Kushner Responds to David Brooks’ NY Times Op-Ed “Do Markets Work in Health Care?”

In his January 13, 2017 Op-Ed piece, David Brooks argues that health care markets can, but don’t often work when consumers “purchase” health care. He’s not talking about health care coverage, but the actual receipt of health-related services.  Yet he misses the most crucial reason that the delivery of health care services is not a market.

He starts off exactly right. “As you know, the American health care system is not like a normal market. When you make most health care decisions you don’t get much information on comparative cost and quality; the personal bill you get is only vaguely related to the services; the expense is often determined by how many procedures are done, not whether the problem is fixed.  You wouldn’t buy a phone this way.”

That’s definitely correct, but it’s only part of the reason that markets don’t work in the health care delivery of services.  Brooks notes the famous 1963 essay by economist Kenneth Arrow that says that there is no health care market because of any number of factors, including the asymmetric basis of knowledge between a doctor and patient as well as the sometime patient-on-a-gurney inability to make an informed purchase decision.

But Brooks then argues that patients have closed the asymmetric knowlege gap via the internet and other tools.  He doesn’t cite which health care quality websites (I certainly hope he’s not referring to diagnosis sites like WebMD, but rather to websites like HealthGrades), but this discussion too exposes one of the flaws in his argument. In order to have enough information to select the best providers at the lowest cost for a specific patient’s care, one would need to know the correct diagnosis, which is a Catch-22 since unless Brooks believes that we’re all capable of accurate self-diagnosis (ask your physician how much they like WebMD and its ilk for that purpose), a patient would have to see a provider (quality and cost indeterminate) who hopefully would provide a correct diagnosis.

Next, he argues that patients know quality when they see it, citing “Amitabh Chandra of Harvard and others [who] found higher-performing hospitals do gain greater market share over time. People know quality and flock to it.”  How? Studies by the National Institute of Health’s own Health Services Research Agency and others correctly point out that health care consumers have a high interest in hospital quality, but don’t have access to that information. People don’t know quality–they know marketing and hearsay.

Lastly, he argues that markets do work, and exposes the fallacy in his conclusion. “Laser eye surgery produces more patient satisfaction than any other surgery. But it’s generally not covered by insurance, so it’s a free market. Twenty years ago it cost about $2,200 per eye. Now I see ads starting at $250 an eye.” Yes, there is a free market that works for laser eye surgery. It also works for elective cosmetic surgery. Why? Because neither is covered by health insurance purchased by employers or individuals. Yet he doesn’t take the argument to the next step, which thus invalidates his conclusion.

The fallacy in Brooks’ argument is the fact that health care is the only good or service produced in the US that has someone other than the actual consumer paying the bill. Whether it’s the government (Medicare, Medicaid, TriCare), employer-based group insurance, or individual coverage purchased on or outside of the ACA’s Marketplaces/Exchanges, for well over 90 percent of Americans someone else gets and pays the bill for the health care “consumer’s” purchase.

Let’s say you want to buy a big-screen TV. This is already an unfair comparison to health care since for a TV you can read online reviews by experts as well as other purchasers and check prices from local and online vendors with a simple Google click. You’ve even narrowed the selection to a 42-inch model that will fit the space in your apartment or home. Quality is quite varied, and prices range from a few hundred dollars into the tens of thousands. You select one that represents the value point on your quality-price continuum. You make the decision. You get the bill and pay it, completing the purchase.  Which part of this description sounds like health care today? With health care, before receiving care you have virtually no idea of the quality or cost of services.

Now imagine in the scenario above that you had purchased a hypothetical “new TV” insurance policy and that entity would pay the bill for the TV you decide to buy. Would you make the same purchase decision? If you’re like most, you would buy the biggest, best, and most costly TV that your policy covered.

So without much information about quality and cost of health care before services are rendered–whether in a high-deductible health plan and a linked Health Savings Account or not–and with the consumer not responsible for getting and paying the bill like they do for every other good or service they purchase, no wonder there is no consumer marketplace for health care services. Brooks is wrong to think a market can be created when a third-party payer is picking up the tab on behalf of the consumer. You don’t get normal consumerist behavior in any such system.