by Tom Robertson
Executive Director, Vizient Research Institute

 

 

American medicine is facing an identity crisis. The COVID-19 pandemic brought renewed attention to socioeconomic health disparities and turned up the heat on the question of whether health care is a right or a privilege. The financial strain on hospitals resulting from the temporary postponement of scheduled surgeries exposed a vulnerability caused by an inherently flawed payment system.

The answer to the right vs. privilege question has much bigger implications than the resolution of a philosophical debate. It determines which economic model – that of a common good or a private good – makes the most sense for the delivery of medical services. Until we answer the question deliberately, we will continue to bounce between the two economic models, experiencing the worst of each.

A common good, like clean water, has a limited supply but access is not restricted based on the ability to pay. By contrast, a private good – like an automobile – also has a limited supply but society has no qualms in restricting access for those unable to pay. A public good, such as national defense, is not depleted when one individual consumes and access is extended irrespective of ability to pay. So, what is health care? A public, a common, or a private good? The answer has consequences.

When one person receives medical services, it does influence availability for others, so health care is not a public good. Health care as a common good is aspirational. According to the Kaiser Family Foundation, the number of uninsured Americans increased for three consecutive years beginning in 2017, leaving almost 29 million without insurance in 2019. A recent study published in the American Journal of Public Health reports approximately 530,000 family bankruptcies per year arising from medical issues and bills; two-thirds of all family bankruptcies cite medical costs as a contributing factor. Inability to pay remains a significant barrier.

For over forty years, policymakers have relied on market forces (typically reserved for private goods) in efforts to arrive at affordable prices and sustainable levels of spending. Health care as a private good has been an economic failure, both in terms of price and the ability of consumers to understand the quality of services provided. Some providers are paid hundreds of dollars while other providers are paid thousands of dollars for the same test in the same market. Differences in prices for low acuity hospitalizations can vary by tens of thousands of dollars for the same diagnosis in the same city. It is not uncommon to see one provider paid 5 to 10 times what another provider is paid for the same service in the same market.

It is well established in the medical literature that clinical outcomes improve with increased volume for high-risk surgical procedures. A study published in the June 2019 issue of the Journal of Clinical Oncology compared clinical outcomes to the degree of centralization in high-risk surgical procedures. The removal of part or all of a patient’s esophagus, usually related to cancer, is called an esophagectomy—a high-risk surgical procedure. For esophagectomies, mortality was over two times higher in the least centralized health systems compared to the most centralized. Complication rates were 20% higher. The study found the procedure was performed in 1,536 U.S. hospitals, with an average annual volume of 25 cases and a median of 14. One in four hospitals performed the procedure only once per year. A population-based study in England, published in the April 2016 issue of the Annals of Surgery, demonstrated a proficiency relationship between surgeon volume and mortality for esophagectomies. Each additional case reduced the surgeon’s odds of mortality by 3.4%. The study concluded that mortality after resections for esophageal, gastric and pancreatic cancer falls as surgeon volume rises up to 30 cases. The prevalence of low-volume surgical programs, in the extreme performing only one high-risk procedure per year, indicates that the market assumption of perfect information is not being realized.

The market—the economic model applied to private goods—has failed to establish reliable pricing or to adequately inform consumer choices relative to quality in health care.

The nature of public goods, in particular the lack of any incentive for consumers to voluntarily pay for a benefit determined to be essential by society, typically results in that good being produced directly by the government. In some countries, health care has been treated as a public good, provided by the government. In the United States, sentiment is strongly against a publicly provided health care system. That leaves us with the choice between a common good and a private good.

Americans struggle with the idea of health care as a private good – with the philosophical debate between a right and a privilege. The five-decade failure of the market to establish either sustainable prices or a meaningful understanding of quality by consumers might be enough to convince some that the private good model is ill-suited to health care. Common goods – having a limited supply and a social ambition to avoid access barriers over inability to pay – are often regulated to ensure availability and affordable and rational pricing. The market has failed because health care aspires to be a common, not a private good.

Coming out of the pandemic, the health care system has the opportunity to avoid going back to business as usual. We need to answer the question, “What is health care?” Our answer will have consequences.

About the author: As executive director of the Vizient Research Institute, Tom Robertson and his team have conducted strategic research on clinical enterprise challenges for more than 25 years. The groundbreaking work at the Vizient Research Institute drives exceptional member value using a systematic, integrated approach. The investigations quickly uncover practical, tested results that lead to measurable improvement in clinical and economic performance.

Published: September 7, 2021