Why Health Reform is Bound to Fail

Why is Washington having so much trouble reforming health care?

Why, if they do pass a major overhaul, are the problems of cost, quality and access almost certain to get worse?

Answer: Because they don't understand health care. By that I mean, almost no one in Congress understands health care as a complex system. When they campaign, most politicians claim that health care problems could be solved with a few simple reforms. Now that it's time to legislate, they are discovering that health care is very, very complicated. In fact, there is no solution that even comes close to being simple or easy.

As Nobel Laureate Frederick Hayek taught us, a complex system is a structure that is so complicated, that no one person can even begin to grasp it in its entirety. The best each of us can hope for is to master the small part of it we interact with.

The economy, for example, is a complex system. To allow us to think about it — if only imperfectly — economists have developed a highly simplified model over a period of 200 years. In fact, the only reliable model that exists to understand complex social systems is the economic model. Yet we have completely suppressed normal market forces in virtually every aspect of health care. So what we are left with is almost certainly the most complicated market of all and no reliable model with which to understand it.In complex systems, a change in a parameter in one place inevitably causes other — often surprising and unforeseen — changes elsewhere. Perturbations intended to bring about one result inevitably have other unintended consequences as well. In health care the unforeseen surprises are even more palpable because reforms are inevitably designed by people who either deny the existence of economic incentives or in any event routinely ignore them. I suspect that:

  • Most members of Congress were genuinely surprised to learn that if an SCHIP children's health program is offered for free, half the enrollees would drop their private insurance in order to take advantage of it.
  • I suspect Sen. Kennedy's staffers were surprised to learn that a highly subsidized "exchange" outside the workplace would cause millions to drop their employer-provided coverage to take advantage of it.
  • They were probably also surprised that — given the chance — millions would leave Medicaid for highly subsidized private insurance.
  • They were probably devastated to learn that you can spend $1 trillion over 10 years and ultimately reduce the number of uninsured by only 20%!

One thing economists are confident about is this: No matter how complex the system, the incentives faced by the individual actors matter a great deal. For example, if all the actors in a complex system have perverse incentives, the social outcome is likely to be undesirable in many respects.

In health care, almost everyone faces perverse incentives. This includes almost every patient, every doctor, every nurse, every hospital administrator, every employee, every employer, every insurance company, every government agency….. (did I overlook anyone?). By perverse incentives I mean that when people act in their own interests, they usually impose external (social) costs on others. This means that social cost is likely to exceed social benefit for every actor at every margin.

Take total spending on health care. It is the outcome of about 300 million patients and about 800,000 doctors all interacting in complex ways. But it is also the simple, straightforward sum of what I and my doctors spend on my care plus what you and your doctors spend on your care….. etc., etc.,…..summing over 300 million people. No matter what else happens, if I and my doctors don't change what we are doing for me and you and your doctors don't change what is being done for you….. and so forth….. aggregate spending will not change.

If I am a representative patient, every time I spend a dollar only 13 cents will come out of my own pocket. So my economic incentive is to consume care until it is worth only 13 cents on the dollar to me. This is very wasteful. But I'm wasting your money (you being the other members of my insurance pool), not mine.

Under a reform plan of the type proposed by Sen. Kennedy, third-party coverage becomes much more expansive; and we may have to pay only 4¢ or 5¢ out of pocket every time we spend a dollar. Under this arrangement, I will spend more than I currently spend. So will you. Because this is a complex system, it is very hard to predict how all this new spending will affect the system as a whole. But we can be fairly confident total spending will rise — and probably by a lot.

Now consider the problem of access. Under a Kennedy-type plan, millions of uninsured people will obtain insurance and millions of people who are currently insured will get more generous insurance. As a result, these people will use their newfound coverage to try to obtain more care. But where will they get it?

As you look around the health care system, how many idle resources do you see? How many primary care physicians have empty waiting rooms? How many ERs have no patients waiting to be seen? If there are no significant idle resources, then how will the increased demand for care be met?

Clearly, there will be a rationing problem, and those paying below market rates (Medicaid patients, e.g.) will experience more severe problems than others. This is precisely what is happening in Massachusetts right now. As previously reported here, waiting times to see doctors in Boston are more than twice as long as any other US city. Casual observation suggests that access to care has not improved, even though the number of uninsured has been cut in half.

For more than two decades, scholars associated with the National Center for Policy Analysis have sought to reform the health system by improving the incentives faced by the actors in it. We believe this approach is absolutely essential if real problems are to be solved.

Congress is choosing a different course. Under reforms being considered, almost everyone's incentives will become worse, not better. The tragedy is that Congress is almost completely unaware of the harm it is about to unleash. (At least that's the charitable assumption.) The irony is that this same tragedy has been repeated in almost every other developed country in the world.

Comments (39)

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  1. Uwe Reinhardt says:


    When you write “In fact, the only reliable model that exists to understand complex social systems is the economic model,” aren’t yu overestimating the intelligence of economists and underestimating that of everyone else?

    How well did we understand how financial markets work? Even Greenspan, that disciple of Ayn Rand and the free market, had to profess a Mea Culpa before Congress on that one.

    I think the American people understand this about the working of a free market: it allocates resources to those most willing to pay for it. This is fine for gourmet food. But the American people balk at applying this idea whole hog to healht care. A free market in health care would let millions of people croak on perfectly curable illness, because it would ration healht care reosurces by price and ability to pay. You may be ok with that, but the majority of your fellow citizens are not.

    Given the ethical predilections of the American people in regard to healht care, the best you can hope for is a hybrid system in which financial incentives and market forces are enlisted at the margin, but the bulk of health spending is paid for by some third party. (Remenber the 80-20 rule of healht spending). it is so even at the NCPA.

    The main difference between government- and private insurance bureaucrats is that the former wear hush puppies and the latter Gucci loafers. Period.

    Furthermore, insurance always distorts the signals that would obtain in a totally free market.

    Get used to it already.

  2. Ron Greiner says:

    Dr. Goodman you forgot to mention that reform could fail because the Kennedy staffers are a bunch of clowns.

    Spending $250,000 to insure 1 family of 4 has got to be the work of clowns.

  3. Frank Raines says:

    John’s faith in economimc analysis may be overdone but it is not a moral failing. Like many health care analysts and advocates Reinhardt attaches a moral superiority to health care that he does not apply to other life sustaining services and products that are allocated through the market system. Is health care really more important than food or housing? When we want to help people obtain basic nutrition we do not set up a government run farm or supermarket. We provide subsidies based on income that allow people to go into the marketplace to meet their basic needs. In health care we are more likely to try to hide the subsidy by shifting the cost to someone else. Health care reform can be done more responsibly and at lower costs if we explicitly recognize that some people are higher risk and therefore higher cost and explicitly subsidize their coverage. That will spur a market to better serve these people rather than to adversely select to avoid them. Pretending that shifting costs actually reduces costs will only lead to continuing surprises on the costs of health care reform.

  4. Bart says:

    Watching the Senate try to design a health care package has been like watching the kid you hired to trim the hedges instead attempt to turn the yard into a topiary zoo.

    Congress seems to have a backward approach to dealing with complexity. Rather than partitioning the problem as much as possible, and then changing a few parameters at a time before stopping to observe the effects of those changes, they instead charge ahead in the arrogant belief that any unintended consequences can always be remedied with more and more legislation.

  5. R Allan Jensen says:

    Mr Reinhardt, like so many other advocates for central planning will miss. People will chose what is in their interests as they perceive. They even do that in socialist or communist countries! No matter how hard you try, you cannot make everyone “want” the same thing! In fact I would argue that trying to make this happen is truly anti-American.

    Aside from the fact, that the current leadership of the Democratic party wants more government programs to create more dependent voters, Goodman is correct in pointing out this system will fail: there will not be enough money to allow people to have real choice; there will not be enough doctors when reimbursements are controlled to allow universal access; there will not be enough systems and technology to give all patients care when they need it, and so forth.

    Governments over the years have continued to burden consumers, through their coverage plans, mandates for coverage that few consumers ever use. Net result:: higher costs as providers adapt to a system that will give them a higher return for their efforts. More mandates, a less and less efficient system.

    These alternatives have been studied extensively, but the current pols want no part of examining these very reasonable alternatives. Ergo, what is being examined, will fail as measured by need, quality, access, and financial soundness.

  6. Brian says:

    The health-care idustry is indeed a very complex animal but for one reason, The beauracratic interferance by insurance companies and excessive pricing in pharma companies.

    Cosistantly the way to streamline anything, is to get rid of the middle-man.

    Republicans in congress are desperatly trying to minimize the problem by inflating proposed costs and reducing the actual number of the un-insured.

    Democrtats are all over the map and while some are plunging ahead like a bull in a china shop, others are being swayed by pure political motives and with no desire to do the job for the job’s sake.

    Nothing will get done and I am extremely afraid that this will become another victory for big buisness and lobbying and a defeat for the American Citizen.
    Republicans will suceed in scaring people silly and they will get their way. Nothing will change and care will get both more expensive (especially with the republican drive towards deregulation), and more out of reach for an increasing amount of people. Talk of rationing, without admitting that rationing already happens at the hands of insurance groups, talk about lack of choice, without mentioning that your doctor choices are limited by the insurance companies, Wait times are already a fact of life and you can check out your nearest ER to have that proof. This is highly unfair to the american public. It is also insulting to our intelligence and our ability to determine our own choices.

    But again, the writing is on the wall, nothing will change and your insurance company strengthens their hold over your life.
    The proof is history–
    Tax Credits?– already a fact and it hasn’t reduced cost nor reduced the number of un-insured.
    De-regulation?– Been there and done that. De-regulation will allow insurance to raise prices both higher and faster and alsoi without warning nor cause. De-regulation does not control costs in anyway but actually gives a boost to spiraling costs.

    Nit-picking at the issue is not the answer. We need a new system, we need to free the patient and the doctor to make their choicesd together without the heavy hand of buisness deciding for you. The insurance industry needs to be over-hauled and heavily restricted in their practises. Price caps and mandates for the insurance feild would solve MUCH of the cost without interferring with quality.

    Present day quality is worth about 5000% less than the current domestic prices.
    Pharma companies are selling a drug overseas for $500 a year while in the US the charge up to $25000 for the same exact drug regimen. They also do not have transportation costs and customs charges to factor in so they really make an outrageous fortune domestically because they can (who is going to stop them? Congress?).
    Insurance companies charge through the nose for coverage while all the time waiting for the opportunity to cancel your policy. Pre-existing condition clauses are supposedly a wonderful break-through that republicans often point ot and applaud themselves for tackling the problem. FORGETTING that regardless, insurance will not pay a penny on your health care for one full year due to pre-existing conditions (which in insurance talk means ANY ILLNESS AT ALL). That is completely legal. It is also legal that in this waiting period, you pay 4 times the highest premium rate and missing one payment is reason for cancellation. So in essence you are making insurance MORE expensive!

    Congress hasn’t got aclue and unfortunatly they don’t care because they have nothing to worry about. They have health care paid by the tax-payer. In this battle, they don’t have any vested interest in the outcome. They risk nothing either way. Time for them to start working for their bosses and do the hard things needed to actually effect real change!

  7. Ftimmins says:

    Based upon the wisps of the current political winds, it would seem that Mr. Reinhardt should himself “get used to” the fact that this unprecidented attempt to socialize the American healthcare system is about to go the way of the Tyrannosaurus Rex. As the public begins to understand a little more of the economic realities of healthcare, it is becoming clear that members of the congress who are not politically suicidal are having very serious doubts about the feasibility of this monstrous experiment.

    After all, it a very serious departure to socialize almost one fifth of the American economy. People are beginning to ask….why? They are finding that half the alleged 50 million uninsured are actually just between jobs or have chosen to not have insurance. There just aren’t that many who don’t have access or cannot afford health insurance. When that happens they still have access to healthcare through Medicaid and local hospitals. Cost? It seems that the public is learning that any advertised decrease in personal cost will be in trade for increased taxes and/or rationed healthcare.

    So Mr. Reinhardt, it seems that the question of why all this is necessary will be the topic of discussion in the immediate future. The issue of the “uninsured” is a flimsy straw man that will be easily turned, and people are going to be very curious as to exactly how bureaucrats can “decrease” their healthcare cost. And, it seems to me that if this effort to nationalize healthcare fails in this unprecedented political environment of leftist control, you can pull the sheet over the concept for the future.

  8. medinnovationblog.blogspot.com says:

    Uwe Reinhardt, born in Germany and raised in Canada and conditioned at Princeton, an Ivy Ivory Tower, believes nationalized care is a moral imperative. John Goodman, a fellow economist but a conservative one, with at Texas mindset, says individualism works better than collectism. And never the Twain shall meet.

    Only one thing I am sure of is this: a single payer system in the U.S. superimposed on the current structure will never control costs. It is a formula for national bankruptcy. It can ration but it cannot control costs. Even it tried to do so, resourceful citizens will find a way to get the health care they want and need. That is the theme of my new book “Obama, Doctors, and Health Reform,” out later this month.

    Richard L. Reece, MD

  9. Harold Urschel says:

    Why do I think it is so simple, and can be fixed in one weekend?

    Get rid of all insurance. (then you will have no uninsured) (BC started in my hospital in 1929) (Most insurance companies are crooks- they pay the little stuff and deny the big stuff- have the tallest building in every major city, and are characterized by their largest company, AIG , rotten from the bottom to the top just like GM).

    Restore only catastrophic.

    For those that can’t pay, take care of them like we do for the poor (like Access or the way we do now).

    Make it like food which is even more critical to the civilization than medical care. I don’t need the whole week-end.

  10. Larry says:

    What is perilously obvious here, is that the politicians are going to declare ‘victory’ by improving access. They will not have covered everyone, they will not have reduced costs in the short term (never mind in a sustainable way) and they will not be around when the bill for all of this largess has to be paid. They are following the auto industry example they so scorn. Make benefit promises and agree to obligations that will only be paid in the future. Check out http://www.ilovebenefits.wordpress.com and follow more of this debate there.

  11. Greg Scandlen says:

    I think the problem is thinking of health care as “a system” at all. It is not, and there is no reason to think it should be. Anymore than transportation is “a system.”

    Indeed, I expect if we tried to do a flow chart of “the transportation system,” it would be far more complex that “the health care system.” It would have to include ships and cars and trains and planes and trucks and bicycles and trolleys, maybe even walking. It would have to include oil wells in Kenya, and rubber plantations in Indonesia, and insurance agents in Culver City, and Manny’s repair shop in Omaha.

    I won’t belabor the point. The question is why should any politician (or economist) think we can put all that on a plate and serve it for dinner?


  12. Leigh Curry says:

    John thanks for sending your appropriate depiction of the U.S. health care system as a truly complex problem, maybe even, as you allude to, entailing a level of complexity that daunts if not defeats partisan politics. The NCPA’s long history of expertise in health care is being mobilized in these emails to bring to the debate among citizens and legislators a consciousness of the terrible risks –in addition to possible rewards – of hurriedly jiggering our current system.

  13. Stuart Butler says:

    Nice piece. Glad to see you making the Hayek point re complex system and knowledge. Average Americans instinctively get that (without reading a word of Hayek) but most “experts” in Washington don’t.

  14. DoctorSH says:

    Why do physicians let politicians, mostly lawyers decide the fate of the medical profession?

    Mr. Reinhardt- your post reminds me of a favorite nursery rhyme. Please try to figure out who the characters would be in present day?

    Humpty Dumpty sat on a wall, Humpty Dumpty had a great fall. All the King’s horses, And all the King’s men Couldn’t put Humpty together again!

  15. Chris Ewin, MD says:

    Mr. Reinhardt doesn’t seem to understand healthcare on the front lines of primary care as many who have never run a medical practice. If we cut out the middleman, then the free market works fine. The patient decides and when it’s cheaper then cigarettes, it’s affordable…they can pay….

    See my colleague’s interview on Fox Business News:
    (Garrison Bliss, MD past-president, SIMPD)

  16. Chris Ewin, MD says:

    Simple solution:

    Patients need:
    1. High Deductible Health plan (like car insurance)
    2. Health Savings Account (Medical IRA)
    3. Accident Insurance
    4. Primary Care Physician with a direct practice model
    (we take care of 85% of your needs and function like a gas station with unlimited
    gas, tire changes, tune-ups…etc)

    Primary care physicians need:
    1. Change their business model to a direct practice
    2. Pass the Ryan/Coburn bill (Patient Choice Act)

    If passed, it will allow pre-paid physician fees to be included in the definition of “medical care” under the IRS Code of 1986. This will allow Direct Practice fees to be qualified medical expenses on Health Savings Accounts. One fee, once a year for unlimited access to primary care.

    The only way we can resuscitate primary care is to change the business model.

  17. Robert Berry, MD says:

    “We need decentralization because only thus can we insure that the knowledge of the particular circumstances of time and place will be promptly used. But the “man on the spot” cannot decide solely on the basis of his limited but intimate knowledge of the facts of his immediate surroundings. There still remains the problem of communicating to him such further information as he needs to fit his decisions into the whole pattern of changes of the larger economic system.”

    This “further information” happens to be prices and this excerpt comes from Hayek’s famous paper, “The Use of Knowledge in Society” the concepts of which Mr. Goodman so eloquently summarized above in relation to American healthcare today.

    I do not presume, as does Dr. Reinhardt, to have some over-arching, macro-solution to all of the ills of our healthcare system. But I can inform you about real prices in a small enclave of the medical world where doctors and patients still voluntarily exchange things of value (“the only true and just rule for mankind” as Frederich Bastiat once noted). This enclave is the third-party free, direct-pay practices such as mine and Brian Forrest’s in Apex, NC.

    Brian Forrest charges $45 for a 30 minute visit. I charge $40 for an ear infection, $60 for pneumonia, and $95 to repair a simple laceration. These prices, by the way, are located on a sign at the front of my building and once were advertised on a billboard in our town for 3 months. A patient can get a lipid panel here for $20, a complete chemistry panel for $25, and a PSA for $25. By contrast, one of the local hospitals charges $105, $145, and $150 respectively for these tests, but you have to ask them when you get there. They don’t post their prices even though I have asked them to do so by letter on multiple occasions. Such questions seem to be taboo in the medical profession – do hospitals (and doctors) have something to hide?

    At this hospital, a colonoscopy costs about $3000. I have found a gastroenterologist in Johnson City who will do it in his building for $1,000 – and he uses better sedation. I have found a doctor’s office who will do X-rays for $70 including the radiologist’s interpretation (the images are sent by computer to a radiologist in FL). I still haven’t gotten a fixed price on these at the hospital but the hospital fee is about $150 (which they will tell when you are there to purchase it). The radiologist fee runs around $50 but the hospital does not tell that to the patient up front – he receives the radiologist bill later. Is this the kind of moral superiority that Dr. Reinhardt is alluding to?

    MRI’s? My direct pay patients pay $600 at an orthopedic practice in a nearby town (radiologist’s fee included). Hospitals in the town charge $1500 to $2800 (not including the radiologist’s fee).
    This is what happens when voluntary exchange is not distorted by tax favors to employers for health insurance. Prices to consumers fall, and the producers (hospitals and doctors) are kept accountable by these prices.

    Consider also drug prices. Most common illnesses (such as diabetes, hypertension, gastroesophageal reflux disease, etc.) can be treated satisfactorily by $4/month medicines at WalMart. If the patient pays out of pocket, they will have more incentive to try the less expensive generic medicines first over the latest (and perhaps not so great) new brand name.

    Before Americans are suckered into paying bureaucrats to make healthcare decisions that they can and should be making themselves with their own dollars, they should read some Hayek or at least learn about this enclave of voluntary exchange within healthcare today.

    Oh, and if instead Americans decide on single payer national health insurance, I advise that this little enclave of voluntary exchange be preserved so that the government will have some idea of the true prices of medical goods and services.

  18. Laurie L says:

    You can see info on: Solving America’s Health Care Crisis at
    The PDF there will give you a good basic idea of the plan.

    Key aspects of the plan:

    Takes ALL Medicare, Medicaid, and SCHIP programs and combines them into something called STATE MEDICAL INSURANCE. The contents of the plan are identical in all 50 states because many people are mobile (some work in one state, live in another, etc.). All states may add any other insurance offerings they wish. ANY legal resident of the U.S. may ALSO sign up for State Medical Insurance—an automatic end to the uninsurABLE (can’t get insurance at any price) and the uninsured. How? It’s AFFORDABLE. Affordable for two reasons: it’s means-tested, which is the only fair way to offer a government program AND it’s CATASTROPHIC insurance with a “plus.” The plus is the cost-effective and compassionate focus on PREVENTION. People do NOT have to file financial information if they’d prefer to pay the full premium price. IF they are hit with a major expense (such as a heart attack) they may then file for catastrophic expense reconsideration. IF someone can find a better plan from a private insurer AND is qualified for a government subsidy of some sort, then he can have that subsidy sent to the insurance company of his choice.

    The plan is: everyone on the plan MAY (no coercion) have one physical with follow up visit each year for a co-pay. One ER visit (if needed) would be had for a co-pay. Discounted prescription meds are possible through the fair system of negotiation and bulk-buying with savings passed on to the patient. After that, UNLESS AND UNTIL a CATASTROPHIC EXPENSE level is hit, the patient is on his own for his medical expenses. That means each consumer will take responsibility for his health care costs as well as choices that impact health (diet, exercise, smoking, etc.). THAT is PERFECTION as it WILL reduce costs.

    ALL legitimate providers are AUTOMATICALLY on the plan. Each state will have a database of ALL such providers. The information on the provider will be there, with a STANDARDIZED format for what each procedure the provider does and what he charges. This already exists in ALL provider computers now and CPT codes are used, so the information already exists in a standardized format, it’s just hidden. Oh, and the taxpayer and uninsured will stop subsidizing large insurers—an appendectomy costs the same from THAT provider no matter if the person is on Medicare, United Health, or uninsured. Private insurance which WILL continue to exist can decide what they’ll reimburse, but the provider’s fees are the same across-the-board AND the provider retains the RIGHT to REDUCE charges for patients if he wishes to do so. For the first time EVER patients will have PRICE TRANSPARENCY which no legitimate provider can protest against. Links to the provider’s OWN web site will be included and they can display information in any fashion they wish. Also information on infection rates, malpractice suits, etc. will be present on the government web site so people are informed when choosing a provider. Far superior to anything offered now.

    Funding for the plan IS explained and resolves another abuse of the taxpayer that exists.
    Employers are NOT required to provide the insurance, but may if they choose to do so.
    What to do with the uninsured who need treatment IS covered.
    How to prevent fraud IS covered.
    Reimbursement is covered as well—and again, the taxpayer and policyholders ARE protected.
    Doctors and patients are in charge—not bureaucrats.
    Reimbursement to providers should occur within 30 days, helping them to keep costs lower.

    There are IMMEDIATE fixes for the current messed up system which would help while the details of State Medical Insurance are refined and the system implemented.

    An ESSENTIAL long-term help is the vast increase in the number of physicians and nurses. We HAVE a shortage and it will be a crisis SOON with retirement age being hit. How to make that happen with U.S. citizens at U.S. medical or nursing schools is explained—and again, neither the students nor the taxpayers go broke in doing what is right.

  19. Donna Baver Rovito says:

    It’s nice to see that someone recognizes that there’s a vital component to health care that no economist, politician or government administrator can replace – DOCTORS AND NURSES.

    Any plan which does not provide incentives for well-meaning smart people to enter these professions is doomed to fail in the long run. It’s government interference in the medical marketplace which has DIS-incentivized many of America’s best and brightest from entering one of the healing professions.

    With ever-decreasing reimbursements from government-run health-care, followed by immediate reductions from private insurers, ever-increasing government regulation of how doctors and nurses practice medicine, and the ever-present spectre of malpractice litigation and the increasing cost of liability insurance, it’s no wonder that most physicians are advising their children NOT to go to medical school.

    It isn’t that physicians have ALLOWED elected officials and lawyers to take over medicine – it’s that these self-serving folks have hijacked how medical care is delivered in America, while doctors were too busy saving lives to notice.

    What we need is for people to start listening to the only person in the US Senate who knows what he’s talking about – Senator Tom Coburn, who much prefers to be called DR. Coburn.

  20. Breck Henderson says:

    This entire health care debate seems off the mark to me — we’re asked to accept lots of assumptions concerning runaway costs and a broken health care system that are unsupported. I have been blessed with good health, but last year I discovered prostate cancer and utilized the latest in robotic assisted surgery to have it removed. My experience with doctor, hospital, and insurance company were all excellent. Also no problems with several years of rising PSA scores and several biopsies along the way. I know some on the left say “many will die with prostate cancer, but not from prostate cancer.” This is bull, since some 10s of thousands die early from it each year. And once you know you’ve got it, how can you just ignore it and hope you don’t have the aggressive variety?

    It seems to me that health care is much like any other product or service that Americans buy — private industry keeps providing more and better products that let us live healthier and longer. The result is that costs keep rising. The implication from those who say our system is broken is that doctors, hospitals and pharmaceutical companies are price gouging — that’s the only logical inference from the rhetoric. You could say the same thing about automobiles — costs keep rising. I remember when the best auto you could hope to buy cost only $5,000. Now you can easily spend $250,000, and nothing worth having is less than $20,000. Do we need congress to control costs of autos too? The truth is that no one wants a car without power windows, AC, airbags, stereo, and several hundred horsepower. Consumers make choices, we get better and better products, and what we spend goes up.

    I would argue that rising health care costs reflect rapidly improving products and services — like the da Vinci robotic surgical machine used in my case. It costs a lot, produces much better outcomes and is what those who need it demand.

    This contention from the left that health care costs are going to bankrupt the nation seems incomprehensibly dumb to me. It’s an industry serving the American people and making our lives better, just like any other.

  21. Joe San Filippo says:

    Despite all the rhetoric and hubris, no one seems willing to address the gorilla in the room. The reason health care costs are drowning our economy is that the disease burden has increased to an unaffordable rate and continues to rise. The consequences of all the perverse incentives described by Dr. Goodman have come home to roost. Fussing with insurance coverages, payment rates, and almost everything else in health care is analogous to rearranging the deck chairs on the Titanic.

    Since it’s inevitable everyone will eventually get sick and die, there needs to be access to care, but a reform package that focuses mainly on increasing access without addressing the underlying drivers of cost and medical inflation will only make things worse. The 47 million uninsured is a ‘red herring’ and used as a rallying cry for those who honestly believe we have a moral responsibility to take care of everyone, regardless of whether or not they’ve been irresponsibile.

    Low cost and free health coveage encourages lack of accountability. In the state where I live (Ohio) nearly 60% of the uninsured are under 30 years old and for the most part, healthy. Like most states, our Medicaid budget in a huge problem, but 75% of the cost is driven by the aged, blind and disabled, many of whom are not uninsured, nor impoverished.

    Underlying all our health care problems is the fact that 71% of Americans are overweight or obese and this contributes to a host of preventable diseases including heart disease, diabetes, cancer and even depression, and in many cases all three. Much of this is preventable, but because these diseases are without symptom until their latter stages, people refuse to take personal accountability for their health. Passing ‘sin taxes’ on sugar and salt will be far less effective than simply allowing people to share in the burden of the consequences for their failure to take care of themselves.

    For decades I’ve been waiting for people who do take care of themselves to get fed up with subsidizing those who don’t. Most of the reform bill provisions merely extend this ludicrous situation. Sooner or later (probably later) we’ll realize the only sustainable solution is to hold people accountable for their actions and behaviors…. what a concept.

  22. hoads says:

    Dr. Berry, Thank-you for the illuminating expose of your practice. Government has tried to micromanage medical care to the point that physicians have been zapped of their ingenuity and entrepreneurial spirit. Too many don’t recognize that third party payment is responsible for the problems in healthcare. Government bureaucrats and academics have nothing but contempt for doctors and believe that central planning is the only solution to healthcare. They believe physicians to be a monolithic group that must be controlled.

    Physicians are much more diverse than given credit and if government would get out of the way, physicians would design practices and healthcare organizations that meet the needs of all. This is especially true with primary care doctors. There is so much opportunity for PCPs to take control of their own fruits of their labor. See the growth in retail health clinics. Why is this being spearheaded by corporations and not doctors?

  23. Jay Savan says:

    If the readers of this blog are interested in hearing from a voice of reason in Congress, regarding health care and the reform effort, please spend a few minutes listening to Senator Coburn’s testimony before the HELP Committee, last week … and share with your friends …

    Part 1: http://www.youtube.com/watch?v=jO_QGwKx_rE

    Part 2: http://www.youtube.com/watch?v=hfvd4HXnK78&feature=channel

  24. Robert Berry, MD says:


    Thank you for your comment. Unfortunately, it’s not just the bureaucrats and academics who have nothing but contempt for doctors, but it is also conservative and libertarian scholars who belittle doctors by ignoring their real world results from the grassroots.

    It would be wise for them to identify and “amplify positive deviants.” This was a concept developed by Jerry Sternin, the recently deceased director of Save the Children in Vietnam, who found people within villages who were able to successfully avoid malnutrition for themselves and their families by deviating from conventional wisdom. I just read about this by none other than Atul Gawande in his commencement address to the University of Chicago Medical School on June 12 and carried in the New Yorker.

    “[The Sternins] went to villages in trouble and got the villagers to help identify who among them had the best-nourished children – who among them had demonstrated…a “positive deviance” from the norm. The villagers then visited those mothers at home to see exactly what they were doing.”

    In keeping with his previous NYT’s artice, Dr. Gawande’s solution was to study why the Medicare costs have been lower in some parts of the US than in others while quality was even better. This is not a bad idea – but there are probably a lot of complicating factors so that what has been achieved in one locale or institution might not be achievable in other places. Take for example the Mayo Clinic. Although I don’t claim to know all the reasons their costs are so low, I do know that one patient I referred there for chronic vertigo had to have all of her tests done here before they would consider scheduling an appointment for her. Obviously, the expensive work-up they recommended would not be shown on their books.

    I would advise our conservative and libertarian politicians and pundits to go to family physician Brian Forrest’s office and find out how his annual overhead runs less than $100,000 per year while spending 3 times as much time with his patients than the typical family doctor whose annual overhead is over $300,000 per year. I would investigate how he has spread this concept to many other doctors and see if they are achieving similar cost reductions and I would publicize these real world findings. I would stop theorizing from ivory towers whether they be in Washington, DC or Dallas and visit Apex, NC or Greeneville TN (where I practice) and find out how this is done and then amplify the positive deviance that is already there. How do we achieve our “core propositional value” at one-third the cost of other doctors.

    Show Americans that the solution is already within us – the positive deviance just needs to be amplified. Otherwise, most Americans will just be resigned to the fact that a government takeover of healthcare is necessary and inevitable.

  25. Bart says:

    It’s amazing to me that Dr. Goodman and Dr. Reinhardt can be in such complete agreement in their descriptions of the evils of the employer tax exclusion, yet have so little overlap between their views of what to do about it. Almost a microcosm of the larger health care debate.

    As one in the middle (although leaning more toward NCPA in that I believe reform should start with structural problems like the tax exclusion), this overlap, however small, is what I’d most like to see as a first step. The question is, is there any overlap?

    I’m not much of a believer in the doctrine of social solidarity, but I do believe that some forms of risk adjustment can be justified on other grounds. Self interest, for example: I may be healthy today, but I might not be a year from now. And if not, I’d rather not be locked into my current insurance policy for the rest of my life. Without some form of guaranteed issue and risk adjustment, at least for those with creditable coverage, there cannot be a market, only a monopoly.

    On the flip side, neither am a fan of arbitrary tax credits that serve no essential state interest. But I _am_ in favor of using tax credits as incentive where the alternative would be a flat-out mandate. Of course the incentive would have to be proportionate to the behavior being encouraged.

    The question is, is there any overlap? Hint: finding it might require a certain amount of creativity in dicing up these widely differing positions, in order to isolate possible pockets of agreement.

  26. Ron Greiner says:

    Bart you said, // I may be healthy today, but I might not be a year from now. And if not, I’d rather not be locked into my current insurance policy for the rest of my life. Without some form of guaranteed issue and risk adjustment, at least for those with creditable coverage, there cannot be a market, only a monopoly.//

    You want to pay one insurance company until you get sick then switch to another insurance company to pay your medical bills. Anything short of this confusion is a monopoly, get real. You have been brainwashed into oblivian and there may be no cure.

  27. groucho42 says:

    hoads provides a great example of hypocritical ignorance by writing “Government bureaucrats and academics have nothing but contempt for doctors and believe that central planning is the only solution to healthcare.” It’s quite obvious that neither the writer not members of his/her immediate family have had a major medical problem.

    Why? Because then the person would know that the real “third party” driving up costs and preventing care is the insurance industry. Their job is to provide dividends to their shareholders. They can’t do that if they pay out in claims. They, therefore, have created an enormous bureaucracy dedicated to doing as much as possible to prevent paying out your claims.

    It is clearly possible, as other programs have shown, that a government bureaucracy would be smaller and better, as it’s purpose would be different. As one proof of that is the insurance industry which cry two diametrically opposed whines against the proposed plans:
    1) The government can’t do anything right, will be bloated and expensive
    2) They’ll drive the industry to ruin

    Guess what, no real plan put forward wipes out private insurance. Government plans are an option people can choose. If industry is as efficient as you claim, they should have not worries about the government offering an alternative.

    They believe physicians to be a monolithic group that must be controlled.

    Physicians are much more diverse than given credit and if government would get out of the way, physicians would design practices and healthcare organizations that meet the needs of all. This is especially true with primary care doctors. There is so much opportunity for PCPs to take control of their own fruits of their labor. See the growth in retail health clinics. Why is this being spearheaded by corporations and not doctors?

  28. groucho42 says:

    ummm, I messed up. Cut and pasted and then didn’t delete it all. The last two paragraphs are hoads’. Please ignore them in my reply.

  29. Daniel says:

    Excellent and much-needed article; also goes for the quality of the blog comments I’ve read.

    I have a small contribution to make, which the article only touches upon: The current critical shortage of skilled workers at every level (doctors, nurses, lab technicians, etc.) will only get worse with the more perverse financial and moral hazard dis-incentives to be centrally forced upon the system (e.g., complete unwillingness to effect meaningful tort reform, which in turn promotes costly defensive medicine practice; cost-effectiveness to trump the doctor-patient relationship). At the same time, the central planners are hinting that they will subsidize training for future generations of doctors, thus making them even more beholden to the government, not their hippocratic oath. Our country needs to facilitate legal immigration of skilled doctors and nurses to address the critical shortage, instead of pursuing amnistice for throngs of low-skilled laborers to solidify one party’s political base and legalize cheap labor for corporations! Where is the rationale in our priorities?!

  30. Bart says:

    Ron, without some limited ability to switch insurance, including to different policies written by the same insurer, an individual who develops a chronic condition exists in a monopoly relationship with his insurance company.

    Obviously there would need to be some safeguards to discourage gaming the system, for example it might be easy to switch to a policy with less extensive coverage but not the other way around. Open enrollment periods are another example.

    On the other hand, the ability to switch to a cheaper policy with equivalent coverage would tend to discourage the new company from undercharging and the old company from overcharging. The result is a competitive market. You can’t have that if people lose the right to shop as they age.

  31. Ron Greiner says:

    Bart, people don’t lose the right to shop as they age. People lose the right to shop if they get sick or hurt.

    That’s why: Who you choose matters.

  32. Bart says:

    Ron, as people age things start to go wrong. The longer you’re alive, the greater the chance you’ll develop some sort of chronic condition. Someday you’ll understand.

  33. Ron Greiner says:

    Bart, my son has crohn’s disease and my daughter has MS. Hundreds of our clients have had heart attacks, cancers and strokes. Trust me, I know people can get sick or hurt and I tell parents everyday which insurance they should have on their family.

    I tell parents they need family coverage with a dependent conversion at standard rates with a company that services consumers coast to coast so their children will be safe–now and in the future.

    I deliver solutions Bart. You don’t, sorry.

    We specialize in you. While many health insurance companies focus on the large group market, our commitment is to individuals and families. This commitment makes us a leader and innovator in individual medical insurance–and the best choice for those who buy their own HSA health insurance coverage.

  34. […] I encourage you to read about the market-oriented solutions that Regina Herzlinger at Harvard, John Goodman at the National Center for Policy Analysis, the NCPA-driven Free Our Health Care Now petition, and […]

  35. B Gilmore says:

    Ronald Reagan once said that our military spending is determined by our enemies. Healthcare works the same way. Single payer is consistent with a competitive position. Don’t like single payer? Fine, get yourself some new competitors who agree with that. Can’t do that? That is indeed tough. I joked with a conservative friend of mine that if the U.S. wanted to avoid single payer (the standard), they should bomb the UK et al, Germany, France, Switzerland, Scandinavia and Japan etc. back into the healthcare stone age.

    As for for-profit primary medical insurance, I think it’s insane…utterly incompatible with the Hippocratic school of medicine and the Hippocratic oath. Here’s why:

    Do for-profit insurance companies that are exempt from lawsuits take or embody this same oath, or is our medical system a mere shell game between providers who try to honor these principles and their inherent mission statement, and those who, bound to no such principles and often unregulated in their pursuit of shareholder-driven profits, will overrule and undercut them, and, in so doing, precipitously end forever the work of centuries of scientific- and humanity-driven healing that had risen triumphantly over paganism and superstition. Some characterize this triumph as one of the greatest intellectual and civilizing revolutions of our time.

    Our lawmakers are bent to a path to preserve a program of JOB PROTECTION for an industry that is fundamentally incompatible with the common-decency principles of modern medicine. It is a zero-sum game. If a provider recommends a treatment only an insurance policy or the very wealthy could afford, but an insurance company drops the client midway, who loses? The for-profit insurance company terminates their burden by transferring responsibility for it to a now impoverished client and/or the charitable resource capacities of the medical provider.

    The trend has been relentless and clear, with a major shift to the for-profit model and its causative reduction in the overall pool of healthcare dollars. As the for-profit medical model grows, the Hippocratic school is being slowly eroded by the stroke of an insurance company pen (which company may or may not merit a slap on the wrist in the end).

    At the height of globalization and its continuous job migration, the for-profit model exploded on Wall Street. The result has been a rapidly growing Darwinization and paganization of medicine, wherein its component constituencies instinctively know they have been plunged into a world of “every man for himself.”

    With the stroke of a pen, the Hippocratic school can be wiped out. Bit by bit. Patient by patient.

    Which will prevail? Consolidated insurance profits or service?

    If the Hippocratic school will not speak out to defend itself and its mission, which of these desperate constituencies will?

    BTW: People who think the uninsured are all that way because they can afford to pay premiums but choose not to, are quite full of it. Premiums are out of sight. Unemployment levels also let employers forego coverage. But just to let you know we are not without a sense of humor, I leave off with this:

    Comic Steve Martin as “Theodoric of York” in a comedy skit about a medieval “physician.”

    Announcer: “In the Middle Ages, medicine was still in its infancy. The art of healing was conducted not by physicians, but medieval barbers, the forerunners of today’s men of medicine.”

    After bloodletting and leaching and generally making the patient worse, Theodoric is confronted by an angry medieval mother: “You charlatan! Why don’t you just admit it?! You don’t know what you’re doing!”

    Theodoric, stepping toward the camera: “Wait a minute. Perhaps she’s right. Perhaps I’ve been wrong to blindly follow the medical traditions and superstitions of past centuries. Maybe we barbers should test these assumptions analytically, through experimentation and a “scientific method.” Maybe this scientific method could be extended to other fields of learning: the natural sciences, art, architecture, navigation! Perhaps I could lead the way to a new age! An age of rebirth, a Renaissance!

    [ he thinks for a minute in a long pause ]


  36. […] I have written before at this blog, almost no one on Capitol Hill understands health care as a complex system. Not only that, but the […]

  37. […] I have said many times, almost no one on Capitol Hill or in the Obama Administration understands health care as a complex system. Invariably, they think they can enact ideas that are popular and avoid ideas that are unpopular […]

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