Emory Report

March 2, 1998

 Volume 50, No. 23

Economics of health care
system flawed, says Kuttner

Perfect economic markets are profit-centered. Demand is based on individual purchasing power, supply is unrestricted and the consumer is king. Buyers armed with adequate information and adequate choice "regulate" producers by knowledgeably shopping around for products and services. These ideas have been the cornerstone of the recent explosion of for-profit health maintanence organizations (HMOs) and hospitals such as the Columbia-HCA chain, said BusinessWeek and Boston Globe contributing editor Robert Kuttner, at Emory Feb. 16 for a Sawyer-Mellon Seminar lecture.

Although Americans must figure out a way to use health care dollars as efficiently as possible, medicine serves as a noteworthy exception to these economic principles, said Kutt-ner. "We're being told that the solution to the crisis of medical costs, access to coverage, and reliability and quality of care is to somehow make medicine more like a market," he said. "Most of the problem today is that medicine is already too much of a market.

"When one set of players decides that medicine is just an ordinary business and decides to expunge the unprofitable aspects and to profit-maximize the way an ordinary business does, it destabilizes and fragments the entire system," Kuttner explained. These practices set the health care industry on a determined "race to the bottom," a term Kuttner frequently invoked during his lecture.

First of all, he explained, the ability to obtain health care is not simply a matter of private purchasing power. "We have made a decision as a society that we're not going to let people die on the street just because they can't afford to pay a doctor," Kuttner said. This decision was partly altruistic and partly self-serving. "Epidemics can afflict rich people as well as poor people," he said.

Secondly, because doctors and hospitals are licensed and credentialed, "we have decided-rightly or wrongly-that medicine is simply too complicated to let anybody simply hang out his or her shingle as a medical doctor and hope that the sovereign consumer can tell the difference between the physicians and the quacks," Kuttner said.

"Europe, which has slighly lower-tech medicine and doesn't have the crazy payment system we have here, only spends about 9 percent of its gross national product on health care and we spend 14 percent," he explained. Still the average number of inpatient hospital stays per capita and lengths of stay are greater there than here. U.S. hospitals have a strong financial incentive for early patient discharge and outpatient procedures.

Rather than actually cutting costs, as the industry promises, the current predominance of managed care only adds to health care's fiscal woes, Kuttner said. "Much of what calls itself 'managed care' is managed costs," he said. "Increasingly the game has become one of more and more middle men taking a few cents off the premium dollar and passing the rest to the physician. This is not exactly efficient."

HMOs and for-profit hospitals also shift the cost-and burden-of treating the sickest patients and the indigent onto other parts of the health care system. "It's also appropriate, I think, being at Emory, to point out that for-profit hospitals tend to avoid contributing to all of the cross-subsidies in health care, from research to education of physicians to the necessary treatment of money-losing cases and expensive teritiary care facilities."

To be fair, Kuttner pointed out, the health care industry direly needed to trim excessive costs and reduce waste. "I have heard leaders of teaching hospitals in my own community say that if Columbia hadn't been around, something like it would have had to be invented because to some extent they needed the competitive discipline to squeeze out unnecessary costs," he said. But the aggressive-and sometimes unethical-measures adopted by some HMOs and for-profit hospitals put "terrible pressures on the more ethical hospitals to operate in the same way," Kuttner said.

Kuttner, whose most recent book is titled Everything for Sale, made no secret of his preference for a single-payor health care system, which has its detractors. The post-World War II U.S. economy spawned the current system of employer-sponsored health care that leaves 40 million Americans uninsured, he said. Now the idea is that the cure for this is "to perserve essentially the same structure but to add on entrepreneurial managed care," Kuttner noted. "And we often overlook the fact that there are whole other paths other countries pursue where you don't have consultants and marketers and lawyers and shareholders taking more and more out of the premium dollar.

"It makes you wonder," he added. "Countries that have universal systems, and much worse demographics than we do, are somehow managing to keep a lid on health costs because everybody's in the same system. In the United States we have revolutionized our health care delivery system to preserve its payment structure, while other countries have reformed the payment structure to keep the health care and provider system intact."

-Stacey Jones

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