The strange economic nature of medicine.
- From: "Lance" <lachenicht@xxxxxxxxxx>
- Date: 15 May 2006 14:51:07 -0700
A new book
Money-Driven Medicine
The Real Reason Health Care Costs So Much
by Maggie Mahar
discusses the strange economic properties of medicine. The blurb
states,
"In theory, free market competition should tame health care inflation.
In fact, Mahar demonstrates, when it comes to medicine, the traditional
laws of supply and demand do not apply. Normally, when supply expands,
prices fall. But in the health care industry, as the number and variety
of drugs, devices, and treatments multiplies, demand rises to absorb
the excess, and prices climb. Meanwhile, the perverse incentives of a
fee-for-service system reward health care providers for doing more,
not less."
Here is an extract from the book:
-------------
The story of health care in America is, first and last, a story about
power. This, Paul Starr made clear in 1982 when he published his
landmark study of U.S. health care, The Social Transformation of
American Medicine.
Starr's history opens with a single, stark statement: "The dream of
reason did not take power into account." Medicine, perhaps more than
any other science, epitomizes the "dream of reason"-the Enlightenment
hope that, in the end, the human mind can tame nature and find order in
chaos-or, in the case of medicine, make sense of flesh. But that
pure, scientific endeavor does not unfold in a vacuum. It takes place
in society, in a world of men. Inevitably, those men will jockey for
position.
Throughout most of the 20th century, the nation's physicians won the
battle to control American medicine. For decades, they held virtually
unchallenged economic, moral, and political sway over what we now call
the "health care industry." Doctors were able to gain dominion, in part
because their patients wanted them to rule the nation's health care
system, and in part because the market's normal laws of supply and
demand do not apply to medicine.
In most industries, supply responds to demand. When it comes to
deciding what to produce-and in what quantity-the supplier follows
the customer's lead. Or as UCLA economist Thomas Rice puts it in The
Economics of Health Reconsidered, "In the traditional economic model,
demand is key; supply is essentially along for the ride." But in the
case of health care, the supplier (traditionally, the doctor) plays a
much more active role in determining what consumers believe they
want-or need. Indeed, health care providers enjoy nearly unparalleled
influence over demand for the very services that they sell.
This is completely understandable. Health care is different from other
"purchases" in large part because the customer faces so much ambiguity.
Dr. Atul Gawande, a surgeon at Boston's Brigham and Women's Hospital
puts it best in Complications: A Surgeon's Notes on An Imperfect
Science: "Medicine is an enterprise of constantly changing knowledge,
uncertain information, fallible individuals.... the core predicament of
medicine, its uncertainty, [is] the thing that makes being a patient so
wrenching, being a doctor so difficult, and being part of a society
that pays the bills so vexing."
While Consumer Reports can rate midpriced refrigerators briskly and
clearly, in a way that makes comparisons easy, it is all but
impossible, even for a physician, to be positive of the relative
benefits of a great many medical procedures.
"Uncertainty as to the quality of the product is perhaps more intense
here than in any other [market]," Kenneth Arrow, the Nobel laureate
economist who launched the study of health care economics, observed in
1963. "Recovery from disease is as unpredictable as its incidence...and
further there is a special quality to the uncertainty: it is very
different on the two sides of the transaction. The information
possessed by the physician as to the consequences and possibilities of
treatment is necessarily very much greater than that of the patient, or
at least so it is believed by both parties."
This is what makes the purchase of health care so different from any
other purchase: it is a transaction based on trust.
Granted, today both physicians and patients enjoy access to far more
information than ever before, and "with all that we know nowadays about
people and diseases and how to diagnose and treat them, it can be hard
to...grasp how deeply the uncertainty runs," Gawande writes. Yet as
anyone who has ever been seriously ill knows all too well, the more one
learns about a disease and the odds of success with possible
treatments, the more ambiguous the situation can become.
A Transaction Based on Trust
It is not just the complexity of the human body, but the uniqueness of
each body that makes it so difficult to predict health care outcomes.
Put simply, health care is not a commodity. While two consumers may
derive pretty much the same value from the same midpriced refrigerator,
a particular course of treatment can have a drastically different
effect on two different bodies. This makes it difficult for heath care
"shoppers" to rely on their friends' experiences the way they might
when choosing, say, a computer or a car.
Nor can the consumer rely on his own past experience. Three out of four
health care dollars are spent on products and services that the patient
has rarely, if ever, purchased before-and probably hopes never to
purchase again. To make the consumer's dilemma even more wickedly
difficult, when purchasing health care, he knows that there are no
warrants and no guarantees. The patient cannot return an unsuccessful
operation. And if he winds up unhappy with the outcome, he may find
himself stuck with something far worse than a bad haircut.
The patient wants to believe-needs to believe-not only that his
doctor possesses superior information, but that his doctor is committed
to putting the patient's interests ahead of his own. As a customer, he
is in a uniquely vulnerable position: he cannot sample the product
beforehand; there is real possibility that the product will do him more
harm than good; and yet, even if it proves useless, he is expected to
pay for it. How could he go forward with the purchase if he did not
trust the seller?
As Arrow emphasizes, whether the buyer's belief in the supplier's
superior knowledge and complete professionalism is wholly justified is
not the question. It is simply that without it, the health care market
could not function. This is one marketplace where "caveat emptor"
cannot apply.
This is not to say that the 21st-century health care consumer places
blind faith in his physician. Today brave-hearted patients research
their own conditions, and armed with computer printouts, many
participate in each treatment decision. But the truth is, however one
strains against surrender, even the 21st-century patient has no choice
but to place considerable faith in his doctor.
.
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