Understanding the “Rules of the Game” in Healthcare Reform

United States’ medicine, once regarded as the best in the world, is in a sorry state of health. Although U.S. life expectancy has risen by 8.3 years over the last half century, compared to medical progress in the rest of the developed world we are falling enormously behind. In 2010, the Commonwealth Fund ranked the U.S. last in its international comparison of health care systems, behind Canada, Germany, the Netherlands, Australia, New Zealand and the United Kingdom. Another report, by the editor of the Real-World Economics Review, ranked the U.S. 28th out of 30 countries, lagging behind not only Western Europe and Australasia, but also Poland, the Czech Republic, and Slovakia.

What does this really mean for the average American? It means that twice as many Americans die before the age of 60, as compared with Europeans. Greeks have access to twice as many doctors, and in Japan there are over three times as many acute care hospital beds. Infant mortality in the U.S. is more than double that of many countries in Europe, and life expectancy at birth is lower. America has a health care system that is frankly third-rate.

To add insult to injury, the U.S. has by far the most expensive health care system in the world – indeed, spending is the only category of health care in which the U.S. ranks first. Annually we spend more than double the OECD (Organisation for Economic Co-operation and Development) average on health care – $7,290 in tax dollars for every man, women and child in America. To make matters worse, only a paltry proportion of this figure is actually spent on health – the remaining monies are siphoned off all across the medical system, in multi-billion dollar leakages of which the public is largely unaware.

How do we explain the paradox that we have the most expensive health system in the world and one of the lowest performing? In search of answers, we need to take a different perspective from those ordinarily rehearsed.

To gain a better understanding of the situation, we need to take a perspective that focuses on the U.S. institution of medicine as a whole, and exposes the hidden rules by which this institution operates. As an economist and an academic working in the international health arena, with knowledge and experience of health care in the U.S. and across the world, we discuss how powerful organizations shape, control and perpetuate an ailing system that serves their own ends, and not America’s health needs.

The U.S. Institution of Medicine

The U.S. institution of medicine is not a single, comprehensive and cohesive system of health care. Instead, it is comprised of a myriad of large and powerful organizations, including the insurance companies, HMOs (Health Maintenance Organizations), corporate for-profit hospital chains, and pharmaceutical companies.

This institutional structure is large and vast, and has over the years has become ever more labyrinthine. Take for example the health insurance industry. There are hundreds of health insurance companies, each with a bewildering array of policies.

This is a system of health insurance so vast that many of the insured have no real idea of the type and extent of coverage they are buying, and what care they may ultimately receive should they fall ill. No wonder that many Americans have to carry more than one health insurance policy, or have Supplement Insurance Plans, to ensure that they are adequately covered. However, despite such an elaborate insurance system, many Americans are failed by the insurance companies. Between third and a half of personal bankruptcies result from the medical bills that insurance does not cover.

Setting the “Rules of the Game”

Not only is the institutional structure large, it is dynamic. That is, the structure itself actively creates, shapes and maintains the institution of medicine. It does this through what we label setting the “rules of the game,” that is by imposing the terms by which the system operates.

Insurance companies have set the rule “restrict choice and coverage.” They enact this through the creation of an elaborate system of co-payments and deductibles, exclusion clauses and loopholes, which are designed to deter patients from claiming the health care they need, and to override medical judgment as to the treatments patients receive.

HMOs have set the rule “manage care.” This rule serves to restrict patients’ utilization of health care, by limiting the number of treatments patients can have, the number of days spent in hospital, patients’ choice of provider, and even the specific doctor(s) patients can see. These rules deny patients access to the full range of treatment options and to the quality of treatment they require and to which they have a right.

The pharmaceutical industry has set the rule, “charge as much as we want, because insurance will pay.” This rule has resulted in prescription drug prices that are much higher than anywhere else in the world – nearly 60 per cent higher than in Canada and nearly 100 per cent higher than in Europe. Not only that, it has led to patients being prescribed sometimes unnecessary, often useless, and even potentially dangerous drugs – a recent study found that 85 per cent of all new U.S. pharmaceuticals either do not work, or have serious side-effects.

Corporate hospital chains have set the rule “test as much as we want, because insurance will pay.” Under this rule, they try to extend the insured patient’s range of tests and procedures. However, this can be damaging and costly to patients. Americans are routinely exposed to excessive x-rays, tests and operations. For example, unlike in much of the developed world, routine chest x-ray screening in America often involves the administration of x-rays both frontally and laterally, even where a single frontal x-ray may be sufficient for basic screening, unnecessarily exposing patients to higher radiation doses.

By each setting their own “rules of the game,” the large and powerful organizations that make up the U.S. institution of medicine shape the system to their own interests and distort health care. In creating the system they want, the institution of medicine has shifted the balance of health care provision in its own favor, to the disadvantage of patients. The average American plays little part in this process of determining the shape of U.S. health care, and gets what he or she is given. We are neither in charge of our own health care, nor of the health care system.

Complexity and Quagmire

As each organization is acting largely independently and setting its own “rules of the game,” what has emerged is a bloated and inefficient health care system, now mind-boggling in its complexity.

This complexity has created confusion for patients, administrators and physicians alike. It has led to the emergence of a huge administrative quagmire, which generates a mountain of paperwork inconceivable in any other health system in the world. Johns Hopkins Hospital for example, has to bill more than 700 different payers and insurers, each with their own stipulations regarding services covered, reimbursement, documentation, and pre-approval. Is it any wonder then that administrative costs account for more than 30 per cent of our health care spending – and even as much as 50 per cent according to some estimates – compared with other advanced nations whose expenditure on health administration is only 10 per cent?

Opportunistic Behavior and Taking Advantage

This complexity is highly conducive to opportunistic behavior, allowing organizations to take advantage of the system, and to make “supernormal” profits. We only have to look to the U.S. drug industry to appreciate the levels of profits that can be made. U.S. pharmaceutical companies’ profits are the largest in the world, and at a median profit rate of nearly 20 per cent, are four times higher than those of the average Fortune 500 company.

As each organization has created its own “rules of the game,” the institution of medicine has grown into a complex entity that few really understand. This very complexity actually works to the advantage of the organizations that comprise the system, creating an operating environment that allows them to siphon off billions of dollars. So, not only does this complexity make it extremely difficult for patients to obtain appropriate high quality health care, but they end up paying for it through the nose. It is one of the main reasons why the cost of health care has spiraled out of control. Indeed, over the last five years contributions to company health insurance have soared by 143 per cent, and out-of-pocket costs by 115 per cent.

Moreover, the complexity is designed to restrict policy makers’ ability to reform the U.S. health care system, since it makes it almost impossible for them to see through the impenetrable fog of a system that has been created, and to identify where to start to disentangle it.

Preserving the Status Quo

This large, highly complex and confusing system of health care creates the ideal operating environment for the organizations that have created it. The complexity and resulting confusion help these organizations to perpetuate the current system and preserve the status quo. Although each organization sets their own “rules of the game” individually, they are at the same time strongly and deeply interlinked. When necessary, they will cooperate and collaborate to protect the system of health care that they have devised, so that it remains intact and continues to serve their own interests.

Whenever reforms threaten, they band together. For example, they oppose the formation of a regulatory authority – the proposed American version of the UK’s National Institute for Clinical Excellence – which seeks independently to test and evaluate the relative merits of drugs and medical procedures. They do not want these ever tested by an independent body, since losing such decision making power would weaken their control, and ability to shape the health care system.

So, not only do they set the “rules of the game,” but through these strong and entrenched relationships, they work together to stabilize the system and create institutional inertia. Through the creation of this impasse and their strong motive to maintain the status quo, it is almost impossible to dismantle the system, and easy to resist reforms to health care.

Real Reform Requires Understanding the “Rules of the Game”

The sum of the “rules of the game” devised by the collaborating organizations, and shaped by their interests, has resulted in the fragmented, haphazard and broken system of health care in the U.S. Reform is long overdue.

To make any inroads toward meaningful reform, we need to begin by first identifying and understanding who is setting the “rules of the game,” what the rules are, and how these rules are being used to exploit the system of medicine. Only in this way can we truly understand how the system is being shaped, and begin to treat and heal our ailing health care system.

Real reform demands a fundamental transformation of the “rules of the game” that govern the prevailing institution of medicine. Until then, any reform, whosoever proposes it, will merely amount to tinkering with the system, and is ultimately doomed to fail. It is only through such root and branch reform that we can ever hope that our tax dollars are spent on health, instead of propping those organizations with a vested interest in maintaining the status quo.

If fundamental reform of the “rules of the game” of U.S. health care is not forthcoming, and institutional inertia is allowed to persist, the cracks in the system will become critical. If unchecked, by 2015, one-fifth of the country’s expenditure will be spent on health care, and yet at the same time we face the looming possibility that we will fall still further in international rankings of health care quality. Even worse, we may actually find ourselves overtaken by China, which in three years’ time will have extended health care to all its citizens.

For how long are Americans going to have to do without the quality of health care that so many other countries now simply take for granted?

Word Length (Excluding Title and Authors’ Names): 1,994

About The Authors

Dr. Salinder Supri

Director and Chief Economist

Änderung Consulting

New York, NY.

Prof. Karen Malone,

University of Medicine and Dentistry of New Jersey

Newark, NJ.

Author's Background

The authors have worked at senior and executive levels in the United Kingdom and New Zealand, and have published together and separately, on a variety of topics and areas including Enterprise and Entrepreneurship; Economic and Business Development; Institutional Economics; Health Policy; and Education Reform. Most recently the authors have published “On the Critical List: The US Institution of Medicine,” in the American Journal of Medicine, March 2011 issue. This can be downloaded from: http://download.journals.elsevierhealth.com/pdfs/journals/0002-9343/PIIS0002934310009988.pdf

Corresponding Author

Prof. Karen MaloneU

niversity of Medicine and Dentistry of New Jersey

65 Bergen St., Rm. 160

Newark, NJ 07107-1709 U.S.A.

Phone: 00 1 973 391 5518

email: karen.m.malone@gmail.com