My opinion of “A Second Opinion”

After our e-mail exchange about the doc fix, Arnold Relman was kind enough to send me his book about his vision for a U.S. health system makeover, A Second Opinion. It’s a book worth reading, full of insight and well-supported arguments.  I liked it, agree with much of it, but not with every nuance of every idea in it.

Relman argues that corporate interests have overtaken health care provision and insurance. Dominated by a drive for income maximization and return on investment rather than high quality patient care, provider and insurer organizations are failing us, he says. The high costs for mediocre outcomes (relative to other OECD countries) that we observe are a natural consequence.

Relman’s proposed solution has two parts. One is a move to a global budget based single-payer system overseen by a National Medical Care Agency (similar to the SEC, the FTC, and the Fed–accountable to Congress but with independent regulatory authority). That cuts the insurers out of the picture. The other part is to pay provider organizations on a capitated basis–a fixed payment for each individual, risk-adjusted but not directly tied to specific services rendered. He suggests that salaried physicians organized as non-profit multi-specialty medical groups that receive such capitated payments would eliminate the perverse incentives of fee-for-service arrangements that are pervasive today. That cuts many current medical businesses out of the picture (they’d have to reorganize and tell investors to take a hike).

There are obvious political obstacles with Relman’s ideas, which he acknowledges. However, he also believes they will be overcome relatively soon. The book was published in 2007, and throughout most of  of it he writes that major reform in the direction he suggests might occur within ten or more years but in at least one place he writes that it might occur in five to ten years. My view is that if we ever eliminate insurers and for-profit medical businesses it will be many decades from now. I don’t expect major changes unless and until the path established by the Affordable Care Act (ACA) is proven ineffective. That will take a minimum of 20 years (recall the Cadillac tax doesn’t begin to bite until 2018). I also think “never” is a good estimate. We’re talking insurers and medical providers here! They’ve got a wee bit of clout.

Normally when someone argues strongly for a politically moribund idea I dismiss it quickly. Why contemplate the impossible? But Relman’s ideas are worth more consideration. He’s on to something (a few things, actually), and they can be separated from the politically unlikely package and contemplated independently.

He makes a very good argument, citing many studies, that the profit (or income) motive in health care is a problem. It’s not the drive for profit alone that is an issue. (If it were, we’d be trying to remove the profit incentive from every industry. Bad idea!) The problem with health care is that when the profit motive is combined with fee-for-service and third-party payment, information asymmetry that promotes provider induced demand, and life-and-death decisions it is far too easy–even individually rational if socially inefficient–to spend too much for too little.

The question is, what can be done? Different people propose different solutions that focus on different facets of the problem. Advocates of consumer directed health plans (CDHPs) argue that it’s principally the degree third-party payment that should be adjusted. If consumers directly pay more for their care they’ll make better decisions about what care to buy and how much it is worth. There is something to this notion. It’s not obviously wrong. It’s not obviously right either. There are potential problems, to which Relman devotes a chapter. Problems aside, the CDHP concept is being tested in the commercial market, and more will be learned about the degree to which it works over time.

Rather than targeting third-part payment, Relman’s focus is on the fee-for-service nature of payment. His proposal is to compensate providers with capitated payments. It’s a good idea, but isn’t obviously right or wrong either. I can see some merits and some problems. Fortunately, it has some similarity to the accountable care organization (ACO) concept that will be tested in Medicare and Medicaid. Thus, we’ll learn more about what such a payment system can do as well. CDHPs or ACOs, what are the strengths and weaknesses of each? We can speculate, but we won’t know for sure until we try them. So, it’s an empirical question and in time we’ll know a lot more.

But neither CDHPs nor ACOs are tied to single payer. They can exist apart or along side it. So, progress can be made without a single payer system. (In an earlier draft of this post I wrote that single payer is dead. Aaron Carroll is not so sure and points to recent events in Vermont. I still cannot imagine insurers and for-profit medical providers being legislated out of existence nationally. But I’ll hold off declaring singe payer dead in this post out of respect for Aaron.)

My final thought about A Second Opinion is that Relman is too hard on health economists, suggesting we’re partially responsible for the market-based system he blames as the source of our health care problems. If only health economists had so much power! I’m not sure what body of literature suggests health economists are strong and persuasive advocates for “corporate health care.” Some may be. Some may not be. About most policy issues, I’d say we’re mixed (on these very points see the Victor Fuchs article that Relman himself cited in his book). But, more than that, I’d say we largely keep our mouths shut about how things should be and focus on how things are and how they might turn out under proposals for change. As a community, we’ve diagnosed the problems Relman points to and analyzed suggested solutions to them. I consider that a service worthy of praise. (I’m biased though.)

In conclusion, Relman is right to put the focus on how physicians and hospitals are paid. I think most health economists would agree with him.  But physicians and the hospital industry won’t. That’s the problem. Relman’s book doesn’t solve it, nor could it. I’m not sure anything can.

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