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It is probably no accident that one of the leading American enthusiasts for consumer-directed health care (CDHC), Regina Herzlinger, is a faculty member at the Harvard Business School. Not only does she draw her model of health care directly from the business community, she also touts it with all the verve of a campaign worked up by the school's marketing department: ‘The US health care system is in the midst of a ferocious war … a system controlled by the insurance companies or hospitals or government will kill us financially and medically … there is only one group that can prevent this damage: consumers – you and me – working together with our doctors’ (Herzlinger, Reference Herzlinger2007: 1). It is probably no accident either that consumer-directed health care seems to be an excessively American idea, a combination of our distrust of government, our hyper-individualism, and our love of the market. Nonetheless, other countries I gather are flirting with the idea in one form or another.
I cite Herzlinger because she is one of CDHC's more colorful and prominent proponents, particularly in the pages of influential newspapers such as The Wall Street Journal. That paper is one of the strongest supporters of George W. Bush's campaign to privatize as much of America's health care as possible, and consumer-directed health care is one of the leading means of doing so. While it is possible to separate the politics of consumer-directed health care from its economic substance, as I will shortly try to do, that combination has given it more public clout than economics alone.
If the economic aim of CDHC is to empower patients to be thoughtful consumers, its political aim is to move American health care away from a fee-for-service model. That model encourages patients to be ignorant of and indifferent to costs. CDHC will force them to make sensible choices based on value for money – their money, and not that of government or insurers. CDHC rests on the premise that health care can successfully be treated the same as other commodities, that patients should be free to choose their own form of health care, and that they should be able to select from among robustly competitive private-sector insurers.
If those goals can be accomplished, the argument goes, the result will be a high-quality, economically efficient system. That promissory note is for many most appealing, particularly at a time when almost all observers, not to mention the general public, believe the American health care system is in deep trouble, beset by some 47 million uninsured and by a 7% annual cost inflation rate, projected to double in a decade or so. I will focus on the American scene, not only because I know it better but also because, though relatively new, it has been studied and analyzed. I will not take up another form of medical care, also called consumer-directed, which has been embraced to improve long-term care for the elderly and younger people with disabilities. Its aim is better self-care and integration of care services and it does not focus on cost control or overall health care reform as the mainline CDHC does. It is sometimes known as the ‘independent living model’, and has been taken up in Austria, Germany, and The Netherlands (Kodner, Reference Kodner2003). The premise CDHC embraces is a direct rejection of the much-cited argument advanced by the Nobel laureate Kenneth Arrow in his 1963 article ‘Uncertainty and the Welfare Economics of Health Care’ (Arrow, Reference Arrow1963). Health care, he contended, is different from other areas of economic activity, presenting many features that make a good medical market hard to achieve. The nature of demand for health care is ‘irregular and unpredictable’; the patient is forced to trust his physician, lacking the latter's knowledge and experience; the customer ‘cannot test the product before using it’; ‘recovery from disease is as unpredictable as its incidence’; and entry into the field of health care is limited by professional and licensing restrictions.
For many years there was little opposition within health care economics to Arrow's thesis. Long afterwards, however, in a special issue of the Journal of Health Care, Policy and Politics devoted to Arrow's work, James C. Robinson sharply broke ranks by writing that ‘the most pernicious doctrine in health services research, the greatest obstacle to clear and successful action, is that health care is different … To some within the health care community, the uniqueness doctrine is self-evident and needs no justification’ (Robinson, Reference Robinson2001: 1045). To judge health care ‘different’ is to block many management techniques that could be effectively used in health care organization.
Supporters of CDHC agree with Robinson's judgment but came to it on their own, stimulated by the success of the market-oriented business community. That community has thrived on consumer choice and commercial competition, and it has improved quality and lowered costs for its products, stimulated innovation and raised everyone's standard of living. What better model for emulation could there possibly be? Translated into the lay vernacular, ‘consumer-directed health care supposes a new formulation – one driven by consumers with cash-in-hand, demanding to know for themselves who is the best urologist in town, what are my treatment alternatives, why is this hospital billing so much for a Tylenol, why can't I read this prescription, where is the nurse when I need one, how do I get the most value for the money I'm spending?’ (Scandlen, Reference Scandlen2004: 1117). As that quotation suggests, it will be perfectly appropriate for those consumers (once known as patients) to be demanding, insistent, impatient, carping, and Scrooge-like when double-checking their hospital bill for Tylenol charges.
I will turn to a more formal examination of CDHC, without the vivid color and heated enthusiasm, often evangelical in flavor, that many of its proponents display. A good place to start is with a more technical definition of what CDHC is, and this one is useful: ‘Many would agree that the term generally refers to a health benefit design where consumers have a high deductible insurance plan, a personal account funded in various ways to pay for care, a gap between the annual amount put into the account, and an internet-based decision support system’ (Clancy and Gauthier, Reference Clancy and Gauthier2004: 1049). By a ‘high deductible’ is typically meant $1,000 or more. There are two forms of such plans, a health savings account (HSA) and a health reimbursement arrangement (HRA). The former allows employees to put money, tax free, into a savings account, and to take money out. Also required, however, is a parallel insurance policy to cover catastrophic costs, which is where the high deductible comes into play. An HRA by contrast is an employer-funded savings account to achieve the same end, but will not necessarily require a parallel catastrophic insurance policy.
Now assuming that a British or European reader can make sense of all this – which so far as I know has no parallel in their health care systems (and which is relatively new for Americans as well) – the story is actually a bit more complicated than I have so far implied. Regina Herzlinger, for instance, celebrates the great possibilities of consumer choice and savvy, of a kind they display when buying automobiles and cell phones. Once free from the grip of academic elites, government, insurance companies, hospitals, and sometimes even doctors, they will make good choices and, along the way, force providers to do a better job. But a Harvard Business School colleague, Michael E. Porter, is co-author of a book that is skeptical of overly strong claims about consumer sovereignty: a patient's relationship with his doctor is not the same as with an auto salesman (Porter and Teisberg, Reference Porter and Teisberg2006) Their contention is that the key to a more robust system is competition for value; that is, the quality of health outcomes. They support CDHC, but say that it cannot achieve its potential in the face of dysfunctional competition, by which he means competition to shift costs, to increase bargaining power, to capture patients and restrict choice, and to reduce costs by reducing services. They call those tactics ‘zero-sum’ competition (Porter and Teisberg, Reference Porter and Teisberg2006: 35).
An interesting exchange in Health Affairs in 2006 brought out some variants on the nature and aims of CDHC. The lead article, focused primarily on costs and quality, presented a consumer-oriented emphasis ‘to provide consumers with incentives to use care wisely and shop for high-value services’ (Buntin et al., Reference Buntin, Damberg, Haviland, Kapur, Lurie, McDevitt and Marquis2006: w516). But each of the three respondents to the article had a different interpretation of its aims and significance. One of them argued that the emphasis on consumers was too narrow. The broader problem is the need for ‘quality-based benefit design’, and said that to shift costs to consumers is a ‘threat to access and evidence-based medicine’. Moreover, there is now an expectation that all health plans provide good patient information and support.
Another respondent, Tony Miller, a cofounder of Definity Health, one of the earliest consumer-directed health plans, rejects the view that CDHC is just a way of shifting costs to consumers and helping them to make ‘rational economic decisions’ (Miller, Reference Miller2006: w549). It is instead ‘about a change in the way we are going to finance our consumption of health care services so that users of those services have more control over how the dollars are spent’. The third respondent, John Goodman, contends that CDHC is essentially a rationing device to stem an unsustainable rise in health care costs, a disastrous trajectory. In the end, it will be patients themselves who must make the hard choices ‘between health care and other uses of money … [and] it is appropriate and desirable for people to make these decisions themselves – and to reap the full benefits and bear the full costs of their decisions’ (Goodman, Reference Goodman2006: w540–w541). Goodman well articulates – but favorably so – just that view which those suspicious of the motives behind the rise of CDHC hold: that HSAs are a ‘small but important step in the direction of a health care system in which individuals ration their own health care, instead of having those decisions made by impersonal bureaucracies or doctors who answer to those bureaucracies’.
Those variant interpretations of the meaning and direction of CDHC force a consideration of the role that politics and ideology play in its promotion. From President Bush down through conservative and Republican ranks, the specter of ‘socialized medicine’ is the political goad to keep the US from moving in the direction of a government-run or regulated universal health care system, about which enough bad things cannot be said. While proponents of CDHC surely share that bias, most agree that there must be a government role to care for the poor and the elderly; but, beyond that safety net, the less government the better. Patient choice and provider competition for everyone else is made to order from that perspective, and the much celebrated private sector – held up as a model of efficiency, quality and cost control – provides a template to make it all work.
That much said, the language of politics and ideology is more observable in the public media and in conservative blogs than it is among health care economists and professional health policy analysts. The latter have brought to bear their technical skills to examine the CDHC phenomenon, both favorably and unfavorably. Almost all of them make a point of noting that it is a movement and set of ideas that have not been around long enough for any definitive judgment; the ‘jury is still out’ is a common phrase. And as might be expected there is a range of tentative judgments, primarily bearing on the control of costs, quality, patient, and employer satisfaction, and the likely future of CDHC.
The focus of analysis has primarily been on four issues: the extent of growth and popularity of CDHC, its impact on costs and quality, its potential for inequity, and the possibility of meaningful patient choice. Almost everything we know comes out of CDHC's early days, and a new round of studies of more recent developments have yet to appear.
Extent of growth and popularity of CDHC
Despite earlier expectations that CDHC plans would grow rapidly, that has not happened. As of 2006, only about 4% of eligible employees were enrolled in such plans, about the same as the previous year. Employers from large businesses were more likely to offer such plans, but they do not have much hope that such plans will reduce costs. While there has been a fair degree of patient satisfaction with the CDHC, the reports on the availability of the information they need to make good choices has sometimes been difficult to find (Christianson et al., Reference Christianson, Parente and Feldman2004; Fowles et al., Reference Fowles2004).
Impact on cost and quality
Despite employer skepticism about cost reductions from CDHC programs, at least two studies found there were some (Gabel et al., Reference Gabel, Whitmore and Sasso2007). One of them was particularly optimistic, finding that costs in their study were lower and achieved without a negative impact on health (Bertko, Reference Bertko2004). Another found that, while costs were lower, participants had a higher rate of resource intensive hospital care (for reasons that were unclear) (Parente, Reference Parente2004). Still another study concluded that lower costs and lower cost increases were achieved, though the specific magnitude was not specified. But the evidence on improvement of quality was mixed (Buntin et al., Reference Buntin, Damberg, Haviland, Kapur, Lurie, McDevitt and Marquis2006). One commentator noted that various studies ranged from the somewhat unfavorable to the highly favorable, indicating that context, location, and different plan designs led to different responses. But for him that poses no problem: market plans (unlike those set by government) are open to change and correction (Scandlen, Reference Scandlen2004). Everything can be altered and improved in the market; like the famous river of the ancient philosopher Heraclitus, one never steps twice in the ever-changing market.
George C. Halvorson, however, is exceedingly skeptical that CDHR can achieve any significant cost savings: CDHC plans allow their participants to use the money available to them from their medical savings account to pay those costs they choose to pay by deciding to obtain or not obtain possible health care. But this will only make sense with low-cost treatments, and those are not the important costs. It was known long ago that co-payments and deductibles will lower health care utilization, but, for the most critical illnesses, they make no difference. As Halvorson reminds us (of something known, but usually ignored), ‘The vast majority of people use almost no care. Seventy percent of the population, in fact, use less than 10% of all care dollars, and 5% use an absolute majority of all money spent on care’ (Halvorson, Reference Halvorson2004: 1119).
Potential for inequity
A persistent worry from the outset of CDHC has been its potential for inequity (Bloch, Reference Bloche2006). Would it attract only the well and the affluent, not the sick and the poor, and craftily shift costs from employers to employees? It is hard to imagine a more harsh evaluation of the meaning of CDHC than the following: ‘Driven by a philosophy that favors unbridled faith in the free marketplace, the year 2003 may well go down in health care history as the year that the health care system officially abandoned the premise that a community has a responsibility to care for each member, replacing it with the philosophy that individuals should each look after themselves’ (Shearer, Reference Shearer2004: 1159).
The reference is to the passage by Congress of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA), an Act that was President Bush's most important effort to privatize more of American health care. In addition to providing prescription drug coverage for the elderly for the first time (much to the irritation of some even more zealous market proponents), it also set in place Health Savings Accounts (HSAs), an important stimulant for CDHC. For supporters of universal health care, that was an important setback and obviously, for Shearer, a symbol of a disastrous downward slide. And we might recall that Dr John Goodman, cited above, thinks that is just fine.
The reality so far seems far less disastrous than Shearer imagined. The slowness with which CDHC is being taken up, the mixed reports on whether it attracts only the affluent and the healthy (though the general trend has been that it disproportionately attracts high-income and high-status employees), suggests it is neither going to be as bad as some think nor as much of a help to American health care as its supporters hope. Karen Davis, President of the Commonwealth Fund, concluded that the HSR study I have frequently cited, suggested that CDHC did not show great promise for major health reform: ‘Consumer-directed health care – if it is primarily a tool for shifting costs from employers to employees – will quickly be discredited. A strategy aimed primarily at providers to identify, demand, and reward high performance, with positive incentives for consumers in a complementary role, is likely to have greater long-term success and adaptability’ (Davis, Reference Davis2004: 1230).
The probability of informed patient choices
Two notes that rarely get struck in the debate on CDHC are those of medical uncertainty and medical probabilities. They are central realities in clinical medicine. In a large number of cases, the proper treatment of patients is uncertain and the outcome of those treatments is no less uncertain. In equally large numbers, almost everything in diagnosis and just about everything in treatment outcomes is a matter of probabilities as well. Doctors are often uncertain because a knowledge of the general probabilities of a particular course of treatment is not a certain predictor of what will work with individual patients. The uncertainties and probabilities become all the more common, and perplexing, with critically ill patients suffering from multi-organ failure, often the most expensive patients and prime consumers of ICU beds and intensive treatment time. CDHC supporters pass too easily over these everyday complexities.
If doctors have trouble diagnosing and treating patients, a much-cited study of cost-sharing by patients carried out by the Rand Corporation and directed by Joseph Newhouse in the early 1970s (well before the CDHC era) showed that, in making cost-sharing decisions, patients can make wrong as well as right choices (Newhouse, Reference Newhouse1993). An important aim of the study, conducted as an experiment, was to test the economic theory that patient cost sharing reduced health care services; and that turned out to be true. But if in general there were no significant harms from using fewer services, patients also had no good way of distinguishing between care that was needed and care that was not needed. Moreover, the poor were more likely to delay getting treatment than the better off, incurring later harm. Many contemporary proponents of CDHC would respond that greater transparency, more information, and patient education can reduce that hazard, but that remains to be seen.
A more fundamental problem is the assumption that, properly equipped with savvy and information, patients can make their way through the health care system. But it is striking that the complexity of many medical decisions are scanted in the CDHC literature. The working premise seems to be that new and modernized patients will be of full mental capacity, rational in all things, saturated with the latest and best information culled from the best internet guides, and tough enough to fight their way past paternalistic doctors and slow-moving nurses to get their own way.
Consider a real life person: me. Trained as a philosopher I am a professionally certified rationalist. And as someone who spends his time in medical circles, I think I am reasonably well-situated and sophisticated enough to be an ideal consumer. Recently, I was put to a test, one that my older male readers will recognize. My physician discovered an elevated PSA score (a possible symptom of prostate cancer), and one that was rapidly rising over a short time. He quickly and repeatedly insisted that I was free to make my own choice about further treatment. He recommended a biopsy, but along the way I had discovered that some urologists think PDS tests are so unreliable they personally refuse to take them. Others believe that, as someone past 75, there is not much point in taking one anyway, and even less point in having a follow-up biopsy. Since I am 77, I felt that for once old age was a blessing, sparing me the need for a biopsy. But I also discovered that by no means do all physicians accept that limit.
The more I read the more uncertain I became about what to do, and the more I pressed my physician and other medical colleagues the more it all came down to probabilities, and different clinicians often attach different meanings to the same probabilities. You are not necessarily going to die, I was reassured to hear, but ‘you are at increased risk’, a phrase I could get no doctor to attach a number to. But in the end, I did what many others do in a similar situation: I did what my physician recommended and had the biopsy. He had, after all, treated many patients with potential or actual prostate cancer. He had experience and I did not, and I was in no position to judge among the warring factions on the treatment of that disease. The biopsy was negative, which was a good thing. The medical disputes about how best to treat prostrate cancer are even more controversial than whether to get screened for it in the first place. The urologist who performed the biopsy asked me to come back for another blood test in six months. A year has passed, and I have not done so, nor do I intend to do so. I started out as a self-directed consumer and ended as a defeated consumer.
I am certain most readers of this paper, either through personal experience or that of family or friends, can tell a story of medical uncertainties in treating serious conditions. As my wife, suffering once from some obscure long condition, observed ‘modern medicine is just wonderful but less good with whatever your personal illness happens to be’. An exaggeration perhaps, but not by much. Paul Ginsburg, an economist and President of the Center for Studying Health System change, has written ‘to pretend that consumers alone can transform our complex, fragmented system is naïve at best and disingenuous at worst. Current efforts to increase price transparency often downplay the difficulty of medical decisions, patient's dependence on physicians for treatment guidance, and the need for meaningful information on quality’ (Ginsburg, Reference Ginsburg2007)
Ginsburg does not deny the benefit of choosing providers that offer better values and agrees that some market pressures will lead providers to improve their performance on both cost and quality. But, unlike much writing on CDHC, there is some important clinical realism that he reminds us makes the purchase of health care far more complicated than buying a car or refrigerator. I might observe as well that, if there came to be many consumers of the obnoxious kind described above by Scandlen (2004), physicians and nurses would be sorely tempted to prematurely pull out a few tubes and turn off some respirators to shut them up. Fortunately, I would surmise that patients with any common sense would determine that getting one's doctors and nurses angry is not a good idea. Our car dealer has no power over us, but however sophisticated we may be about the kind of care we want, we cannot get rid of the fact that doctors and nurses have more power over us than we do over them.
Consumer-directed health care: promise or puffery?
I believe a distinction can be made between patients who inform themselves about the best available physicians, hospitals, and clinics, who try to educate themselves about the choices they will have to make, economic and medical, and who expect their reasonable wishes to be honored – and those who embrace CDHC in its most ambitious reform models. The former should also be wise enough to know that medical care is filled with uncertainties, that they will have to trust their physicians, and that things can turn out poorly, and go from bad to worse. The commercial model of health care, extrapolated from the commercial sector has some severe limits. A new model is undoubtedly coming into being, still in the making, the result of better-educated patients, a gradual change in the once wholly paternalistic doctor – patient relationship, and in the information available to patients.
But there remains an irreducible and eventually inevitable part of the medical experience. We will at some point, and perhaps often, be weak and uncertain, not at our rational best, not knowing what to make of the information we receive (almost guaranteed with any serious illness to be conflicting, one group of experts rejecting another, leaving us at sea). As we get older, and more of our organs start falling apart, our brains if not demented just a bit fuzzier, our vulnerability, our human finitude will increasingly assert itself. The smart consumer, the good shopper, the self-confident directed autonomous self will fade away, nostalgically longed for but no longer present. Consumer-directed health care appears to be a good fair-weather friend, up to dealing with a small squall, but not really bad weather.
I have said little about health care competition other than to cite the work of Porter and Teisberg (2006). Consumer-directed health care, to be successful in controlling costs, must give patients a competitive range of choice on the price of care, where they receive it, their physicians, and its quality. Otherwise, choice becomes meaningless. At least in the United States competition in the private sector has not been able to control costs (now increasing at a rate of 7% a year) and, given the likelihood that if CDHC does have some success in controlling costs, it will be at the margins, not in critical care medicine where the heaviest costs appear.
Nor can one ignore an international phenomenon: health care and competition are always likely to be more robust in densely crowded urban areas than in distant suburbs or rural settings. In the latter areas, there will be fewer doctors to choose among, and fewer hospitals and clinics available. There is no obvious way to overcome disparities of this kind, at least none in any country I have heard of (ask the Canadians, Alaskans, and Swedes about achieving equitable care near the Arctic Circle). Small, scattered communities are not places rich in doctors to choose among or in hospitals to provide care. As Henry Ford once remarked of his model I: ‘You can have any color you like as long as it is black.’ That's as close as many people will get to meaningful choice and competition in health care.
Consumer-directed health care: promise or puffery? A little of both but more puffery than promise.
