction required equally motivated “buyer” and “seller”. Sometimes this can obtain, but will not be the case for instance when the “buyer” is having chest pain at 3:00 AM, or in labor, or lying at the side of the road with major trauma. Now is not the time to read “The Last Well Person” so as to be a savvy consumer. The “seller” has certain advantages insofar as the knowledge gradient favors them over the “buyer” in most medical affairs (if not so, why go to medical school and undergo post-graduate training?), though that gradient is slowly… Read more »

Paul @ Pivot ConsultingLLC
Member

Re the question of what Dr. Hadler proposes, this is my interpretation of his Citizen Patient proposal (from my Amazon review of the book): “establishment of a system funded by a 12% tax on wages. Dr. Hadler’s proposal is to divide the proceeds of the 12% tax into two funds. First is the Disease Fund to cover all medical interventions that have shown through randomized control trials solid effectiveness and efficacy….a shocking small percentage of common medical interventions. The second would be a Health Savings Account type of fund under which the patients have full control to use for other… Read more »

Peter
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Peter

“Dr. Hadler’s proposal is to divide the proceeds of the 12% tax into two funds. First is the Disease Fund to cover all medical interventions that have shown through randomized control trials solid effectiveness and efficacy….a shocking small percentage of common medical interventions. The second would be a Health Savings Account type of fund under which the patients have full control to use for other health services as they see fit” Paul, how would a person/family earning poverty level wages afford 12% in the first place and if they are managing to save part of the 12% for HSA what… Read more »

Paul @ Pivot ConsultingLLC
Member

Peter,
First, this isn’t my proposal. Secondly funding for full single payor or a hybrid like Hadler’s proposal has to come from taxes of some kind….wage tax or Bernie’s stock transaction tax or whatever…the source of funds is not the core of Hadler’s idea in my opinion. The core is how to set up a system that curtails the vast spending on useless and harmful medical procedures.
Finally, why do you always give in to the temptation for the disparaging tone/personal attack in your posts? You’d be more persuasive if you laid off that.

Peter
Member
Peter

OK Paul, a tax on wages would be OK as long as the tax was progressive, but a VAT tax would be regressive on those earning low wages.

Eliminating useless/harmful procedures is a little more difficult, would the right claim “death panels”? As well you can’t have what Hadler wants without price controls – even though he view that as separating the patient from the doctor.

CAUrgentCare
Member

Very impressive post Nortin M Hadler. These information is beneficial in health care.

rmcnutt
Member
rmcnutt

I like this piece as it reminded me how little I know of economics. I have training in such, at least a bit, but I admit I was not a good student as I could not see how economic principles had much bearing on the practice of medicine. Medical care is not about economics, economics is about money. Medical care is about informing and helping patients know the benefits and harms they face with their decisions and then letting patient’s decide. With them deciding, we will learn how much money should be involved. How medical care and money got so… Read more »

Peter
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Peter

What’s your point doc? No, what’s your solution to health care allocation by affordability and profit?

If government is a central authority then why isn’t a hospital a central authority, or the AMA a central authority, or the insurance industry a central authority?

Maybe you could give us a practical solution to satisfy opposing goals?

Ted
Member
Ted

I was about to ask exactly the same question.

Can’t say there’s anything in here I disagree with, just not sure where you are going with it?