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
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.
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.