Why it’s crucial to remember that healthcare is not a typical business

By | August 20, 2019

Let’s say, for the sake of argument, that I have an extreme Diet Coke emergency. (I never have, but that’s beside the point.)

At 2 a.m. on a Wednesday, I awake with an unforgiving need to drink Diet Coke. I dress and head out to find the nearest 24-hour convenience store, where I can satisfy my damnable craving by paying a bit more for Diet Coke than I would at a grocery store.

I pay slightly more for a few reasons related to the cost of convenience, the lack of more affordable options at 2 AM, the high costs of urban real estate, etc. The point is that, while I will pay more for my Diet Coke, I won’t pay A LOT more, and I have the option of just waiting until morning or driving to someplace that sells soft drinks for less.

Capitol Hill-flag

The east front of the Capitol building stands in Washington, D.C., U.S., on Monday, Jan. 3, 2011. President Barack Obama and Democrats are preparing to confront a strengthened Republican opposition to tax, spending and immigration priorities when the 112th session of Congress convenes this week after Democrats lost control of the House during midterm elections. Photographer: Andrew Harrer/Bloomberg

Andrew Harrer/Bloomberg

Compare that with the chain of events that could follow my awakening with excruciating abdominal pain at 2 a.m. on a Wednesday. In that case, fearing appendicitis, I want to be taken to the nearest hospital. I may not have any idea whether or not the nearest hospital has an agreement with my insurance carrier (if it’s San Francisco General, I am certain they don’t), and I don’t know how much my treatment will cost, but I’m suffering too much pain and fear to care.

In the trivial first example, I am clearly a consumer of Diet Coke. I have alternatives. I basically understand underlying pricing structure, am willing to pay extra for convenience, and I have ready access to numerous outlets competing for my business.

In the non-trivial second example, I’m kind of screwed, and we pretty much all know why. I can’t shop, don’t know what I will pay, have no concept of valuation and am operating in an information vacuum. Almost nothing about this healthcare situation defines me as a consumer.

And yet, many in healthcare continue to insist that patients are actually consumers of a product, the quality and value of which they have very little if any knowledge.

“While public options can turn to taxpayers to bail them out, private players have no such luxury,” wrote CMS Administrator Seema Verma in a recent Washington Post op ed. “They must compete for consumers based on the merits of their product and remain efficient—or suffer in the market as a result. Without market pressure on the bottom line, an expanded government plan would balloon uncontrollably, crowd out private options, push consumers off private plans and reduce choice as private plans flee the market.”

This is an oversimplified assessment of one aspect of the healthcare marketplace.

The reality in many healthcare markets is that hospitals either carve out monopolies and raise prices or just barely get by as the remaining safety net provider. They negotiate unknown pricing agreements with insurance companies. They establish pricing using antiquated chargemasters that often have no foundation in actual costs.

On that last point, the current administration believes one way to apply market-based fixes to healthcare is to make hospitals post their prices. While pricing transparency is a key component in consumerism of any product, the problem with healthcare is that nobody knows what the numbers really mean.

“Many of the definitions of the cost component in healthcare differ,” writes Jeff Gorke in Forbes. “Prices, charges and payments/reimbursements have different connotations within different segments of the U.S. healthcare system at large … Many doctors and hospitals do not know what it costs them to deliver their ‘product.’ The delivery of healthcare is not one-dimensional; you’re not buying a gallon of gas or a loaf of bread. There is variability.”

And there is the conflation of patient-centered healthcare with a consumer-oriented system in which price transparency increases competition and drives down costs.

“The main driver of healthcare costs is not consumer demand, but rather the introduction of new technologies and unwillingness on the part of US political leaders to regulate prices—or at least use government bargaining power as leverage to negotiate lower prices,” says a recent article on the patients-as-consumers idea published in Health Affairs by scholars at the Hastings Center.

And still other concerns—ethical, economic, organizational—undermine the idea that patients are really consumers, that healthcare is a marketplace like so many others, and, perhaps most importantly, that physicians are mere service providers instead of highly trained professionals.

“Overall, I don’t want to replace medical ethics and medical professionalism with business jargon and business ethics,” writes Arthur Caplan, head of the NYU School of Medicine’s Division of Medical Ethics. “I don’t think that serves patients well. I think it starts to have implications for how to operate the system, which are not good for physicians because it starts to make them feel more like pawns or agents, without professional standing and without the respect and authority that go with the profession.”

So does that mean healthcare cannot benefit from adherence to fundamental economic principles? Of course not. But it does mean healthcare has unique qualities that justify original thinking and research.

The late Princeton economist Uwe Reinhardt contributed much of that thinking over his career. To Verma’s argument against public options, Reinhardt might have pointed out that roughly half the American healthcare economy is funded by government. He might also have added that spending has increased more rapidly in private sector healthcare than in public programs.

Reinhardt is perhaps best known for his paper, “It’s the Prices, Stupid!” which demonstrated that Americans actually consume less healthcare than citizens of other countries but pay a lot more for what they get.

So, does that make Americans “consumers” of healthcare? It does not. In fact, Reinhardt, often seen as the conscience of healthcare policy debates, argued that many if not most of the so-called “policy debates” we have are really just thinly disguised ethical arguments about whether or not society will care for the poorest, most sick and most vulnerable among us.

Reinhardt was correct. Caplan is correct. Patients are not consumers and physicians are not providers. As the most capitalist country, America tends to view available solutions through a capitalist prism. But when all you have is a hammer, the saying goes, everything looks like a nail.

Healthcare requires creative solutions that borrow from different philosophies and proven successes elsewhere, and it requires a market with a conscience. Pretending that healthcare is any old consumer product does a disservice to patients, physicians and our shared values.

Our task is to treat healthcare as what it is and stop pretending it’s similar to a Diet Coke.

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