Why an Open Market Won’t Repair American Health Care
AN AMERICAN SICKNESS
How Healthcare Became Big Business and How You Can Take It Back
By Elisabeth Rosenthal
406 pp. Penguin Press. $28.
A few years back, the future of American health policy appeared to hinge on how similar medical care was to broccoli. It was March 2012, and the Affordable Care Act (a.k.a. Obamacare) was before the Supreme Court. Justice Antonin Scalia zeroed in on its controversial requirement that all Americans purchase health insurance. Yes, everybody needs health care, Scalia conceded, but everybody needs food too. If the government could make people buy insurance, why couldn’t it “make people buy broccoli”?
The Affordable Care Act survived, of course — though not before a fractured court made the expansion of Medicaid optional, leaving millions of poorer Americans without its promised benefits. But the question Justice Scalia asked remains at the heart of a debate that has only intensified since: Why is health care different? Why does it create so much more anxiety and expense, heartache and hardship, than does buying broccoli — or cars or computers or the countless other things Americans routinely purchase each day?
For those leading the charge to roll back the 2010 law, the question has a one-word answer: government. President Trump’s point man on health policy, the former congressman (and ultrawealthy orthopedic surgeon) Tom Price, has said that “nothing has had a greater negative effect on the delivery of health care than the federal government’s intrusion into medicine through Medicare.” Senator Rand Paul (another surgeon) and House Speaker Paul Ryan have claimed that the affordability of Lasik eye surgery — generally not covered by health insurance — shows that a much freer health care market would be much less expensive. Their idea of “reform” is to cut back public and private insurance so consumers have “more skin in the game” and thus shop more wisely.
Credit Nina Subin
The physician-turned-journalist Elisabeth Rosenthal offers a very different answer in her eye-opening “An American Sickness.” Rosenthal — formerly a reporter for The New York Times, now the editor in chief of the nonprofit Kaiser Health News — is best known for a prizewinning series of articles, “Paying Till It Hurts.” In them, Rosenthal chronicled the seemingly endless pathologies of America’s medical-industrial complex, from prescription drugs that grew more costly as they became more dated to hip-replacement surgery so expensive it was cheaper for a patient to fly to a hospital in Belgium.
Rosenthal thinks the health care market is different, and she sums up these differences as the “economic rules of the dysfunctional medical market.” There are 10 — some obvious (No. 9: “There’s money to be made in billing for anything and everything”); some humorous (No. 2: “A lifetime of treatment is preferable to a cure”) — but No. 10 is the big one: “Prices will rise to whatever the market will bear.” To Rosenthal, that’s the answer to Scalia’s question. The health care market doesn’t work like other markets because “what the market will bear” is vastly greater than what a well-functioning market should bear. As Rosenthal describes American health care, it’s not really a market; it’s more like a protection racket — tolerated only because so many different institutions are chipping in to cover the extortionary bill and because, ultimately, it’s our lives that are on the line.
Consider the epicenter of America’s cost crisis: the once humble hospital. Thanks in part to hit TV shows, we think of hospitals as public-spirited pillars of local communities. Yet while most are legally classified as nonprofits, they are also very big businesses, maximizing surpluses that can be plowed into rising salaries and relentless expansion even when they are not earning profits or remunerating shareholders. And they have grown much bigger and more businesslike over time.
Rosenthal tells the story of Providence Portland Medical Center, a Northwest hospital system founded by nuns. Four decades ago, its operational hub in Portland, Ore., consisted of two modest hospitals: Providence and St. Vincent. As it happens, my mother was a nurse at St. Vincent for more than half those years, and thus had a front-row seat as Providence transformed from a Catholic charity into one of the nation’s largest nonprofit hospital systems, with annual revenues of $14 billion in 2015.
Along the way, Providence jettisoned most of its original mission, replacing nuns with number crunchers. Once run mainly by doctors, it filled its growing bureaucracy with professional coders capable of gaming insurance-reimbursement rules to extract maximum revenue. Meanwhile, Providence stopped paying doctors as staff and reclassified them as independent contractors (though not so independent they could skip a “charm school” designed by its marketers). Yet even as its C.E.O. earned more than $4 million, Providence touted itself as a “not-for-profit Catholic health care ministry” upholding the “tradition of caring” started by the nuns (now listed as “sponsors” in promotional materials). Rosenthal sums up the result as “a weird mix of Mother Teresa and Goldman Sachs.”
Actually, not much of Mother Teresa: Providence-like consolidation in every part of American health care has created a structure at least as concentrated as the European systems conservatives decry, yet without the economy or coordination of care such concentration might offer if it were focused on people rather than profits. The Yale economist Zack Cooper has shown that prices paid by private insurers are not just massively higher than those paid by Medicare. (They’re in a different orbit from those paid abroad.) They are also hugely variable from place to place and even institution to institution, without any evidence that higher prices produce better care. Providers charge high prices not when and where they need to; but when and where — courtesy of consolidation — they can.
Rosenthal’s book doesn’t conclude with conglomerates. She also provides an eye-opening discussion of skyrocketing drug prices, as well as the less-familiar pathologies of excessive medical testing and overpriced medical devices, such as artificial hips and knees — a market dominated by a few manufacturers that, like big drug companies, shun direct competition in favor of building cozy relationships with the people who prescribe their products. In each case, Rosenthal diagnoses the incentives of the system by recalling the professional advice of Willie Sutton, who said he robbed banks because “that’s where the money is.” What outsiders might see as inefficiency or a conflict of interest, she shows, insiders have carefully constructed to maximize their bottom line. She also weaves in moving tales of those who are paying dearly for that enhanced bottom line — which, in the end, includes all of us.
Where Rosenthal’s account falls short is in explaining why this deeply broken system persists. Early on, Rosenthal seems to side with Speaker Ryan and Senator Paul, describing “the very idea of health insurance” as “in some ways the original sin that catalyzed the evolution of today’s medical-industrial complex.” But, as Rosenthal (too briefly) discusses, countries where people are much better insured don’t have anything like our self-dealing, upside-down incentives and outrageous costs. Somehow, despite largely keeping citizens’ skin out of the game, other rich democracies manage to have much lower costs per person — as well as greater utilization of physician and hospital services and better basic health measures.
The fact is that people need insurance for the highest costs they face. They may be able to pay for Lasik, a nonessential, nonemergency procedure for which consumers have plenty of time to shop around. But the biggest-ticket items — cancer care, cardiac surgery, organ transplants — are beyond the reach of all but the richest, and not so easy to shop around for when they’re needed. Just as we shouldn’t blame the idea of mortgages for the financial crisis, we shouldn’t blame the idea of health insurance for the health care crisis.
The difference between the United States and other countries isn’t the role of insurance; it’s the role of government. More specifically, it’s the way in which those who benefit from America’s dysfunctional market have mobilized to use government to protect their earnings and profits. In every country where people have access to sophisticated medical care, they must rely heavily on the clinical expertise of providers and the financial protections of insurance, which, in turn, creates the opportunity for runaway costs. But in every other rich country, the government not only provides coverage to all citizens; it also provides strong counterpressure to those who seek to use their inherent market power to raise prices or deliver lucrative but unnecessary services — typically in the form of hard limits on how much health care providers can charge.
In the United States, such counterpressure has been headed off again and again. The industry and its elected allies have happily supported giveaways to the medical sector. But anything more, they insist, will kill the market. Although this claim is in conflict with the evidence, it is consistent with the goal of maximum rewards to (and donations from) the industry. As a result, Medicare beneficiaries have prescription drug coverage (passed by Republicans in 2003), but Medicare administrators have no ability to do what every other rich country does: negotiate lower drug prices. In January, President Trump said drug companies were “getting away with murder” because they had “a lot of lobbyists and a lot of power,” insisting he would get Medicare to bargain. Should we really be surprised that the dealmaker in chief dropped the subject after meeting with pharma executives earlier this year?
Without a clear view of the political economy of health care, it’s easy to see the problem as Justice Scalia did. If we could just start treating health care like broccoli, the market would solve the problem. But as Rosenthal’s important book makes clear, the health care market really is different. Speaking of her Times series in 2014, Rosenthal told an interviewer her goal was to “start a very loud conversation” that will be “difficult politically to ignore.” We need such a conversation — not just about how the market fails, but about how we can change the political realities that stand in the way of fixing it.