Healthcare…and Your Doctor’s Dirty, Little Secret

medical sealHealthcare.  If ever there were an area where America needs a different mindset it is healthcare.  This post will focus on two areas:  1) how government administered health insurance can be more cost effective than for-profit private health insurance; and 2) that there are perverse financial incentives inherent in our current system which do not necessarily promote healthier outcomes. 

Ever since the ascendancy of conservatism and the election of Ronald Reagan we have been told that government is the problem and the free-market is the solution.  If nothing else, the Bush Administration has turned that paradigm on it’s head.  Bush campaigned for small government, but what he delivered was bad governance.  I suppose it was inevitable that if you hold the idea of governing in contempt, you will govern poorly.

This “government bad, free-market good” mindset must change if we are to make any progress regarding the woeful state of healthcare.  Two stories in the news last week perfectly illustrated the perils inherent in our free-market healthcare system.

The first one is straightforward.  The Medicare plans administered by private insurance companies are performing both poorly and expensively.  Courtesy of the New York Times, the details are here.  On average, these private plans cost taxpayers 19% more than the traditional Medicare plan.   Medicare recipients of the private plans were worse off, too, with higher out-of-pocket expenses and fewer doctors to choose from.  All in all, a disaster.  And not an insignificant one either, since almost one fifth of the 43 million Medicare beneficiaries are in a private plan.  Here is real world evidence that the government system (with 2%administrative expenses) outperforms the free-market (with for-profit private insurance administrative expenses 20- 30%).

The second story has to do with the perverse financial incentives which are inevitable in our system.  Read the story here.  Cancer and kidney doctors received, legally, millions of dollars from the two pharmaceutical companies which make injectable medications to treat anemia.  The perversion is that the more medication the doctors prescribed, the more money they received.  Nowhere in this financial equation are healthy outcomes even measured, much less rewarded.   Inevitably, it appears that in some practices the medications were overprescribed and may have actually adversely affected the patient’s health.   As always, the pharmaceutical companies laugh all the way to the bank.

Herein lies one of the dirty, little secrets of medicine.  In every medical specialty (including my own, Internal Medicine) with every patient encounter your doctor is faced with a series of questionable financial incentives.  There are many temptations to provide more care; few incentives to provide better care.  Mostly, my colleagues behave in a professional manner and these two positions are not mutually exclusive (i.e. often, more care is better care).  Not uncommonly, however, the doctor succumbs to temptation.  Like an unscrupulous stockbroker churning accounts in his portfolio, doctors will order tests, procedures, or treatments which provide financial gain but may not advance health outcomes. 

Believe me when I tell you that it is a slippery slope to provide thorough care that is cost efficient, all the while practicing “defensively” so as to reduce your risk from lawsuits.  These are the calculations going on inside your doctor’s head while you describe your symptoms.  Not a pretty picture, is it?

So what we have is a very costly, inefficient healthcare system; with perverse financial incentives that do not always improve health outcomes.  We need to make fundamental changes.  I believe a national government health insurance is the best vehicle to trigger the necessary changes.  We need a system that promotes and rewards healthier outcomes, especially those based on the best available medical evidence.

Addendum:  This won’t be popular on these pages, but a simple “Medicare-for-all” approach may not be financially viable given the poor reimbursement to physicians and hospitals.  I’ll post soon on Medical Economics 101 and you will realize why healthcare reform is such a many-headed monster.

Addendum 2:  I would be remiss if I did not mention that the longer I look at the Edwards healthcare plan, the more I like it.  It’s most clever feature is that it allows a government program to compete against the private insurance programs.  For those who believe we must ease incrementally into a universal government insurance, Edwards’ plan has a mechanism whereby this can be done.


  1. The Olive Ridley Crawl

    May 11, 2007 at 8:50 am


    Good summary of the state of healthcare. I don’t think doctors are corrupt, per se, but all the contact they have with the pharma reps selling their new and wonderful medicines has to have the effect of making them sound a little more favorable than they are. In the case of procrit, I can see oncologists thinking “Hey, maybe this thing will make my patients feel better after chemo” because that’s the only message they hear. They did not hear about all the unfavorable outcomes until too late. Doctors are human and if all they hear is the favorable message, accompanied by “incentives” (bribes, really), speaking fees, and consultant gigs, they will tend to over-prescribe. I am not sure it is uscrupulous in most cases, just human nature.

    I think cutbacks on direct sales and promotions are required on top of a saner system of paying for health. Direct to consumer advertizing needs to be restricted severely, unfortunately, the latest attempt at FDA regulation overhaul will not do any of these things.

  2. aplum

    May 11, 2007 at 9:36 am

    My mother is on Aranesp, one of the drugs mentioned in the NYT article. She’s 88 with advanced COPD. A few months ago her doctors recommended this treatment for her anemia thinking it would improve her breathing. The drug has had little affect. The doctors are very nice and I want to think that they’re well intentioned, but everytime they say, ‘Come back in three weeks for another shot’ I wonder who is really benefitting. Medicare is being billed thousands of dollars for these treatments, but there’s no improved health outcome in my mother’s case. As a consumer, how do you call out doctors who are overtreating conditions? It’s very hard to say, ‘stop’.

  3. Grady

    May 11, 2007 at 10:26 am

    Nice post. Sometime I’d love to read your take on the various Presidential candidates’ health care proposals, including Edwards in more detail.

  4. Andrea V

    May 11, 2007 at 11:55 am

    Here’s another story detailing how pervasive and pernicious drug marketing can be, leading to very questionable decisions on the part of honest physicians: http://www.nytimes.com/2007/05/10/health/10psyche.html?em&ex=1179028800&en=74e1f4ad10feb8b8&ei=5087

    I can’t wait to read your perspective on the economics of healthcare and the plans we’ll get to choose from one of these days.

  5. sturner

    May 11, 2007 at 12:53 pm

    Hi gang. Just finished seeing patients…Here we go.

    To Olive: we agree. On whole, I believe physicians behave ethically. I do not think MD’s appreciate the degree to which they have been compromised by the pharmaceutical industry. I really do not trust the pharmaceutical companies. The providers in my office do not meet with the drug reps. We do not allow them to leave any merchandise at all (pens, penlights, post-it notes, etc). They do not provide lunches, tickets, or honorariums. We do allow them to leave free samples (we have a high number of uninsured pts. and prior to Medicare Part D we gave samples to our elderly pts.) There are plenty of unbiased resources which do not accept drug money. Every physician should use them. When the pharmaceutical companies become less about marketing and more about research, we will revisit our relationship with them.

    To Annette: MD’s should always do a risk / benefit analysis when they prescribe. When a doctor recommends a medicine or treatment pts. should ask: what is the evidence, what are the risks, and most importantly… what will we measure and how will we know if it is working. In other words, what is the goal and will I know it when I get there? If your doctor can’t answer these questions satisfactorily, stop treatment.

    To Grady: thanks. Hillary and Obama have remained vague, but are committed to universal health coverage. No details yet. The republicans are not committed to universal health coverage and most schemes involve some version of tax rebates. Two non-starters for me.

    To Andrea: the marketing of the psychiatric medicines is a horror story that is exceptional even by big Pharma standards.

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