Do you pay for an oil change with your automobile insurance? If not, why do we think it’s reasonable to pay for a primary care visit with health insurance?
This is the trenchant core question posed by David Goldhill in his September Atlantic Monthly article, "How American Health Care Killed My Father." Mr. Goldhill relates the story of his father’s sudden death at 83 from hospital-acquired infections after admission for a simple community-acquired pneumonia.
His analysis of this tragedy focuses on the failure of health care to respond to market incentives for cost, quality, and safety, due largely, he argues, to the widespread use of the third-party payment system. While not agreeing with all of Mr. Goldhill’s arguments, it certainly is the case that health care is in many ways a failed market where the usual forces of buyers and sellers sending signals with prices and purchasing just don’t work to increase quality and lower costs.
In Mr. Goldhill’s analysis, the fundamental quality problems in health care arise from the fact that the purchaser is not really the patient, but rather the insurer or other third-party payment system, e.g., Medicare. The benefits of quality of service do not accrue to the payer but to the patient, and the costs accrue (at least at first) to the payer, but not the consumer--thus purchasing decisions are robbed of their usual value as feedback. To make matters worse, quality and price information are hidden--nobody knows how much anything costs and information on quality of care is hard to come by. Finally, barriers to entry in health care markets are held very high by regulators, institutions, and professionals, preventing effective competition.
This certainly fits with the Foundation’s experience with the Hospital at Home project, which aimed to create a safe, in-home treatment alternative for older adults with relatively simple conditions, such as community-acquired pneumonia. While the project showed that Hospital at Home had better outcomes for patients, lower burden on caregivers, and even lower costs for payers, adoptions of the model have come very slowly.
To address these problems, Mr. Goldhill argues for a revised health financing system, where only catastrophic costs are covered by insurance and a system of mandatory health savings accounts are used to cover other expenses.
Interestingly, Mr. Goldhill argues in passing that this market failure is contributing to the problem of low pay in geriatric medicine. He writes:
As a result [of third-party payment], strange distortions crop up constantly in health care. For example, although the population is rapidly aging, we have few geriatricians--physicians who address the cluster of common patient issues related to aging, often crossing traditional specialty lines. Why? Because under Medicare’s current reimbursement system (which generally pays more to physicians who do lots of tests and procedures), geriatricians typically don’t make much money. If seniors were the true customers, they would likely flock to geriatricians, bidding up their rates—and sending a useful signal to medical-school students. But Medicare is the real customer, and it pays more to specialists in established fields. And so, seniors often end up overusing specialists who are not focused on their specific health needs.
Although it would be nice to imagine a horde of eager older adults ready to storm geriatricians’ offices should they be freed from the tyranny of third-party payments, I’m afraid that I can’t entirely agree with Mr. Goldhill on this. In other posts, I have written about the lack of consumer demand for geriatrics, and I believe the issue is more complex. Another structural aspect of why health care does not work like other markets is the gigantic difference in expertise between buyers and sellers. At this point, people don’t know what to look for or ask for to get skilled geriatric care. Mr. Goldhill acknowledges this general issue but claims that it is overstated.
It hardly seems possible, but is blowing up Medicare the answer?