The Fallacy of Treating Health Care as an Industry

The Institute of Medicine calculates that the U.S. system wastes $750 billion annually, but the practice of medicine and approaches to reform are uniquely immune to standard economic analyses.

Hippocrates [a.drian/Flickr]

On September 6 the well-respected Institute of Medicine (IOM) released its report, "Best Care at Lower Cost." Its authors argue that the U.S. health-care system is falling far short of its potential and continuing to rack up unsustainable cost increases. For example, they estimate that fully one-third of annual U.S. health-care expenditures -- $750 billion-- are wasted, and fully one-third of the 40 million Americans hospitalized each year are harmed during their stay.

The solution, they argue, is for the health care system to adopt practices already in use by other industries. The non-transferability of medical records between practitioners can be remedied by mimicking online banking. The solution to the growing complexity of medical care is to adopt the information technology systems that enable manufacturers to manage vast supplier networks. The way to prevent medical errors is to follow the airline industry's lead in learning from mistakes.

If we evaluate medical practice solely by whether or not physicians are following clinical pathways favored by industrial analysis, we will omit more than we capture about how physicians care for their patients.

Consider the problem that nearly two-thirds of patients do not know the cost of their care until they receive their bill. The authors argue that medicine needs to allow patients to shop for medical care as they do for appliances and hotels. Someone wanting to buy a dishwasher or book a hotel room can go online and compare reviews of performance and prices. Why shouldn't a patient seeking treatment for diabetes or a knee replacement be able to do the same?

While there is much to praise in the IOM report, it's based on assumptions that merit careful scrutiny. One is the unquestioned notion that health care is an industry. We have an energy industry, an automotive industry, and a telecommunications industry. Just as we transplant organs from well patients into sick ones, the authors seem to suppose, we should be able to transplant effective practices from healthy industries into our ailing health care system.

One problem with a patchwork approach to reforming healthcare is the danger that we may produce a sort of Frankenstein, a monstrosity made up of parts that look strong when viewed in isolation but turn out not to fit well together. We cannot merely mix up two-thirds of a cup of banking, a quarter cup of manufacturing, and two tablespoons of airline policies and procedures and expect to produce well-integrated patient care.

No matter how good each of the individual ingredients that go into preparing a meal are, if the components are not mixed in the appropriate combinations and proportions, the result is more likely to prove stomach churning than appetizing. The fact that the IOM report cites multiple different industries suggests that no single one has gotten everything right, and this in turn suggests that each industry may face its own distinctive challenges and opportunities. This is certainly true for health care.

Even more problematic is the assumption that health care can and should be treated as an industry. An industry is defined as a sector of economic activity. If a product or type of work can be bought or sold in the marketplace, or if its inputs and outputs can be measured in dollars, we can consider it part of an industry. On this basis, we are often told that the health care industry represents 18% of the U.S. economy, over $2.5 trillion.

Billionaire investor Warren Buffet recently referred to health care as a "tapeworm" in the digestive tract of the US economy. He was alluding to the fact rapidly rising health care costs are forcing US employers to spend so much money on health care for their employees that US industries are placed at an ever-growing disadvantage compared to competitors in other nations where health care costs are lower. From an economic point of view, doctors, nurses, and hospitals resemble parasites.

Yet the industrial metaphor has its own Achilles heels. For one thing, the practice of medicine is not primarily an economic activity, and measuring its inputs and outputs in terms of dollars and cents provides a narrow and superficial view of what really goes in doctors' offices and hospitals. Despite economists' best efforts to tally up in economic terms the costs and benefits of care, many of the most important things taking place between doctors and patients never get evaluated.

Consider a recent encounter between a doctor and a patient. The patient presented complaining of low back pain. The doctor could have ordered an expensive MRI exam and recommended an even more expensive surgical procedure. Or the doctor could have told the patient that such symptoms generally resolve on their own over a matter of weeks, and instead recommended rest, over-the-counter pain relievers, and later, a weight-loss and exercise regimen.

The long-term outcomes would probably have been more or less the same in either case. In a few months, the patient would have been pain-free. In fact, the patient who lost weight and built up muscle strength might have been less likely to experience a recurrence of back pain. From the standpoint of the IOM report, choosing the first clinical pathway, which is much more expensive and produces no real benefit, would appear wasteful. Yet even the second option is not necessarily the best.

Presented by

Richard Gunderman, MD, PhD, is a contributing writer for The Atlantic. He is a professor of radiology, pediatrics, medical education, philosophy, liberal arts, and philanthropy, and vice-chair of the Radiology Department, at Indiana University. Gunderman's most recent book is X-Ray Vision.

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