Inside View: US Health Care, the Individual Physician, and Reality Economics
By David F. Hayes, MD
Vol. 19 No. 12 P. 8
"Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses." — Lionel Robbins, London School of Economics
It is important that the readers, including the individual physician, fully appreciate that the science of economics is not simply about balance sheets and the bottom line, government budgets with debt and deficits, or Wall Street bankers and brokers. Rather, economics is about human behavior. It's about each of us individually, as we consider our goals, analyze our options, and spend our scarce resources. The science of economics simply observes and tabulates the patterns in our daily behavior, recording what works and what doesn't work, compiling the data for computation and analysis. Economics also records the patterns of activity that work or don't work in the business world, including the business of health care. The limited resources of both individuals and businesses require that they "economize," ie, that they ration their scarce means that have alternative uses.
As we make our own choices, our interpersonal interactions are modulated by social norms and common courtesy. Sadly, interactions in the business world, including health care, are notably impersonal and oftentimes unaffected by social mores. To maintain competitive "fairness" throughout the business marketplace and to protect consumers' interest, government entities and other supervising authorities impose regulations and controls on the providers, including the physicians.
Centuries of Data
Macroeconomics tells us that any given marketplace is either regulated or unregulated.1 The open, unregulated marketplace is characterized by an abundant—ie, adequate—number of willing providers offering products and services to knowledgeable customers. For their part, the customers are free to act on their own behalf and are financially responsible for their choices. In turn, the providers engage in endless, reciprocating, and unrestrained interaction while they woo the customers. It is the interactions between the willing providers under the discerning eye of the consumer that produce the highest quality product at the lowest price. In the marketplace centered upon the knowledgeable and financially responsible consumer, quality and price are a function of each other.
Limitation of interactions between providers (eg, limiting the number of providers) or modification of the consumers' knowledge or financial responsibility will ultimately lessen quality and/or increase price. These limitations and modifications of market dynamics are the exact hallmarks of the regulated marketplace. Since health care is obviously regulated, we should anticipate that in health care, quality will go down and/or prices will go up.
The tenets of macroeconomics are founded on centuries of data, tabulating our successes and failures as we husband our scarce resources. The conclusions derived from these observations are predictive and not directive. Newton did not direct the apple to fall from the tree, but he did predict what would happen as it fell. And so it is with health care economics. Health care is a large regulated marketplace, and it will follow the economic rules of the regulated marketplace, just as the falling apple follows the rules of falling. There isn't a choice. Advocates of regulation will opine otherwise, insisting that this time regulations will come out differently, but things won't come out differently because they just don't, and they just won't. Humans are only human, and we keep on doing human things.
Speaking of doing human things, in 1982, George Stigler, PhD, was awarded the Nobel Prize in Economics for his work describing how, in the regulated marketplace, providers routinely manipulate the regulatory process. The phenomenon was later labeled "regulatory capture." Stigler demonstrated that in a regulated marketplace, regulators and politicians invariably fall prey to the persuasions and entreaties of the providers. At the behest of the providers, lobbyists and a host of other interested parties swamp the regulators and politicians with enticements and special pleading. As a result, the well-intended regulatory process will always—always—be redirected in favor of the providers.2 Alas, because humans are only human, they always do what humans do. Indeed, regulatory capture is not a new thing.
In the Beltway world, the needs and wishes of the patient/taxpayer are sometimes set aside and replaced by the vested interests of all providers—corporate medicine, hospitals, pharmaceuticals, etc—thereby driving health care costs to atmospheric levels—18% or more of gross domestic product3—making US health care the most expensive in the world. Premiums are at $15K and rising. Deductibles are at $6K and rising. A $1.5K diagnostic mammogram was recently reported in The Wall Street Journal.3 The Buffalo News reported "Enhanced Reimbursements," a payment schedule between providers and an insurance company, that included "Value-based care benefit(ing) patients and physicians."4 Meanwhile, most US physicians are hardly in need of "enhanced reimbursements" or "benefiting," particularly vis-a-vis a $15K health care premium and a $6K deductible.
Although it is designed, formed, and managed by humans, a regulated marketplace, health care in this discussion, is not human. It's a thing, a system, and it has no moral compass. Once formed, the regulated marketplace seeks its own way, functioning exactly as predicted by Stigler. Special favors and special designations, sometimes incurring great cost, always happen, most often benefiting the provider in ways that would otherwise not occur in an open, minimally regulated market. "Enhanced reimbursements" and a $1.5K diagnostic mammogram are stellar examples. There is absolutely no way that either would ever get off the ground in an open, adequately populated, fully competitive market. Sadly, our nation has chosen the regulated (Stigler) option for the health care industry, with no apparent interest in an open, truly competitive environment.
Individually and collectively, we all want everything to come out OK, and we hardily embrace the goals of the regulatory process, hoping that it will work itself out. But it hasn't yet, and, after all these years—decades—and all these regulations—thousands—there is little prospect that it will.
Economizing Health Care
So that's what reality economics looks like in US health care—a Stigler industry that is generally successful, often praised, hugely overpriced, highly regulated, and, for some of those reasons, unaffordable and unsustainable. In health care, that is what failing to "economize" looks like.
The health care marketplace is highly regulated at multiple levels. In this marketplace, physicians, as providers, have the usual vested interests. However, as distinct from all other providers, the individual physician has another and greater function—the classic role as the patient's advocate. The conflict between the physician as a marketplace provider vs the physician as the go-to patient advocate is readily apparent when health care's costs, products, and services are examined as one package. That said, only the individual physician, acting in the role as the patient's advocate, can break health care's Gordian knot. It is the physician's role to explore. He or she is the last person standing with the opportunity and the juice to champion the alternative system, the system that is clinically effective, cost effective, sustainable, and all inclusive.
America's health care is clearly the finest in the world; now we need to remove the inequities and distortions of a Stigler-type marketplace. The nation and its citizens need to "economize."
— David F. Hayes, MD, is a radiologist with Windsong Radiology Group in Buffalo, New York. Prior to that, from 1985 to 2003, he was the president and chief radiologist of Seton Imaging at Sisters of Charity Hospital in Buffalo, where he maintains his privileges. He can be reached at email@example.com.
1. Sowell T. Basic Economics: A Common Sense Guide to the Economy. 4th ed. New York, NY: Perseus Books Group; 2011.
2. Stigler G. The theory of economic regulation. Bell J Econ Manage Sci. 1971;2(1):3-21.
3. Sussman AL. Burden of health-care costs moves to the middle class. The Wall Street Journal. August 25, 2016. https://www.wsj.com/articles/burden-of-health-care-costs-moves-to-the-middle-class-1472166246
4. Duff M, Foels T. Value-based care benefits patients and physicians. Alliance of Community Health Plans website. https://www.achp.org/another-voice-value-based-care-benefits-patients-physicians/. Published August 30, 2016.