In this piece he builds a compelling case that the present in place in the US for the payment of health care services is fragmented and the source of huge administrative costs. The preamble to the essay states:
It is proper to preamble an essay of this sort with the observation that anyone who has received health care for a serious illness is likely to agree that, with few exceptions, health care sectors in the USA and elsewhere tend to be staffed with millions of smart and highly trained professionals who sincerely seek to improve the quality of their patients’ lives. Their admirable clinical efforts, however, are embedded in a ceaseless struggle over money. That struggle is the focus of this essay.
His naivete is not unique. We are taught from early in our career that somehow health care is different and the usual struggles over money can and should be overcome through the efforts of professionalism. Like Plato's philosopher kings, physicians should function outside the world of personal (financial) gain. I think this human history shows this expectation to be unrealistic and tragically unworkable.
A number of unintended consequences have flowed from this flawed assessment of human nature and the increasingly insurance-based economic landscape which has underpinned the US health care economy since the mid 1960's. Health care has grown increasingly complex, driven not only by technological innovation but also the extraordinary infusion of money. Much of that infusion has gone to waste.
I am presently listening to Dr. David Hazen's lectures on the Origins of Life through the Teaching Company. It is yet one of many outstanding courses offered by them (no financial interests in the company!). He spends much time discussing prerequisites for and the development of complex systems which led up the formation of life. One key element is the requirement for energy to support complex systems. In the same vein, energy is also required for the support of complex systems in health care and the energy supplied is done so through the injection of money. Money is required to support complex systems in health care.
In health care, the increased funds directed to health care have served to underwrite and encourage increased complexity in everything we do and it is not clear that the increased complexity has provided real value to patients. However, when the medical culture espouses that health care is different and that health care resources should not be allocated by the same market mechanisms which have been observed to be superior to all other allocation schemes, we end up wasting resources (money) on schemes which subsidize wasteful complexity.
This is no where more evident than in the insurance based payment system. The beauty of market based systems is that they are simple. They involve buyers and sellers engaged in voluntary exchange. Ideally exchanges happen simultaneously or near simultaneously. One party receiving money or goods well before the other leads to all sorts of problems. Add another party and things get much more complex. There are certain times where a third party intermediary is needed such as when goods or services are exchanged across borders. This always adds costs although it may facilitate exchange.
The observation that we suffer from a proliferation of insurers unquestionably drives costs and complexity. Rheinhardt raises the consideration of a single payer solution to save administrative costs. To his credit he recognizes that single payers still have issues with controlling costs because they cannot control volume. Furthermore, they function in a three party system which I believe injects additional complexity (as well as insulating recipients from costs) and complexity costs money. Market based solutions were criticized based upon the observation:
The Congressional Budget Office has estimated that under this plan, the typical 65-year-old Medicare beneficiary with average health spending would pay out of pocket for premiums, coinsurance, and deductibles a share equal to 68% of total annual health spending on that beneficiary (Congressional Budget Office, 2011).All those estimates were based upon inflated costs driven by the present system which subsidizes complexity and insulates beneficiaries from costs. Involving patients directly requiring them to wisely spend defined contributions will almost certainly drive down costs and decrease payment complexity. There will be less incentives to build huge billing and collection systems and there will be more transparency in terms of charges and costs. I also suspect such a payment system would provide huge incentives to roll out lower cost products and services which would appeal to prudent consumers who are again aware that they control limited resources, only some of which they want to spend on health care. The health care industry needs to compete directly for consumer dollars which can be deployed by consumers elsewhere.