HealthLawProf Blog

Editor: Katharine Van Tassel
Concordia University School of Law

Wednesday, January 28, 2009

Learning from Banks?'s Zachary Meisel and Jesse Pines have a cautionary tale for health care workers and reformers from those who work in the banking industry.  They write,

The condition of the U.S. economy can be described generously as bleak. But while unemployment is on the rise and the Big Three automakers struggle to remain afloat, the business of making people well seems relatively insulated. While some discretionary health care sectors are not growing, such as LASIK eye procedures and plastic surgery that patients pay for out of pocket, most health care workers still have jobs and can afford the occasional $4 latte. 

But the health care industry is no oasis. The very problems that brought our country to its financial knees are still at work today in health care. It comes down to the disordered competition that exists in both the mortgage and health care industries.

If you pick up your college econ textbook, you'll read all about Adam Smith and how competition is fundamentally good. When companies compete, it results in a better product for the consumer: McDonald's competes with Burger King to make a better, cheaper hamburger. Problem is, in both the old, defunct mortgage business and current health care industry, the "invisible hand" fails to produce low-cost, high-quality, sustainable products.

In the mortgage industry, this competition failure produced the banking crisis. During the housing bubble, banks competed with one another to sell risky mortgages that had a high likelihood of default. Now, entire neighborhoods have been left nearly deserted because of waves of foreclosures. In health care, competition similarly fails to produce better community health. Instead of competing with one another for the best outcomes, providers compete for patients with the most profitable diseases. Hospital care for cancer and heart surgery makes more money than hospital care for diabetes, pneumonia, or mental health. While all these services get reimbursed, some bring in more cash than others—in effect, cancer care is like gold while diabetes is like silver.

As a result, form follows finance: Gilded diseases get the best care while the silver diseases are given lesser priority. (Ever notice that hospitals have hardwood floors in some areas, like the cancer units, while general medicine gets linoleum?) Mining gold generally means doing high-volume elective procedures and state-of-the art care—the stuff patients think will make them better in a short period of time. Mining silver involves primary and preventive care, like managing blood pressure. Because it's less lucrative to mine silver, even patients with comprehensive insurance are made to wait for doctors' appointments and often get bumped to E.R.s for regular care. In Redefining Health Care, economists Michael Porter and Elisabeth Teisberg detailed how this gold-mining scheme interferes with creating the best health outcomes because it devalues certain treatments and marginalizes patients with particular diseases. Improperly treated diabetes can be just as lethal as untreated cancer, but while hospitals roll out the red carpet for cancer patients, diabetics get the shaft.. . . .

Neither medical care nor mortgages are fundamentally bad. But there are too few checks in the system to prevent people from getting the equivalent of a crappy burger.

How can health reformers learn from the mortgage industry? One solution is paying for health care outcomes instead of health care services. Under this system, if the doctor makes you better, he gets paid—otherwise, no dough. But reimbursing on outcomes is problematic because it is difficult to know who should have gotten better but didn't, and who would have gotten better even without treatment. Doctors who take harder cases would look like they were bad at their job and maybe get paid less, possibly creating incentives for refusing harder cases.

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