Selling Expensive Health Care Lemons

In 1970, University of California economist George Akerlof wrote a paper titled “Selling Lemons.” In it he explained that a market characterized by a large asymmetry of information between seller and buyer would also soon become characterized by a decrease in the quality of goods and dominated by crooked sellers and gullible buyers. In 2001 he won the Nobel Prize for his work.

Sad to say, I can think of no market that better fits these criteria than health care. In a March 4 TIME Magazine cover story, “The Bitter Pill: Why Medical Bills Are Killing Us,” reporter Steven Brill dissects a number of hospital bills and traces the detailed charges back to their origins. He concludes, “everyone along the supply chain – from hospital administrators (who enjoy multimillion-dollar salaries) to the salesmen, executives and shareholders of drug and equipment makers — was reaping a bonanza. The only exceptions, I found, were those actually treating the patients — the nurses and doctors.”

When you need medical care there is absolutely no way you can accurately determine ahead of time what that care will cost you. Don’t hope to get anything approaching a rational explanation for what you are charged after the fact, either. The best you can hope for is that whatever insurance you have will cover most of the costs. If not, you are at the mercy of the hospital and, if you can’t pay, its collection agency.

So you can’t know much about the prices of health care. How about the appropriateness or quality of that care? Again, unless you are a doctor you have very few ways to independently judge the safety or benefits of tests, procedures or prescriptions.

And sometimes not even then. Even among well-trained and conscientious doctors, a great deal of uncertainty exists about the risks and benefits of tests and procedures they order and perform.

As the number of doctors who have become employees of profit or nonprofit corporations has increased (now about 80 percent of Maine doctors and rising), they have come under pressure to increase the number of “units of service” they provide — visits, tests, procedures and prescriptions — in order to maximize the revenues and profits of the institutions that employ them.

Lately, the need for many commonly performed procedures has come under question by both government and private health care organizations. The U.S. Preventive Services Task Force recently warned against the routine performance of some, including mammograms for young women, hormone replacement therapy for older women, prostate cancer tests for older men and drug treatment to prevent osteoporosis. Many are now thought to do more harm than good.

Similarly, the American Board of Internal Medicine, one of the medical profession’s most important credentialing bodies, recently launched a program called “Choosing Wisely.” Its purpose is to identify tests and procedures that are overused, and to persuade doctors and patients to use fewer of them. More than 35 medical specialty societies have joined this campaign, each selecting five or more tests or procedures that they believe are significantly overused. Among these are imaging procedures, such a CT scans and MRI, the use of which has exploded in frequency and cost in recent years. It is almost impossible for patients to accurately assess the need for and quality of care.

I still believe that most health care workers want to do the right thing by our patients. But our corporatized and business-oriented health care system is making it increasingly difficult.

Businesses try to optimize prices and sales in order to maximize revenues. When “consumers” (patients) have little or no information about what they’re buying, Akerlof’s prediction that maximization of profits rather than value will dominate decision-making comes true. In other words, the asymmetry of information between patients (who possess little) and health care providers and administrators (who possess a lot) makes anything like a rational market in health care services impossible.

That hasn’t stopped free market ideologues from peddling their flawed and self-serving ideas to anyone who will listen, including some uninformed and perhaps naive lawmakers. One result is legislation like Maine’s new health insurance reform law, passed two years ago.

In his article, Brill documents that Medicare is much more efficient and does a much better job of controlling costs than private insurance. It seems to me that he makes a compelling case for expanding Medicare to everyone. But, in the end, he backs off of actually recommending it because, as he explained in an interview, he fears the power of a health care industry that generates huge profits and spends four times as much on lobbying as does the defense industry.

I’m not so sure he’s right about that. I believe people power can overcome corporate power, especially in states such as Maine.

The next time you hear somebody saying “let the market work in health care,” the most reasonable response would be to pat them on the head and have a good laugh.

But our profit-driven health care system is bankrupting individuals, putting enormous stress on businesses and state and federal governments and destroying the therapeutic doctor-patient bond of trust. So, I guess it’s no laughing matter.