by Mitt Romney
My son Josh lived in England for two years, during which time his primary-care physician there became concerned that Josh might have colon cancer. The waiting time for his colonoscopy was six weeks—enough time to make an operable, curable cancer become an inoperable terminal condition. We were fortunate that our relationship with physicians in Massachusetts enabled Josh to go to a private practice, where he received a timely examination and a very welcome clean bill of health. Most of the British are not so fortunate.
According to a Cato Institute analysis, delays for treating colon cancer in the United Kingdom mean that 20 percent of those who are diagnosed with treatable disease become incurable by the time they receive care. Among all types of cancer patients in Britain’s island-length queues, 40 percent are never seen by an oncologist. Approximately 750,000 people are currently waiting to be admitted to British hospitals. In Canada, patients face similar kinds of waiting times for MRI procedures. There are one-quarter as many MRI machines per capita in Canada as in the United States.
In addition to the poor performance of these single-payer systems in other countries, we can look at the less-than-stellar track records of the non-health-care entities already run by government here at home—Amtrak, the U.S. Postal Service (particularly before it received competition from FedEx and UPS), Fannie Mae, Freddie Mac, as well as Medicare and Medicaid themselves. Even the U.S. military is a poor example of efficiency and cost management, though its performance as a sword and shield is unmatched in human history. Wherever a private sector alternative is unavailable, such as with the national defense, police, and the courts, the need to monitor and manage costs is critical because of government’s natural tendency toward inefficiency, low productivity, and excessive cost.
The biggest reason why government isn’t as efficient and productive as the private sector is that businesses have to please their customers or those customers will go elsewhere. Government, on the other hand, has to please politicians who want to please voters, contributors, and lobbyists. Businesses that are unproductive inevitably encounter competition, which can put them out of business. But government that is unproductive is often heralded for creating jobs, and without competition, government never goes out of business. Business rewards innovation and risk. Government rewards the status quo and the avoidance of risk.
When General Motors collapsed, we saw all too clearly what happens when government runs something. Massachusetts Congressman Barney Frank, chairman of the House Financial Services Committee, called on the company to change its plans to close a distribution facility in his home district—and GM relented. It’s not that Congressman Frank wasn’t doing his job; in fact, he was doing exactly what the voters expect him to do. But that’s precisely why government, which must respond to voters, is a poor manager of businesses, which must respond to consumers and the marketplace.
Of course, a number of economists and health-care analysts see the data on U.S. health care in a different light and conclude that a government-managed single-payer health-care system is the solution to the crisis. But there is another argument that I believe is irrefutable: putting government in control of nearly one-fifth of the economy would necessarily create a government that is far larger and much more powerful than it is already. Such a massively larger government would strike at the very premise of the American experiment. It would demand that we accept the belief that free people, pursuing happiness as they see fit, are less able to build and guide the national economy than politicians and bureaucrats.
Free-Market Health Care
Cost containment measures haven’t worked to rein in our skyrocketing health-care spending, and a single-payer system would do no better. There is, however, another alternative: rather than trying to make health care less and less like a consumer-driven market, do the opposite. Apply the principles of a market guided by consumer choice. In such a market, consumers purchase a product when they decide that they need or want it. They care how much it will cost because they are paying for it. In fact, they trade off the cost and the value of the product, making the choice that best meets their needs. This is the system that governs the American marketplace, and governs it very well.
In purchasing health care, however, the choice of the insurance plan is to a significant extent made by the employer, not the consumer. The consumer doesn’t really care how much a medical treatment costs because, for the most part, he or she won’t be paying for it. And the product—in this case, the treatment—is largely chosen by the doctor who provides it. It’s a bit like a hypothetical broadband market in which someone other than you chooses your provider. Let’s say the provider they choose is AT&T; a third party pays your AT&T bill . . . and AT&T gets to decide which of its services you need. Obviously, because AT&T makes more money if it gives you more services, you can expect your broadband service will be chock-full of features. Clearly, under this kind of market, AT&T and the broadband industry itself would grow uncontrollably.
Unfortunately, this AT&T hypothetical is more like the health-care industry than some would like to admit. Employers select your health-insurance options for you, motivated by factors that are important to them, but not necessarily to you. Not surprisingly, then, individuals are often dissatisfied with their health-insurance plans. These people may resent the coverage limits, practitioners, and procedures of a plan they didn’t select. And if they change jobs, they are likely to be forced to change health plans, often meaning new doctors, new coverages, and new complaints.
Consumers don’t pay for the medical treatment they receive. Once copays and deductibles have been met, any further care or treatment is free to the consumer. An orthopedist explained to me that he had a patient schedule a knee replacement as soon as he found out he had appendicitis: the appendicitis meant that the patient would exceed his deductible, so anything after that would cost him nothing.
I once asked a friend whether he had compared the cost of cardiac-bypass surgery at different hospitals in the Boston area before choosing where to have his operation. Why would I? he responded. It costs me the same [deductible] wherever I go. I knew of two hospitals in the region with virtually identical cardiac-surgery success rates, but the cost at one was almost twice that of the other. Yet my friend, like patients across the country, doesn’t care because the cost to him is the same.
Consider as well the doctors and hospitals. The more services they provide the patient, the more they are paid—just like AT&T in my hypothetical example. This is true whether they are paid by private insurance, Medicare, or Medicaid. Money doesn’t enter into the thinking of most doctors when they consider what tests, procedures, and treatments to give a patient. But some providers’ decisions are very much influenced by money. In a recent New Yorker article, Dr. Atul Gawande wrote of his visit to McAllen, Texas, one of the most expensive health-care markets in the country, where he found that the medical community came to treat patients the way subprime-mortgage lenders treated home buyers: as profit centers.
Fifteen years ago in McAllen, Dr. Gawande explained, a one-time chest-pain incident for a woman with no family history of heart disease would have meant an EKG and, if normal, instructions to return home and report any further pain. But today, a McAllen cardiologist and an internist admitted to Gawande that the same woman would also receive a stress test, an echocardiogram, a mobile Holter monitor, and a cardiac catheterization.
The primary cause of McAllen’s extreme costs was, very simply, the across-the-board overuse of medicine, he wrote. Not only are doctors paid more for doing more, they’ve also found ways to make more money by owning blood-analysis equipment, surgery centers, imaging centers, gastrointestinal labs and sophisticated diagnostic centers. Some even earn rewards for referring patients to a particular hospital or home-care provider. As one doctor told Dr. Gawande, It’s a machine.
The Incentives of a Consumer Market
America’s health care is expensive because the incentives are all wrong—for the patient, the doctor, the hos
pital, and the insurer. Health care can’t function like a market if it doesn’t have incentives like a market. Fixing health care begins with fixing incentives.
For consumers, copays and deductibles do indeed discourage unnecessary visits and treatments, but once a threshold is crossed, the motivational effect vanishes—the patient’s cost is the same for a 20,000 hip replacement as for a 50,000 hip replacement. In an attempt to align incentives, France and Switzerland have instituted co-insurance systems in which individuals pay a portion of their entire bill. The French, for example, pay 20 percent of each hospital bill, 30 percent of their physician’s charges, and 35 percent of their prescription charges. The system places upper limits on the amount an individual must pay, of course, and a number of conditions and nonelective surgeries are exempt. But the incentive features of co-insurance remain, giving the patient a vital financial interest in how much physicians and hospitals charge for his care. If two hospitals offer care of comparable quality, the patient-consumer will almost always choose the less expensive one because he or she pays a share of the entire bill. Because he or she is a paying partner with the health insurer, the patient is also resistant to unnecessary tests, diagnostics, and procedures.
There are a number of potential problems with co-insurance, of course—you certainly don’t want to discourage someone from getting an important diagnostic test, for example. But high deductibles create the same or a greater problem. And if an upper limit is placed on the amount of co-insurance and certain tests, procedures, and health conditions are exempted, much of the downside can be eliminated. France and Switzerland are not models for our own health system, but their co-insurance provisions have much to commend them.
Some Americans pay for all their health-care costs with health savings accounts (HSAs), except for the extraordinary costs of catastrophic care. Like co-insurance, health savings accounts discourage overuse of medical treatment and promote the patient’s selection of low-cost, high-quality providers. This in turn leads physicians and providers to compete on the basis of both cost and quality. If HSAs and co-insurance made up a large share of the market in the United States, the consumer incentives would go a long way toward aligning patient interest with the national interest. HSAs would get health care working like a market.
In addition to aligning consumer incentives, we will fix our health-care cost problem only if we also fix the incentives for doctors, hospitals, and other providers. As long as the people who provide medical care make more money when we are given more treatments and use more facilities, the growth of health-care costs will continue to outstrip the rest of the economy.
Excessive medical treatment is not only expensive, it is unhealthy. Almost every prescription drug has counterindications and side effects. Unnecessary surgeries, catheterizations, and invasive procedures also come with their own risks. According to a 2007 study by the Association for Professionals in Infection Control and Epidemiology, at least 5 percent of those admitted to U.S. hospitals annually—about 30,000 people—become infected with hospital-borne superbacteria. Any patients who were there unnecessarily not only incurred unnecessary costs but also were exposed to completely avoidable infections, including fatal infections.
Health maintenance organizations (HMOs) were originally designed to hold down medical costs by, among other things, requiring that tests, treatments, and procedures be preauthorized. But this new layer of controls did not alter the fact that doctor and patient incentives remained the same as they had always been. Understandably, every denial by HMO accountants was met with frustration, even anger, by the patient and by the doctor. HMOs correctly identified the overuse of medical treatment as a major problem, but they incorrectly thought they could fix the problem from the top down—just as big-government proponents think they can do today. Experience proves again and again that incentives are more effective than controls.
The best incentive for doctors and providers is to pay them for the quality of their work rather than the quantity of their work. Imagine, for example, a system in which doctors and hospitals are paid a single all-inclusive amount for treating a patient who requires bypass surgery, one in which they receive a single amount for everything from tests and preoperative procedures to surgery and postoperative care. Imagine, as well, a group practice receiving a single all-inclusive payment for each patient’s primary care—from physicals and prescriptions to flu treatment and suturing a cut. Imagine a system in which an entity is paid a fixed amount to meet the health needs of an individual rather than being paid a fee for every activity that’s carried out to meet those needs. It may be possible for us to create a system in which we pay doctors and hospitals for what they do for a patient rather than what they do to a patient. Rather than promoting a single-payer system, we should design and test a single-fee system.
Instituting the right incentives for both individuals and providers will have a dramatic effect on the quality and cost of health care in this country. The health-care entities that have instituted these kinds of incentives are now offering higher quality medical care at much lower costs. Intermountain Healthcare, a health insurer and provider in Utah and Idaho, has achieved per-patient health-care costs that are one-third less than the national average, a level that compares favorably with the best of the OECD nations. An analysis by Dartmouth Medical School professor Dr. John Wennberg of the cost of treating patients in the last two years of their lives found that if every health provider practiced medicine like Intermountain Healthcare, their costs would drop by 43 percent, on average.
The Mayo Clinic in Minnesota and Arizona has also lowered its overall costs to a level well below the national average. In several states around the country, Kaiser Permanente achieves cost and quality performance by aligning incentives through a staff model—its doctors are employees of the system. Others, like Intermountain, have succeeded in aligning incentives with independent physicians. These providers and a number of others across the country have implemented incentives that reward quality patient care, not the quantity of treatments provided.
Once incentives have been aligned, other health-care management tools will come into their own. Electronic medical records are an important innovation, not only allowing doctors and care facilities to transfer records smoothly, but also providing evidence of best practices that can lower costs and improve care. Instituting electronic medical records alone will not have a dramatic effect on cost, but if we combine these with aligned incentives, we should expect to see much greater savings.
Technology will also have an impact on the quality of care. Dr. Mongan of Partners HealthCare quoted one of his physicians as saying that while she can’t stand electronic medical records, she couldn’t live without them. Another health-care-system CEO admitted to me that his coronary surgeons have long been aware that one of the greatest reasons that heart-surgery patients have to be readmitted to the hospital is because they were not given three essential exit medications for use at home—a statin, a beta-blocker, and aspirin. Nationwide, he explained, only 50 percent of discharged heart patients leave the hospital with these drugs. But by employing an electronic medical record system’s ability to monitor practices, his coronary physicians successfully implemented a discharge procedure and feedback report that boosted their own system’s exit-prescription compliance from 69 percent to 95 percent, resulting in a sharp reduction in readmissions and over a hundred fewer deaths systemwide.
Data from electronic records and properly aligned incentives led a panel of obstetricians to successfully reform their rules for inducing births. Their previous practice had been to agree to induce birth at the mother’s request as long as the pregnancy had reached thirty-seven weeks or more. But the new data showed that if births were only induced after thirty-nine weeks, the number of babies requiring a ventilator and ICU care was cut by two-thirds. Once this information was provided to doctors and expectant mothers, the proportion of births induced at thirty-seven weeks dropped from 29 percent to 5 percent. As an o
bstetrician described these results to me, he also noted that under the prevailing American reimbursement system, reducing ICU and ventilator care would have meant lower revenue for both the doctor and the hospital. Better incentives and better information mean better medicine as well as lower cost.
Reshaping incentives does not require a complete reconstruction of our health-care-provider system. We will never see genuine reform arrive if it can’t be implemented by the providers and networks that already exist. Fortunately, variations like those I described on the single-fee approach can readily be applied to much of our current health-care system. Realigned incentives will lead to changes in provider networks. Real, effective changes will have to be driven by a desire to provide better quality care at lower cost, not by bureaucratic dictates from government authorities. That, after all, is how consumer-driven markets work: competitors who innovate in quality and cost attract customers and grow. And as the best and most efficient competitors grow, the industry and the economy become more productive.
The suggestions I have made here for aligning incentives will undoubtedly give way to new ideas that are developed as states promote more market-oriented, consumer-driven health care. Some are already working—like HSAs. These should be heavily promoted. Others should be the subject of experiment. But this much is clear: it is possible and necessary to align incentives, and once we do, we can expect the power of the marketplace to tame runaway costs and to foster ever-improving quality of care.
Americans Living Better Lives
No serious participant in the health-care debates denies this obvious truth: America’s health-care costs would also be far lower if all of us lived healthier lifestyles. According to Dr. Majid Ezzati at the Harvard School of Public Health, the twelve leading behavioral risk factors account for over a million deaths in the country every year—about 40 percent of all deaths.