The limits of cost
reduction
There are
only two potential methods of bringing down the cost of health care:
1) Reducing
inefficiencies in the system (reducing wasted expenditures)
2) Rationing
care (reducing useful expenditures)
The entire
public discussion on health care spending in the United States to date has
rested on the notion that the high cost of health care can be explained
almost entirely by the inefficiencies in the health care delivery system,
such as administrative overhead and suboptimal utilization of resources
(i.e., waste and fraud). This argument, which allows us to imagine that we
can control health care costs simply by eliminating unneeded expenditures,
is the only politically feasible one that can be made (since, if this
argument were not true, our only remaining alternative would be to ration
health care). Therefore, virtually all the methods proposed for dealing
with the high cost of health care have been based on the assumption that
improving inefficiencies in the system is all that is needed.
(It is worth noting here, once again, that such an argument is only
for public consumption. Experts
in the field of health care economics, in their scholarly writings, start
with the premise that rationing is the only choice we have.)
Nobody
denies that there are plenty of inefficiencies in the health care system.
And nobody disagrees with the notion that we should make every
effort to eliminate unneeded expenditures.
The problem with relying on a reduction in inefficiencies as the
primary means of controlling the rising cost of health care, however, is
that it won’t work.
David
Eddy, in his book Clinical Decision Making (Jones and Bartlett
Publishers, 1996), examines the feasibility of reducing
inefficiencies as a means of controlling the cost of health care. Assume,
he says, that in 1970 (around the time a health care crisis was first
declared) a severe austerity program had been initiated within the health
care system that accomplished all the following things:
| Eddy's Austerity Program for Health Care |
1. cut all administrative costs by 50%
2. cut costs of all prescription and nonprescription drugs, plus
costs of all other non-durable medical goods, by 50%
3. cut physician services by 20%
4. eliminate all government public health programs
5. eliminate construction of all health care facilities
6. eliminate all medical research |
Further, assume that these cuts had
been maintained, at the same levels, for the next 21 years - from 1970
through 1991.
Obviously,
one would expect such a drastic program of cuts to significantly reduce
national health care expenditures. And
in fact, it would. The
following table compares actual U.S. health care expenditures for that
21-year period to the expenditures that would have occurred under Eddy’s
austerity program (values are reported in billions of dollars):
| Year |
Actual spending |
Austerity spending |
| 1970 |
74.4 |
59.2 |
| 1980 |
250.1 |
206.4 |
| 1989 |
604.3 |
499.5 |
| 1991 |
751.8 |
623.6* |
*values in billions of dollars; derived from Eddy, pp
270-274.
Note that the
austerity program saves a lot of money right away. In 1970, the first year
of the cuts, only $59.2 billion would have been spent, compared to the
actual expenditures of $74.4 billion.
Further, the significant savings persist over time.
In 1991, only $623.6 billion would have been spent under the
austerity program compared to $751.8 billion in actual spending.
Note, however,
that the amount of money actually spent in 1989 is roughly the same as the
amount that would have been spent under the austerity program only two
years later, in 1991. In other words, all one
ultimately gains after 21 years of an austerity program even as improbable
and severe as this one is a little time; in this example, a little less
than 2 years.
Why
is this? It is because the
rate of increase in health care expenditures is largely unrelated to
anything that was cut under Eddy’s austerity program.
So when the cuts were made, health care costs continued rising at
the same rate as before – they simply started at a lower baseline.
The only thing that was saved with this Draconian effort was time,
and not all that much time, at
that.
This phenomenon is not just theoretical.
It is being experienced by all western countries, even those like
Canada and Great Britain, that have tightly-controlled, single-payer
health care systems with overt rationing measures in full view.
In general, while health care spending in such countries is
significantly lower than in the United States, the rate of growth of that
spending is very similar to the double-digit rate of health care inflation
seen in the U.S. The economic
crisis we are experiencing is shared, and recognized, by most developed
countries around the world, despite tightly managed health care systems in
many of those countries.
In the U.S. itself, the “reforms” in
health care that have been instituted since 1994 brought the annual rate
of growth in health care to below 5% for a few years.
However, latest indications are (now that we have made the
“easy” cuts) the rate of growth is rising again.
In the state of Pennsylvania, by 1999 the increase in insurance
premiums paid by companies for their employees was back to 10 – 15% per
year. Managed care and
administrative reforms can significantly reduce the cost of health care,
but the rate of growth is ultimately unchanged.
Ultimately, in fact, the only thing gained by reducing waste and
increasing efficiency is a bit of time. The basic assumption made by virtually
every party in the great health care debate (i.e., that reducing
inefficiencies is all that is needed), is demonstrably wrong.
There are finite limits to how much money
we can spend by instituting systematic efficiencies in the health care
system, even "efficiencies" as drastic and as unacceptable as
the ones postulated in Eddy's thought experiment.
The bottom line on rationing
To reiterate, the essential problem is not
that a substantial proportion of health care spending is wasted due to
inefficiencies in the system (though there are plenty of inefficiencies).
The essential problem, the one we cannot escape, is that the rate
of growth of health care spending is too high, is unrelenting, and
is unrelated to those systematic inefficiencies. If we are to gain control
of health care costs, somehow we must deal with this rate of growth.
What is responsible for this unrelenting
growth in the cost of health care? Since
it is not due to waste and inefficiency, the only possible answer is that
it is due to an increasing volume of actual health care being delivered
per capita. And this, as we
have seen, is due both to advancing technologies (which is potentially
controllable, but, practically speaking, only with rationing), and to an
ever-aging population (which is not
potentially controllable, save by completely uncivilized methods).
To cut into that growth rate, then, we
have to find ways to reduce not just waste and inefficiency, but more
importantly, ways to reduce the volume of health care services being
delivered per capita – even though many of those health care services
are apparently useful. In
other words, to reduce the rate of increase in health care spending, we
have to ration care.
And as we have seen, we must
reduce the growth in health care spending, and not just because we have a
present-day health care crisis. The economic pressures that will
predictably occur in the next few decades will dwarf any pressures we are
experiencing today. We need to gain control of these costs not just for
our own near-term economic health, and not just to be fair to our children
and grandchildren. Controlling
health care costs is what we must do in order to avoid societal chaos. And
since rationing is the only way to truly gain that control, rationing is
what we must do. It is an
economic imperative. It will
happen (and is happening) whether we accept its necessity or not.
The only real choice we have, then, is
whether to ration openly, or whether to do it covertly. In the next part
we’ll consider why we have opted, so far, for the latter method.
Why covertly? What choice is
there?
Even on the surface it
is easy to understand why our society, faced with the prospect of having
to ration health care, might opt to do it covertly.
Simply put, rationing is unacceptable. No politician with a brain
in his or her head would stand up in public and admit that rationing is
necessary. To do so would
become their last public act. To
a politician, and to every policy maker with an ounce of common sense,
covert rationing looks far less onerous than the alternative.
In fact, just trying to
visualize how we would do it might be enough to convince most reasonable
people that open rationing would be insurmountably awful. Just imagine.
There, on C-SPAN, in some Congressional meeting room, the American Heart
Association is squaring off against the American Cancer Society in the
battle for dollars. Tune in at 2 PM to watch a group of women with breast
cancer testify as to why they should get funding priority over those
children with leukemia sitting at the next table.
It’s hideous to contemplate.
But,
aside from the fact that figuring out how to do it doesn't necessarily
have to be quite that bad, open
rationing actually turns out to be the lesser of the two evils.
To see why, it is necessary to consider the real reasons behind our
decision to ration our health care covertly, and where covert rationing
inevitably leads us.
The American health care myth
A culture is largely
defined by its myths. 
I use the term “myth” here not in its
vernacular form (i.e., not to imply lies or untruths), but in its classic
form. A myth is a story
that describes how a people came to be, and why things are as they are.
So, while myths are simply stories, they carry extraordinary power.
Myths largely determine how a culture interprets the world around it, and
provide a set of guiding principles by which that culture behaves, shapes
itself, and responds to events. Myths impart vitality. Cultures that
forget their myths, or allow them to become sterile, themselves become
barren, impotent, and doomed.
Throughout history, the greatest leaders
have been those who have understood the power of myths.
Such individuals often arise in times of great change, chaos, or
turmoil – times when the old myths are losing their relevance – and
offer a new interpretation. Here is what is happening, and why, they say.
Here is who we are, and here is what we must do. One thinks of
Jefferson, Lincoln, both Roosevelts, and Churchill. Essentially, great
leaders are great storytellers. They
offer new and compelling stories that explain things, that give order to
chaos, impart a sense of purpose, and redefine and redirect a culture. With
such myths great leaders can galvanize a people, and compel them to act in
concert to achieve great things.
Myths can be extremely beneficial.
The ultimate American myth,
laid out succinctly by Jefferson in the Declaration of Independence, celebrates
the autonomy of the individual – all of us are created equal,
and we all have the self-evident rights to life, liberty and the pursuit
of happiness. The power of this myth is manifest in many ways. Consider
that at the time of the Declaration and for decades afterwards, slavery
was legal in America; Jefferson himself was a notorious slaveholder.
Some have claimed from this fact that the founding fathers, and the
myth they promulgated, were cruelly hypocritical. Yet, the power of this
American myth - reconfirmed in the Gettysburg Address - ultimately helped
bring about the abolition of slavery. While largely untrue at the time it
was first stated, the cardinal American myth to a great extent was
responsible for shaping subsequent events.
Ultimately, the reality of American culture came more nearly to
resemble its myth.
Myths can also be extremely destructive.
Adolph Hitler rose from obscurity by telling a story about the German
people that, in that time of great national turmoil, had resonance. The
subsequent atrocities committed by the Germans were horribly logical in
the context of that myth. Recently, it has been argued that the holocaust
could not have happened without at least the complicity of the majority of
the German people, and that therefore, perhaps the German culture is
essentially flawed in some way. The
problem with this facile synthesis is that similar atrocities have been
committed innumerable times throughout history by many different peoples
– the atrocities inflicted upon Native Americans by white Americans is
just one example. In
virtually every case, the culture committing these atrocities felt it was
acting on the side of justice, righting a terrible wrong. In every case
these cultures were behaving in concert with a powerful cultural myth. It
is likely that the actions of the German people in World War II also
stemmed from the myth to which they subscribed, and that therefore their
actions are less reflective of a specific truth about a specific culture
than they are of a general truth about the power of myths to influence
the behavior of any culture.
To a large extent, how
we think about health care in America is defined by a myth. This
myth is a recent one, having taken shape during the last half of the
twentieth century, coincident with the rise of modern high-tech health
care, and with the soaring optimism that came with America’s emergence
as the world’s greatest power. The myth goes something like this: In
America we have and will continue to have the best health care in the
world, the best doctors, the best hospitals, the best technology. Every
American citizen deserves – indeed, has a right to – access to that
best medical care. Since one cannot place a price on human life,
everything that can be done for a sick person must be done, as long as
there is some small hope of a beneficial outcome. Finally, every disease
is potentially curable, and as a matter of policy we will strive to learn
how to cure every disease.
The myth of American
health care can be summarized thusly: where health care is concerned,
there are no limits.
This health care myth is entirely
consistent with the cardinal American myth as articulated by Jefferson,
specifically the self-evident right to “life”.
What better way is there of guaranteeing such a right than to
insist on superb health care? (And, since the rights to liberty and the
pursuit of happiness are also given, self-indulgence that results in
disease does not abrogate one’s right to the very best health care.)
For the most part this myth has been an
extraordinarily useful one. The
essential optimism of our health care myth, and the single-minded efforts
it has engendered, have led to amazing advances in the treatment of many
formerly devastating diseases. Hospitals in almost every major American
city are on a par with the world’s best, our physicians are the best
trained in the world, and our biomedical industry is the envy of every
other country. While no one can argue that all Americans receive the very
best care, on the whole all but our most disadvantaged citizens have
access to some of the best medical care in the world.
While the effect of this myth has been
largely salutary so far, a new question now arises: how can you square
the need to ration health care with such a myth?
And there’s the problem. You can’t.
The need to ration health care is simply incompatible with a myth whose
basic notion is that there are no limits.
The cold fear of going up against that
myth is what freezes politicians and other policymakers in their tracks at
the very thought of rationing. Rationing becomes unthinkable.
Our health care myth leaves us no choice but to do that rationing
covertly.
How we make rationing compatible
with our health care myth
On the surface it might seem impossible to
conduct widespread rationing in a vast industry like health care, which
consumes more than 13% of the GDP and directly affects the lives of most
citizens at one time or another, and to do it covertly, in secret.
Wouldn’t the rationing of such a highly visible commodity be
apparent to everybody?
Actually, it is quite apparent if you look
for it. It’s just that all
of us have more-or-less agreed not to look. 
To a very large extent, those who are
doing the rationing – the doctors, the hospitals, the HMOs, the
pharmaceutical houses, the biotechnology companies, the scientists, and
the governmental agencies – subscribe to the same myth of American
health care as the general public. They
carry out their activities openly and proudly.
Most, in fact, would find the very notion of rationing to be
repugnant, and would no doubt take great offense to hear they are being
accused of doing so.
Thus,
covert rationing is not the result of some vast conspiracy to
deceive the American public. (In fact, I don't believe that large,
sustained conspiracies - anything more complicated than, say, cheating at
bridge - are even possible.)
The covert rationing of health care is, in
fact, a textbook case of subconscious
collusion. In
the case of health care rationing, subconscious collusion operates
thusly: First, the irresistible economic forces that require rationing
line up to foster a certain attitude, a certain way of looking at things.
Then, within every entity in the health care system, those who embrace
such an attitude become ascendant, not by conspiracy or plot, but by
natural market forces.
That certain correct attitude,
the new “right stuff,” is defined by the ability to suggest actions
that have the effect of limiting health care services, while couching
those suggestions in the language of the American health care myth.
In essence, this kind of thinking allows organizations to direct
the rationing of health care, while at the same time advancing the notion
that rationing is unnecessary.
Note that there is surprisingly little
hypocrisy under this scenario. While undoubtedly some of the individuals
who are directing the rationing behavior understand exactly what they are
doing, most continue to subscribe to the myth of “no limits.”
Most honestly believe (or at least, want very badly to believe)
that their actions are not reducing useful services, that instead, they
are reducing waste and improving the efficiency of the system.
Those who do understand the true nature of their actions generally
shield themselves from having to communicate that knowledge.
They are more likely to become the quiet, private CEO’s whose
spokespersons and PR directors (individuals who are entirely sincere about
what they are telling the public) do their speaking for them.
So there is no conspiracy.
The covert rationing of health care is conducted by a myriad of
organizations, all acting quite independently, all simply responding to
economic imperatives. The key
for organizations that want to flourish within the health care system is
to identify leaders who can respond both to the irresistible need to ration
health care, and to the equally irresistible need to rationalize
such behavior in terms acceptable to the rest of us.
Those individuals, men and women of vision, are presently the Most
Valuable Players in the health care system.
The enabling visions advanced by such
individuals – visions that permit covert rationing activities to go
forward openly, freely, and often profitably – can be categorized into two
general schools of thought. We
will be spending some time with both schools of thought in coming
sections, and will be getting to know them well.
A brief introduction for now will suffice.
Battle
of the Titans - Clintonians v. Gekkonians
As noted, there are two enabling visions -
two general schools of thought - that promote the covert rationing of
health care. Both allow rationing activities to go forward openly, freely,
and often profitably, while maintaining a cloak of "no
limits."
School of Thought # 1 -
The Clintonians
This
school of thought is the one most commonly espoused by government
officials, politicians, public health officials, and other health care
policy makers, as well as most liberals. I have taken the liberty of
naming this school of thought after the individuals who have, thus far,
done the most to advance its basic premises.
Clintonians
believe that the root cause for all the problems in our health care system
lies in human weaknesses (specifically, you will recall, in too many
greedy doctors using too much expensive technology).
The fix for these problems therefore rests in setting public policy
and promulgating governmental regulations to hold that greed in check.
From a philosophical point of view Clintonians believe in
Original Sin, in the essential evil in man – if you give a fellow
too much freedom, he’ll probably do something bad.
The
Clintonians’ point of view is amply supported by the undeniable fact
that that the traditional fee-for-service health care system has
institutionalized the natural human greed of physicians. Under that
system, the more technology doctors use and the more procedures they
order, the more money they make. Indeed,
it simply cannot be denied that this system fosters profligacy, waste and
the overutilization of expensive resources.
According
to the Clintonian school, the greed inherent in our health care system is
only underscored by the fact that millions of Americans have been shut out
of the system altogether. Where is the cry of outrage from our
“compassionate” physicians over the high number of uninsured?
The lack of quality in our present health care system is further
underscored by the embarrassingly high infant mortality rate in the U.S.,
and our lagging life-expectancy rate compared to some other developed
countries. Again, where is
the professional outrage? Clearly
there is a fundamental problem with our health care system, a problem that
stems from the misguided incentives and maladjusted motivations of health
care practitioners and other profiteers.
Politicians
and public policymakers naturally gravitate toward the Clintonian school
of thought, since its basic premise is that the problem with health care
results from misguided incentives coupled with human greed. This premise
obviously places the solution squarely in the hands of policymakers, who
can do the job with new, stricter regulations and more enforcement muscle.
School
of thought # 2 - The Gekkonians
This school of
thought is usually espoused by the insurance industry, health care
executives, many physicians, and most proponents of a free-enterprise
economy, including most conservatives. I have named it after Gordon Gekko,
the character in the movie Wall Street, whose chief operating
philosophy was that greed is good.
Its basic
premise is that the open marketplace generally offers the best solution to
society’s problems. Philosophically
speaking, Gekkonians believe in the essential goodness of man – give a
fellow his freedom, and just watch the good things flow.
Gekkonians
assert that the health care crisis stems directly from the fact that,
while doctors may be good at practicing medicine (or maybe they’re not),
they’re no businessmen. And health care is simply a business, like any
other economic enterprise.
Leave it up to
the doctors, and they’ll forever practice medicine the way they did in
1910 – hundreds of thousands of independent guildsmen, each running
their own shop, duplicating expensive services, multiplying
inefficiencies, and shutting out the competition. No wonder the health
care system is such an inefficient, wasteful mess. Instead, the health
care industry should be treated as a market, just like any other market,
and not as some sacred, protected economic sphere.
Let those who
know how to run a business run the business of health care, and let the
doctors practice medicine (under the guidance, of course, of the fiscally
adept). Bring the efficiencies of the for-profit, free enterprise system
to the health care industry, and the health care crisis will take care of
itself.
Clintonians
v. Gekkonians
At first glance,
the Clintonians and the Gekkonians would seem to have little in common.
The Clintonians believe that too much greed is the problem, so the health
care crisis can only be solved by regulations to hold that greed in check.
The Gekkonians, on the other hand, propose to allow market
incentives (or, if you will, greed) to solve the health care crisis by
reducing artificial constraints on the market (i.e., by reducing
governmental regulations).
A closer look,
however, reveals that these two schools of thought actually have very
much in common; certainly enough to explain why Clintonians and
Gekkonians can often be seen forming alliances with one another in their
efforts to reform the system.
First,
both schools of thought are based firmly on the American myth of health
care. There ought to be no limits on what Americans
should ultimately expect from their health care system. Thus, our
health care crisis is due solely to too much waste and fraud within the
health care system. While one
school tends to blame the waste and fraud on greed and the other on
incompetence, the basic problem according to both schools is the
inefficient use of resources. We’ve
already seen the fatal limitations of the “waste and fraud”
hypothesis. But still (as
we’ve noted several times already), it is attractive to suppose that
enough waste exists in the system to make rationing unnecessary.
As a direct
result of the “waste and fraud” hypothesis, both schools of thought
are able to assert that the underlying problem with health care is one of
“system.” For the
Clintonians, the traditional health care system allows, and even
encourages, greedy health care workers to rip off the public.
For the Gekkonians, our medieval, guild-like health care system
discourages competition and stifles efficiency.
Either way, the problem is in the system, so the solution is simply
to fix the system (either through regulatory means, or market-based
means). Since the problem is merely systematic, there is no reason to
question our underlying premises, and thus no reason to question our
American health care myth. Both
schools of thought leave the myth entirely unchallenged and intact.
These two
schools of thought have one more common feature that deserves prominent
mention. In each, the
primary solution to the health care crisis requires limiting the capacity
of doctors to behave as independent agents.
In one case this is to be done by regulatory means in order to
stifle physician greed; in the other it is to be done by the marketplace
in order to eliminate physician inefficiency.
But either way the primary goal, the number one priority, is to
control physician behavior. To
the extent that controlling physicians’ behavior prevents them from
being greedy or inefficient, that’s good. But to the extent that
controlling their behavior prevents them from fulfilling their role as
advocates for their patients, that’s very, very bad.
Thus does each
school of thought provide a serviceable “cover” for activities that,
if subconscious collusion were not the operational imperative, would
quickly be seen for what they are – rationing activities.
Indeed, understanding these two schools of thought allows us to
comprehend the secret language of covert rationing.
For rationing behavior is virtually always couched in terms of one
school of thought or the other.
So far in the
race to control our hearts and minds, neither school of thought has
clearly predominated. In 1993
and 1994, the “heyday” of the Clintons’ health care reform efforts,
the Clintonians were clearly in the driver’s seat.
Then, when the Clinton plan went down to overwhelming defeat, the
Gekkonians rapidly took the fore. Now
it would appear that the public is beginning to sour on health care run by
the ostensible “free market,” and the Clintonians are making a strong
comeback. It isn’t likely that either school of thought will be
vanquished in the near future.
But such a
“horse race” scenario is a gross oversimplification.
As we will see, many forms of covert rationing are supported by
both schools of thought, and the “race” has been characterized more by
collusion than collision. In
any case, for doctors and patients struggling in the trenches, it
doesn’t much matter which school of thought represents the paradigm of
the day. And whichever one is
providing the “cover” at any given point in time, covert rationing in
any guise renders the pursuit of health care exceedingly difficult,
frustrating and dangerous.
The consequences of covert
rationing
We’ve agreed
that rationing in any form is bad. But,
while there’s no doubt that devising a fair system of open rationing
would be difficult and painful, the ultimate consequences of covert
rationing are even more terrible.
Consider just
the most obvious result when health care has to be rationed tacitly. Human
nature being what it is, the special interests (the doctors, hospitals,
insurers, the biomedical industry, and the government) proclaim,
apparently sincerely, that the changes in health care occurring today are
good, and represent their single-minded efforts to become more efficient,
patient-oriented and quality-driven.
Meanwhile (again, human nature being what it is) those same special
interests become embroiled in a bloody competition, between and
among
themselves, for what they realize is a limited health care dollar.
This competition
is incredibly fierce because it is driven not merely by greed, but perhaps
more importantly by the threat to professional and corporate survival. Next
to an all-consuming threat like this, the health care being provided to
the general public (the entity for which the health care system ostensibly
exists in the first place), becomes almost an afterthought.
Consequently, that limited health care dollar, instead of being used to
bring about the greatest good for the greatest number, ends up in the
hands of whichever special interests are best at “playing the game.”
“Oh,” you
may be thinking, “those evil special interests!”
But before calling out the posse, consider the role you yourself
play in all this ("you," that is, the well-informed health
care consumer). For the sad
fact is, covertly rationing health care simply wouldn’t be possible
without your collusion as well, subconscious though it may be.
Indeed, in the covert rationing scheme of things, you and those
like you simply constitute another special interest.
To illustrate,
assume for a moment that, having taken a long look at some of the goings
on in the health care industry, you’ve come to smell a rat.
Perhaps, let’s say, you’ve even begun to suspect there are
forces within the health care system that have lined up to direct the
limited health care dollar their own way, to the detriment of the general
public. This being the case,
what would you do? Would you
cry foul, try to instigate change, attempt to stem the unfair influence of
the special interests, and insist that limited funds be spent to do the
greatest good for the greatest number?
Perhaps. But by doing
so, if you insisted that funds be spent evenly and fairly among the
population, you might personally have a lot to lose. Even if you happen to
be living under a managed care plan with particularly restrictive rules,
for instance, you know that those rules can be bent for the occasional,
vociferously savvy consumer in exchange for silence – silence that keeps
the insurer from having to change the rules for the masses.
So, as long as rationing remains covert, you personally have a very
good chance of getting the health care you need, or, at least, that you
think you need. It makes
as much sense for educated, well-informed patients to silently collude
with rationing as it does for their physicians or their insurance
carriers.
A cynic might
ask: if covert rationing is okay with the health care industry, okay with
well-informed patients, and is truly (as opposed to tacitly) unnoticed by
everybody else, why make a big deal about it?
The answer is, the
covert rationing of health care is more than just selfish, unfair and
deceptive; in the end it is highly destructive not only to each of us
individually, but to our entire society.
For one thing,
by pretending that we are not rationing (and indeed, that there is no need
to ration), we are bequeathing to our children and grandchildren an
enormous and highly destabilizing fiscal burden.
Even more
important than the fiscal burden we are creating for our children is the
political and social burden we are creating for them.
For in order to keep the rationing of health care covert, we are
engaged in a disastrous cascade of compromise and self-deception that
threatens the basic underpinnings of not only our health care system, but
also our American culture. Such
self-deception can be recognized today in every aspect of health care: in
the broad-based restructuring in the business side of health care; in the
sweeping and stultifying changes in the legal and regulatory climate; in
the design, justification, and interpretation of medical research; and
ironically, in the growing call for expanded “patients’ rights.”
These compromises will have destructive effects that range far
beyond merely withholding useful health care from some of those who need
it. Taken together, these compromises constitute
a powerful attack on the most essential ideal of our American society,
namely, the autonomy of the individual.
This ideal is
never completely secure; it always requires a vigorous and ongoing
defense. In fact, we have spent most of the 20th century
defending the rights of the individual over those of society.
The defeat of fascism and of communism (two social orders that each
awarded primacy to society, in the guise of the state), along with the
nearly universal acceptance of the ethical principles embodied in the
Nuremburg Code, was thought by many to have settled the question, once and
for all, in favor of the individual.
But this is a question that can never be answered once and for all.
This question is
deeply challenged by the issue of health care rationing itself.
For if we ration, whether overtly or covertly, we must withhold
from individuals for the benefit of society.
Under even the best of circumstances then, rationing of any kind
poses a serious challenge to the notion of primacy of the individual.
But
while it is at least possible to construct a system of open rationing that
maintains the autonomy of the individual, such autonomy is always
sacrificed under covert rationing. Covert rationing abandons
the individual often as the very first step, and does so without any
discussion whatsoever, and often without any realization as to what is
being thrown away. If we lose
the principle of individual autonomy, we lose everything that is
inherently American. This is
the ultimate price we pay as a society when we quietly, subconsciously
collude with the covert rationing of health care.
It is ironic
that our American health care myth, a myth that derives from our
principled commitment to the primacy of the individual, leads us to
actions that attack that first principle, and virtually guarantee its
destruction. The destruction
of the doctor-patient relationship is merely the earliest, most direct,
and most personal manifestation of this attack.
|
A brief history of American Health Care |
A brief history of health care
The
present state of affairs is difficult to understand for many physicians
and patients who view
the last 50 years as a golden era in health care, and who view the rise of
HMOs as an abomination. But
when viewed from the systems level, it becomes apparent that for much of
the 20th century, our health care system actually has
functioned in a completely unnatural and unsustainable way.
HMOs turn out not to be an abomination to the natural laws
governing the sacred practice of medicine, but a predictable correction to
a way of doing business that was ultimately doomed from the beginning. To
see why this is so, we need to briefly consider how the “traditional”
American health care system came to be as it is.
The
guild-building era
It is interesting to note that such
“modern” ideas as capitation (the providing of medical care for a
fixed annual fee) and the corporate practice of medicine (medical
practices controlled by companies, not by doctors), are actually much
older than we might think. American
companies pioneered the contracting of medical services even before the
beginning of the 20th century.
This innovation came from industries such as railroad and lumber,
whose operations often took place in isolated areas, and for whose
employees medical care would otherwise be unavailable.
Some companies went so far as to build and operate their own
hospitals, and staffed those hospitals with physicians who were paid out
of the company payroll. By
the early 1900s, contract medicine was commonplace in the United States,
and was conducted by many kinds of organizations – not only by companies
(both large and small), but also by multitudes of fraternal orders and
lodges, which began offering subscription medical services to their
members. Soon the federal and
local governments were also contracting for physician services on behalf
of their employees, prisoners, and wards of the state.
It should not be surprising to learn that organized
medicine looked upon these developments with alarm. The mission of
organized medicine was to foster an environment under which their
physician members could practice their profession scientifically and
ethically, while, of course, maintaining favorable fees. Contract health
care placed too much control in the hands of third party payers, thus
threatening all three goals of profit, quality and ethical standards.
In response, in
the early 1900s organized medicine went on the offensive, claiming both
the scientific and the moral high ground.
The practice of medicine, it was asserted, was based in the
sciences. Therefore, the
allegedly poor working conditions suffered by contract practitioners
precluded their upholding the high scientific standards to which
physicians aspired. And thus,
contract medicine was bad medicine.
Further, it was
asserted, contract medicine violated the sacred fiduciary relationship
between physicians and their patients. Such a relationship required
patients and physicians to “contract” directly with one another,
without intermediaries. Any
other party (such as a contractor or the state) inserting itself into this
relationship would end up dividing the loyalties of the physician, and
thus violating the nature of this sacred trust. Contract medicine (and
state-controlled medicine) was therefore unethical.
Medical
organizations strongly lobbied both the general public and state
legislators with the notion that it was in society’s best interest to
prevent middlemen from inserting themselves between physicians and their
patients. Physicians who practiced contract medicine were held out as
being something less than true physicians.
Such unfortunates began to find it difficult to join their local
medical societies, which at the time made it difficult for them to
purchase malpractice insurance and to gain hospital privileges.
In addition, many state legislatures were persuaded to pass laws
actually making most contract medicine illegal.
By
the 1920s the medical establishment had largely vanquished contract
medicine. In essence, the medical profession had successfully created
a classic “guild” – physicians had established a monopoly over an
economic realm, allowing competition to occur only within that protected
sphere. Outsiders had little or nothing to say about how the practice of
medicine was conducted.
Next:
The
economic golden era
The two "golden eras" of
American health care
The "economic" golden
era
Any
health care economist worth his or her salt will tell you that from an
economic standpoint, an ideal health care system is one in which patients
pay directly for their medical care.
In such a system, patients freely choose their own physicians, and
together with their physicians make all medical decisions, mindful that
any costs incurred thereby are theirs to pay.
Cost controls are therefore automatic. During the 1920s and for the
next few decades, this “ideal” system existed in the United States.
Inasmuch as doctors at the time had very little to offer in terms
of expensive (or effective) therapies, and since patients’ expectations
were (appropriately) low, this system worked extremely well from an
economic point of view.
The
"medical" golden era
This economic equilibrium began to falter
in the 1930s, and the disequilibrium rapidly accelerated in the years
following World War II. The
first kink in the armor of direct contracting between physicians and their
patients occurred during the Great Depression, when hospitals began to
suffer from patients’ inability to pay their bills.
Over the initial objections of physicians, financially stressed
hospitals prevailed on state legislatures to legalize the insurance
schemes that became known as Blue Cross.
In order to assuage the moral indignation of physicians, however,
the Blues were created as non-profit, provider-oriented insurance
organizations.
“Provider-oriented” meant two things.
First, Blue Cross (and later, Blue Shield) did not try to tell
physicians how to practice medicine.
Physicians were free to practice as they saw fit, and the Blues
would simply pay the bills on a fee-for-service basis.
Second, the boards of trustees of local Blue Cross and Blue Shield
organizations were loaded with prominent local physicians and hospital
administrators.
Not only did such a system preserve the
direct physician-patient relationship, it also paid the bills more
reliably than did patients themselves. The system worked to so well that
soon physicians became willing to countenance the formation of private
health insurance companies, as long as those companies followed the same
general guidelines set by the Blues.
Health insurance proved to be so popular
that, during the wage and price controls of World War II, companies began
offering it to their employees in lieu of higher wages.
After the war, American labor unions began to demand that employers
provide health insurance as a benefit of employment.
The government liked this idea, too, and in order to encourage it,
tax laws were changed to make the provision of this benefit extremely
attractive to employers.
It is important
to note that this new tax policy created a fundamental change in how
health care was paid for. In
effect, it shifted a huge chunk of the fiscal burden for health insurance
from consumers and employers to the government, where it remains to this
day. Within a few years, the majority of American workers had
employer-provided health care insurance, heavily subsidized by the federal
government.
Then
in the 1960s, the federal government became directly involved in paying
for American health care on a large scale with the institution of
Medicare, and then Medicaid. Since
that moment, the proportion of health care spending directly attributable
to the government has steadily grown – from 24% of all dollars spent on
health care in the 1960s, to 40% by 1990.
Today, when you include tax subsidies for
health insurance, fully 51% of America’s health care spending is
accounted for by the government, and paid for by taxpayers.
Since politicians can tax the people only
so much, a lot of this spending has been piling up in the form of the
national debt, awaiting our children and grandchildren.
But for physicians and their patients
in the second half of the 20th century, the resultant system
seemed nearly perfect. While
patients retained complete freedom of choice regarding which doctors and
hospitals they used, and while the physician-patient relationship remained
largely free of outside influence, somebody else was paying the bills.
There arose an almost complete dissociation between providing (and
consuming) health care, and paying for it.
This economic
arrangement did at least two things that would ultimately spell its own
doom.
First, it allowed the American
health care myth to flourish – the notion that the best possible care
should be provided to everybody, and that where health care is concerned,
there are no limits. It
created expectations that ultimately could not be met.
Second,
this system fostered the development of the medical-industrial complex.
Since any medical advance that seemed useful would be paid for,
powerful corporations arose dedicated to meeting the bottomless demand for
medical advances. The pharmaceutical companies, hospital suppliers, and
medical device companies began turning out a steady stream of improved and
expensive technology. Ironically
(given that this whole system had evolved largely due to physicians’
attempts to shield themselves from corporate influence), these
corporations used their considerable marketing clout to influence the
decisions, the practice patterns, and even the demographic distribution
(such as patterns of specialization) of the medical profession.
The
bottomless expectations of patients and physicians,
coupled with the never-ending meeting (and flaming) of those expectations
by industry, created a rapidly spinning positive feedback loop. The more
health care the doctors and patients got, the more they wanted.
The more they wanted, the more the medical-industrial complex was
happy to provide. It was
inevitable that those paying the ever-mounting health care costs (i.e.,
employers and the government) would eventually reach the breaking point.
While the system that prevailed during this “golden era” came
to be regarded as the norm by (if not the birthright of) American
physicians and their patients, from a broader perspective that system is
clearly an unsustainable aberrancy. At
some point the mounting costs of “no limit” health care had to
generate its own backlash. The
system had to implode.
Era of Reform - the Clintonians have
a go at the health care system
Recognition that such a health care system
could not be sustained did not begin with the Clintons.
Employers and the government initially became alarmed with rapidly
rising health care expenditures as far back as the 1960s and 1970s.
During our more recent national debate on health care reform, few
seemed to remember that President Nixon had first proposed a sweeping
national health care plan more than twenty years earlier. (Yes, Nixon was
a
Clintonian.)
Nixon’s plan, as did the Clintons’ 20 years later, fell victim to the
efforts of the groups most entrenched in the medical-industrial complex:
hospitals, doctors, medical device and pharmaceutical companies, and the
insurance industry.
The failure of Nixon’s reform plan was
followed by two decades of more gradual, stepwise efforts to bring health
care spending under control. Many
of these changes were driven by Congress, whose efforts to regulate health
care were now considered legitimate, since it directly provided health
care funding via Medicare. By
forcing regional planning for expensive medical facilities and by more
carefully reviewing the practices of physicians, Congress hoped to slow
the increase in health care spending.
In the meantime, actions were taken by both the courts and by
Congress to increase competition within the medical marketplace, on the
theory that competition reduces costs (and it does – in almost any other
economic realm). Thus, such
things as legal barriers to advertising, and more importantly, barriers to
the creation of HMOs, were gradually withdrawn.
While doctors chafed over and complained about these efforts
(grumbling, among other things, about the interposition of middlemen
between themselves and their patients), they still got paid, so their
complaints were muffled.
But such stepwise reform efforts had
little if any effect. From 1970 until the early 1990s, as we have seen,
health care spending increased from 7.3% of the GDP to approximately 13%,
from $74.4 billion to nearly $752 billion annually.
By the 1990s, health care spending had
reached the crisis level. Things
were so bad that when the Clintons came into office and went about
launching their comprehensive plan for health care reform, they initially
found an enthusiastic ally in what, one would think, would be their
natural enemy – the Gekkonian
insurance industry.
The dynamics of this uneasy alliance are
fascinating. The insurance
industry supported the Clintons’ wide-ranging reforms because those
reforms promised them a vast new market – the millions of heretofore
uninsured Americans whose premiums would be paid, presumably, by the
government. The Clintons, in turn, needed the support of the insurance
industry in order to have any prayer of passing their vast reform plan.
So the Clintonians and the Gekkonians allied themselves in the name
of health care reform, each with entirely different agendas (the
Clintonians: comprehensive regulations; the Gekkonians: profit), and each
meaning two entirely different things by “managed care.”
In this light, the etymology of the new term
they invented for their joint endeavor is instructive.
“Managed competition” is actually a hybrid that embodies the
chief concerns of both camps. “Managed,” ostensibly from the term
“managed care,” actually carries the connotation the Clintonians
attach to the word – here, managed means regulated.
The word “competition” represents the interests of the
Gekkonians – it implies a for-profit, market-driven sort of health care.
So “managed competition” actually means something like
“regulated free markets.” The
contradiction inherent in this term reflected the unnatural alliance
between Clintonians and Gekkonians, and predicted that the alliance would
not hold.
And
of course, it didn’t. It
fell apart when the insurance industry began reading the appallingly
massive book of regulations the Clintons at last produced, and found much
in it they didn’t like. (Essentially, they found regulations that would
plug many of the more productive loopholes traditionally enjoyed by that
industry.) They suddenly
turned on the Clintons, spent millions introducing the rest of us to Harry
and Louise in their extremely effective series of television spots, and
the rest is history.
Rise of the Gekkonians
While the collapse of the Clintons’
reform plan in 1994 caused a sudden deflation of expectations, the severe
fiscal crisis in health care remained. In fact, awareness of that crisis
had been significantly heightened by the Clintons’ campaign to reform
health care, and nobody (except, of course, some of the doctors)
entertained the delusion that we could simply go back to business as
usual.
But as it turned out, a savior awaited.
That savior was, naturally, that same insurance industry that had
first built up then scuttled national health care reform.
Only now the insurance companies had reformulated themselves into
HMOs, had decked themselves out in Gekkonian raiment, and had fully
assimilated the language of managed care.
And here is what they said: “Citizens!
We all – employers, patients, physicians, hospitals,
manufacturers and insurers – have just dodged a bullet.
Thanks to us, the frightening socialist reforms of the Clintons
have been soundly defeated.
“But where does this leave us? We stand
now between Scylla and Charybdis, between the specter of nationalized
health care on one hand, and the continued profligacy of traditional
fee-for-service medicine on the other.
And we cannot countenance either.
“But here,” the Gekkonians continued,
“is a third way. A painless
way, based on the sound principles of open markets and free enterprise.
Let health care become a business like any other business, and the
market forces will find ways not only to cut costs but also to improve
quality, etc., etc., and with no government intervention.”
The offer, in other words, was to turn
health care over to the marketplace, and let the efficiencies of the
marketplace solve our problems. Because
we’re Americans and we know the benefits of capitalism, and because the
other choices we faced looked even worse, we all said: go for it.
The result has been, over the past few
years, perhaps the most rapid change our health care system has ever seen.
While most of the changes have been real, palpable and material,
the biggest transformation of all has been a philosophical one.
For all their faults, the Clintonians have
always held to the age-old notion that the basic underlying purpose of
health care is to maximize the public good.
Indeed, they believe, this fact is what gives government the
ultimate authority to regulate health care. Only the government can
guarantee that the special interests will act in a manner appropriate to
public benefit. (The flaw in
this argument, for those of us who are suspicious of Clintonians, is that
regulatory bureaucracies often wind up behaving as the biggest, meanest
special interest of all.)
What
the Gekkonians have given us is a brand new first premise.
The primary purpose of health care, they say, is not to increase
public benefit. How could it
be, when health care is merely a business like any other business?
What we should be striving for is to build a well-run business.
Since well-run businesses are beneficial to the community, in the end we
can expect plenty of benefits to go around. But the fact remains that
health care is a business. And the primary purpose of business is to make
money.
In
Section 4 we will closely examine the methodologies the Gekkonians have
used in bringing this striking new vision to fruition over the past six
years.
What is managed care, anyway?
In Section 2 we saw why it is necessary
for us to ration our health care, and why we’ve undertaken to conduct
that rationing covertly. Armed
with that understanding, we now embark on a quest.
Like Dorothy trying to find her way home to Kansas, we begin a
journey through a very strange land, where clues are given in riddles and
things are not as they seem.
Our goal is to learn how covert rationing
works, how it threatens us, and particularly, how it destroys the trust
between doctors and patients. To
do this, first we need to understand the machinery of covert rationing -
which means we need to figure out managed care.
Unfortunately, even trying to define
“managed care” presents a problem, because while everyone seems to
know what it means, it means different things to different people.
It means one thing to health care theorists, another to government
regulators; one thing to corporate purchasers of health care, another to
corporate directors of health care plans; one thing to doctors, another to
patients. It even means one
thing to the healthy and another to the sick.
If you were going
to design a system for covertly rationing health care it would be very
useful to have a central concept like managed care, about which everybody
could communicate using the same terminology, but while meaning entirely
different things. It should not surprising, therefore, that
virtually all our covert rationing activities are being conducted under
the commodious umbrella of managed care.
If we are Dorothy, then “managed care”
is the all-knowing, all-powerful, all-wonderful, and completely enigmatic
Wizard of Oz. To get to
Kansas, we’re going to have to pull down all
those curtains and get a good look at that little fellow back there,
desperately working those buttons and levers and knobs and handles.
First, we should clear up one of the most
common points of confusion about managed care.
“Managed care” itself is different and distinct from “managed
care organizations”. Managed
care in its purest form simply refers to an administrative
philosophy, under which certain management principles that have become
standard in other industries are now applied to the health care industry.
In contrast, a managed care
organization is the bureaucratic entity that purports to apply the
techniques of managed care to a population of actual patients. Health
maintenance organizations (HMOs) and preferred provider organizations (PPOs),
for instance, are two types of managed care organizations. To keep things
simple, from now on I will arbitrarily use the term “HMO” as a synonym
for “managed care organization.”
Since it is only an administrative
philosophy – a technique, a tool – managed care is value-neutral. It
is neither “good” nor “bad,” any more than any other tool is good
or bad. What is important is
how the tool is used.
"Pure"
managed care
Managed care is not a recent idea. It is a
concept that has been around for decades, developed largely in academic
circles by health care policy experts, economists, governmental
commissions and industrial management experts. In its purest form the idea
behind managed care is a simple one – it is to bring organization and
accountability to what traditionally has been a chaotic system of
delivering health care.
Managed
care aims to organize, coordinate, and control the chaotic health care
system, thus achieving the twin goals of producing the best possible
outcomes of care, while at the same time eliminating waste and
inefficiency. This
can be done, it is proposed, by applying to the health care industry some
of the basic management principles that have been used successfully in
other industries. Of course,
there are many theories of industrial management, and hence many
industry-derived principles that could be applied to health care.
But the unifying idea behind virtually all industrial management
principles can be boiled down to one word: standardization. Standardization
of process is what defines the difference between a factory worker and an
artisan. In fact,
standardization can be considered a synonym for industry.
The
Axiom of Industry
It is an axiom
of industry that standardization is good. It is good because it provides
the mechanism for optimizing the two
essential factors in any industrial process: quality and cost.
Stated formally as the Axiom
of Industry: The
standardization of any industrial process will both improve the outcome
and reduce the cost of that process.
If you had a
widget-making factory, you would standardize the widget-making process by
breaking that process down into discrete, reproducible and repetitive
steps, then optimizing the procedures and materials necessary to
accomplish each step. Later,
if you wanted to improve the quality of your finished product (or to
reduce the cost of producing it), all you would have to do is improve that
process. You would re-examine
each step of the process, one by one, looking for opportunities for
improvement. To do this, of
course, you would need to understand the process very well, and you would
also need to collect data about how the process works. But with such an
understanding and with the right information, you would probably be able
to identify a few minor changes, often involving only one or two steps,
that would allow you to make your widget better – or cheaper. The beauty
in such a system is that you have only to make one change – to the
process itself – and every single widget that comes off the line after
you make that change will be improved.
So:
standardization is good. It
leads to higher quality and lower cost.
Conversely, variation is bad.
It reduces quality and raises cost.
Proponents of
managed care argue that there is no reason that standardization should not
be just as useful in the health care industry.
In fact, since medical care traditionally has been completely
individualized, highly variable, and without any semblance of
standardization, there must be a huge opportunity to improve the processes
of care, and to make them both cheaper and more effective.
Without a doubt, there is merit in this idea.
Critical pathways
The best illustration of how
industry-derived principles have been applied to clinical medicine is in
the use of “critical pathways.” Critical
pathways were developed as a means of helping those in the health care
system to study the process of delivering health care, to standardize that
process as much as possible, and to use that standardized process to
improve outcomes and reduce cost.
In practice,
critical pathways are blueprints for delivering care to patients with
certain specific medical problems. 
Consider, for instance, a critical pathway
for patients having hip replacement surgery. A surgeon following such a
critical pathway would have a blueprint of what services he or she is to
provide for the patient from the date of admission until the date of
discharge (which is, of course, predetermined). The surgeon will have a
checklist telling which laboratory tests to order and when, what
medications to administer at which times, and what complications to watch
for. The nurse and all other health care workers involved in the
patient’s care will have their own checklists.
They will know from the moment of admission, for instance, when to
take vital signs, when to get the patient out of bed, when to begin
physical therapy, and what sort of instructions to provide to the patient
before discharge. All this is pre-determined by the critical pathway.
All the while, the care each patient
receives under the critical pathway is being monitored by a “case
manager.” The job of the
case manager (usually a nurse), is to track how well the doctors, nurses
and other health care workers involved in the patient’s care are
sticking to the prescribed pathway. Every
deviation from the pathway (for instance, the patient with a hip
replacement might begin physical therapy on Day 3 instead of Day 2), is
tabulated as a “variance.” The
idea of tracking variances is not to mete out punishment, but to identify
areas within the process of care that need improvement.
If too many instances of a particular variance are seen within a
critical pathway, then either medical personnel need to be given further
instruction on following the pathway appropriately, or the pathway itself
should be changed to reflect more realistic expectations.
The case manager is also responsible for
tracking the medical outcomes of patients cared for under the guidance of
a critical pathway. If a pathway is shown to be leading to suboptimal
outcomes of care, that pathway needs to be revised.
It is said, therefore, that a critical pathway is never static.
It is a “living” document, constantly being monitored and
revised in order to produce an ever-improving process of care.
Critical pathways
thus do at least three things that traditionally have been beneficial in
industry. First, the mere
act of developing a pathway requires one to develop an understanding of
the process being managed. Prior
to managed care, insights into the processes of care were rare.
Often when developing a pathway, one or more “routine” clinical
practices are immediately identified as being obviously wasteful.
So the very act of creating a critical pathway often leads to a
rapid improvement in the efficiency of medical care.
Second,
critical pathways provide a means of standardizing the processes of care.
To the extent that health care is like other industries, standardization
can be very effective in improving outcomes and reducing cost – mainly
by assuring that all patients enrolled in a critical pathway receive all
necessary items of care, and do not receive any unnecessary ones.
Third,
critical pathways provide an organized means of defining, acquiring and
tracking data related to the process of care.
As we have seen, data collection and data analysis are the keys to
improving any repeatable process. Critical pathways thus illustrate how
vital to good managed care is the science of information management, and
the sound, logical application of well-formulated information.
For many kinds of medical processes,
critical pathways have helped hospitals and physicians to achieve the twin
goals of managed care – improving outcomes, and doing it more cheaply. While
critical pathways are only a small part of “managed care” itself, they
can, in fact, be seen as the embodiment of the main principles by which
managed care aims to organize, coordinate and tame the health care system.
It quickly becomes obvious to most individuals
participating in the development of managed care procedures that much can
be gained by applying these principles. In fact, it is largely due to the
success of critical pathways that many within the health care field have
come to embrace managed care with enthusiasm.
The ability to systematically reduce the cost of care without
worsening the quality of care is a very attractive proposition in these
difficult economic times.
Two limitations of managed care
Unfortunately, there are
at least two inherent limitations to the use of industrial management
principles in medicine. The first
him. You quickly clean out the register and head for the door – where you
run smack into two burly police officers who happen to be entering the store
right then for some of that good Seven-Eleven coffee.
environment, and placing each at the mercy of powerful interests whose only
real concerns are costs, profit and power.