Medicine Meets Wall Street
| Publication year | 2017 |
Medicine Meets Wall Street
Caroline Poplin
American medicine is Western medicine—Americans publish in other OECD countries' journals; Europeans, Canadians, etc. publish in ours. American healthcare finance and delivery systems, however, are uniquely our own, and have been in crisis since 1980. There is a continuous angry dispute among politicians and the public about where we are and how to proceed.
A. Background: Medicine
Although scientists started to develop the core of modern physiology and bacteriology in the late 18th century, modern medical practice really got underway in this country about 1875 with the development of anesthesia and sterile techniques for surgery. (Dr. Bliss, who attended President Garfield after he was shot in 1881, was probably the last prominent American surgeon who killed his patient by not using sterile instruments or washing his hands: the President died not of his wound, but of overwhelming infection introduced by his doctor.)1 Medicine—that is, non-surgical treatment of illness—came along later, although information about human health and disease continued to expand briskly. By the 1920s, X-rays, as well as insulin and thyroid hormones from animals had been developed. The first real breakthrough drug, penicillin, was not commercialized until 1946.2
The most important medical developments until then were in public health: infectious diseases were significantly reduced by vaccination (smallpox in the
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1820s, cholera 1897, diphtheria and pertussis 1920s) and public sanitation systems, starting in the West in the mid-19th century.
Diagnosis and treatment improved steadily in the forty years or so after World War II, but in the 1980s, with the acceleration of computing power and a flood of money from the Federal government (Medicare, Medicaid, the VA, etc.), the expansion of medicine really took off, with effective new drugs annually, greatly enhanced diagnostic tools and surgical techniques. Maybe the best example is HIV/AIDS, which went from an imminent death sentence in the 1990s to a manageable chronic disease ten years later.
Public health also made an important contribution: as the result of a vigorous public campaign, including ads (and ad bans), education, and smoking bans in public places—and despite ongoing vigorous opposition from the tobacco industry—smokers in the U.S. have dropped from 42.4% of adults in 1965 to 16.8% in 2014.3 The decline has undoubtedly led to a reduction in the incidence of cancer and cardiovascular disease.
However, the transformation of medicine has also created new problems. In the old days, one's family doctor could handle most medical problems, in or out of the hospital (except perhaps for surgery). Medical knowledge now expands so quickly and has become so extensive that no single physician can master it all: any serious medical problem requires input from various medical specialties, as well as other types of healthcare providers. Our traditional delivery system was not set up for this, and care has become fragmented, at worst with individual doctors working at cross-purposes.4 Another problem: the cost of this sophisticated care has skyrocketed, nowhere more than America. In 2015, the U.S. spent $3.2 trillion on healthcare (a 6% increase over 2014), or 18% of GDP, far more in percentage or per capita terms than any other OECD country.5 This is an increasing problem for payers, both private and public, and also an irresistible target of for-profit enterprise. Finally, modern medicine has transformed most important diseases from acute to chronic, a problem for annual insurance based on acute events.
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We have also learned that the health of any population depends on the so-called "social determinants of health", of which medical care is only one, and a small one at that; there are at least 11 others, including such things as income and social status, social support networks, education, environment, and so forth.6
One thing about medicine has not changed: there is still tremendous uncertainty about diagnosis and treatment. For any serious illness, today there are generally many more options to consider: different patients present differently, and respond to treatments differently. Clinical guidelines can only be that, not rules: there will always be false positives and false negatives, and patients who we say "did not read the textbook"—outliers. We cannot and should not standardize medicine the way we do manufacturing.
B. Background: Health Insurance
It is with regard to insurance that the U.S. differs radically from other OECD countries. Everywhere else, adequate healthcare constitutes a right. Insurance benefits are standardized and comprehensive; insurance is financed primarily by taxes (except in Switzerland and the Netherlands).7
Indeed, then Labor Secretary Francis Perkins suggested just such a plan to President Franklin Roosevelt as part of the New Deal, alongside Social Security.8 FDR thought it was a bridge too far, and so it remained with President Truman.9 President Johnson passed Medicare in 1965, a good start, but by 1970, American policy makers had different ideas.10
American-style private health insurance began in 1929, when doctors set up the first Blue Cross plan, which guaranteed hospital fees (paid to the doctors) for teachers for a small monthly premium.11 Blue Cross Blue Shield plans
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remained non-profit until 1994.12 Today, many are for-profit (although analysts argue that the excessive surpluses built up by BCBS non-profits through rate hikes make them indistinguishable from their for-profit brethren).13 The remaining large insurers are all for-profit, and are profitable indeed.
Today, most Americans receive their health insurance through their employers, and value it highly—indeed, proposed reduction in benefits, or higher cost sharing, are a major cause of labor unrest. However, the system works fairly well. Employers with a large workforce of mostly healthy people (someone is working, after all) have enough leverage to secure decent deals with even large insurers, who in turn get many thousand covered lives with just one negotiation, and maybe administrative assistance to boot. The employer has knowledgeable HR people who can bargain for a good package. The employer pays most of the premium, for which it gets a Federal tax deduction, the employees receive their benefits tax free.14 (Very large employers sometimes self-insure, and pay insurers only for administration.)
The sweet spot for health insurers, especially the smaller ones, were the small group and individual markets. These customers had no leverage against insurers, who competed for the healthy and wealthy only. Insurance policies for those at higher risk, or worse, with chronic disease, were very expensive or unavailable at any price. Most policies were complex, with all sorts of exclusions and limits.
The Affordable Care Act (ACA) targeted precisely this market. Between exchange policies and Medicaid extension, the law reduced the rate of uninsured Americans from 15.7% before the law was signed, to 8.6% this year, 2016.15 Sick Americans were overjoyed; many people got needed healthcare for the first time. But others who did not require care or did not qualify for large subsidies were angry at the expense—high premiums, high deductibles— and the coercion; important large insurers complained of losses despite the
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high premiums. All Republicans, including Trump, campaigned relentlessly against the ACA, and they won. The Republican replacement is likely to resemble the status quo ante, which accords with their views on health insurance.
C. Background: Wall Street
After World War II, corporate leadership in the U.S. believed their companies had duties to multiple stakeholders, including their communities, their workers, presumably their customers, and society at large.16 However, in 1970, Nobel economist Milton Friedman instructed businessmen that their sole mission was to increase "shareholder value."17 The corporate sector responded with enthusiasm. Executives who believed in the old ways were quickly replaced by devotees of the new. Insurers, hospitals, and other players in healthcare were no exception.
Meanwhile, we now have the most business-friendly Supreme Court since the 1920s; under Trump, it will only become more so.
Republicans believe that health insurance is just like car insurance— consumers should buy what they want and can afford.18 Republicans also believe that healthcare is just another commodity sold by just another business: the...
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