Professional Point

I have previously written in this column about the problems resulting from efforts to create a market-driven health-care system in this country. By "market-driven," I generally mean the notion that health-care services should be controlled by free-market forces rather than by government. Given Congress's recent efforts to further provide incentives for privatization in Medicare (i.e., let free-market forces influence how Medicare beneficiaries get services), perhaps it is worth looking again at what happens with a market-driven approach to health care.

This approach has been the prevailing one in the Republican-controlled Congress for approximately the last decade, beginning shortly after the demise of the Clinton Health Security Act proposal to overhaul the health-care system. Spiraling health-care costs were the target of this attempted reform and the market reform that followed.

According to free-market reform, letting competition flourish within health care would, in theory, rein in health-care costs. The theory predicts that with heightened competition for cost and quality, costs would decrease, and consumers would be well served. Specifically, poor quality health-care services would go unpurchased and disappear; health-care services that were too costly would do the same. Only good quality services at a reasonable price would remain--something all consumers would benefit from.

Profit over patients?

Unfortunately, competition and market forces have not had the desired effect on health care. Due to their unique characteristics, health-care services are not affected by free market forces the same way as other products and services. In most markets, for example, the same person decides whether to purchase a product or service, pays for it and derives a benefit. When someone other than the consumer chooses to buy the service and pays for it, market distortions result. This, of course, is exactly what happens with the country's third-party payer health-care system.

Another obstacle to an efficient, competitive health-care market relates to the benefits derived from health-care services. In markets that work according to free-market forces, all benefits of providing services are reflected in a company's revenues. But the societal benefits of good health care go far beyond monetary profits resulting from the delivery of services. If the health-care system relies strictly upon the market to determine availability of services, the inevitable result will be limited availability based only on profits, without regard to the societal benefits of health care. This is precisely the system that has evolved.

No competition for quality

The problems created in health care by an "imperfect" market have been further compounded by the decade-long influx of outside investment dollars into the health-care system. This includes venture capital used to start many health-care businesses and stock-related investments in publicly held health-care corporations. The interest of investors is more about return on investment than about quality health care.

The end result has been a health-care system with little, if any, competition for quality, intense competition for cost and a preoccupation with profits. Managed care--a concept since long before the 1990s but with no "takers"--caught on once cost-cutting and maximizing profit predominated. Ironically, except for a short-lived slowing in health-care cost increases in the late 1990s, neither the market-driven approach to health care nor managed care has solved the cost problem. Meanwhile, quality and access problems have increased.

An important implication of understanding these dynamics of health care is that managed care is not the problem, but rather a symptom of a market-driven health-care system. This suggests that the solution, then, is not just restraining managed care, although that helps. Rather, the solutions, in concept, revolve around mechanisms to ensure that quality is as important as cost. This could be done by an entirely government-controlled health-care system that removes market forces, although not a likely scenario in the current political climate.

Perhaps more likely would be just enough government involvement to correct for the uniqueness of health care and ensure that market forces incorporate both cost and quality. In effect, this would be like other regulated industries before Congress began to deregulate everything.

Unfortunately, one of the solutions is not likely to be increasing privatization in Medicare.

Allowing private insurance companies to compete with the government for Medicare beneficiaries is unlikely to solve current cost problems in Medicare. More likely is that, to maximize their profit, private companies will "cherry pick" the youngest and healthiest Medicare beneficiaries, leaving the oldest and sickest in Medicare and driving up program costs. There is likely to be considerable debate about the wisdom of these changes before they are scheduled for implementation. If implemented as the law is written, once again the country will witness a market-driven "solution" to problems in health care that will not solve the problem and will probably create a few more.