Health Care Is Not a Widget
And so we begin with Lesson I: Health Care Is Not a Widget
Ahh, widgets: those ubiquitous fictional entities seemingly discussed everywhere, yet unseen by human eyes. They are defined thusly:
Widget: A fictitious good, commonly used by economic instructors to demonstrate economic principles or undertake hypothetical analyses ... If such a good exists -- and there is no clear evidence that widgets have every existed -- it is a small mechanical device, constructed of interlocking cogs, several knobs, and at least one handle. Widgets are most often used when thingamajigs and dohickies are unavailable.
Widgets are used as instructional tools to demonstrate the effects of economic principles, such as supply and demand. Health care being an industry with broad economic reach, its component services are sometimes thought of in classical economic supply-and-demand terms. Yet health care economists and politicians seem puzzled that medicine is so often unresponsive to the typical economic rules governing most other industries and service sectors.
There is a reason for this: health care is not a widget.
The problem is not that health care services are entirely outside the laws of economics; indeed, many of our health care financial problems stem from distorted or perverse economic incentives. But the nature of the services themselves differ from virtually every other service industry. How so, you wonder? I thought you'd never ask. Here's just a few key distinctions:
Health care services are not generally subject to choice.
At the heart of free-market economics is the idea of choice -- you are free to buy my product if it is something you want or need, and the price is agreeable. You are also free not to purchase it, or to buy it elsewhere if you find a better price or quality. To a limited extent this is true in health care -- if I want a tummy tuck or facelift, I can shop around for the best balance between surgical expertise and price, and if I fail to find that balance, I can choose to forego the service.
In most cases, however, such detached rational decisions do not apply to health care, since the service is non-optional. If you have crushing substernal chest pain, you are not in a position to evaluate the optimal price or quality of the service you require: you need to get to the hospital before your heart attack kills you. The ER physician who sees you is someone you have never met; you do not know his skill or credentials; you have not negotiated a price for her services. While you may have some choice about which hospital to attend, even here your choice is severely limited by expediency -- you drive (or are taken) to the nearest one, lest you die en route.
Even in health care situations more routine and less urgent than such medical emergencies, many factors preclude free choice and free market decisions in health care. In the marketplace, the buyer typically judges the value of the product, then judges whether the asking price is appropriate to this value. In medicine, the true value of the services provided is extremely difficult to determine. We must often make choices of physician or facility purely on hearsay, or the recommendations of another physician or friends, or other factors unrelated to quality, such as proximity to home or work. The system lacks transparency. So the quality of the product you are purchasing is extremely difficult to assess prior to purchase.
Further restrictions are introduced due to the high market penetration of managed care health insurance. Insurance carriers contract with specific physicians to provide care to patients enrolled in their plans. While often touting the "high quality" of their network providers in marketing materials, contract decisions are based either on the willingness of physicians to accept the insurance carrier's fees, or the desire of the carrier to provide broad physician access for their clients -- a "take all comers" approach. Either way, quality is a virtual non-issue. Insurance quality screens weed out only the most egregious offenders -- and sometimes not even those.
Lastly -- and most importantly -- those seeking health care are almost entirely shielded from the actual cost of the service. While you often pay a percentage of the cost -- through copays and deductibles -- this amount is totally unrelated to the quality of the service. The payment has been predetermined by your insurance carrier, and the premium likely paid by your employer, or the government. So virtually all the normal forces of the free market are constrained or eliminated.
The satisfaction with the product is not uniquely dependent on its provider.
When you buy a car, you make certain assumptions: the manufacturer has taken pains in design and manufacture to ensure a high-quality product; that quality-assurance programs are in place to monitor its manufacture; should a major problem arise, the vehicle will be recalled and the problem fixed without cost -- save inconvenience -- to the owner. These assumptions are legally spelled out in the vehicle warranty - which also spells out the owner's responsibility to maintain the car at specified intervals.
Medicine is a different animal in many ways. There are a host of variables which affect the quality of the final product. Obviously, the skill and training of the physician providing care is a critical factor. The quality of the complex system which supports the service -- the hospitals, nurses, medical equipment, suppliers, pharmaceutical companies, etc. -- comprise together another key ingredient. Often overlooked is one other, critical factor, however: the quality of the purchaser of the service.
By quality, there is no inference or intent to disparage, but rather to point out a number of patient/purchaser-related factors which greatly influence outcomes and service satisfaction: the overall health of the patient/purchaser; the disease itself under treatment; other disease states which influence the performance and outcome of the service; the cooperation and compliance of the patient/purchaser with the instructions and healing program recommended; and the vast complexity and frequent unpredictability of the human machine, which far outstrips any manufactured item in sheer randomness and near-capriciousness of makeup, performance, and response. A perfectly-performed surgery can have a disastrous outcome; a miracle drug, rare but deadly side effects; an abnormal variant in anatomy can make a routine procedure treacherous or unsuccessful. Furthermore, should such an adverse event or circumstance arise, there may be harm to the patient which cannot be undone -- or if it can, which may require additional cost, procedures, or suffering to resolve. There are no product recalls in medicine; warranties are a fanciful dream when so many aspects of the service product are not under the seller's control.
The relationship between patient and physician is less contract than covenant.
I will cover this more fully in another post, but the distinction is important. Most economic transactions occur in the context of contract -- the rules defining the terms of the agreement, what goods or services will be offered at what price, and perhaps most importantly, what will occur should the transaction prove unsatisfactory: e.g., the product is defective, the buyer does not pay the agreed price in the time or manner specified. Although medical care is becoming increasingly contractual (to its detriment), it is in its highest form closer to a covenant -- an agreement between two parties to pursue a common goal based on mutual trust. In a contract, the transaction is king; the contract serves to define its terms and boundaries. In a covenant, the relationship rules; trust and the best interests of the other party, toward a common goal, are dominant. In medicine, such a relationship by necessity means that the transaction -- the financial side of the interaction -- must be subservient to the goal. Hence the physician must put the patient's best interest ahead of his or her own financial well-being, and must intercede on the patient's behalf when third parties threaten the goal for financial reasons.
While I am sure I have not exhausted the unique nature of medical services in the economic realm, hopefully you can begin to see more clearly why simplistic economic models fail so often when applied to health care. Yet this framework of understanding can hopefully provide some guideposts out of the dark woods of our health care crisis.