The “Business”—or “Public Service”— of Healthcare

Abstract

From an international perspective, U.S. health policymaking is quite distinctive. Other economically advanced nations face the same problems of cost, access, and quality, but none use policymaking structures that resemble ours. To a great extent, the same American “exceptionalism” is evident when analyzing the values that motivate health policymakers. The American people have never truly resolved for themselves the fundamental question that must be considered when directing the objectives of health policies: Is American healthcare a business, a public service, or something in between? Most other wealthy nations have concluded that healthcare is primarily a public function, and have established systems with objectives directly or indirectly set by government and primarily paid for with tax dollars. In contrast, the United States maintains a mixed public-private sector system with no centralized policymaking or financing organization.1 Certainly, the resulting decentralization and flexibility in American health services has its advantages. On the other hand, many important financing and service questions are never resolved, since their solution would require ultimate priority setting by policymakers and, more broadly, by the American people. Irresolution as to whether healthcare is first and foremost a business or a public service is at the heart of major contemporary public policy problems. The following are two important examples. Academic health centers (AMCs) and the public goods of health education and research. Since the beginning of the 1980s, federal policymakers have generally encouraged competition between health providers, with the reasonable expectation that such competition would limit cost increases, encourage the development of a customer (or at least payer) service orientation, and lead to innovations in service delivery. This approach has had positive results in terms of reduced cost inflation and innovative service delivery methods. However, most health industry reform and innovation relies on certain “public goods” being present in the system as a whole. Just as all of us assume that we will have clean air and water as we live and do business, healthcare providers, when engaging in marketplace competition, assume that adequate numbers of trained health professionals will be available to staff their organizations. They also assume that a steady stream of technological advances will make state-of-the-art health services possible. Finally, since society seems to feel that all of its citizens deserve at least a survival level of health services, they have further assumed that other institutions, primarily public facilities, will provide services to those who cannot pay for them. But nongovernmental healthcare providers are not willing to directly pay much for these “public goods.” By and large, they simply expect that public institutions, particularly academic medical centers (AMCs), will provide these goods while they engage in the more lucrative business of market-based health services. However, AMCs have not been provided immunity from the cost pressures resulting from treating healthcare like a “business.” They are told to shape up and compete like other health providers in the marketplace, but they are also told to provide educated health professionals and research products to their competitors, and to take nonpaying patients off their competitors' hands. The funding that they need to do this cannot come primarily from their patients (customers), since a high proportion of them are uninsured and pay little or nothing for the health services. Other traditional sources of funding, including state appropriations, a “disproportionate share” from Medicare, and cost-shifting of uninsured care services to paying patients, are rapidly drying up. Employers paying for the care of their workforce will not pay for others who have no money, nor will they pay more for services because those providing them are also doing research and educating future health professionals. Therefore, most AMCs simply cannot compete in the marketplace. Even if the centers were run at peak efficiency (which they are not), they could not provide services at the prices offered by non-AMC hospitals, clinics, and physician group practices. Are AMCs businesses? If so, they probably cannot succeed as currently structured, because they are forced to provide unprofitable products like education, research, and “free” care. Are AMCs public services, providing unreimbursed health services, education, and research for the healthcare sector as a whole? If so, they cannot properly do their job if they are forced to compete with non-AMCs for survival, because they cannot meet marketplace prices without seriously damaging their educational, research, or service outreach missions. Medicare—A public institution to guarantee health equity for seniors, or a funding mechanism to provide marketplace choice for seniors? Viewed in terms of its original objectives—to reduce medical poverty for seniors—Medicare has been a major public policy success. In some ways it has been too successful. The open-ended commitment to services, along with the “graying of America” and healthcare technological advances, have led to major financing problems for Medicare. Quite properly, the federal government has begun to tighten Medicare's financial spigots. European nations, with publicly run and financed health systems, face the same problems, and can respond quite decisively. To elderly pensioners and their health service providers, European policymakers usually claim that they are doing as well as they can, and will provide more funding in the future, but must balance current public needs with available resources. No European would argue that this is ideal, but most would agree that public policymakers do have to make difficult tradeoffs.2 In the United States, however, healthcare providers are not charged with serving the national interest in carefully providing a public good. Rather, they are called upon to meet consumer demands in an evolving marketplace. Medicare is not a national health service. It is a complex system of writing and disbursing checks to providers for specified services to defined clients. On the one hand, the program is supposed to provide healthcare equality to seniors, so it has nationally defined benefits and prohibits balance billing. On the other hand, it does not take responsibility for providing the services themselves—that would be interfering with the marketplace. In fact, in recent years, Medicare Part C has been created to enhance the role of consumer choice in the marketplace. As Medicare has developed, this conflict—fulfilling a national mandate through the “business” of healthcare—has resulted in the creation of incredibly complicated payment guidelines. Providers have to devote large portions of their resources not to health services, but to Medicare “compliance.” They are also subject to progressively expansive federal mandates (such as the adoption of computerized patient records suitable for uploading into national databases for research purposes) that force them to restructure their organizations. Their consumers now supposedly have greater flexibility and choice, but that choice cannot entail paying more for any particular service; healthcare providers must follow detailed reimbursement schedules. At least, one supposes, U.S. providers can be thankful that they are in the “private” sector, unlike their unfortunate European counterparts, who have lost their independence to “big government” and “socialized medicine.” Is Medicare supposed to be a public commitment to healthcare equality for seniors? Then, as currently designed, it cannot guarantee equal services, since it lacks the direct controls over service provision found in (say) the National Health Service in the United Kingdom. Or is Medicare supposed to be a generous subsidy to the elderly so that they can obtain their healthcare in the marketplace? Then it is extremely inefficient, for it gives the money to the providers (along with damaging and cumbersome regulatory oversight) rather than empowering the senior “customers” to buy their own services (at whatever prices they negotiate) through direct cash payments or vouchers. The United States is now muddling through the unresolved conflict of health services as a business or as a public service. If AMCs are threatened with bankruptcy because of their divided missions, national and state governments will respond with arbitrary relaxation of the equally arbitrary cuts in disproportionate share, or provide some additional health research funding and student loans, which may tide the AMCs over until the next crisis. If Medicare rules (to preserve public control) lead to numerous federal indictments for reimbursement fraud (the providers trying to eke out every possible payment dollar to keep afloat in the competitive market), the larger providers will complain, and the federal government will relax its enforcement efforts, until another highly publicized crackdown is launched, and the cycle begins again. Perhaps the United States, with its wealth, will be able to keep muddling through indefinitely. If we keep slathering money around the healthcare system, taking it away here and putting it back there, perhaps we can keep believing that our healthcare system is both a business and a public service at the same time. We can avoid making fundamental decisions about the nature of healthcare. As long as we are willing to keep our wallets wide open, that is, and are not too fussy about the resulting disorder that keeps our healthcare managers in, as the Chinese would say, “interesting times.”