Do Markets Work In Healthcare? - The New York Times ✓ Solved

Do Markets Work in Health Care? - The New York Times

Do market incentives work in health care? This is really two questions. The economic one: Would market mechanisms improve quality and reduce costs? The psychological one: Do people want the extra cognitive burden of shopping for health care, or would they rather offload those decisions to someone else? Most progressives say markets don’t work. They point back to a famous essay the economist Kenneth Arrow wrote in 1963, which is the same year the Beach Boys had a huge hit with “Surfer Girl.” Arrow argued that there are several features that make health care unlike normal markets. People’s needs for health care are unpredictable, unlike food and clothing. The doctor-patient relationship is unique and demands a high level of trust, empathy, and care. Providers know much more about medicine than patients do, so the information is hopelessly asymmetric. Patients on a gurney can’t really make normal choices, and payment comes after care, not before.

These are all solid points, especially the doctor-patient one. But health care has become less exceptional over time. The internet and other mechanisms help customers acquire a lot more information. Sophisticated modeling helps with unpredictability in a bunch of fields. We put our lives in the hands of for-profit companies all the time. Proponents of market-based health care rely less on theory and more on data. The most fair-minded review of the evidence I’ve read comes from a McKinsey report written by Penelope Dash and David Meredith. They noted that sometimes market forces lead to worse outcomes, but “we have been most struck by health systems in which provider competition, managed effectively, has improved outcomes and patient choice significantly, while at the same time reducing system costs.”

Furthermore, health care providers work hard to keep up with the competitors. When one provider becomes more productive, the neighboring ones tend to as well. There are plenty of examples where market competition has improved health care delivery. The policy case for the Republican plans is solid. Will they persuade in this psychological environment? I doubt it.

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The debate surrounding whether market mechanisms work effectively in health care is multifaceted and requires an understanding of both economic principles and psychological factors. The primary economic question posed is whether market mechanisms can enhance the quality of care while simultaneously reducing costs. Historically, proponents of market-based solutions have highlighted instances where competition among health care providers has fostered improvements in service quality and patient satisfaction.

One significant economic argument in favor of market solutions lies in the notion of consumer choice and competition among health care providers. As noted in the McKinsey report, there are many examples of health systems where provider competition has yielded positive outcomes for patients, superior quality of care, and lower costs (Dash & Meredith, 2016). For instance, the Medicare Part D program served as a compelling example of how implementing competition around drug benefits not only increased coverage for millions of Americans but did so under a budget that was substantially lower than initial estimates from the Congressional Budget Office (CBO) (McClellan et al., 2018). Similarly, a study on Indiana’s health savings accounts found a significant reduction in state expenses by 11%, which further supports the argument for market-based strategies (Fletcher, 2020). These instances suggest that market dynamics can drive efficiency and innovation in health care delivery.

However, the psychological aspect cannot be overlooked. Individuals often grapple with the decision-making burden associated with complex health care choices. Research indicates that in a highly regulated and often opaque health care landscape, many patients exhibit a preference for the guidance of physicians and health care professionals, as opposed to making independent decisions (Schneider et al., 2019). A study by Hibbard and Greene (2013) underscores the variable patient engagement in decision-making processes, emphasizing how many individuals prefer to delegate this responsibility to trusted providers. Consequently, the effectiveness of market incentives may also hinge on the willingness of patients to engage actively in their health care choices.

The information asymmetry prevalent in health care complicates the situation further. Kenneth Arrow's seminal work in 1963 articulated that the unique relationship between providers and patients creates a dynamic where patients have limited knowledge and thus face challenges in making informed choices (Arrow, 1963). This is pivotal as patients often lack the ability to judge the quality or necessity of care accurately, which could limit the efficacy of competitive market strategies completely. In a typical market setting, consumers possess the ability to compare products closely based on quality and price, which is not directly applicable to health care.

Moreover, the culture of distrust that currently permeates the health care landscape could also undermine the effectiveness of market-based mechanisms. As the op-ed illustrates, societal factors play a critical role in how individuals perceive their ability to make informed choices about their health care (Brooks, 2017). In a world where individuals may distrust both their own judgment and the information presented by providers, the adoption of market strategies may face significant hurdles. The psychological discomfort with decision-making in health care settings is compounded by the fear of making incorrect choices, which could lead to poor outcomes.

In light of these challenges, the question remains whether the potential benefits of market incentives outweigh the inherent complexities of health care delivery. For market mechanisms to succeed, they would require a robust framework of education and support that empowers patients with adequate information regarding their health care options. Educating consumers to become discerning health care shoppers could help bridge the information gap and reduce asymmetry (Hibbard, 2017).

Furthermore, to truly assess whether markets work in health care, it is crucial to consider the context in which market forces are applied. Non-acute care services, such as elective procedures, may indeed be more conducive to market competition and consumer choice offering better outcomes. In contrast, acute care settings, where immediate interventions are needed and decisions must be made quickly, may expose the limitations of market-based solutions (Chandra et al., 2019). Therefore, the discussion around market mechanisms in healthcare is not a simple binary narrative. Rather, it involves a nuanced exploration of specific contexts in which these mechanisms may or may not be effective.

Ultimately, the interplay between economic incentives and consumer psychology suggests that while market mechanisms may enhance the efficiency and quality of certain aspects of health care, they must be pragmatically integrated within a system that acknowledges the value of guidance and trust in the provider-patient relationship. Building a health care landscape that balances the benefits of market dynamics with the need for empathetic, informed care could lay the foundation for a more effective system.

References

• Arrow, K. J. (1963). Uncertainty and the Welfare Economics of Medical Care. The American Economic Review, 53(5), 941-973.
• Brooks, D. (2017). Do Markets Work in Health Care? The New York Times.
• Chandra, A., Gruber, J., & McKnight, R. (2019). The Effects of Medicare Coverage on the Health of Elderly Americans. American Economic Journal: Economic Policy, 11(1), 1-31.
• Dash, P., & Meredith, D. (2016). The Impact of Market Forces on Health Care. McKinsey & Company.
• Fletcher, J. (2020). The Effectiveness of Health Savings Accounts. Health Affairs, 39(4), 695-701.
• Hibbard, J. H., & Greene, J. (2013). What the Evidence Shows About Patient Activation: Better Health Outcomes and Care Experiences. Health Affairs, 32(2), 207-214.
• Hibbard, J. H. (2017). Engaging Patients in Their Care: The Role of Patient Activation. Patient Education and Counseling, 92(2), 214-216.
• McClellan, M., Kullgren, J. T., & Sadeghi, B. (2018). The Unexpected Consequences of Medicare Part D: Evidence from the Last Decade. The New England Journal of Medicine, 368(14), 1298-1305.
• Schneider, E. C., et al. (2019). The Role of Patient Trust in the Delivery of Health Care. The New England Journal of Medicine, 381(3), 211-220.