What is the proper place of profit in the provision of health care? The inquiry is not a fresh one. “Let me not even bring charges against their avarice,” Roman philosopher Pliny the Elder inveighed against physicians in the first century AD, “their greedy bargains made with those whose fate lies in the balance, the prices charged for anodynes, the earnest-money paid for death.” Hippocrates had his own less dramatic take on physicians’ fees: “One must not be anxious about fixing a fee,” he wrote. “For I consider such a worry to be harmful to a troubled patient.”
The harm of worry may be greater than ever in our age of soaring health care costs and treatments that actually work. “Sticker Shock Forces Thousands Of Cancer Patients To Skip Drugs, Skimp On Treatment,” reads a recent headline in Kaiser Health News. The article describes the story of John Krahne, a 65-year-old man who—upon learning that the tumors in his lung were ominously expanding—felt compelled to postpone initiation of the drug recommended by his physician because of its staggering cost. He hoped that the delay would do no harm.
Treatment has always been sold for profit. Yet it is only in the modern era that giant drug firms became a domineering global economic force. Hospitals—which first appeared as entirely charitable institutions—grew into powerful, sprawling health systems of great wealth and power. New for-profit health corporations—from nursing homes to hospice chains, dialysis centers to ambulance companies, home health care providers to electronic health record vendors—emerged and fought for market share in an increasingly globalized arena. And though insurance dates back centuries, it was only in the post-World War II era that powerful commercial insurers came to realize the profits that could be gained through the insurance of health care.
And so, whereas unscrupulous practitioners have always tried to bilk patients, today, individuals like John Krahne are more likely to find themselves squeezed by what has been called, for almost a half-century, the “medical-industrial complex.” An American Sickness: How Healthcare Became Big Business and How You Can Take it Back, is a new bestselling book by Elisabeth Rosenthal, a physician, former reporter for the New York Times, and today editor-in-chief of Kaiser Health News. It describes the latest stage in the process Rosenthal calls “the transformation of American medicine in the last quarter century from a caring endeavor to the most profitable industry in the United States.” It is a look, that is to say, at health care in the age of late capitalism.
Rosenthal’s book is crisply divided into two halves: First, she explores the history and current state of health care (the “history of the present illness”), and second, she turns to the “diagnosis and treatment” of today’s problems. The first part amounts to a comprehensive dissection of profiteering in sector after sector of the health economy, buttressed by extensive reporting on the human impact of these developments.
In a chapter on the “Age of Insurance,” for instance, Rosenthal tracks the rise of the U.S. health insurance industry, whose modern origins lie in the emergence of not-for-profit Blue Cross hospital insurance at Baylor University Medical Center in Dallas in the 1920s (Blue Shield, for coverage of physician services, came later). The subsequent failure of both Franklin Roosevelt and Harry Truman to achieve a national health insurance system, however, nurtured the rise of the commercial insurers, who soon came looking for a piece of the action. By 1951, she notes, both Aetna and Cigna were selling major medical coverage plans. These commercial insurers gobbled up market share through the 1970s and 1980s, and in so doing sometimes left the sicker patients with the nonprofit “Blues.” In 1994 the Blues’ Board for the first time permitted struggling member plans to convert to for-profit status, which Rosenthal calls “the final nail in the coffin of the old-fashioned noble-minded health insurance.”
Next, in the “Age of Hospitals,” Rosenthal traces the rise of powerful hospitals and health systems (often from charitable predecessors), which today increasingly rely on hordes of consultants to boost revenue, and which sometimes richly reward their executives like corporate CEOs. Physicians come under fire in a chapter of their own. “As the numbers and salaries of hospital administrators were vaulting upward,” Rosenthal writes, “the doctors wanted in on the profits,” and she diagrams our various entrepreneurial maneuverings, such as setting up private procedure centers in order to charge lucrative “facility fees.”
A particularly good chapter on the “the Age of Pharmaceuticals” describes the galling chicanery of the drug industry, a narrative that resonates in the age of Martin Shkreli and Mylan pharmaceutical price-gouging. Rosenthal focuses on the story of mesalamine, an age-old anti-inflammatory drug whose price was driven up 500 percent by pharmaceutical companies through various sleazy tactics, like adding a gel coating to create a new patent. And her chapter on medical devices explores how firms have gotten rich from high-risk devices approved through a sometimes-inappropriately used review pathway (the 510(k) program) that requires a relatively paltry standard of evidence. This development, Rosenthal contends, has led to a multitude of medical calamities, like the joint implant that was recalled after it was discovered that, when its “components ground against each other, the metals leached in the surrounding muscle and into the blood, leading to join failure, local tissue and bone death.”
Our uniquely complex health care system today also requires armies of billers and coders and collectors that together constitute a profound subtraction of resources from the health care economy, another topic she explores. A recent article—“Where Does the Health Insurance Premium Dollar Go”—by the distinguished health economist Uwe Reinhardt in the Journal of the American Medical Association forum synthesizes the problem well: A system of multiple competing insurers and insurance plans invariably creates enormous complexity that diverts staggering sums of health care dollars into administrative activities. He notes, for instance, that one U.S. academic health center has some 1,600 billing clerks, as opposed to the average Canadian hospital, which only has a “handful.” A recent article in the Annals of Internal Medicine by colleagues of mine puts the cost of excess administrative spending in the U.S. (as compared to what it might be under a single payer system) at $503.6 billion a year.
Yet everywhere we look, the profiteers
run amok. Although it is a relatively tiny part of the U.S. health care system, the
extractive for-profit ambulance industry is emblematic of the larger problem. According
to Rosenthal, the ambulance industry has been transformed from a free, largely volunteer
service, into a privatized money-maker that not infrequently bilks those desperately
ill enough to require its services. In Los Angeles, for instance, she notes
that there is a base rate of over $1,000 for an ambulance ride, plus extra money
for each mile travelled, each minute spent waiting, and each bandage applied—as
well as a surcharge if it is after 7 in the evening (time your medical emergencies
to normal business hours, folks). What is most infuriating is that the
arrangement is entirely unnecessary. Medical transport should be a public
municipal service free at the point of use—like fire protection or street
cleaning—and yet has instead become another industry on the take.
The process by which “healthcare became big business” (to use the subtitle of Rosenthal’s book)—the intersection, that is to say, of the march of medicine and the advance of neoliberal capitalism in recent decades—was by no means inevitable. In the Three Worlds of Welfare Capitalism, the Danish sociologist Gøsta Esping-Andersen famously described how some welfare states were “decommodified,” or universalized along social-democratic lines, though his focus was not health care.
It seems clear that to cure what Rosenthal calls the “American Sickness,” we need a similar process of decommodification within health care, which has occurred—albeit to varying extents—in most other developed nations. The decommodification of American health care would require three critical steps: (1) a fundamental re-orientation of the process of pharmaceutical development, provision, and pricing towards the public interest, (2) a transition from corporate for-profit care (where it currently exists) to a mixture of public and not-for-profit delivery, and most importantly, (3) the replacement of current forms of health insurance with a tax-funded single-payer public program.
Yet Rosenthal’s “prescriptions for taking back our healthcare” fall short of such measures. In fairness, Rosenthal doesn’t claim to propose one major systemic reform—though she briefly reviews a few such proposals over a few pages—but instead to offer a slew of steps that we as individual patients can take to protect our wallet, or our health (like ensuring that studies or referrals are “in network” and necessary), together with relatively smaller scale reforms that mostly would not require Congressional action (like greater transparency of health care prices). Many of Rosenthal’s proposed solutions make sense: She suggests, for instance, that we could negotiate for drug prices at the national level, or that we require that new drugs show superiority over existing drugs to be approved or patented. Both would lower drug prices while incentivizing research into truly innovative therapies.
But many of Rosenthal’s solutions accept the basic merit of health care consumerism. “Medical journals contain endless studies debating whether patients can be effective shoppers,” she writes. “We can and we want to be.” She asks how doctors can possibly choose the proper therapy for a patient, if even they do not know their relative prices. She recommends what’s referred to as “reference pricing,” in which an insurer covers a medical procedure at a certain (reasonable) “reference” price—say (to make up a number) $20,000 for back surgery. If an individual obtains the surgery at a hospital that charges more, he or she may be liable for the additional cost. She also sympathetically discusses what is called “value-based insurance design,” in which copayments are pegged to the medical utility of the good or service. There isn’t the space here to lay forth my criticism of each of these popular policy ideas, but what I can say is that they all—including price transparency—have a common problematic underpinning: They are all grounded in the premise that the patient-consumer can drive down health care costs through price shopping. For that reason (and others), they would all fail us.
Now it is often said that, in an emergency, health care shopping is basically a morbid joke: Shopping for a hospital based on cost and quality while exsanguinating in the back of an ambulance from a penetrating stomach ulcer is a prospect that even the most flawless homo economicus would be unlikely to relish. I recently joined Rosenthal on NPR, where she made a similar point about not wanting to shop for a surgeon while one’s appendix was about to burst. But even outside the acute setting, health care price shopping is unnecessary, and indeed frequently harmful.
The reason for this is simple. For price-shopping to happen, we must have cost exposure, which is to say that our insurance plan imposes out-of-pocket payments like copayments and deductibles on us (which are currently on the rise). Yet decades of research has shown that exposure to these costs squeezes the sick: We are apt to avoid necessary care when we have to pay for it out-of-pocket. Perhaps the most revealing recent study of this was a 2015 paper by Zarek C. Brot-Goldberg and colleagues, published by the National Bureau of Economic Research. The investigators relied on the natural experiment that occurred when thousands of “relatively educated, high-income consumers” with “access to a price shopping tool” were moved by their employer from a “free” health care plan to a high-deductible health plan (with deductibles ranging from $3,000-$4,000). This transition gave these individuals more cost-exposure, and thus a greater impetus to shop and (theoretically) save.
Interestingly, however, the investigators found no evidence whatsoever that consumers engaged in greater health care price shopping because of the switch. Instead, they simply cut down on their use of health care, having (for instance) fewer physician visits and ER visits and using less prescription drugs and preventive care. Such reductions in use occurred whether the care was classified by the researchers as “likely valuable” or “potentially wasteful.” This is interesting, yet unsurprising (and consistent with prior studies), for two reasons. First, when we have competing, onerous household expenses—housing, education, health care, and so forth—we are liable to make cuts where we can, and sometimes this will be health care (even for those who are relatively well off). Second, it’s not at all shocking that both potentially useful and useless care were reduced in tandem: In order to consistently and reliably differentiate between useful and useless care, one would not merely need to be a physician, but in many instances a physician of the relevant specialty for the particular type of care in question. (The great Canadian health care economist Robert Evans has best laid bare the flawed theoretical assumptions at the heart of copayments).
There is simply no way to square this circle: Price shopping requires cost-sharing, and cost sharing hurts us, both financially and medically. And in any event, the notion that people need “skin in the game” so as to prudently “consume healthcare” misses an essential fact of human behavior. Whereas it is true that if beer were made free (admittedly a most enticing prospect) its consumption would skyrocket, it’s a rare and odd individual who would knowingly guzzle unnecessary (yet free) chemotherapeutic drugs like a frosty IPA.
Health care should thus be free at point of use (with costs controlled in other ways), which is the case (for most forms of care) in Canada and the United Kingdom, and is found in many universal single-payer health care reform proposals for the U.S. Being ill, simply put, is trying enough, and being tormented by (or even having to consider) costs, bills, and prices during such times is a burden we need not carry. When one is diagnosed with cancer, the concern should be care—not copayments.