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Market Forces: The Iceberg to Medicine's Titanic

Market Forces: The Iceberg to Medicine's Titanic

It is now obvious to most knowledgeable observers that managed care will transform the American health care system. Managed care brought competitive market forces into medicine, and demonstrated that the right financial initiatives can reverse a century of rising professional standards and make health care just another lean and mean downsizing industry.

Economists, like the Nobelist Kenneth Arrow, had cautioned against this. It was axiomatic to him that information is essential for efficient markets. He warned that ordinary families would never have enough information to make prudent decisions in a free health care market.

Lester Thurow of the Massachusetts Institute of Technology emphasized that free markets also cannot solve ethical problems of equitable distribution. Harvard's medical economist Rashi Fein wryly observed that in health care, "The invisible hand of the market is all thumbs." None of these warnings were heeded.

As it turns out, managed care may pose more risks for ordinary Americans than these economists had anticipated. Managed care is not a free market for doctors and patients. The market is dominated by organized health plans that exercise enormous market power. These health plans are more responsive to their primary clients, corporate America, than to patients who want better care.

Many economists had recognized that the kind of market competition necessary to reduce the spiraling cost of health care would involve organized systems (like HMOs) competing for enrollment. That is what we now have, and even advocates of such market competition have begun to acknowledge that there are problems.

Virtually all Americans are now subjected to the methods of managed care or are enrolled in managed care plans (where they are now counted as covered lives). It is helpful to think of this as private sector regulation imposed by middlemen who require doctors to treat patients in ways that will reduce the cost of health benefits paid by corporate America.

Managed care plans have had enough market power to force doctors and hospitals to accept private regulation and lower their professional standards of care. The most dramatic examples of this are the shortening of hospital stays, the decline in the length and number of doctor visits, and the marked decline in referrals to specialists.

Although this is typically defended as "cutting out the fat," there is by now considerable evidence of adverse consequences for patients. Managed care's middlemen are themselves insulated from liability for these adverse consequences even if the harm to the patient can be traced directly to their restrictions. They are legally immunized by a 1974 federal statute (ERISA) originally intended to protect employee benefits. Market forces and ERISA protection are the two blades of the scissors that are cutting up American health care.

Mental health care is a small but salient piece of this complex tapestry of change. Health insurance policies have traditionally limited the coverage available for mental health care. Consumers, led by the National Alliance for the Mentally Ill, lobbied long and hard for parity-coverage for mental illness equal to physical illness.

This effort in the past few years has resulted in the passage of federal and state laws requiring parity in mental health benefits, but the inroads of managed care have made it a meaningless paper victory. Managed care had already been working behind the scenes to ration the psychiatric treatment patients receive no matter what benefits they have been promised on paper.

The impact of managed care on psychiatric services, in fact, provided many early examples of what was in store for the rest of health care. Managed care was particularly ruthless in restricting psychiatric hospitalizations and long-term psychotherapy. Even with parity, the mentally ill will end up receiving less care than ever before.

The general public has slowly begun to realize that managed care may not be about better or more comprehensive health care, as the advertisements on television have claimed. The pinch of managed care is not felt until someone in the family is really sick and people suddenly confront restrictions and limitations they did not expect.

Titanic and the Iceberg

As more and more families have begun to feel that pinch, so has the medical profession. Hospitals are closing all over America. Many in the medical community are demoralized, particularly psychiatrists who have been replaced by social workers in many managed care plans. Unfortunately, the public debate about managed care for the past two decades has been a confusing melange of opinions in which lobbyists, lawmakers, ethicists, physicians and economists argue about different paradigms.

Physicians can certainly debate within the paradigm of science which treatments and systems of treatment are more efficacious based on outcome studies. Bioethicists can debate in their paradigm about distributive equity and professional ethics. But market forces constitute the iceberg that makes all of these arguments irrelevant.

Inside the "Titanic," experts can debate about economic class stratification, the qualifications of captain and crew, the high technology advances in its naval architecture and so forth, but the critical issue for the Titanic was the iceberg, and for American medicine it is market forces.

Managed care may be bigger and move faster than previous health care systems, but when it hits the iceberg of market forces it will sink and there will not be enough life boats for all the patients. Doctors who advocate managed care have underestimated the power of the market and they have overestimated their own professional autonomy.

Your managed health care plan (MHCP) is a business, and doctors are its de facto employees. Business success is measured by the difference between how much money MHCPs collect in premiums (how many covered lives) and how much their doctors spend on care. For-profit MHCPs are the fastest growing sector of the market, and it is estimated that the most profitable MHCPs take in as much as 30 cents out of every premium dollar they collect for management, marketing and profit.

This business-oriented approach to health care now dominates an increasingly lean-and-mean system of competing MCHPs. And, as we shall see, the not-for-profit MHCPs have been forced into that competition. The near future looks like a race to the bottom in which for-profit and not-for-profit MHCPs will employ even more drastic cost-cutting methods while their television ads misleadingly promise patients more comprehensive and personalized care.

The key to managed care is control of doctors. Doctors make the decisions that allocate most of a health plan's money. Under managed care, however, they no longer have the freedom to use their own professional judgment, and are subject to private regulation. Every decision that a doctor makes is computerized, micromanaged and manipulated by the MHCP. For example, a psychiatrist now typically needs the MHCP's permission to hospitalize a depressed and suicidal patient. The plan, not the psychiatrist, controls the patient's length of stay. It may even limit the choice of antidepressant medication, all with the intention of reducing costs. MHCPs routinely limit the number of psychotherapy sessions and divert patients from more qualified to less qualified mental health professionals.

Using the least costly provider is standard practice in MHCPs. In the treatment of physical ailments, nurses replace general practitioners, who in turn replace specialists. In mental health care, whenever possible, technicians replace psychiatric nurses, who replace social workers, who replace psychologists, who replace psychiatrists. Market forces have driven the most prestigious not-for-profit MHCPs to utilize the least expensive providers. All this private regulation goes on without patients being informed or giving their consent.

Many MHCPs now dictate the kind of psychotherapy the patient can have as well as who the therapist will be. Typically the MHCP claims to be concerned about clinical efficacy, but the obvious trend in psychiatry is toward the least expensive alternative. Computerized records allow the MHCP to identify as "outliers" the mental health professionals who adhere to higher and more expensive standards.

Most physicians participating in an MHCP are "employees at will." The MHCP has the legal right to eliminate any or all of them from their list of qualified providers without "showing cause" or explaining its reasons. Doctors who do not follow the dictates of the MHCP are in fact eliminated and their patients sent elsewhere.

The power the MHCP has over medical professionals has made doctors seriously consider unionization. The medical profession has also lobbied for legislation that would change the legal status of physicians as employees at will. But MHCPs have developed computerized profiles allowing them to select only those doctors who have adapted to their lean-and-mean standards of care. And the evidence suggests that when physicians control their own MHCPs, they are at least as sensitive to market pressures as are non-M.D. entrepreneurs.

All of these top-down constraints on the treating physicians are intended to protect the health plan's bottom line. Many MHCPs use ingenious economic incentives to induce doctors to lower costs. A percentage of fees and salary is withheld and then given as a year-end bonus depending on the doctor's bottom line. These practices are widely accepted, and the only debate concerns such a large a percentage of money creating an unacceptable conflict of interest. 3 Many MHCPs simply shift their own economic incentives directly onto the doctor-patient relationship. Doctors' incomes in those MHCPs are based on capitation, i.e., covered lives. The more covered lives doctors take responsibility for, the greater their income. Doctors, just like MHCPs, can maximize their economic advantage under capitation by delegating care to nurses, spending less time with their patients and covering more lives. The inevitable result is less consideration for patients and more doctors with their eyes on the bottom line. Managed care is bringing welfare medicine to the middle class.

Perhaps the most unfortunate aspect of this economic pressure on the doctor-patient relationship is that doctors will no longer have the time to get to know their patients or establish a real caring relationship of trust with them. Primary care physicians are told that to be more "productive," they must spend no more than 10 to 15 minutes with patients. Nurses or technicians take the patient's history to speed the process, and patients are directed to nurse practitioners when they have questions and for routine care.

By controlling their doctors in these ways, MHCPs can cut costs and even be very profitable in the short term. Entrepreneurs recognizing this opportunity have jumped into the MHCP market, competing with the idealistic physicians who had started not-for-profit plans like the Harvard Community Health Plan.

The for-profit sector of MHCPs expanded quickly through mergers and acquisitions and invested heavily in Madison Avenue marketing to increase enrollment, while pushing for still greater reductions in cost and lower prices for corporate America. Every health care plan in America, including not-for-profits, has felt compelled to follow this example as they are caught up in the competition for enrollees or (in the new jargon) covered lives.

The methods of managed care are now everywhere in American medicine. Use of the least expensive provider and lower standards of care were a necessary part of market competition imposed on medical professionals who, as individuals, had no market power. When independent physicians tried to organize and resist these competitive pressures as a group, they were accused of violating the antitrust laws.

As previously noted, MHCPs are particularly restrictive of the patients' length of stay in psychiatric hospitals. General hospitals with surplus beds are best situated to provide the short-term hospitalization emphasizing psychopharmacological treatment that the MHCPs increasingly demand. Indeed, managed care has created a new specialist, the "hospitalist," whose only contact with patients is during the few days of hospitalization.

This kind of specialization is heralded as an example of efficiency, but it has a hidden cost for patients. There is no longer even the expectation that there will be continuity of care. Psychiatric hospitals geared to long-term care are now on the endangered species list, and the infrastructure of long-term care has been dismantled. This means that the next generation of psychiatrists increasingly will be trained in outpatient clinics and general hospitals under the restrictions imposed by managed care, and inevitably they will accept those restrictions as the prevailing professional standard.


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