Woe to the hospital that turns to the courts to collect its patients' debts. It is widely known that health-care costs have recently become the single most common cause of personal bankruptcy in the U.S., and when we hear of such cases we frequently regard indebted patients as unfortunate victims, while casting hospitals as greedy predators. After all, patients did not intend to fall ill and require prolonged and expensive medical care, while the marbled lobbies and elaborate amenities of many new hospitals smack of surplus wealth. Who could feel sympathy for a billion-dollar corporation?
On the other hand, even non-profit organizations, which include about 62 percent of U.S. hospitals, need to generate revenues that exceed their costs, or they will go out of business. In the individual case -- the single mother of five who needs a million-dollar organ transplant -- it is difficult not to side with the patient. But if we expect health-care organizations to forgive all such debts, we may soon find ourselves bereft of hospitals to turn to. A hospital that liberally provides free care will soon find itself besieged by its competitors' non-paying patients.
Dr. Otis Bowen, Secretary of Health and Human Services during the Reagan administration, once described how poor families in his northern Indiana medical practice would sometimes pay him with chickens and the like. It was important to them to offer something in return for the services they received.
These situations are often portrayed as conflicts between noble moral sentiments (the desire to care for the poor and infirm) and hard-hearted financial realities (the imperative to make money or disappear). In the best of all possible worlds, we would never turn away a single patient due to inability to pay, and everyone would get all the health care they need. But because such a world is not the one we inhabit, we need to ask patients to bear the costs of their care, or else repair to someone else, such as a private insurance company or the government, to do so for them.
Yet such a portrayal is simplistic, superficial, and dead wrong. One of the reasons our health-care system is ailing is the fact that we habitually insulate decision makers from the consequences of their choices. Many patients have no idea of the costs that are being generated when their physician orders a test or performs a procedure. As a matter of fact, many health-care professionals, including colleagues of mine in the medical profession, have little idea of the retail prices or actual payments collected for the work we do every day.
For decades, both patients and physicians have carried on blithely unaware of such financial realities, secure in the knowledge that financial experts, insurance companies, and state and federal governments are on hand to make sure that all the bills get paid. This situation foments moral hazard, in which the incentives favor more care, greater tolerance for inefficiency and waste, and escalating costs. The patient wants nothing less than the best that medicine has to offer, the physician gets paid for each test and procedure, and no expense is spared. People who don't expect to pay the bill tend to disregard the tab.
Similar incentives apply at the institutional level. Hospitals tend to overbuild and overbuy, creating excess capacity that must be utilized to finance itself. Consider the case of medical helicopter transport. Many big cities have more helicopters than needed. Why? Because few large hospitals want to admit that they lack such services. Nurses and doctors in flight suits also make for good marketing. So each hospital secures a helicopter. Hospitals, medical practices, insurance companies, medical device manufacturers, and pharmaceutical firms have all profited with rising health-care costs.
As patients and health-care providers -- and more importantly, as citizens and human beings -- we must avoid the seemingly charitable impulse to insulate ourselves and others against bad decisions.
In other words, rising costs have richly rewarded those who generate them. For decades, physicians and executives have been earning handsome incomes, and in some cases growing wealthy, by exploiting these incentives to do more. In the meantime, other potentially more efficacious approaches, such as providing patients with incentives to take better care of themselves and incentivizing physicians and health-care organizations to keep costs down, have suffered from neglect. Insurance will pay for your bypass operation, but not your gym membership.
It is not as though we have not tried. Remember health maintenance organizations? In the past, efforts to underwrite truly prudent and parsimonious care have failed, largely because lack of accountability for costs looks so attractive. There has been simply too much money to be made from a system in which no one really understands what is happening, especially when those directly involved - health-care professionals, hospitals, and insurance companies - stand to earn more by keeping the system byzantine and accountability for costs diffuse.