• In defense of health care regulation

    The following is co-authored by Austin Frakt and Aaron Carroll. It first appeared on Ezra Klein’s blog at The Washington Post.

    In two posts on this [Ezra Klein’s] blog, Karl Smith wrote that the supply side of health care has a lot to do with the rising cost of care. We agree. Health-care costs will not be tamed without addressing the provision of care. One issue Smith raised is whether that should be done by loosening regulation in health care.

    [T]he current health-care system is riddled with regulation, litigation and occupational and pharmaceutical licensing. We have levels heaped upon levels of protection against bad drugs, bad doctors and bad health-care consumers.  While all of these rules provide us with a sense of security, they most likely undermine the evolution of health care and make what care we do have outrageously expensive.

    It is no doubt true that regulation limits innovation. However, “innovation” is not unambiguously welfare increasing, and this fact is not confined to health care. For example, what do we now make of the lightly regulated innovations in the financial sector over the last decade or so? It seems to us, and many others, that in that domain a little more protection through regulation is in order. Similarly, in a recent NBER paper,Charles Jones pointed out that if the Cuban Missile Crisis had ended in nuclear war, as it very well could have, we would have a decidedly different view of the atomic and nuclear innovations that had occurred in the preceding 30 years. If not for some government diplomats, the costs would have outweighed the benefits.

    Notwithstanding the substantial benefits bestowed upon society by medical science, innovation in health care is fraught with uncertainty, as well as high costs. The uncertainty is multifaceted. It includes, on the one hand, whether a new drug, device, or technique will be a financial success and, on the other, whether it will improve health. The latter is a matter of science; the former depends in large part on marketing. Both aspects are in need of regulation.

    In a now-infamous 40-year study that began in 1932, 600 low-income, African American men were provided free medical care, meals and burial insurance, but never told if they had syphilis. Two-thirds of them did. Even though treatment for the disease existed during the study, it was not offered. This study, known as the Tuskegee syphilis experiment, is now the prime example of unethical treatment of human subjects in medical research. As a consequence of the appropriate outrage that followed the Tuskegee experiment, health-care research is now more regulated via institutional review boards (IRBs), as required by the National Research Act.

    In light of this history – and this was not an isolated incident – we should be careful about deregulating the enterprise of health-related scientific research. There are other aspects relating to the science of medicine that could use more regulation. One of us (Aaron) posted on just this point earlier in the week, echoing Rita Redberg’s recent NY Times op-ed. Both illustrate how we squander substantial resources on ineffective health-care treatments. Is this due to too much regulation or too little?

    Ever since Kenneth Arrow’s seminal 1963 paper on the welfare economics of health care, health economists (among others) have recognized the information asymmetry in the provider-patient relationship. It’s well established that patients are often unable to distinguish between effective, helpful health care and ineffective, wasteful care. Consequently, much of the decision-making in the realm of health care is influenced by physicians, giving rise to huge variations in practice patterns. In many cases, little scientific guidance exists, and physicians do what they learn and practice by accumulated wisdom of an unscientific type (which is not to say it is wrong, but it isn’t provably right). And, yes, they are generally highly rewarded for their work, whether based on sound science or, as is sometimes the case, not. Imposing more science on the practice of medicine is a role for more regulation, not less.

    Smith makes another excellent point about health care being an information and communication technology industry. However, right now, it is in the business interests of many involved in medicine to thwart information sharing and communication. If a company creates an electronic medical record, it usually doesn’t want it to talk to anyone else’s. An interoperable EMR system can mean lost customers; it opens the door to the possibility that providers might buy a competitor’s program. It’s much better for an EMR company if providers are forced to buy their laboratory system, their scheduling system, and their radiology system.

    Yes, that means that all the doctor’s offices can’t interface with the system at the hospital, or the emergency department, or with each other, but too bad. That’s how the unregulated marketplace works. We all suffer for it.

    Could we not use more regulation to provide incentives for physicians to practice according to guidelines informed by science? Could we not usemore regulation to develop, fund and follow the results of comparative-effectiveness research? Could we not use more regulation to set standards for EMR systems so that information could flow more freely?

    Bloodletting doesn’t work. Yet with no controls over the system, we’re sure someone would push it, or some snake-oil equivalent, on unsuspecting patients. The history of medicine suggests that this, or something like it, is far from implausible. In fact, it suggests that such things are happening today (useless knee surgeries and the like).

    Remember ThalidomideFen-phenVioxx? They’re all potent drugs that harmed patients, and they were pulled from the market due to regulatory oversight.

    We could go on.

    So, yes, by all means, we need to involve providers – the supply side – in any solution to our health-care spending problem. But we should be careful with “deregulation.” To be sure, more regulation isn’t always better regulation (regulatory capture happens), but less isn’t always the answer, either. We need to be smarter about regulating. Not all regulation is created equal. And, in health care, if not elsewhere, much of it does far more good than harm.

    • Irate at the idea that the banks and the free market had anything to do with U.S. housing bubble and the financial crisis in general, Mike Shedlock, who runs the blog Mish’s Global Trend Analysis, blamed the Fed for keeping interest rates too low and then argues:

      “Blaming banks for lending when real interest rates are hugely negative is tantamount to placing a bottle of vodka in front of an alcoholic, telling the alcoholic it is the best vodka in the whole world, then blaming the alcoholic for what happens next.”


      I have never seen a stronger case for regulation, because if the free market is operated by the analogue of alcoholics who cannot be held accountable for any mischief they create literally begs for strict regulation.

    • And, in health care, if not elsewhere, much of it does far more good than harm.

      I am not so sure.

      Sure the regulations that you call for, instituted by you, would be great but that is not what we have or will get. We will get what the median voter and those with high steaks on the provider side can get away with.

      Even with our very high level of Government regulation the world is full of junk medicine. Acupuncture, homeopathy, mega-vitamins, useless knee , back and neck surgeries. useless cancer screening and treatment. According to Dr Norton Hadler most heart bypass is no more affective that noninvasive treatments. This is not an argument for more regulation often the regulation provides credibly in the thinking of the consumer. Interestingly as bad as the less regulated acupuncture, homeopathy and mega-vitamins are they do a lot less harm that the things like useless knee , back and neck surgeries and useless cancer screening and treatments do.

      Further none of your points makes an argument against making it a little easier to become a medical practitioner.

      BTW there has been quite a lot of financial innovation over the last 30 years most of it has been good. I would bet that nets out in the positive.

    • I think that the problem is mostly attitude and behavior, and I am skeptical that regulation is always, in practice, an effective way to change attitudes and behaviors. Too often, the process of developing regulations is hijacked by parties with an economic stake in the outcome. Too often, the regulators are not well informed or driven by ego or politics.

      I have experience with drug regulators in the US and in Europe. In the US, these are low-paid, low-status jobs, and the people in them are definitely not “top of their class.” And they get little or no on-the-job training. In Europe, by contrast, these are highly respected jobs, highly sought after. You definitely need to be in the cream of the crop to land one.

      In interactions with the US FDA, even small differences of opinion can result in immediate accusations of intentional fraud. I have rarely engaged in a scientific discussion. In fact, most field investigators in the US lack the scientific and technical training to understand the science.

      In Europe, the presumption is that companies are trying to do their best. Differences of opinion are usually resolved by evidence and logic. It is far from perfect, but the texture of these interactions is really, really different.

      Of course the solution to this is not so simple. Raising the salaries of regulators in the US would help, but there are deep cultural barriers to giving regulators the kind of status that a hedge-fund manager or bond trader enjoys. Especially in an environment where it is taken as a given that government is uniformly bad, and that regulations are uniformly bad.

    • @Floccina:

      The very high level of federal regulation you are decrying–which in my view is weak or sorely lacking–is the exact point of the post above–mainly, we need a bit more oversight and behavioral assists to keep the providers from doing unnecessary “stuff.”.

      Trust me, I am one. Yes, some pocketbook enrichment is the driver, but the absence of information incorporation in daily practice is also the culprit. The number of docs who can keep up with best evidence for heart disease and referring for interventions (read: big ticket stuff) is modest at best–and skill maintenance is an issue. Some better informed folks need to step in and provide guidance.

      Will there be downsides? You bet. But on the net-net, better than today’s situation. On the last sentence above, I am not referring to big brother proclamations btw–I do think a regulatory board can oversee with a lighter touch. My opinion, and I expect disagreement.

      In regard to CAM, there will always be folks who will go outside of mainstream channels for treatment. How regulation will impact that avenue of care is unclear, but will likely be untouchable in greater or lesser chunks indefinitely.


    • I think David’s post (June 4th, 2:15 a.m.!) touches upon a serious issue: the comparatively low quality of regulation in the U.S.

      Our regulatory approach is scattershot and poorly administered. One can also wonder how well staffed it is with human capital, as David does.

      For one, there is plenty of regulatory capture, in part because today’s lowly-paid public regulator invests in his or her job tomorrow with a regulatee. That sets up a quite gregious conflict of interest that can make regulation unprofessional and capricious.

      For another part, our regulatory process is too quick to criminalize behavior.

      Most other nations have regulated payment systems in health care, for example. In Canada, government pays the entire health bill. But show me another country where every hospital has to have a huge “Compliance Department” with a V.P. for Compliance, costing millions of dollars just to make sure that the hospital is in compliance with volumes of poorly articlated and thought out regulations. I know this from firsthand experience, having served on the boards of for-profit and non-profit organizations in health care.

      Perhaps American culture is inherently more larcenous than the cutlure of, say, Switzerland, Canada or Germany, and therefore requires this police approach. But even then, I wonder if anyone has ever done any cost-benefit analsysis of the American regulatory approach.

      Canadians, for example, manage and regulate by exception. Germans do to. They don’t check each and every bill, but examine ex post whether or not a providers is lut of line with the rest of the pack. It is much cheaper and not as irritating to providers. In the US, we check every bill. Every time I speak to hospital executives I jest that I am stunned to look at so many latent criminals all at once.

      I am not sure where this leaves us, though. Evidently, as the financial sector has hsown and as certain segments of the health system have shown, the free market is not self regulating. So regulation there must be. As David points out, however, perhaps we should pay more attention in this country to the quality of our regulatory process. Too ofte it lacks the maturity to distinguish between truly larcenous behavior and mistakes. Furthermore, too often the young turks in the DoJ pursue cases just to win, rather than to work in the best interest of society. I have seen some truly amazing performances in this regard.

      Finally, let me offer a controversial view on our legal system. As I tell my class in financial management, our case-based Anglo-Saxon systom of law may be superior to other, more codified system in many respect, but the system is ill suited for commercial contracts. It seems almost impossible to write a commercial contract that does not permit years of litigation.

      When you sit on a corporate board and litigation comes up, the references you hear are rarely to the body of law that applies. It is always a discussion on who the judge is, what his or her habits are, where the venue is, and so on.

      We proclaim that ours is a country of laws and not of men. My experience in business has been just the opposite: ours is is a system of men (and women) loosely constrained in their idiosyncratic decisions by a monstrously complex and varied body of cases. It is particularly true of our Supreme Court. It’s all about the men and women on the Supreme Court, and not really about our Constitution, let alone other “law,” whatever it may be.

      Judges in their role as regulators add another force that randomizes the application of regulations in the trenches.

    • Deregulation is not what we need, re-regulation is highly desirable.

      There is no greater mess than the long-term care regulatory scheme, which has facilities hiring RNs to work 40 hours a week summarizing the excessive documentation of the RNs and LPNs who are trying to provide care while generating reams of records (computerization changes the media, the wasted time is still wasted).

      There has been some progress in other areas, regulations for PAs and FNPs have been updated and modernized in many states.

      The best occupation in the health care system today is a health care transaction and regulatory lawyer, they are feasting on federal and state statues and regulations (read Stark I, II, and II for example).

    • I think that health care is largely misregulated, at least at the provider level. We need better regs on utilization of procedures and referrals. We need less regs on our day to day paperwork. I know that PCPs get pretty hard when it comes to documenting for their E and M codes for payment (recent NEJM piece on this). When I get into this with my fellow docs, I find myself wishing people would make lists of these regulations that they think are harming their practice.


    • In response to Steve:

      You mention E&M coding and I know something about it as a former member of the Physician Payment Review Commission (PPRC).

      Our staff originally had proposed a simple, two-dimensional matrix for these fees. The columns denoted assumed “level of difficulty.” The rows were to be “time spent with the patient.” The time for each row was to be the same, to make coding easier. But the AMA wanted it otherwise, so that the rows no longer represented the same time commitment. We, the Commissioners, warned at the time that this would lead to confusion and irritation, along with inadvertent miscoding, but the AMA, as usual, prevailed.

      And this brings out an important point about regulation American style. Much of the complexity of our laws and of our regulations is driven by the efforts of lobbyists to get the laws and regs just so that they serve the lobbyists’ clients best. The result invariably is a mishegaz.

      They don’t do that in Canada. These one fee schedule for en entire province. Here we add dozens of specific geographic and other adjustors because in America, the land of McDonalds and Holiday Inns, etc, one size does not fit all in health care. So every law and reg has to come in umpteen sizes, to satisfy the mantra.

      As Eugene Steuerle of the Urban Institute puts it in the title of his newsletter, we have the government (and laws and regs) we asked for and we deserve.

      In many ways, certainly in this realm, the American people are their worst enemies. We are unable to change it.

    • What Frakt and Carroll omit from their piece is that the Tuskegee syphilis experiment was carried out by the US Public Health Service. In other words, it was the actions of a Government health authority that allowed those innocent men to die, not the lack of regulation, and Frakt and Carroll are arguing to put more power in the hands of the very people who ran that experiment.

      • What Tom T. says about the experiment being carried out by the US Public Health Service is true, as one could learn in seconds from following the link we provided in the piece. What is also true is that the government funds a substantial fraction of medical research — roughly 1/3 of it today. It is likely also true that every medical researcher with all but a brief or highly specialized career has received some government support for his or her work. In other words, one can’t very well separate medical research from government funding.

        All of that government-funded medical research (HHS funded) must receive IRB approval, which includes intense scrutiny for the purpose of protecting human (and animal) subjects from the type of cruelty that occurred in the Tuskegee experiment. Does Tom T. suggest that regulatory oversight is not warranted just because the study that, in large part, motivated it was government funded?

        • You’re being dishonest when you try to portray the Tuskegee syphilis experiment as a failure of “deregulation.” That experiment was carried out with full Government oversight. It was carried out by the regulators — by the very same people whom you’re calling upon to be trusted to regulate others.

          There’s no magic in the letters “IRB.” Had there been an IRB at the time of the Tuskegee experiment, it would have approved it. Those doctors and government agencies that ran the experiment didn’t think they were acting unethically, and it’s silly to think that they would have concluded differently if the letters on their coats said “IRB” instead of “PHS.” What prevents another Tuskegee is a sea change in the underlying ethics of the medical profession, not the level of government oversight (which, again, in the Tuskegee case, was total).

          You could have chosen to stake out a factually accurate middle ground and explained that sometimes, trusting the Government’s regulatory judgment successfully protects us from horrors like thalidomide, but other times, trusting the Government’s regulatory judgment inflicts horrors like Tuskegee. Instead, you chose to sacrifice that accuracy for something more politically punchy.

          • What are you suggesting be done *now*? Repeal IRBs? Can the FDA? Defund comparative-effectiveness research?

            I think it is a stretch to suggest we were dishonest or factually inaccurate. Please read the comments policy before you post again.

    • @Uwe

      I cant disagree re: American “exceptionalism” in our fervor to put profits and bad acting ahead of efficiency and more organized care delivery.

      However, I would posit that it is not a unique flaw in the American DNA code. I have read on numerous occasions that the Dutch marketplace, if left to its own devices (absent tighter RA and more oversight), would happily create distortions resembling that of the US system, and by that I mean profits or advantages to the insurer. The same goes for the Swiss system, which you have waxed eloquently on.

      My point is this–and I dont say this in defense of America (we are guilty as charged), but it is human nature in that if given the opportunity to make a buck, regardless of country of origin, someone will take it. I think of the Milgram experiments and others cut from the same cloth–prime the pump and anything goes.

      As the UK augments the NHS with a privatized chassis, and other public-oid OECD members do the same, the same unsavory activity will bubble up.



    • I read a few articles recently about what has apparently happened to Institutional Review Boards (often now private, for profit), and also to medical trials in general (moved overseas to third world countries).

      I was honestly shocked–I like to think I don’t shock easily anymore……

      Below is a link to one of the articles. Does anyone have comment/info on these two issues? Thank you.