Capitalism in Healthcare–Yes or No?

As Americans, we are all guilty of imitating the ostrich. We hide our heads in the sand to avoid confronting painful, difficult questions like: Do we want to have capitalism in healthcare?

“Capitalism” above refers to the free market, financial incentives, money as reward.

DO WE WANT FINANCIAL INCENTIVES IN HEALTHCARE?
If the answer is no, then we solve healthcare problems using a centrally controlled, government regulated system unaffected by capitalism and market forces.
If the answer is yes, should financial incentives govern ALL goods & services? If financial incentives apply only to some parts of healthcare, which ones should be market-driven and which ones should be entitlements?

As long as the Public ignores this crucial question, our healthcare system will continue to be structured according to the ideology of whichever Party is in power, focusing solely on their immediate political advantage and NOT on our long-term welfare.

Why does capitalism fail in healthcare?
Capitalism–a free market that balances demand with supply–works by using money to connect consumer wants and needs (demand) with the production and distribution of goods and services (supply). We have cheaper and better computers because consumers forced the suppliers to compete. The same thing happened to Lasik eye surgery. The key is the connection between demander/consumer and the supplier/producer. In healthcare, supply and demand are disconnected.

For capitalism to function, the consumer must have control of spending and enough information to be a wise shopper in his or her own self-interest. In U.S. healthcare, the consumer/patient has virtually no control over who will provide service or what service will be provided. The consumer/patient who needs a hernia repair has none of the usual information available when buying a car or hiring a lawyer. The consumer/patient does not pay for what he or she is consuming, at least directly. Under these conditions, how can any patient be the rational consumer on which capitalism depends?

Contradictory incentives
HR 3590–Patient Protection and Affordable Health Care Act of 2010–makes our system even more confusing and contradictory than it was. Consider the insurance conundrum described below (that HR 3590 expands).

Another example of contradictory incentives can be found in HR 3590’s elimination of physician-owned investments. The theory is that when doctors own hospitals or test equipment, they will order unnecessary (and expensive) tests and procedures because doing MORE makes them more money. There is evidence to support this theory.

There is also evidence of the converse. When doctors are paid a fixed sum of money, they will defer doing necessary medical activities because in a managed care system NOT doing tests and procedures is how they make money.

Either way, financial incentives can encourage doctors to behave in ways that are counter to the patient’s welfare. Our present healthcare financing places the patient’s best medical interest in direct conflict with the physician’s best financial interest.

Insurance Industry
What does the medical insurance industry actually do? Underwriters calculate predicted risk and potential payouts. Private insurers maximize profits by spending as little as possible of their collected premiums. Government insurers also seek to spend as little as possible in order to stay within budget. “Spend as little as possible” translates to paying for the least care they can get away with.

The medical insurance industry suffers from the contradictory incentives built into our current healthcare system. Patients want their insurers to pay for whatever medical care they need or want. Shareholders want insurers to pay out as little as they can in order to maximize profits. Taxpayers want government insurers to pay out as little as possible to avoid tax increases. Incentives discourage providing care.

U.S. Pharmaceutical Industry
Using any metric you like–number of patents, drugs in use, volume of research–the USA creates more and better pharmaceuticals and medical devices than the entire rest of the world put together. Why is that? Answer: the U.S. has a powerful financial incentive system that encourages such development.

Try a simple calculation. Flomax is a drug that relieves obstruction to urination in men caused by an enlarged prostate gland. Say Flomax costs $1/pill and you take one per day (=$365/year). Say Flomax prevents the need for surgery on your prostate (estimated cost ?$20,000). It would take 54 years of Flomax to equal the cost of one operation, without even considering the risks, discomfort, and loss of productivity associated with surgery. Which is better? Do you still think $1/pill is exorbitant?

What about Lipitor at $2/pill if it staves off $100,000 heart surgery? The answers come from long term cost/benefit analysis but no one does this calculation. Currently the only, and I do mean only, factor considered is immediate cost. No one talks about cost/benefit.

Should We Have Financial Incentives in Healthcare?
What matters when answering this question is our collective decision and not Congressional wisdom, Presidential politics, or some expert’s branded solution. The Public needs to discuss financial incentives openly, come to some consensus, and transmit that consensus to the Federal government. Without that, the contradictory mess we currently have will persist.

There is in our country a “consensus of futility.” They believe that money-in-healthcare is too volatile, polarizing and fundamental for us ever to achieve a general consensus. I disagree and counter with civil rights. THAT was violently vitriolic, inciting riots and killings, yet we now have a general (not universal but getting there) consensus that people are people regardless of the color of their skin, religion or place of origin. If we can do that, we surely can come to some agreement about dollar flow in healthcare.

WHO should pay and for WHAT?
After the Public decides on incentive-based or flat rate payment, there remain two key questions. WHO should pay? WHAT should they pay for? Spending on healthcare should not be viewed as a simple cost item, money down the toilet. It is or should be an investment in our futures, both as individuals and as a nation. Investments should: a) have a positive cost/benefit ratio, and b) be paid for by those who benefit.

When people are healthy, both the individuals and the country as a whole benefit. WHO should pay? Answer: those who benefit–both individual and nation. What should they pay FOR? Answer: they should pay for those outcomes or results with positive long-term cost/benefit ratios: access and service, good medical outcomes, sustained health and productivity, longevity, as well as rules, regulations and laws that are worth what they cost.

If we can get those things using fixed payments, great! If we need incentives to get quicker access, better service, new drugs, longer lives, then we should use incentives–the free market–to get what we want and need.

System MD

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21 comments ↓

#1 Helen Supplier on 07.03.10 at 6:57 pm

The mass of the population have little practical economic freedom, States have little to offer. Helen Supplier

#2 Greg Kline on 07.11.11 at 11:34 pm

I have epilepsy and it is hard for me to stay employed. I do not have health insurance and most health insurance doesn’t cover what I need. The medication I take is hard on my liver and bones so I have to always get costly blood lab work done every 3 to 4 months. My state in Montana requires the Dept. of Motor Vehicle (DMV) that I need to have a Physician complete a Medical Evaluation Form saying it’s alright for me to drive every so often. Then getting medication refills and doctor appointments for the refills. This whole thing is designed to keep people dependent on services that they shouldn’t have to be dependent on. If my doctor thinks I’m not alright to drive they can call the DMV I shouldn’t have to pay for a doctor appt. just to get a form filled out. My medication also costs me $189.00 a month. My disability is more then a physical disability, it’s a financial disability because the Healthcare system will find anything and everything to make sure they suck us dry! Why should the people who suffer have to suffer because they are suffering? My case is far from the worst out there, but I have felt the repercussions from Healthcare capitalism and share my passion to all that are effected. One day this world will wake up but it’s gonna take a lot of commitment and unfortunately some major sacrifice.

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