[Congressional Record (Bound Edition), Volume 151 (2005), Part 3]
[Extensions of Remarks]
[Pages 4412-4414]
[From the U.S. Government Publishing Office, www.gpo.gov]




  AN EXCERPT FROM DR. ARNOLD S. RELMAN'S NEW REPUBLIC ARTICLE: ``THE 
                          HEALTH OF NATIONS''

                                 ______
                                 

                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                        Thursday, March 10, 2005

  Mr. STARK. Mr. Speaker, I rise today to recognize an excellent 
article recently published in the New Republic. It has been apparent 
for years that free market solutions will do nothing to ameliorate the 
healthcare crisis in our nation. This article, authored by Arnold S. 
Relman, M.D., the former editor of the New England Journal of Medicine, 
shows us exactly why market forces hinder, not help our attempts to 
reform the system.
  In his article, Dr. Relman explains how free market approaches--
focused on consumer driven health care and individually purchased high 
deductible health plans--will only exacerbate the problem of the 
uninsured. The only thing that is empowered by these solutions is 
blatant discrimination against the sick and poor who will not have 
affordable access to care. We already have 45 million uninsured in this 
country, and according to Dr. Relman that number will only continue to 
grow if we continue down this dangerous path.
  Dr. Relman proposes a solution that isn't politically popular but 
would fix the myriad problems in our current system. It starts with a 
``tax-supported national budget for the delivery of a defined and 
comprehensive set of essential services to all citizens at a price we 
can afford.'' This universal system would rely on networks of not-for-
profit providers supplying all the care covered under the national 
plan. A new federal agency would administer the plan, generating huge 
economies of scale and reducing spending by billions. This is the only 
real solution to our current crisis, and I commend Dr. Relman for 
taking a tough stand on this difficult issue.
  It is with pleasure that I submit the attached excerpts from the 
article, ``The Health of Nations,'' for inclusion in the Congressional 
Record. The article originally appeared in the March 7, 2005 edition of 
the New Republic.

                 [From the New Republic, March 7, 2005]

                  Excerpts From: The Health of Nations

                         (By Arnold S. Relman)

       In this past election season, our dysfunctional and 
     extravagantly expensive health care system was pushed off the 
     front pages by concerns about the candidates, the fight 
     against terrorism, and the war in Iraq. And yet the health 
     system's problems will not go away; sooner or later we will 
     have to solve them or face disastrous consequences. Over the 
     past four decades (starting just before the arrival of 
     Medicare and Medicaid), both the system itself and ideas 
     about how it should be reformed have changed a lot, but an 
     equitable, efficient, and affordable arrangement still eludes 
     us.
       During the past four decades our health policies have 
     failed to meet national needs because they have been heavily 
     influenced by the delusion that medical care is essentially a 
     business. This delusion stubbornly persists, and current 
     proposals for a more ``consumer-driven'' health system are 
     likely to make our predicament even worse. I wish to examine 
     these proposals and to explain why I think they are 
     fundamentally flawed. A different kind of approach could 
     solve our problems, but it would mean a major reform of the 
     entire system, not only the way it is financed and insured, 
     but also how physicians are organized in practice and how 
     they are paid. Since such a reform would threaten the 
     financial interests of investors, insurers, and many vendors 
     and providers of health services, the short-term political 
     prospects for such reform are not very good. But I am 
     convinced that a complete overhaul is inevitable, because in 
     the long run nothing else is likely to work . . .
       . . . In 1963, a seminal analysis of the medical care 
     system as a market was published in the American Economic 
     Review by the distinguished economist Kenneth J. Arrow. He 
     argued that the medical care system was set apart from other 
     markets by several special characteristics, including these: 
     a demand for service that was irregular and unpredictable, 
     and was often associated with what he called an ``assault on 
     personal integrity'' (because it tended to arise from serious 
     illness or injury); a supply of services that did not simply 
     respond to the desires of buyers, but was mainly shaped by 
     the professional judgment of physicians about the medical 
     needs of patients (Arrow pointed out that doctors differ from 
     vendors of most other services because they are expected to 
     place a primary concern for the patient's welfare above 
     considerations of profit); a limitation on the entry of 
     providers into the market, resulting from the high costs, the 
     restrictions, and the exacting standards of medical education 
     and professional licensure; a relative insensitivity to 
     prices; and a near absence of price competition.
       But perhaps the most important of Arrow's insights was the 
     recognition of what he called the ``uncertainty'' inherent in 
     medical services. By this he meant the great asymmetry of 
     information between provider and buyer concerning the need 
     for, and the probable consequences of, a medical service or a 
     course of medical action. Since patients usually know little 
     about the technical aspects of medicine and are often sick 
     and frightened, they cannot independently choose their own 
     medical services the way that consumers choose most services 
     in the usual market. As a result, patients must trust 
     physicians to choose what services they need, not just to 
     provide the services. To protect the interests of patients in 
     such circumstances, Arrow contended, society has had to rely 
     on non-market mechanisms (such as professional educational 
     requirements and state licensure) rather than on the 
     discipline of the market and the choices of informed buyers.
       Of course, another conclusion could have been drawn from 
     Arrow's analysis (though he apparently did not draw it). It 
     is that medical care is not really a ``market'' at all in the 
     classical economic sense, and therefore that the basic 
     theories of economics are not relevant to the discussion of 
     the first principles of health care. But our society assumes 
     that market economics applies to virtually all human activity 
     involving the exchange of goods or services for money, and 
     this dogma is rarely questioned. Most economists would 
     acknowledge that medical care is an imperfect or 
     idiosyncratic market, but still they believe that it is a 
     market, and that it should therefore obey economic 
     predictions . . .
       . . . In 1980, in The New England Journal of Medicine, I 
     described this changing face of American health care as the 
     ``new medicalindustrial complex.'' The term was derived, of 
     course, from the language that President Eisenhower had used 
     (``military-industrial complex'') when warning the nation, as 
     he was retiring, about the growing influence of arms 
     manufacturers over American political and economic policies. 
     Referring to Arrow's analysis, I suggested that market-driven 
     health care would simply add to the explosion of medical 
     expenditures and the growing problems of inequity and 
     variable quality. I was also worried that this uncontrolled 
     industrial transformation would undermine the professional 
     values of physicians, which are surely an essential 
     ingredient of any decent medical care system. Financial 
     incentives were replacing the service ethic of doctors and 
     hospitals, as the providers of care began to compete for 
     market share and larger income. Yet competition on the basis 
     of the price and quality of services--an essential 
     characteristic of most free

[[Page 4413]]

     markets--was little in evidence, demonstrating again the 
     truth of Arrow's argument that the medical care market was 
     different . . .
       . . . In an increasingly profit-driven and entrepreneurial 
     medical market, piecework payment for specialized outpatient 
     services stimulated an even greater fragmentation of medical 
     care and a greater use of individually billable items of 
     outpatient technological service. Less attention was given to 
     the continuity and the integration of care, and to preventive 
     medicine. Decreased payments to primary-care physicians and 
     increased pressure on them to see more patients reduced the 
     time that they spent with each patient. As a consequence of 
     all these developments, the quality of primary care suffered, 
     and the difference between the quality of average medical 
     care and the best medical care widened, even as per capita 
     expenditures rose and the number of uninsured and 
     underinsured patients increased. This quality ``gap'' was the 
     subject of a major report in 2001 from the Institute of 
     Medicine of the National Academy of Sciences, which described 
     the many deficiencies in the way patients were being treated 
     and suggested how their medical care could be improved. 
     Unfortunately, the experts preparing the report were not 
     asked to consider how the system itself might be restructured 
     to facilitate the needed improvements.
       And so we now live with a seriously defective medical care 
     system, based more heavily on market incentives than the 
     health care regime of any other country in the world. The 
     commercial tone is set by investor-owned insurance companies 
     (the major share of the private insurance market), investor-
     owned hospitals (about 15 percent of all community 
     hospitals), and investor-owned ambulatory-care facilities and 
     nursing homes (the great majority of both these markets). The 
     behavior of many of the so-called ``not-for-profit'' health 
     care facilities is not much different from that of their 
     investor-owned competitors, because they have to survive in 
     the same unforgiving marketplace, which is indifferent to the 
     social values that originally motivated most health care 
     institutions. As for American physicians, their attitude 
     toward their profession has also been changed by the new 
     medical marketplace. To a degree greater than anywhere else 
     in the world, our doctors think of themselves as competitive 
     business people. As such, they own or invest in diagnostic 
     and therapeutic facilities (including specialty hospitals), 
     they form investor-owned medical groups, and they advertise 
     their services to the public . . .
       . . . Our failure to address the glaring deficiencies and 
     inequities in our health care system is nothing to be proud 
     of. A growing number of people are losing their private 
     health insurance. There are now more than 45 million 
     Americans without coverage. Much of this is due to the loss 
     of good jobs, but high costs are also a significant factor. 
     The financial burdens of those who are insured increase 
     steadily, as hard-pressed employers reduce covered benefits 
     and increase the fraction of insurance costs being shifted to 
     beneficiaries. Rising health costs are threatening the 
     financial stability and competitiveness of many American 
     businesses, and are discouraging the hiring of new full-time 
     workers. The government is also shifting insurance costs to 
     Medicare beneficiaries, as exemplified by the recent large 
     increase in the premium charged for coverage of outpatient 
     medical services and physicians' care (``Part B'').
       What really astonishes me is that so many conservative 
     business and health policy experts continue to hold an 
     unshakable faith in a market solution for our system's major 
     problems. They believe that market forces have not been 
     allowed to contain costs or to improve access and quality 
     because of government regulation, and because of badly 
     designed insurance that prevents consumers from playing an 
     appropriate role. They think that the consumers of medical 
     care in both public and private insurance systems have not 
     had enough influence on the supply of services and have not 
     been sufficiently involved in price negotiations with 
     providers. These days the ``free market'' is held to be the 
     solution to most social and economic problems, and it is 
     commonly believed that in health care the most important 
     missing ingredient of a free market is the traditional 
     consumer who has the incentive and the ability to bargain for 
     the desired price and quality of services. So it shouldn't be 
     surprising that the idea for improving our health care system 
     that is currently most popular is so called ``consumer-driven 
     health care,'' or CDHC.
       The term ``consumer-driven health care'' is used to mean a 
     market for medical care in which patients, as the 
     ``consumers'' of medical services, would have a lot more 
     responsibility for choosing those services and would share 
     more of the costs. In the most fully developed proposals, 
     providers of medical care (physicians, hospitals, clinics, 
     and so on) would compete for patients on the basis of 
     quality, price, and convenience--not simply for market share, 
     as they do now. Patients, like consumers in any service 
     market, would have access to all the information they need to 
     make their own health care choices. They would choose and own 
     their insurance plans. They would select not only their 
     health care providers, but also the particular medical 
     services they want. Since they would share more of the costs, 
     they would have an incentive to make prudent choices and to 
     demand higher quality. The net result, it is claimed, would 
     be a better, less expensive health care system . . .
       . . . The assumption of the CDHC system is that such a plan 
     would moderate health care inflation by encouraging patients 
     to become more prudent consumers of elective and non-
     catastrophic health services, because they would be spending 
     money they otherwise could invest in their savings account. 
     It is also assumed that in competing for business, the 
     providers of medical care would try to make their services 
     more attractive to patients by improving quality and 
     convenience, as well as by moderating their prices . . .
       . . . There are compelling reasons, I think, to predict 
     that they will not. For a start, high-deductible insurance is 
     not likely to produce reductions in expenditures, except 
     among low- and modest income families, who would feel 
     financial pressure to cut their doctor visits and their use 
     of other medical services. There is good experimental 
     evidence that high deductibles have such selective effects, 
     which expose the most vulnerable patients to greater health 
     risks. Higher earning beneficiaries would not feel such 
     pressure and would continue to use all medical services 
     freely. Whatever reductions in total expenditures might occur 
     would be achieved largely through reducing services to those 
     with lower earnings. Adjusting the size of the deductible in 
     approved plans to the income of the beneficiaries might 
     ameliorate that injustice, but it would add to administrative 
     costs and would be virtually impossible to do properly--given 
     the difficulties in making fair assessments of financial 
     need.
       If people were allowed to select whatever insurance plan 
     they wanted, the inequity would probably increase in another 
     way. Healthy, young families would choose the least expensive 
     plans with the highest allowable deductible, and those with 
     health problems would be forced to choose plans with the 
     lowest allowable deductibles but higher premiums. The 
     premiums or the required co-payments of the latter plans 
     would spiral upward because of the greater use of services by 
     sicker beneficiaries, so it would become even harder for 
     those with the greatest need for insurance to afford 
     coverage. In this way, one of the most important values of 
     insurance--the sharing of risks over a broad population 
     base--would be lost. Adjusting the contribution of employer 
     or government to the health status of the beneficiaries has 
     been suggested as a means of avoiding this problem, but the 
     relatively primitive state of the art of risk adjustment and 
     the difficulty in applying it to families make this solution 
     unlikely. It also would add greatly to administrative costs . 
     . .
       . . . The CDHC plans that are now being advocated by 
     believers in the magic of markets shift to patients not only 
     a large part of the responsibility for being their own 
     doctors, but also the burden of paying more of the cost--and 
     that burden would be heaviest on the poorest and sickest of 
     our citizens. This is surely a denial of the ethical 
     principle underlying universal coverage and the sharing of 
     costs. But the major payers, government and employers, are no 
     longer willing or able to shoulder health care's rising 
     costs, and so they are promoting CDHC. They may justify their 
     views by arguing that it makes sense to shift more of the 
     costs to patients because patients are in the best position 
     to put the brakes on health cost inflation. This might be a 
     reasonable argument if medical care were like other services 
     in other markets--but it is not.
       For all these reasons, then, ``consumer-driven'' plans are 
     unrealistic and unfair, and they are not likely to be 
     politically viable in the long run. There is some 
     understandable support for the idea that individuals should 
     be more responsible for the cost of elective or optional 
     medical services, but most people believe that the 
     availability of needed services should not depend on ability 
     to pay. We are a wealthy society, and decency requires that 
     we make equitable arrangements to ensure at least minimally 
     adequate health care for all--a goal that is beyond the scope 
     of market forces. . . .
       . . . When that time comes, we should be prepared to 
     replace a failed market-based system with a better one that 
     can deliver the health care we need. What kind of system 
     might that be? The question cannot be confidently answered in 
     any detail before the market-based system has run its course, 
     and before there has been some preliminary experience with 
     non-market-based models--perhaps at first in a few states. 
     Still, a few general principles and objectives can be 
     proposed now, based on what we have learned from our 
     experience during the past four decades and on what we know 
     about the essential nature of medical care.
       First, since we cannot rely on the free play of markets to 
     control costs or guarantee universal coverage, we should 
     establish a tax-supported national budget for the delivery of 
     a defined and comprehensive set of essential services to all 
     citizens at a price we can afford. Employers should pay an 
     appropriate part of the tax for their employees. These

[[Page 4414]]

     services should include both acute and long-term care, and 
     they should be exclusively reimbursed through a single-payer 
     national insurance plan, with other elective and non-
     essential services paid out of pocket or through privately 
     purchased insurance. No services covered by the national plan 
     should also be covered by private insurance plans, but the 
     latter could insure services, such as ``aesthetic'' plastic 
     surgery and private hospital rooms, that would not be covered 
     by the national plan. There should be no billing by providers 
     and no piecework payment in the single-payer plan, thus 
     eliminating the huge business costs and the colossal hassle 
     of the present billing and payment systems in multiple public 
     and private insurance plans.
       Second, not-for-profit, prepaid multi-specialty groups of 
     physicians should provide all necessary medical care on the 
     approved list of insured services. The physicians in the 
     groups should be paid salaries from a pool of money that 
     would be a defined percentage of the total patient income 
     received by the group from the central payer. The groups 
     should be privately managed but publicly accountable for the 
     quality of their services, and they should be expected to use 
     standardized information technology that could be integrated 
     into a national data system. They should be indemnified 
     against losses due to adverse selection or other costs beyond 
     their control, assisted with start-up and technology 
     expenses, and exempted from antitrust restrictions. They 
     should compete for patients on the basis of the quality of 
     their services. All groups should be open to all citizens, 
     although the number of members for a given-sized group should 
     be regulated to ensure an appropriate ratio of doctors to 
     patients.
       Third, patients should be free to choose their own 
     physician group and to switch membership at specified 
     intervals, but everyone must be included in the national plan 
     and belong to a group--including politicians. (Lawmakers are 
     unlikely to neglect the needs of a health care system that 
     provides care for themselves and their families.)
       Physicians should be free to join any group that wanted 
     them and to change their affiliation, but they should not 
     provide services outside the national system that are covered 
     by the latter.
       Fourth, all health care facilities (whether privately or 
     publicly owned) that provide services covered by the central 
     insurance plan should be not-for-profit, and should compete 
     on the basis of national quality standards for patients 
     referred by the physicians in the medical practice groups. 
     Facilities should be paid, and monitored for their 
     performance, by the central plan. They should have no 
     financial alliances with the physicians or the management of 
     the medical groups. Teaching facilities should be separately 
     funded by the national plan and be paid for their extra 
     costs, including education. Budgets in all facilities should 
     include salaries for full- and part-time clinicians providing 
     essential services.
       Fifth, the health care system should be overseen by a 
     National Health Care Agency, which should be a public-private 
     hybrid resembling the Federal Reserve System. It should be 
     independently responsible for managing its budget and 
     establishing administrative policy, but should report to a 
     congressional oversight committee and to the public. It is 
     essential that the plan be sufficiently independent of 
     congressional and administration management to be protected 
     from political manipulation and annual budgetary struggles. . 
     .
       . . . Our present medical care system lacks the structure 
     and incentives to improve the quality of care. A not-for-
     profit system of salaried physicians, who work together in 
     groups that have no financial incentive to do more or less 
     than is medically appropriate, who compete with other medical 
     groups only on the basis of quality and their attractiveness 
     to patients, and whose results are publicly accountable, 
     could be expected to deliver the kind of health care we need. 
     The quality of care would also be improved by a system of 
     competing not-for-profit facilities that are held to national 
     standards.
       As for access and equity, the plan outlined here would 
     guarantee universal coverage for all essential services and 
     would allow employers and individuals to share in the costs 
     through an earmarked and graduated tax. The government would 
     be expected to pay the costs of today's uninsured, as well as 
     the contributions it now makes to government insurance 
     programs. Given the large savings expected in this system, 
     the change in net costs to government should be minimal. . .
       . . . A real solution to our crisis will not be found until 
     the public, the medical profession, and the government reject 
     the prevailing delusion that health care is best left to 
     market forces. Kenneth Arrow had it right in 1963 when he 
     said that we need to depend on ``non-market'' mechanisms to 
     make our health care system work properly. Once it is 
     acknowledged that the market is inherently unable to deliver 
     the kind of health care system we need, we can begin to 
     develop the ``nonmarket'' arrangements for the system we 
     want. This time the medical profession and the public it is 
     supposed to serve will have to be involved in the effort. It 
     will be difficult, but it will not be impossible.

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