Silvers, J. B.

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Case Western Reserve University School of Law

Health Matrix: The Journal of Law-MedicineVolume 1 | Issue 21991Commentary by: J.B. SilversJ. B. SilversFollow this and additional works at: https://scholarlycommons.law.case.edu/healthmatrixPart of the Health Law and Policy CommonsThis Symposium is brought to you for free and open access by the Student Journals at Case Western Reserve University School of Law ScholarlyCommons. It has been accepted for inclusion in Health Matrix: The Journal of Law-Medicine by an authorized administrator of Case Western ReserveUniversity School of Law Scholarly Commons.Recommended CitationJ. B. Silvers, Commentary by: J.B. Silvers, 1 Health Matrix 267 (1991)Available at: https://scholarlycommons.law.case.edu/healthmatrix/vol1/iss2/14RESPONSE TO PARADIGMSHIFT IN AMERICANHEALTH CARE: ARE WEREADY FOR ACOMPREHENSIVE SYSTEM?J. B. Silvers, Ph.D.tINTRODUCTIONTH ANTICIPATED paradigm shift from that of the "competi-tive market" to one based on the primacy of "human need andequity" with regards to health care would signal a change in moti-vation as fundamental as any since the Pentecost. Therefore, it isimportant to understand how this might occur and how it might beevidenced in the comprehensive system suggested by Dr. Golenski.At a first level, such a shift would provide a philosophical foun-dation for reform. As an economist, this underpinning would beonly an interesting external factor related to an observed change inmarket or social choices. It is the change in actions and choicesthemselves that are the raw material of an analysis from an eco-nomic perspective. Of course social scientists observe, predict andfoment change all the time without the benefit of the sea changehypothesized here. Those of us concerned with the Oregon ap-proach are likely to do the same, in spite of the starting pointgrounded in philosophy. We should realize, however, that funda-mental change in human motivation, such as that suggested by Dr.Golenski, is usually documented only long after the fact by histori-ans and theologians, and only recognized in advance by newlyelected U.S. Presidents.So, at a second level, the question concerns what evidence existsfor the shift. What can be found in observable changes in actionand choice? In order to determine whether these are harbingers oft J. B. Silvers is the Elizabeth M. and William C. Treuhaft Professor of FinancialManagement in the Weatherhead School of Management and the School of Medicine of CaseWestern Reserve University in Cleveland, Ohio. In addition, Professor Silvers is the Co-Director of the Health Systems Management Center of CWRU.HEAL TH MATRIXthe desired "comprehensive system" based on need and equity, onealso needs to determine the chain of causation. What other actionsor perceptions are behind the current system structure and its fail-ures? Only then might one guess why and how is it likely tochange. As a result, this review will consider whether the logic ofMr. Golenski's article is sound and the degree to which any evi-dence exists that it is other than a philosopher's wish and policymaker's justification-both of which may be worthwhile inthemselves.Going beyond the author's framework, however, my conclusionis that the Oregon Priority Setting Project is desirable and entirelyconsistent with the political and practical economic needs of thecurrent system. Indeed, I would argue that it is a prime ingredientof the next logical extension of our mixed market system. Thismixed system involves both private choice regarding the commercialproducts of health care delivered to the "independents" of society atsome nominal price, and public choice about the size and kind ofsocial goods provided to the "dependent" sector. The dual, if notschizophrenic, approach to health care is virtually mandated byAmerican history, individual taste, and industry structure.LOGIC OF THE PARADIGM CHANGE PROPOSEDAs presented by Mr. Golenski, the paternalism of earlier de-cades based on the truth provided by "medicine as a science" wasfollowed by the "competitive market" which appears to haveemerged in the 1980's as the reigning paradigm of health care. Thischange was thought to have occurred as a response to the inevitableinflation coming from unchecked medical "truth" dominating all.As a result of this, the free market was thought to be the answer.Mr. Golenski maintains that the scientific view fostered both areduction in the "medicine-as-care" component and a belief that allproblems could be managed to a successful end. The unspoken re-sult is a view of health care as a commodity that can be producedand managed. The obvious parallel is that it can also be bought andsold in a competitive market on the normal basis of individual con-sumer choice. Since competition works to control costs for othercommodities, why not health care?Mr. Golenski further contends that this competitive paradigmwas tolerated as long as the benefits were widely distributed, regard-less of ability to pay (in a body politic apparently viewed as basi-cally egalitarian). However, when the benefits are perceived as[Vol. 1:2671991] RESPONSE TO PARADIGM SHIFT IN AMERICAN HEALTH CARE 269maldistributed and cost inflation is still a problem, Mr. Golenski'slogic indicates the ground is fertile for a new age paradigm to rap-idly emerge. The end result is thought by the author to be somesort of public utility model for health care as a regulated monopoly.While there is a certain positive ring to the direction of this ar-gument, there is a key missing link. The perceived value of healthcare services is critical to what we are willing to pay and how eagerwe are to change things. The question of whether or not "few of uswould disagree that the current system of care is not adequatelyserving most of us" can be resolved only by comparing our expecta-tions to what we actually receive. Dissatisfaction arises from thesize of the gap. Since Dr. Golenski argues convincingly that theprior "medicine as a science" paradigm created inflated false expec-tations as to what the system can deliver, dissatisfaction is bound tooccur even with good performance. The fundamental problem isthe size of the gap in basic services, access, and outcome from whatwe collectively and individually think is possible. Thus one couldargue that rather than reform in delivery, this dissatisfaction sug-gests education as to realistic outcomes achievable with the re-sources available might be in order on the demand side. In fact, thismay turn out to be the key role of the Oregon plan.On the supply side, there is no question that (borrowing fromUwe Rinehardt's Christmas card) the high price per unit of healthcare limits the quantity of "kinder and gentler acts" in this area. Ifproviders could lower the price, we certainly could supply morecare to marginal consumers through public funding and privategenerosity. The problem might be less in the size of our collectiveguilt or its reaching a critical mass (in a political sense), than in thecurrent cost per unit of assuaging it.The point is that there are many other responses to deal withthose who fall through the cracks than to build a substantially newsystem on the hope of "a basic shift in human consciousness." Con-sidering other alternatives is especially imperative given the degreeof change required by Mr. Golenski's position. To state it so dra-matically makes it sound like a combination of the French Revolu-tion and the Protestant revivals of the 18th century must occur-most unlikely possibilities!Furthermore, such a fundamental reordering of societal priori-ties may be unnecessary. The market clearing price and the actualamount of care provided to both independent patients and thosedependent on the state, is determined at the margin. That is, theactions of the last individual or group purchasers in the commercialHEALTH MATRIXhealth care market (which clearly now exists), and the votes of en-lightened citizens in the political market of noneconomic social val-ues determine how much we buy for what price. By definition, thevalue received is greater than the price paid for all who engage inpurchase decisions on both the private and public sides. Additionalpurchases in both markets are contingent, as in any other market,on the perception of the amount of value received for each dollarspent at the margin (i.e., for one more service provided or one morebeneficiary covered).Thus there are three ways to close the perceived gap in services:(1) increase the actual value provided by suppliers for each addi-tional dollar of purchases; (2) cut the cost per unit of services pro-vided; or (3) reduce the unrealistic expectations of value perceivedto be possible from additional services, which drives up the demand.We might choose to either provide substantially more services, orprovide different services, or dampen demand, or all three. Thesethree choices, incidentally, are the same regarding additional serv-ices to the "dependent" sector in question regardless of the sourceof resources. Both a more equitable redistribution based on distrib-utive justice, as envisioned in this paper, and additional fundingfrom a separate political choice require parallel explicit or implicitchoices of this sort.A PUBLIC UTILITY FOR HEALTH CAREThe ill-formed concept of health care as a public utility does notfollow from either Dr. Golenski's conceptual development or fromthe Oregon view of the health care economy for several reasons.First, utilities usually exist where there is a natural monopoly forbasic services (i.e., gas, water, transportation). The natural monop-oly occurs where there is a very high capital cost or where purchas-ers are held captive in some sense.' High entry barriers forpotential new competitors make the threat of competitive entry as adisciplining force unlikely, thus allowing antisocial behavior on thepart of the company or provider. Furthermore, the high cost ofswitching to another provider, if there is one, leaves customerslocked-in and vulnerable to gouging. Regulation to prevent abusewhere competition at the margin is unlikely is usually the intentwhere a monopoly would otherwise allow it. Utility-type franchisesare also sometimes awarded with guaranteed returns to enhance1. It is unclear whether the formation and regulation of a public utility can create amonopoly where it would not otherwise evolve.270 [Vol. 1:2671991] RESPONSE TO PARADIGM SHIFT IN AMERICAN HEALTH CARE 271capital investment into a risky new venture (i.e., railroads, cablefranchises, etc.).Secondly, utility regulation rarely works well in the long-run.Regulators are typically captured, such as in the savings and loanindustry, and technology erodes the natural monopoly such as forlong distance telephone services. In fact, utility regulation is a re-sponse to market failure, pure and simple.The social aspects of utilities are also debatable, although thisseems to be the underlying reasoning of the paper. Utilities do notguarantee "entitlement" of a service in the normal use of the con-cept. While they may require due process in the withdrawal of theservice, there is no guarantee of water or gas to someone who has noprospect at all of paying.Furthermore, utility regulation can be used as an off-budget, so-cial transfer mechanism by imposing an indirect sales tax on somecustomers through higher prices to subsidize others at a lower perunit price. This is not a particularly efficient means of financingsocial welfare although it may be politically prudent since no voteson taxes are necessary. The end result is the same, however.Health care has almost none of the characteristics of a naturalmonopoly. There are many substitutes and rampant technology ex-ists to erode any definition of services included. Entry barriers tonew competitors and the switching costs for customers are quitelow compared to other competitive business. In addition, aggres-sive new agents arising are increasingly effective in bargaining fortheir clientele. From a purely pragmatic basis one might concludethat a health care utility would be doomed to failure.Furthermore, utility regulation would be difficult, ineffective,and also doomed to failure. Regulation would be difficult in all re-spects and in great danger of being captured. It would likely beineffective in controlling costs. The pressure for innovation and effi-ciency in response to the marginal value required by a marketplacewould be focused through the regulator rather than diffused in mul-tiple powerful purchasers. Therefore the proposal may have littleimpact except by budgetary fiat.It is possible that Mr. Golenski's suggestion may encourage ac-cess, but only through a relatively inefficient, indirect taxationmethod. However, this may only allow the government to avoid itsobvious public duty to provide adequate financing for this socialgood. Thus, although utility type regulation may be a pragmaticway to handle a need perceived by a minority of the body politic, itHEALTH MATRIXis probably inappropriate as a long-run means of solving this basicdilemma of our health care system.THE OREGON PROPOSALThe proposed Oregon solution is, in fact, entirely consistentwith the market model as some would currently conceive it. This isbased on a perception of optimal value received for both the com-mercial product (i.e., paid health care services) and the social ser-vice side (i.e., uncompensated) health care. The unique aspect ofthe Oregon plan is the way collective guilt, or, more positively,"consciousness" is handled outside the normal political process.The external community based consensus process might blunt theusual role of providers as proxy representatives of the public withtheir obvious conflict of interest. It also allows something muchmore akin to a Pareto optimal condition to result than is usually thecase in the market for social goods as well as commercial goods.That is, there are likely to be no better solutions achieved thanthrough this process of priority ranking.The evidence on financing and legal reform actually realized(rather than what might be individually desired by any of us) isscarce. Likewise, there is no obvious shift in paradigm towards a"communitarian perspective." In fact, the government displays nopredisposition even to patch up the failures of the market based onindividual autonomy and choice. The key piece of evidence is therecent failure of the Medicare Catastrophic Care Act. Even withinthe limited community of the elderly, this cataclysmic politicalevent for health care policy clearly illustrates a lack of consensustowards a community perspective.Furthermore, the role of more effective agents in negotiatinghealth care is not consistent with the paradigm shift proposed byMr. Golenski. Corporate, cooperative, and government purchasersacting as agents for the underlying patient base have become in-creasingly aggressive in their negotiations with the industry on cost,quality, and with Oregon data, perhaps efficacy. There is no reasonto assume that this impulse for the best value in health carepurchases will suddenly change.In fact, the natural result of an increasingly competitive privatemarket is to highlight the failure of the private institutions of soci-ety to provide what is essentially a public product when they areforced to compete with each other. It may well be that providingthe social goods of health care (i.e., free care to the poor, education,[Vol. 1:2671991] RESPONSE TO PARADIGM SHIFT IN AMERICAN HEALTH CARE 273and other services) is simply incompatible with the competitionwhich inevitably arose under the conditions of the 80's. The cur-rent paradigm will hasten change in the public sector by showcasingthe failure of the private system to serve as a proxy for public ac-tion. As the number of uninsured and the documented cases of pa-tient dumping rise in number, our collective guilt will also rise.This is a precursor of political change.The Oregon approach is a logical response in the public sectorto the natural phenomena of market change. In my opinion, it doesnot signal a fundamental shift in philosophy in our country.CONCLUSIONI believe that the solution to this dilemma will come from acombination of several factors. Foremost is a heightened publicawareness. This may be evidenced through recognition of "collec-tive guilt" or the voting of additional financing. The Oregon Planmay do an admirable job of educating the population.Secondly, we need a more intelligent public role as a purchasingagent for the less fortunate of society. This may be evidenced bypayment reform and pricing under the Prospective Payment Sys-tems for hospitals or the Relative Value System for physicians. Theconsumer information implicit in the Oregon Priority Setting Sys-tem may be another element of this purchasing reform.Finally, we need a far better product from the sellers of healthcare based on science, service, and need. If providers were vying toprovide real value (not just volume per se) to all purchasers, publicand private, collectively and individually, we would move far to-wards the end goal of this paper.None of this is to detract from the humanitarian goal of provid-ing more health care to the uninsured or underinsured populationof the United States. That should be and will be the consistent goalof those of us motivated by a variety of forces and logic who believethis is appropriate. However, it is premature to declare a revival ofa human spirit based on a new age paradigm. Fortunately, it isquite possible to end up with the same conclusion on the value ofthe Oregon Plan based on an entirely pragmatic and completely dif-ferent set of logic than that proposed in the paper. In this sense,both Dr. Golenski and I wish the people of Oregon the best of luckin their brave venture.

Commentary by:  J.B. Silvers

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Commentary by: J.B. Silvers

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