The Myth of the Sovereign Consumer

The title of this post comes from a provocative article by Bruce Vladeck in a recent Health Affairs Web First edition focused on provider consolidation.  I'll get back to Dr. Vladeck shortly, but anyone who has been following my posts knows that provider consolidation has been a source of much concern to me (such as in Not Choosing Very Wisely), so the four articles in this HA edition were of much interest.

PwC just reported that M&A deal activity in the U.S. health sector rose 152% in Q1 2014.  That's not a typo.  Growth in M&A deals continues in most sectors of the health sector, not just hospitals, so this special HA edition was quite timely.

Paul Ginsburg and Gregory Pawlson's article takes it as a given that providers have been consolidating, are going to consolidate, and that, left unchecked, this would tend to raise prices.  They outline a fairly comprehensive list of potential strategies to deal with this impact.  They confess it is not clear that market approaches will succeed, and may require more direct government involvement, including direct regulation of payment rates, which they confess may not be politically easy nor clear-cut as to how to make effective.

Another article, from economist Martin Gaynor, reviews the issue of consolidation, some of the research on it, and the various ways that competition is regulated.  My big takeway from his article was his point that:

There is no federal competition policy entity for the economy overall, let alone specific to health care...Competition policy in health care is made by many different actors, at both the federal and state levels, and effective policy requires harmonizing their actions.

That's not going to make it easy to ensure we're regulating this in a desirable manner, especially not with the existing health sector's lobbying power I mentioned in Not Choosing Very Wisely.

A third article, from MD/JD Professor William Sage, suggests that the problem is not so much provider consolidation as it is "getting the product right."  He argues that much of our health care system isn't as competitive as it could be because a "..long history of regulation and subsidy has distorted prices, quality, and innovation."  He further posits that:

Because of regulations and subsidies, what pass for products in health care are often professional process steps that have uncertain value to patients. Instead, they serve the economic interests of physicians, hospitals, and other suppliers within an established administrative framework of health insurance.

Hard to argue. 

I love the phase "professional process steps" to describe what we are buying now.  Professor Sage notes, for example, that the entire CPT process is developed and owned by the AMA, illustrating that they have a certain vested interest in the status quo.  Rather than paying for these historically-based process steps, he urges development of more obvious competitive bundles that better reflect what consumers find valuable.  He doesn't spare health plans from his criticism either.    

I couldn't agree more that we've lost sight of the product in health care.  Furthermore, I suspect many health care professionals are aghast to think of health care as being a product of any sort.  Still, I'm not sure that even Dr. Sage is going deep enough in his proposed redefinition.

The fourth, and most fun, article was from Dr. Vladeck, who is always a good read.  He doesn't seem as worried about either provider consolidation or the ultimate need for government rate setting (although he acknowledges it is not politically likely).  He views the Sage and Ginsburg/Pawlson articles as being based too much on what he calls a "fundamentally obsolete conceptual model": the myth of the sovereign consumer. 

Dr. Vladeck seems skeptical of Sage's proposals to redefine the product, and sees consumers as being clearly worse off than twenty years ago, especially since:

...consumers are regularly inundated with self-serving or downright erroneous information from health insurers, providers, and entrepreneurs alike about health care services and their use that carries the implicit message that any illness or financial difficulty is essentially the fault of the consumer.

Huh?

Dr. Vladeck concludes that large payors, including the government, may be the best bet to control prices, but concludes that "instead of continuing to try to impose axiomatic and solipsistic theories on a reality to which they increasingly fail to apply, we need to figure out what kind of health care system we really want and how much we are prepared to pay for it."

I don't disagree with his conclusion, just most of what preceded it.



Chip Kahn, President of the Federation of American Hospitals, used the HA edition to post his thoughts on consolidation.  Not surprisingly, he's all for it, citing what he sees as the more ominous consolidation on the health plan side.  He points to what he calls the reality that proves consolidation is good: "price growth in health care generally, including hospitals, has been in a steady decline for years."

That's not that prices are going down, or that price growth for hospitals isn't happening, or isn't happening faster than in other parts of the economy -- just that they are not going up quite as fast as they once did.  The Milliman Medical Index just reported that it costs over $23,000 to cover a family of four in an average employer plan.  The rate of increase may be smaller, but the cost has doubled in the past ten years, and the rates of increase are still well above overall CPI. 

If this is victory, I don't think we can take too much more winning.



Neither Mr. Kahn nor Dr. Vladeck seem to credit a slowdown in the rate of increases to the last recession, or to changing consumer behavior due to increased cost-sharing and less confidence in their economic prospects.  In the health care world, people skipping or avoiding care is usually seen as a bad thing, even when many experts cite widespread unnecessary care.  They just want to be the ones deciding what is unnecessary, not the patients.

Which leads back to Dr. Vladeck's "myth of the sovereign consumer."  Yeah, I'd have to agree that the record is pretty poor about consumers taking good care of their own health, as witnessed by our declining exercise habits and increasing weight, both with the subsequent health consequences.  I'd also have to agree that the full impact of increased cost-sharing is, as yet, unclear -- it probably is causing consumers to seek less care, but it is uncertain about when that proves positive and when it proves short-sighted. 

At the end of the day, though, given a choice between having responsibility for my health or abdicating it to someone else, I'd rather have it, and I think most people would agree.  It's not that the "sovereign consumer" is a myth, it's that we haven't ever really tried it, not in our convoluted, paternalistic health care system.  We should give it a try; after all, it'd be hard to do much worse than we've been doing.

Frankly, in many ways, it is pointless to decry provider consolidation, because it is going to happen, just as it is happening in virtually every other sector of the economy.  I don't mind if provider systems are large or even vertically and horizontally integrated -- as long as I still have real choices, and those systems know consumers will avoid them if they don't focus on improving the quality of care and maintaining competitive prices. 

With evolving options like retail clinics, telemedicine or medical tourism, there's no reason consumers couldn't find great care outside the normal catchment areas, unless licensure restrictions or narrow networks doom us to settling for what happens to be close.  The FTC and other oversight bodies really need to be thinking outside the box about what is good for consumers.


The Commonwealth Fund is "searching for the next breakthrough in health care, by which they mean "an idea, a paradigm, a strategy that positively and profoundly disrupts the status quo."  Finding ways to truly empower consumers -- not just paying lip service to it -- may just be such an idea.