Healing an ailing market.

Glied, Sherry

THE CURE: How Capitalism Can Save American Health Care By David Gratzer 325 pages; New York, N.Y.: Encounter Books, 2006

After a hiatus of a dozen years, health care reform is back on the U.S. policy agenda. Health care systems are enormous, technologically and institutionally complex organizations that simultaneously pursue multiple, conflicting goals. These fundamental characteristics guarantee that there is no unique ideal configuration of a health care system.

The unequivocal impossibility of a perfect health care system helps explain the wide and ever-changing variety of models that exist around the developed world. In this context, the policymaking community is particularly well-served by reasoned critiques that point out the weaknesses of popular models and by innovative market-oriented ideas that will push debate in new directions. David Gratzer's new book, The Cure, is a welcome addition on both fronts.

Gratzer's book stands out from the current crop of health care titles because of its strong comparative focus and its emphasis on the role of system design in promoting medical progress. Gratzer, a Canadian psychiatrist, has observed the practice of medicine in both Canada and the United States. His book, well-written and replete with colorful anecdotes, draws on his experiences in both countries, as well as on a broad range of research in health care economics and health service delivery.

STIFLED MARKET The book's principal thesis is that government meddling--through the favorable tax treatment of employer-sponsored insurance, promotion of health maintenance organizations, mandates on the content of health insurance coverage, federal regulation of drugs, and the Medicaid and Medicare public insurance programs--stifles the operation of the health care market. Gratzer provides a measured assessment of these governmental interventions, emphasizing their weaknesses and the distortions they cause, but acknowledging their contributions and strengths. For example, Gratzer nicely documents how HMOs did succeed in lowering costs without diminishing quality, while criticizing this approach for its paternalistic vision of health care service delivery.

Gratzer's proposals for change similarly offer realistic institutional options that promote market ideals. Like Milton Friedman and many others, he suggests moving from our current employer-based system to an individual-based system. In the course of describing such a system, however, he subtly moves from a purely voluntary, individual health insurance market--a type of market that is conceptually elegant but that has never existed for any length of time anywhere--to a proposal similar to the very successful model now offered to federal employees--one that could readily be implemented within today's health care system. He extends this proposal to encompass the Medicare program, but recognizes that the high risks manifested by this population probably require additional government intervention in the form of risk adjustment.

One disappointing element in the book is its failure to fully confront the supply side of the health care market. In both Canada and the United States, governments have handed over control of the health care system to service providers, deferring to providers' technical expertise. This abdication has allowed providers to collectively determine how many physicians will be trained, the extent (quite limited in both countries) to which non-physician providers will be able to compete with physicians, and how scarce resources, such as hospital beds, will be allocated. Predictably, providers have used this authority to keep the supply of competitors as low as possible, to maintain their own prices as high as possible, and to provide service of idiosyncratic quality. Patients, in both countries, have become accustomed to rude service, long waits, and very limited information about product quality. This acquiescence to standards that would be intolerable in any other context is especially striking because, as Gratzer emphasizes, patients have little incentive to consider the fiscal costs of medical care in their decisionmaking. Patients not only pay the financial consequences associated with insulation from medical prices, they do not even get to enjoy expense account-quality health care as they do so!

MANAGE IF NOT CURE The title of Gratzer's book seems the mark more of an overzealous publisher than of the more cautious author. Thanks to advances in modern medicine well-documented here, many diseases can be completely cured. The frequent mistake in health policy making is to believe that the myriad malfunctions in the delivery and distribution of medical services care that arise from the functioning of the health care system similarly admit a cure. They do not. Too many inconsistent imperatives make it impossible to erase all the symptoms that afflict the health care system at once.

But perceptive counsel of the sort Gratzer offers can at least help make it easier to endure this chronically distressing condition. The book includes a long list of market-oriented, decentralizing, consumer-oriented innovations that are being incorporated in a variety of health care systems around the world. In content, if not in its title, Gratzer's book suggests that this kind of incremental progress is what we should be looking for in health care system reform.

Sherry Glied is professor of health policy and management in the Mailman School of Public Health at Columbia University.