The fundamental problem with the U.S. health-care system, many people argue, is that medicine can't operate well on the profit motive. It is a social good, and profit-driven behaviors undermine efforts to provide high- quality care.
It's true that our private health-care system provides care that is extraordinarily expensive, excessive, wasteful, patient- unfriendly and often dangerously sloppy. But the problem with this argument is that for-profit and nonprofit providers alike produce the same bad result. The profit motive itself doesn't seem to be the differentiator.
Federal tax data show that for-profit hospitals actually provide more charitable care than nonprofits do. Nonprofits performed no better - in some cases much worse - than comparable for-profits on safety scores recently assigned by the Leapfrog Group, a health-care research organization. For patients, it's almost impossible tell the difference between nonprofit and for-profit hospitals.
Nevertheless, it is true that the profit motive - and for that matter the nonprofit motive - is failing us in health care. Why does no one in this industry compete to be the low- priced leader? To be the provider with the best outcomes for specific illnesses? To be the service and efficiency king? To be the safest hospital in your town?
Because none of these social benefits drives profits in the health-care business. Successful business models depend on completely different factors - the amount of excess care for which you can win reimbursement, your ability to prove your costs are high, your savings from avoiding investments in service and safety, mind-bending complexity that makes straightforward accountability impossible. These are the incentives in our system and, unfortunately, our providers respond to them perfectly.
But perverse incentives are no more inevitable in health care than in any other industry. They're a direct consequence of government intervention in the market. Medicare is an entitlement - it will pay for all needed care for people who qualify - so the industry responds by endlessly expanding the definition of need. We invest almost nothing in oversight (Medicare's low spending on this is often cited as one of its advantages - as if banks without security guards would be more efficient), allowing a flood of excess treatment and haphazard care that represents a true assault on beneficiaries.
Medicaid reimburses providers at extremely low levels for almost all services - far below the private market - so its beneficiaries get very little time-intensive primary care and lots of the tests and procedures that produce profits at high volumes.
Even presumably private markets are dominated by perverse incentives driven by government policy. Our tax code favors employer-provided private insurance to the detriment of any other way of paying for medical treatment. To preserve this competitive advantage - and reduce their accountability to employer-purchasers - insurers have implemented an impossibly opaque payment system that bars any competing form of finance.
