Medical Meddling

Who's afraid of managed care?


I would be extremely upset if someone put an initiative on the California ballot outlawing the payment of salaries to journalists. Quality journalism, the initiative's authors might say, requires per-story payment; many of the profession's finest have made their living that way. Paying salaries to journalists, they'd argue, means people can make money even when they aren't working. A salary system rewards people who undersupply articles and punishes those who turn out lots of them. And there's no incentive to do a good job on the articles you do write, since you get paid either way.

To anyone in the business, those arguments sound absurd. They assume that no competition or feedback exists, that you can work badly or not at all and still draw a paycheck indefinitely. And they ignore factors like predictability, continuity, and quality control, which favor salaried professionals over freelancers. Pay systems have evolved in a competitive marketplace to meet the needs of publications, journalists, and readers. Not surprisingly, then, there are many very good reasons that most publications rely at least partly on salaried staff. No one from the outside has enough knowledge–or enough chutzpah–to second-guess the system, certainly not by outlawing entire methods of compensation.

The same cannot be said for health care.

ClintonCare may be dead, but its bossy spirit lingers on, possessing people of all political parties and persuasions. Left, right, even libertarian–throughout American politics, just about everyone who's anyone believes that there is one best way to deliver and pay for medical services. And nobody, it seems, knows the ins and outs of how to run a health care operation like the members of Congress, state legislators, and the general voting public.

So it is that in its waning days, the supposedly deregulatory Republican Congress passed a new law requiring all health plans to keep women in the hospital at least 48 hours after childbirth. At least a dozen states have enacted similar statutes, while others are dictating the terms of doctors' contracts with managed-care organizations. Regulatory initiatives were on several state ballots. Oregon's "Patient Protection Act," for instance, decreed that the state's physicians could be paid by only five specific methods: no innovation, however voluntary, allowed. Its sponsor was a politically conservative ophthalmologist.

Managed health care organizations are to the 1990s what oil companies were to the 1970s–the businesses everyone loves to hate but doesn't really want to do without. They're safe targets for both market-hating leftists and change-hating conservatives. The former, stung by the defeat of ClintonCare and still lusting for Canadian-style single-payer medicine, are particularly zealous. "A massive backlash against the market's prescription has emerged," writes leftist economics columnist Robert Kuttner. "Despite the general swing of politics to the right and the prestige of 'free market' solutions, it is becoming clear to voters and politicians alike that the private market is incapable of solving the health care problem."

One HMO-basher argued on a pre-election L.A. public affairs show that a health care initiative was a great deal because it would be funded by a special tax on just eight unlucky Californians–managed care executives who make too much money. He was a man of the left, but conservative Republicans mouth the same sentiments. Colorado state Rep. Martha Kreutz told The New York Times that she had sponsored a regulatory bill because she was, in the reporter's paraphrase, "offended by the large salaries paid to some H.M.O. executives."

Medicine is a complex, aggravating, expensive, and often scary business. Just about everybody has had some kind of annoying health care experience: a misdiagnosis; ineffective or painful treatments; an insurance snafu; obstinate bureaucrats; a shockingly high bill; a cold, patronizing, or semi-competent physician. Medicine is also an extremely challenging art: No two bodies operate exactly the same; the amount of knowledge to master and apply is enormous and always growing; experts disagree over proper procedures; judgment calls are constant and, inevitably, sometimes wrong in hindsight.

Given the stresses in any health care system, then, it's not surprising that major changes in medical practices and organization engender more fear and aggravation. They provide a handy scapegoat for all medical misadventures. The result is regulation designed to stop change, to impose a static, familiar system.

And many doctors are eager to feed the backlash. "We believe the whole concept of managed care is spurious," Carl Weber, a White Plains surgeon, told The New York Times. "It is predicated on financial incentives to restrict care and access to care." What such doctors want is unlimited care, paid for on a fee-for-service basis–a system with strong incentives to overtreat and overtest, behavior just as "unethical" (or as subject to financial considerations and judgment calls) as the undertreatment they imagine in every managed care plan. But the days of insurance that shoveled out money without questioning prices or procedures–the system that allowed doctors and patients to pretend that health care is a free good–are over.

The debate now is over how we learn to do better, and about who has the knowledge most likely to yield improvements. The answer to that question is unlikely to be Congress or even "the people" acting as voters. As Rep. Rick White (R-Wash.) aptly put it in a different context: "When Congress focuses on an issue, Congress sees the big, big, big, big, big, big, big, big picture. They're the ultimate big picture people. And they really don't understand the details."

The real issue is competition. Protected from competing alternatives, every medical-payment system contains incentives either to over- or undertreat. What matters, then, is whether patients (and the employers who represent them) have choices, whether they can dump doctors who don't give them the care they expect and, for that matter, whether health care providers can switch plans. At another layer of competition, it matters whether employers providing health insurance must compete for employees; if they do, then if the insurance is lousy, workers will discount its value and expect more cash. In a competitive system, plans have to find ways to encourage quality as well as economy–or they'll lose their customers. Competition both responds to and elicits the local knowledge that is always hidden from would-be regulators.

Pro-regulation forces ignore these competitive dynamics. Gordon Miller, the Oregon ophthalmologist, claims that "the ethical physician, if he expects to see patients, must meet the contract price of the unethical physician who is willing to withhold care," as though patients can't tell the difference. In "capitation" plans that pay doctors a flat rate per enrolled patient, he says, "physicians can get paid for not working." Such static analysis, which sounds suspiciously like a plea for protection from competition, is as silly as outlawing salaries for journalists.

With its monopoly "health alliances" and single-tier health plan for everyone, ClintonCare would have destroyed health care competition. Fortunately, we do not live in the ClintonCare world. Rather, we have a chance, through trial and error, experiment and feedback, diversity and choice, to create new and better models of health care. We shouldn't blow it by meddling with managed care.