The promises and perils of treating patients more like consumers.

How to fix health policy.
Sept. 28 2009 1:28 PM

Talk to the Invisible Hand

The promises and perils of treating patients more like consumers.

Hospital.
A patient in a hospital

Five years ago, former President Bill Clinton developed chest pains caused by blockages of several coronary arteries. After going to a small hospital near his home in Chappaqua, N.Y., Clinton had further tests at nearby Westchester Medical Center, where cardiologists suggested that he undergo surgery at Columbia-Presbyterian Hospital in New York City. Clinton's condition required a complex procedure called coronary-artery bypass grafting, in which blood vessels are harvested from the patient's legs or chest and sewn around the heart to "bypass" the blocked arteries.

It's hard to imagine a savvier, better-connected health care consumer than the former president. But consider this: Beginning in 1991, state health officials in New York began releasing hospital- and surgeon-specific death rates from heart surgery. Anyone can see them online. At the time of Clinton's surgery, the most current report showed that Columbia-Presbyterian had the highest death rate of any of the 35 hospitals doing bypass surgery; it was twice the expected rate (about 4 percent instead of 2 percent, a margin not explained by random chance). Clinton's surgeon was the chief of cardiothoracic surgery, a man named Craig R. Smith. Among the four surgeons at Columbia-Presbyterian who performed more than 100 bypass surgeries each year, Smith had the worst mortality rate. (After the procedure, notably, Clinton suffered a complication requiring yet another major surgery.) According to the New York Times, there was "no indication that the Clinton family was aware of the state report."

Mortality statistics from heart surgery accurately predict future death risks (both for hospitals and individual surgeons) and also catalyze targeted improvement efforts. But Clinton isn't alone in overlooking them. Studies show that most consumers don't bother looking for this information; physicians also wrongly dismiss the statistics and fail to inform their patients about their existence.

Advocates for consumer-driven health care often claim that patients should have "some skin in the game" by sharing decision-making power for their medical care. This depends on patients making informed decisions about their care based on quality and price—but as the case of Bill Clinton demonstrates, even the brightest, most educated people don't always do that reliably. (Perhaps patients suffer from the Lake Wobegon effect: Though suspicious of the medical system, they think their own doctors and surgeons are better than average.)

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Fine, one might argue: Patients and doctors may not seek out the highest-quality care even when the data are easily available, so let's forget about that. But maybe by shifting costs to the patient, we'll save the system money in the end. To date, only one study from way back in 1982, the remarkable RAND Health Insurance Experiment, addresses this question clearly. When patients were forced to shoulder one-quarter of their medical costs, for example, overall medical spending fell a remarkable 20 percent. But the pattern was telling. Patients failed to spend their money wisely and cut back equally on highly effective and largely pointless treatments. They couldn't tell what really mattered. The cost savings mostly came from avoiding doctors altogether. Once someone was ill enough to need hospitalization or surgery, there was no difference in costs between those with free care and large co-payments.

The bottom line is that patients failed to negotiate for fewer and cheaper medical procedures just because their own money was at stake. That's unsurprising: Patients are entirely at the mercy of doctors, given their information asymmetry. (What parent, for example, would question my recommendation for a specific type of Doppler color flow imaging necessary to ensure their child doesn't have a potentially fatal cardiac defect?)

In short, the usual rules of the marketplace seem not to apply to health care. When left to their their own devices, buyers ignore product quality, fail to value goods properly, and overpay vast sums. (Weirdly enough, they're also happy as clams with the results.) Yet every health reform bill with a chance of passing involves significant cost shifting to patients. Like it or not, patients will have to be better consumers. That's why it's critical now to fix the failures of the market before we throw open the gates for business.

In fact, Americans just went through a similar process in 2006, when we started a $500 billion universal health plan to cover prescription drugs for seniors without thinking through the details. In their book Nudge, Richard Thaler and Cass Sunstein argue the fundamental problem was a lack of "choice architecture" to help people make smart decisions. The default option for most seniors was nonenrollment, there was no guidance on how to choose among tons of complex plans, and it contained a baffling provision called a "doughnut hole" in which coverage stops and starts up again. One enrollee called understanding one's plan "a full-time job." These problems would be nothing compared with those coming with national health reform.

People need nudges to make good health care choices, and that means investing money in a federal program that continuously tweaks thousands of little pushes that must be built into the system. (Sunstein and Thaler call this a policy of "libertarian paternalism.") Worried that consumers are buying the more expensive, less effective blood-pressure pill? Have the FDA redesign the drug labels to steer patients to the right choices. Are heart surgery patients inexplicably going to the fancy hospital with worse outcomes? Consider jacking up the co-pay for underperforming centers to discourage patients from going there. Are people often choosing insurance that doesn't pay for regular pediatric checkups? Make sure that the default insurance choice for families includes full coverage for checkups. Worried that doctors are ordering too many expensive CT scans? Require hospitals to have a "radiation account" program to let patients track their cumulative lifetime radiation exposure (and their cancer risk) to discourage too many scans.

Critics of more health care "choice architecture" might see a slippery slope where the government meddles in all sorts of other ways, like taxing sugary sodas. But they don't realize there are forces that already shape patients' care, often for the worse. Consider what happened to Bill Clinton. He had a cardiac catheterization at a hospital with a referral relationship with Columbia-Presbyterian and thus was at the mercy of the system.