Missing Care, Missing Drugs: Canaries in the Medical Coal Mine

While Washington has been focusing on repealing or rolling back parts of the Affordable Care Act, persistent embarrassments of the American health system show how untenable the status quo is. Both lower and middle class families are facing serious problems as they contend with providers’ and insurers’ cost constraints.

I’ll first address the familiar issue of health disparities. According to a recent news report, Lauren E. Wisk of the School of Medicine and Public Health at University of Wisconsin, Madison “examined data from the 2001-2006 Medical Expenditure Panel Surveys on 6,273 families with at least one child.” Wisk’s study shows that excessive financial burdens from cost-sharing are keeping many children from getting the care they need:

Families aren’t choosing to spend their money on going to the doctor when someone is sick because of how much it cost them to see the doctor last time. They’re sacrificing their health because it costs too much to be healthy. . . . We expect that if people aren’t getting the care they need, they’ll be sicker as a result. When you put this all together and look at the big picture, the cost of health care in the U.S. could actually be causing Americans to be sicker.

We might wonder: how can this be? Isn’t the economy in recovery? But we’ve seen this picture before, in the developing world. Growth does not help everyone. India, for example, has had astonishing economic growth, but it “is home to about a third of the world’s underweight and stunted children under the age of 5,” and “the impressive economic growth of the past decade has made only a modest dent into the obstinately high incidence of severe underweight and stunting of children in the country.” As Amartya Sen has shown, not only China, but also Bangladesh, are ahead of India in reducing the number of underweight children, despite the fact that “GNP per capita of $1,170″ in India, “compared with $590 in Bangladesh.” The critical number really is median GNP, and beyond that, real allocation to the sectors and concerns that matter. As the US surpasses Ivory Coast and Pakistan in inequality, don’t count on gains from growth to go to the people who need it.

It’s not just poor patients who need to worry about misplaced priorities in the health care system. We are increasingly seeing shortages of important drugs in the US. (Apparently this issue first caught mass media attention when prisons had a difficult time finding a key barbiturate used in executions.) Given that Congress is busy planning to cut funding for the statistical abstracts of the US and energy research (adding to prior DOJ cuts to studies of industrial concentration in the US), we shouldn’t be surprised to learn that “no one is systematically tracking the toll of the shortages.” Not many journalists are left to report on the government’s failure to report, either. But the head of FDA’s Drug Shortages Program is worried: “This is affecting oncology drugs, critical-care drugs, emergency medicine drugs.” It turns out that much-ballyhooed globalization has some downsides, too:

“We’ve certainly reached a very global supply chain for drug products, with the active ingredients typically made outside of the United States,” said [a] vice president for regulatory sciences at the Generic Pharmaceutical Association. “It could be Europe, India — some cases China. If there’s a problem at a facility in Italy or India, it leads to disruption of the drug supply in the United States.”

And a whole new triage system has developed to address an entirely avoidable crisis:

“We have heard some horror stories where patients are really begging to get the drugs from other sources and where practices or institutions are forced to kind of triage patients and save the drugs for those — quote — most curable, where they have the best prognosis and using substitutes where there isn’t a cure possibility,” [said the] president-elect of the American Society of Clinical Oncology.

A moving piece by Hagop M. Kantarjian describes the dilemmas facing some leukemia doctors:

Recently I sent out a plea on this national crisis to 8,000 oncologists who subscribe to a monthly e-mail newsletter published by the leukemia department at the MD Anderson Cancer Center. Within 12 hours, my in-box was jammed with replies from doctors in more than 25 states, each with his or her own horror story. . . . Take, for example, the 43-year-old Kentucky father who got a substandard dose of cytarabine because his doctor used all the doses he could find but still didn’t have enough. “I don’t know what I’ll do next,” the doctor told me.

Or the 45-year-old retired Air Force lieutenant colonel from Colorado, father of an incoming Air Force Academy cadet, whose leukemia came back after six months. His doctor looked all over the state for cytarabine with no luck and so was forced to give his patient second-line therapy. Or the 15-year-old boy from Florida who is in remission but can’t get the therapy that will cure him.

I see two takeaways from this sad situation. First, the next time someone says that generic “health care costs” are too high, consider whether they really mean we need to reallocate funds from less productive sectors to this, life-threatening crisis. Second, we need to reconsider the wisdom and necessity of far-flung, fragile supply chains for critical products. Barry Lynn has been making this point for some time. His book Cornered argues that “the drive to reduce costs has led to several competing manufacturers relying on a single overseas supplier for certain components and that this makes the whole system vulnerable to an event like an earthquake, a strike, or a war that might put the single supplier temporarily out of business.” Even for those skeptical of Lynn’s thesis in, say, the automotive or computer sector, his warnings should be salient for the food and health care industries. Too many lives have been put at risk by supply chains that are not robust enough to handle predictable challenges.

Why Reduce Health Care Costs?

One rare point of elite consensus is that the US needs to reduce health care costs. Frightening graphs expose America as a spendthrift outlier. Before he decamped to Citigroup, the President’s OMB director warned about how important it was to “bend the cost curve.” The President’s opponents are even more passionate about austerity.

Journalists and academics support that political consensus. Andrew Sullivan calls health spending a “giant suck from the rest of the working economy.” Gregg Bloche estimates that “the 30% of health care spending that’s wasted on worthless care” is “about the price of the $700 billion mortgage bailout, squandered every year.” He calls rising health spending an “existential challenge,” menacing other “national priorities.” Perhaps inspired by Children of the Corn, George Mason economist Robin Hanson compares modern medicine to a voracious brat:

King Solomon famously threatened to cut a disputed baby in half, to expose the fake mother who would permit such a thing. The debate over medicine today is like that baby, but with disputants who won’t fall for Solomon’s trick. The left says markets won’t ensure everyone gets enough of the precious medical baby. The right says governments produce a much inferior baby. I say: cut the baby in half, dollar-wise, and throw half away! Our “precious” medical baby is in fact a vast monster filling our great temple, whose feeding starves our people and future. Half a monster is plenty.

But when you scratch the surface of these sentiments, you have to wonder: is the overall level of health care spending really the most important threat facing the country? Is it one of the most important threats? There are many ways to raise revenue to pay for rising health costs. Aspects of the Affordable Care Act, like ACOs and pilot projects, are designed to help root out unnecessary care.

I am happy to join the crusade against waste. But why focus on total health spending as particularly egregious or worrisome? Let’s explore some of the usual rationales.

Terrible Tax Expenditures and Suspect Subsidies?

Employment-based insurance gets favorable tax treatment, and much Medicare and Medicaid spending is drawn from general revenues. So, the story goes, medicine’s big spenders don’t have enough “skin in the game.” Once health and wealth are traded off at the personal level (as the Harvard Business School’s Clayton Christensen advocates), people will be much less likely to demand so much care. Government can attend to other national priorities, or individuals will enjoy higher incomes and will be free to spend more.

I respect these arguments to a point, but I worry they partake of the “nirvana fallacy.” If I could be certain that leviathan would repurpose all those wasted health care dollars on infrastructure, or green energy, or smart defense, or healthier agriculture, I’d be ready to end tax-advantaged health insurance in an instant. But I find it hard to imagine Washington going in any of these directions presently.

Giving tax dollars back to taxpayers also sounds great, until one processes exactly how unequal our income distribution is. In 2004, “the top 0.1% — that’s one-tenth of one percent — had more combined pre-tax income than the poorest 120 million people.” To the extent health-related taxes are cut, very wealthy households may see millions per year in income gains; the median household might enjoy thousands of dollars per year. Sure, middle income families will find important uses for those funds (other than bidding up the price of housing and education). But at what price? What if the insurance systems start collapsing without subsidies, and more physicians (who are already expressing a desire to work less) start seeking out pure cash practices? A few interactions with the the very wealthy may be far more lucrative than dozens of ordinary appointments.

Consider the math: billing a $20,000 retainer from each of 50 millionaires annually may be a lot more attractive to physicians than trying to wrangle up 500 patients paying $2000 each—or, worse, getting the money from their insurers. There are about 10 million millionaires in the US; that’s a lot of buying power. One $10,000 score by a cosmetic dentist from such a client could be worth 400 visits from Medicaid patients seeking diagnostic procedures. Providers are voting with their feet, and a Medicaid card is already on its way to becoming a “useless piece of plastic” for many patients. Given those trends, simply reducing health care “purchasing power” generally risks some very troubling outcomes for the very people the health care cost cutters claim to protect. No one should welcome a health care plutonomy, where the richest 5% consume 35% of services, regardless of how sick they are.

Is Anyone Underpaid in Health Care?

Health commentators rightly draw attention to big insurer CEO paydays. Top layers of management at hospitals and pharma firms are also getting scrutiny. Wonks are up in arms about specialist pay. Read more

Gregg Bloche’s The Hippocratic Myth

Georgetown law professor Gregg Bloche’s new book, The Hippocratic Myth, looks to be a major contribution to health policy debates. I haven’t had time to read it yet, but many reviews and radio shows give the impression of a rigorous work leavened with engaging narratives of individual patients and providers.

Bloche’s approach to rationing will rekindle many of the health care debates of 2010. A former advisor to the Obama health policy team, Bloche concludes the following:

Medicine’s therapeutic potential has surpassed our ability to pay for it, but our elected officials are afraid to tell us. The historic health reforms enacted last year will protect 30 million Americans from the Darwinian cruelty of lack of access to care. But contrary to much wishful thinking in Washington, these reforms do little to stave off looming medical cost catastrophe. Our future fiscal and social stability will turn on our ability to gain control of spending without imperiling patients’ trust in their caregivers.

Bloche also observes the importance of the medical profession in upcoming bioethical debates:

Medical judgment incorporates hidden political and moral beliefs, and doctors have become key political and legal decision-makers—on such matters as child custody, criminal punishment, access to performance-enhancing drugs, and the politics of obesity, abortion, and homosexuality.

Doctors and the rest of us will need to address the morality of innovations we never thought possible. Drugs that block—or boost—biological mechanisms of stress resistance, brain-scanning methods that read minds, and medicines that interfere with formation of traumatic memories are among the technologies that will soon be with us.

During his interview with NPR’s Leonard Lopate, Bloche mentioned an aspect of insurer practice that renders suspect many consumer-directed ideals of medical care. Many insurers’ care protocols are kept secret, as proprietary information. Bloche found the practice deeply troubling, and I agree. Insurers’ criteria for providing care are important aspects of the service they are providing. They should not be hidden from patients or doctors. In more encouraging news, Bloche notes that he has not lost an appeal of a medical coverage decision to an insurer.

Enforceable Contracts for Cheaper and More Limited Care

Bloche seems committed to permitting consumers to make enforceable contracts for lower levels of care. Tyler Cowen recently evoked that possibility of ala carte insurance in his evaluation of the recent Ryancare proposal:

Let’s say it’s 2027 and I’ve just turned 65. I fill out a Medicare application on-line and opt for a plan with superior heart coverage (my father died of a heart attack), not too much knee coverage and physical therapy (my job doesn’t require heavy lifting), no cancer heroics (my mother turned them down and I wish to follow her example), and lots of long-term disability. Is that so terrible an approach? Is it obviously worse than having the Medicare Advisory Board make all of those choices for me?

Cowen worries that “Perhaps an individual will choose ‘no coverage for lung cancer,’ but the government cannot precommit to the outcome of no coverage.” But Bloche makes a point in an NPR interview that suggests that a physician’s decision to withhold care in that instance would not violate the Hippocratic Oath:

The rationale there is that the doctor who stints on care three years later when you get really sick is acting in accordance with your preferences as you expressed them in the employee benefits office three years before. And therefore, the doctor is not violating the Hippocratic Oath. The doctor is merely complying with your preferences when you rolled the dice in the employee benefits office.

Of course, that is in the private insurance context, not Medicare, and I don’t know if that distinction would make a difference for Bloche. But it does help me see how the book attracted a blurb from a Heritage Foundation analyst. Contemporary conservative health policy experts are committed to giving individuals the chance to buy low-cost plans, and so far the Obama Administration has been quite accommodating in granting waivers for them. My sense is that Bloche is committed to a minimum essential benefits approach that would allow consumers to opt out of “cancer heroics” (perhaps defined as biotechnology drugs costing over $7 million over one’s lifetime?), but not to waive “lung cancer” coverage generally.

Bloche argues in the book that:

[M]edicine’s capabilities and costs will inexorably grow. Increasingly, doctors will need to say no to care that’s technologically possible and that could prolong life, but that does so in competition with other national priorities. We must empower them to do so even when the consequences seem tragic. But we must give them this power without asking them to break faith at the bedside. To this end, the current regime of covert rationing, under cover of ‘medical necessity,’ should be supplanted by visible resource allocation rules–rules set for doctors and patients by social institutions. (58-9)

Transparency of this sort will compel us to come to terms the truth that insurers must say no to beneficial care to stay within the limits we impose when we seek low prices for products for products and services, elect politicians who promise low taxes, and choose cheaper health care plans for ourselves.

Though I hate to disagree with such an eloquent statement by so eminent a scholar, I am slightly troubled by that language. I think money saved from the health sector is more likely to go to new adventures in the Middle East or dot-com, housing, and commodities bubbles than it is to be allocated to “other national priorities.” Health care is only one of many sectors where US-style casino capitalism has seriously distorted capital allocation.

I also believe that the invocation of “we” here glosses over the moral role of redistribution in an extremely unequal economy. A privately insured person who really wants a procedure can spend himself down to bankruptcy, then apply for Medicaid. At that point, the government must make a decision. Given that “the government collected less in taxes in 2010 than it has in over three generations, and tax rates are at historic lows” for the very wealthy, I don’t think it is entirely fair to say “we” can’t afford certain care. Rather, those at the top of the income and wealth scale are increasingly supporting politicians who will not tax the wealthy. The current scarcity of care for the least well off is not a natural feature of the world; rather, it is epiphenomenal of repeated decisions not to impose certain tax burdens today even though they would have seemed perfectly fair 50 years ago. Since a “Wall Street transactions tax of only 0.50% on short-term speculation could raise up to $170 billion annually,” I fail to see an imperative to reduce incomes in the health sector until problems in much less socially productive sectors are addressed.

On the other hand, if our government “of the top 1%, by the top 1%, for the top 1%” continues, major cuts to the health sector are inevitable. If they must come, we need more trusted and fair voices like Bloche’s at the table. As Daniel Alpert has observed, “the U.S. has engineered a winner-take-all economy and indebted both the majority of its people and its government to keep a ‘don’t tax, but spend anyway’ consumerist fantasy alive.” Bloche helps us face the difficult task of unwinding the consequences of all those bad economic decisions.

Bloche is also admirably restrained in his sense of how much current law can do to rationalize health care spending. As he notes in a book excerpt:

30 percent of health spending [is] wasted on worthless care—about the price of the $700 billion mortgage bailout, squandered each year. . . [One study estimated that only] about 10 to 20 percent of medical procedures rest on “gold-standard” evidence — randomized clinical trials. . . . Risky and pricey therapies routinely make their way into common use without such studies. . . .

Change is looming. The 2010 health reform law created a “Patient- Centered Outcomes Research Institute,” funded by levies on Medicare and private insurers, to sponsor such research. But the funding level, less than a tenth of a percent of what Americans spend on health care each year, will do little to increase the fraction of medical decisions that rest on science. And the Institute’s governing body — composed mostly of representatives from the hospital, insurance, and drug and device industries, as well as physicians — seems almost designed to enable stakeholders to block studies that threaten their interests. Moreover, multiple provisions in the law (sought by providers and drug and device makers) hobble Medicare’s ability to base coverage decisions on research the Institute sponsors.

The mix of hope and realism in the paragraphs above reflects the judicious sensibility of the many Bloche articles I have had the good fortune to learn from. I look forward to reading his book.

Childhood Obesity: A Problem Worth Solving

[Ed note: We are pleased to welcome Regina Ram to Health Reform Watch. Regina is finishing her first year as a law student at Seton Hall. She graduated from Drexel University with a B.S. in Biological Sciences and minors in Psychology and Anthropology. She completed a Masters in Public Health from Boston University in 2010 with a focus on Health Law, Bioethics and Human Rights. As a graduate student, Regina worked as a legislative advocate for Dana-Farber Cancer Institute and also supported a SAMHSA funded research program to integrate substance abuse treatment into primary care settings. As an undergraduate, she worked as a healthcare writer and authored emerging technology evidence reports on health devices and procedures.]

Just recently, the New York Times published an article describing the attempt of parents in Philadelphia to change the poor eating habits of the city’s children. A concerned group of parents in a North Philadelphia neighborhood takes turns standing outside of corner stores near a K-8 school in the mornings. They don safety vests and walkie-talkies, and their goal is to discourage kids from stopping at corner stores to buy snacks like soda and candy before school. The article likens the parents to foot soldiers fighting in a national battle over the diets of children.

As dramatic as that may sound, statistics from the Centers for Disease Control and Prevention (CDC) support the metaphor. Nationwide, obesity rates have more than tripled over the past 30 years in both children and adolescents. Long-term consequences include higher risk for heart disease, type 2 diabetes, stroke, several types of cancer, and osteoarthritis in adulthood. More immediate effects include social and psychological problems like stigmatization and poor self-esteem. Further, caring for these health conditions has significant economic effects on the U.S. health care system. All of these statistics portray a battle well worth waging.

But is a group of parents patrolling a convenience store at 8:00 A.M. going to stop childhood obesity? Probably not. Even if the program dissuades kids from buying morning snacks, that behavior is unlikely to continue once parents are gone. Is it a step in the right direction? Certainly. The Surgeon General’s report on overweight and obesity notes that “families and communities lie at the foundation of the solution to the problem.”

However, any successful solution to decrease childhood obesity rates has to involve parents and communities as components of more comprehensive interventions. The causes of obesity in children are multi-factorial, ranging from diet and exercise to genetic and social factors including socioeconomic status and the built environment. The wide array of contributing factors points to the need for an interplay between public and private action to address childhood obesity.

Outside of the home, schools are a key setting for public health efforts to reduce childhood obesity rates. In particular, the National School Lunch Program can be an effective tool in improving the diets of school-age children. Just this year, the U.S. Department of Agriculture announced recommendations to overhaul the nutrition criteria of food programs for the first time in 15 years. The recommendations include limiting salt intake and the use of starchy vegetables, offering only reduced fat milk and using whole grains. Introducing children to healthier foods can help them understand what to eat and why, and that goes much further towards changing future patterns of behavior.

External factors like marketing and advertising also weigh on children’s decisions to eat certain foods. Recent litigation cases (one noted by Jennifer Jascoll here on the HRW website) have focused on the effectiveness of this advertising on children, as well as the disproportionate impact of such advertising on children of lower socioeconomic status. A New York City Councilman recently proposed a bill to ban fast food toys for meals over 500 calories. Children are generally more vulnerable to social messages, and restricting marketing is a case where benefits clearly outweigh the costs.

While involved parents and communities like the one in Philadelphia are undoubtedly an asset, it is going to take a more orchestrated effort to decrease rates of childhood obesity. Parents need to be empowered to make healthy choices and encourage healthier lifestyles for their children. At the same time, schools need to be working hand in hand with the community to ensure that the messages given at school correspond with the messages children hear outside. However unwieldy the issue seems, any action is to be applauded as preferable to no action at all.

(Note: for a more in-depth discussion of the economic consequences of obesity, see Michael Ricciardelli’s article here on HRW)

Antibiotic Resistance on the Rise, Thanks to Capital Misallocation on a Grand Scale

Health Insurance CEO Total Compensation in 2009

Last year we posted the Total Compensation for a number of Health Insurance Company CEOs for 2007 & 2008. Those numbers, culled from the companies’ SEC filings (Schedule 14A) appear immediately below. Below that are the numbers for 2009, courtesy of FierceHealthcare.com.

As you can see, the year has brought decreases for some CEOs (but not all). One wonders, discretion being the better part of valor, if the clamor for health care reform in full force during the course of 2009 counseled caution –at least for the time being– with regard to executive compensation. If the timing for further compensation has merely been adjusted so as to backload payments until after the health care reform debate is settled? As the clamor for health care reform has turned into a political clamor for reform of health care reform, I wonder what the 2010 numbers will be. If, perhaps, the wait for the Supreme Court to settle the individual mandate question– when insurers will know whether or not a country full of customers will be ushered into their pool, will influence compensation–and the timing of its public display. Either way, the numbers for 2009 pretty much speak for themselves. And not everyone on this list can be accused of prudence– Ms. Angela Braly of WellPoint received total compensation of $13,108,198 in 2009– which is more than $3 million more than her compensation the year prior. This, of course, is the same Angela Braly who evoked the wrath of many, including Secretary Sebelius, by raising premiums as much as 39% in California amidst allegations of systemic insurance recissions for women suffering from breast cancer. It should be noted, however, that part of her total compensation figure for 2009 included additional security, “in light of growing concerns regarding the safety of Ms. Braly.”

Last year we noted with some amazement that

…it has struck me that Aetna’s Ronald Williams received $24,300,112 last year. That’s $467,309.85 per week. That’s a house. Maybe not a house that Mr. Williams would live in, but a house nonetheless. The man makes a house a week. And interestingly enough, if Mr. Williams were to eschew the purchase of a house on any given week and instead look to deposit the money in a bank– in order to remain FDIC insured (up to $250,000)– he would actually need to open more than one account–every week. Lest we lament the fate of the other CEOs on the list, in 2008 Ms. Braly had to get by on $189,311.76 per week, and Mr. Hemsley had to somehow manage on $62,327.73 per week (but perhaps he was able to save a little from last year when he made $253,164.02 per week).

We’ll leave Mr. Williams of Aetna alone this year, as his compensation dwindled to a mere $18,058,162 in 2009. Though not particularly inclined to hear Mr. Williams’ recession story, he had to make ends meet on $347,272 per week.

I am somewhat interested in Mr. Allen Wise of Coventry Health Care though. Mr. Wise received $17,427,789 in 2009. His first year at the helm, some of that is signing bonus. Nevertheless, it amounts to an astounding 7% of Coventry’s net income. Yes, 7%.

As my own car, a 2003 Ford Crown Victoria, has recently exceeded 100,000 miles, I thought it might be interesting to look at this total compensation in terms of cars. More specifically, my car. I like my car, one of the last of the large American rear wheel drive sedans, and expect (knock on wood) that I’ll be driving it for some time to come. It’s paid off. It came with a full leather interior and eight cylinders of pure speed. In 2009, the list price for the car brand new was $29,115. I’ll suppose (perhaps foolishly, but hypothetically) for a moment that Mr. Wise lacked my haggling skill but liked and wanted the Crown Victoria– en masse.

In 2009 Mr. Wise’s could have bought 11.5 brand new Ford Crown Victorias per week, or 599 for the year.  Considering you can’t buy a new car in New Jersey on a Sunday, that’s almost 2 per day. And in case you were wondering, $17,427,789 per year comes out to $47,747 per day. If he tired of the Crown Vic, though anachronistic, he could also purchase a 2011 Mercedes Benz SLK 300 Roadster– each day.

Res Ipsa Loquitur.

Ins. Co. & CEO With 2007 Total CEO Compensation

• Aetna Ronald A. Williams: $23,045,834
• Cigna H. Edward Hanway: $25,839,777
• Coventry Dale B. Wolf : $14,869,823
• Health Net Jay M. Gellert: $3,686,230
• Humana Michael McCallister: $10,312,557
• U.Health Grp Stephen J. Hemsley: $13,164,529
• WellPoint Angela Braly (2007): $9,094,271
  L. Glasscock (2006): $23,886,169

Ins. Co. & CEO With 2008 Total CEO Compensation

• Aetna, Ronald A. Williams: $24,300,112
• Cigna, H. Edward Hanway: $12,236,740
• Coventry, Dale Wolf: $9,047,469
• Health Net, Jay Gellert: $4,425,355
• Humana, Michael McCallister: $4,764,309
• U. Health Group, Stephen J. Hemsley: $3,241,042
• Wellpoint, Angela Braly: $9,844,212

Ins. Co. & CEO With 2009 Total CEO Compensation

• Aetna, Ronald A. Williams: $18,058,162
• Coventry, Allen Wise: $17,427,789 (took over from Dale Wolf)
• WellPoint, Angela Braly: $13,108,198
• United Health, Stephen Helmsley: $8,901,916
• Cigna, David Cordoni: $6,593,921 (took over from CEO H. Edward Hanway)
• Cigna, H. Edward Hanway: $18,800,000
• Humana, Michael McCallister: 6,509,452
• Health Net, Jay Gellert: $3,643,342

A Hollywood Ending for Pharma?

There is an interesting article at Xconomy San Diego on the growing tensions between venture capitalists, biotech startups, and pharmaceutical companies. Many entrepreneurs feel like they’re getting a raw deal from big pharma firms. One source alleges that dealmakers are about to kill the geese that lay the golden eggs.

In an earlier post, I worried that big pharma firms were becoming virtual to the point of ghostliness, mere nexuses of certifications, patent and trademark portfolios, tax dodges, and contractual obligations. If these trends continue, what types of controversies are likely to develop?

Gains from Gatekeeping

The just-in-time, ad hoc nature of movie production has led many economists to see in it a model for collaboration in other industries. As Marty Neumaier puts it, “By switching to a network model, the studios . . . avail themselves of the best talent for each project, thereby creating unique products and shedding unnecessary overhead.” But one-off, one-sided contracts can lead to epic conflicts. Consider, for instance, the recent rash of news about Hollywood accounting:

Michael Moore . . . claims $2.7m in unpaid royalties from Fahrenheit 9/11 [from his studio]. . . At the heart of the lawsuit is a dispute about Hollywood accounting practices that have for decades been a source of contention between the studios that release movies and “the talent” . . . Moore alleges the Weinsteins improperly deducted expenses from his share of the film’s profits – including the cost of a private jet to fly Weinstein from the US to Europe.

When an intermediary has access to extraordinary distribution networks, it has enormous leverage vis a vis “the talent.” Studios might respond that it’s a lot more fun to be Michael Moore than it is to be Harvey Weinstein: one gets to express his ideas, the other has to meet a payroll. But the enormous amounts of money generated by the film (between $228 and $500 million, according to Moore’s lawyer), and the frequency of complaints like Moore’s, lead to concerns about transparency and bargaining power in the industry.

Terry Fisher has written compellingly on the economics of Hollywood and pharmaceutical research (with Talha Syed). Intellectual property is key to both industries, and that’s one natural point of connection. Another is the economic role of middlemen, a topic that’s becoming increasingly important as certain dominant companies aim to own the “celestial jukebox,” “master switch,” or “Digital WalMart” of content connectivity.

Consider Apple’s demand for 30% of revenue from publications delivered via the iPad–and its refusal to share key customer data (for example, ads clicked on, time spent per page, etc.) with publishers. Seth Godin does not approve of this move:

The web has been a hotbed of siloed content, of deep dives for small audiences. The large scale stuff, though, has tended to be mostly about gossip and other quick reads that’s cheap to produce. Tablets offer a new chance to create content worth paying for.

[But] Apple has announced that they want to tax each subscription made via the iPad at 30%. Yes, it’s a tax, because what it does is dramatically decrease the incremental revenue from each subscriber.

These debates are very old in the tech world: when the VCR was introduced, Hollywood said its makers should pay for all the copyright infringement it enabled. Sony eventually retorted that the studios should be glad to see all the new customers that electronics would bring them.

Health Care’s Middlemen

Moore, the disgruntled biotech firms, and Godin each in their own way bring up issues that are going to be very big in health care over the next decade. Private insurers were supposed to be the magical mediators between providers and consumers in health care, demanding value and driving down prices. But, as Joseph White has shown, it was far easier for insurers to “stick it to” their customers than to constrain prices of “must-have” providers:

Remembering the pain of the late 1990s, [by 2001] managers of health care providers and insurance companies were determined to keep prices up through “pricing discipline.” “I’ve never seen discipline in the industry from a pricing standpoint like I’ve seen now” (HSChange 2004, p. 2), said one insurance industry consultant, providing part of the answer to why the underwriting cycle had yet to turn back toward lower margins. . . .

One might wonder why consolidation among insurers did not allow them to resist the providers’ demand for increased payments. The simple answer is that there were two concentrated parts of the market and one fragmented part. The insurers had to choose between fighting a full-pitched battle with the providers or exploiting their own market power vis-à-vis the employers. Raising premiums to employers was a lot easier. In theory, employers could have demanded restrictive networks (at lower prices). But since everyone had agreed that employees did not like restrictive networks, and providers (especially hospitals) were not willing to discount much to get into such networks, there were not many available for purchase. Individual employers could not invent such a product; they could only shop around and find the relatively best deal by customizing other contract terms, such as cost sharing.

Just as insurers began to align more with the interests of concentrated providers than with fragmented, disorganized consumers, so too do many Group Purchasing Organizations appear to be failing to fulfill their promise as cost-constraining intermediaries. As one analyst testified before the DOJ and FTC, “the compensation of most GPO management is almost always based on . . . fee income [from suppliers] rather than on the real savings to hospital members.” Again, the ostensible “protector” of one side of the health care equation ends up aiding one side of the deal.

Of course, the masters of all such deals work in finance. As Karen Ho suggested in her excellent ethnography, Liquidated, their values inform all the tough and opportunistic dealmaking mentioned above. As I taught health care finance over the past few years, I continually felt the topic stood in relation to finance proper as chemistry might stand in relation to physics: a discipline in its own right, but ultimately reducible to a more fundamental science. (I’m not saying I endorse this reductionism, just that it is an intuitively plausible model for what’s really driving developments in health care.)

Are there any policy lessons for health care? As Louis Uchitelle has suggested, we might want to question an economic system that delivers risk-free riches to those who invest or market future cures and little but anxiety (with limited or very unlikely upside) to many of those who create them. If we hesitate at awarding Apple a perpetual 30% bite of publisher profits merely for becoming the hippest platform, or question a finance sector that grabs 30% of all corporate profits, we might also want to articulate some decent maximum multiple of dealmakers’ over researchers’ compensation.

Reflecting on his book “The Great Stagnation” a few weeks ago, Tyler Cowen noted that many of the biggest winners in today’s economy are structuring “heads I win, tails you lose” deals. Wall Street has mastered the concentration and privatization of gain and socialization of loss. Will key players in pharma and the rest of the health care sector scramble to follow its lead?

Exploitations of Immortality

Rebecca Skloot’s remarkable book The Immortal Life of Henrietta Lacks has quite a following among health lawyers. As an excerpt from the book explains,

Henrietta Lacks was a poor Southern tobacco farmer who worked the same land as her slave ancestors, yet her cells — taken without her knowledge — became one of the most important tools in medicine. The first “immortal” human cells grown in culture, her cells — known as “HeLa cells” — are still alive today, though she has been dead for more than 60 years.

If you could pile all HeLa cells ever grown onto a scale, they’d weigh more than 50 million metric tons — as much as a hundred Empire State Buildings. HeLa cells were vital for developing the polio vaccine; uncovered secrets of cancer, viruses, and the effects of the atom bomb; helped lead to important advances like in vitro fertilization, cloning, and gene mapping; and have been bought and sold by the billions. Yet Henrietta Lacks remains virtually unknown, buried in an unmarked grave.

Skloot tells the story of the Lacks family, which never shared in the prosperity based on the HeLa cells. This is old news for any property student familiar with Moore v. Regents, but it’s particularly poignant in this context.

Now Skloot has worked to share the book’s proceeds with the Lacks family. As a recent news article explains,

Since the book’s debut a year ago, it has earned rave reviews, prizes, a movie deal with HBO and a steady spot on best-seller lists. And Ms. Skloot is making good on her pledge to share the financial windfall with the Lackses. Soon after the book came out, she created the Henrietta Lacks Foundation to help Mrs. Lacks’s descendants, some of whom suffered from the whirlwind of publicity, misinformation and scam artists surrounding HeLa cells, not to mention a lack of insurance to pay for any of the medical advances Mrs. Lacks’s cells made possible. . . .

The foundation — which is still in the process of applying for nonprofit status — is paying for a high-tech hearing aid for Mrs. Lacks’s youngest son, Zakariyya; truck repairs for her middle son, Sonny; new teeth for her granddaughter Kimberly; braces for her great-granddaughter Aiyana Rodgers; and, yes, tuition, books and fees for five of her grandchildren and great-grandchildren.

Whatever one thinks of the proper compensation for research subjects, it is disheartening to consider the economic difficulties of the Lacks family. (How can a society that spends, on average, $1425 per year on care and maintenance of its pets, not provide dental care for all?)

I think part of the answer lies in our constant striving for “innovation,” and the comparative devaluation of dissemination of innovation. My colleague Gaia Bernstein has written about these trends in several contexts. I have also worried about the lack of a US industrial policy for distributing the gains of innovation. I first came to these conclusions in the context of a paper I wrote on “immortal stem lines,” almost a decade ago. As the abstract argued:

[I]nnovations that now look benign might lead to an era of untrammeled biotechnological manipulation of our lives. For example, the same technology used to eliminate disease-causing genes or to clone embryos may eventually be deployed to produce genetically engineered children. That could, in turn, entrench class differences, since only the wealthy could afford the most desirable genetic enhancements. . . . Public debate on regenerative medicine must acknowledge this inequality. Societies and individuals can invest in it in good conscience only if they are seriously committed to extending extant medicine to all.

Without more attention to those at the bottom of the economic heap, the biotech project might recall these haunting lines from John Bunyan’s “The Pilgrim’s Progress:” “Now he had not run far from his own door, but his wife and children perceiving it, began crying after him to return, but the man put his fingers in his ears, and ran on, crying, Life! Life! eternal life.” Gary Shteyngart’s recent novel imagines a world where a company that sells modern-day “immortalization services” only takes on clients who promise to prioritize payments for the company’s “dechronificaiton” over any claims by relatives for help. They don’t even consider the possibility that those seeking endless self-preservation might be tempted to give to charity instead. Michel Houllebecq’s much worse novel, The Possibility of an Island, carries the trope further, imagining a future where the wealthy simply clone themselves into the future rather than worrying about reproducing.

In my article on immortality, I reach conclusions similar to those of Andre Gorz in The Immaterial. Whenever we come across a project that

will enable ‘us’ to free ‘ourselves’ from the contingency of our factuality. . . . to recreate and transcend ‘ourselves’ or even abolish the human condition[,] [t]his re-creation might be said the be the supreme stage of self-production. But it is a grammatical mirage. . .. [There is a] difference between the natural body and the body reprogrammed by science. . . .

In my own words, from my 2002 article:

Artificial-intelligence [based immortality] projects are unconvincing because their products lack bodies, and therefore cannot experience the sense-perceptions that are fundamental to human consciousness. Given the inevitable decay and profound importance of the brain, perpetual rounds of organ replacement seem only to offer their beneficiaries a series of lives, and not really a chance to maintain a coherent one. Neither the inorganic nor the organic forms of immortality offered by these two families of technologies offers indefinite life that is recognizably human or continuous with that of the person who employs them.

Nevertheless, I expect the “immortality project” will continue to attract followers. John Gray’s book “The Immortalization Commission” follows the Soviet elite who wished for a this-worldly resurrection. He sees similar aspirations today:

The hopes that led to Lenin’s corpse being sealed in a Cubist mausoleum have not been surrendered. Cheating aging by a low-calorie diet, uploading one’s mind into a super-computer, migrating into outer space [are all present day aspirations] . . . Longing for everlasting life, humans show that they remain the death-defined animal.

Today it is not a communist elite that is likely to continue the immortality project, but rather those billionaires who believe their lifespans should be as much longer than the average Joe’s as their fortunes eclipse his bank account. There is a slight chance the innovations they fund can “trickle down” to all, but in a world of limited resources, new variations on cryonics may not be the best place for funds to be allocated.

Reform Rodeo

1. 10 Most Wanted: Taking a page out of the FBI’s playbook, HHS’s Office of Inspector General is now publishing a top ten list — with pictures – of the most wanted health care fraud and abuse fugitives.

1. Straight to the Source: Jonathan Cohn discusses what Richard Foster — the chief federal actuary for Medicare — thinks about the chances that health care reform will hold down costs.

2. Individual Mandate Mandatory? NPR has a story investigating whether health reform could be implemented without the individual mandate.

3. Dartmouth Research Questioned: Maggie Mahar discusses a recent Institute of Medicine report which posits that in some circumstances,  an increase in health care spending may lead to better outcomes.

4. Value-Based Purchasing: The Health Care Economist has an interesting post detailing Oregon’s experience with value-based purchasing.

Pharmaceutical Research Expenditures and Industrial Policy

Anyone familiar with pharmaceutical industry restructuring will not be surprised by this prediction from the FT’s John Gapper for 2011:

A drugs company will drop early-stage research. Big Pharma has struggled for a decade with a dearth of potential blockbusters. Companies such as GlaxoSmithKline have restructured and slimmed down their research arms but the sector remains troubled, as the departure of Jeff Kindler, Pfizer’s former chief executive, on the grounds of “exhaustion” indicates.

The obvious course with something that is not working is to drop it. Shire Pharmaceuticals pioneered a strategy of outsourcing early-stage research to smaller companies and focusing on developing and trialling promising drugs. This will be the year when one of the industry’s biggest takes a similar tack.

Gapper seems pretty unworried about this transition, and perhaps from the standpoint of pure economic theory it makes little difference whether research is conducted in-house or purchased from other, smaller firms. But as a matter of public relations and political economy, this is a troubling development.

The Post-R&D PR and Jobs Crises

First, the pharmaceutical industry has long justified its profits by arguing that it invests in research and development. For those who favor a market-based approach to drug research, this is a vindication of laissez-faire. Rather than relying on the heavy hand of government to try to direct the research done at pharmaceutical firms, we can expect the “invisible hand” of the market to spin off solutions for everyone’s problems–from the richest to the poorest. Innovations eventually filter down from the highest-income individuals to those with fewer resources. Spending by the wealthy on health care leads to investment in research infrastructure that ultimately redounds to the benefit of all.

But to the extent that the industry spins off its research and development, shouldn’t policymakers be more concerned about the health of research firms than the continued thriving of Big Pharma? I suppose one could make the argument that big Pharma is evolving toward a Walmart or Google style of value creation via skilled intermediation. Its key role in that scenario is to identify the most promising researchers, CROs, marketers, distributors, and advertisers.

If that evolution occurs, it reminds me of another of Gapper’s predictions for 2011:

As China tries to make itself a hub for environmental [and energy] innovation, the US is retreating. Silicon Valley venture capital groups that identified green energy as a big opportunity are playing it down and turning to social media. China has the market, the cash and the science to stick with it.

In other words, Big Pharma’s moves toward becoming virtual companies, mere hubs of certifications, trademarks, tax dodges, and contractual obligations, mirror a longer-term hollowing out of the US economy. Whereas a nation like China has an industrial policy that encourages production of useful goods and full employment, US capital is migrating toward “platform plays” that merely redistribute bargaining power and information about goods and services. One can imagine all sorts of clever entrepreneurial ploys that fall out from this strategy—think Groupon for cheap pills! What remains unimaginable is how social networking leads to viable occupations for all but the most connected and tech-savvy.

Top US economic strategists used to claim that offshoring didn’t matter, as US citizens’ superior productivity, technological skills, and education would attract high-value jobs to the country. Given America’s massive failures in educational policy, we no longer hear much about the “high value” jobs that a global division of labor was supposed to deliver to us. Instead, we see ever higher unemployment and no plausible plan to keep decent jobs in the country, or to be sure that those that remain are paid decently. Andy Grove has also helpfully demonstrated the necessary connections between ongoing manufacturing capacity and research designed to make production better. As he puts it:

Startups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter. The scaling process is no longer happening in the U.S.

You could say, as many do, that shipping jobs overseas is no big deal because the high-value work—and much of the profits—remain in the U.S. That may well be so. But what kind of a society are we going to have if it consists of highly paid people doing high-value-added work—and masses of unemployed? . . . .

Finally, the increased outsourcing of R&D may menace existing cross-subsidization of research for neglected drugs and tropical diseases. To be sure, not much of this is going on presently; of the 1300 compounds tested for safety and effectiveness by major drug companies from 1992-2005, only 1% were directed toward diseases that predominate in the developing world. And a recent conference at BU gave me some hope that humanitarian research efforts could be distributed among small teams of researchers. Still, I worry that the ongoing shrinkage of Big Pharma will have results in the medical field similar to the gradual dissipation of Bell Labs.

Pharma as Part of a Larger Industrial Policy

Are there any solutions to be offered? The key to effective policy here is to recognize the extensive role the US government plays in the pharmaceutical industry. Epic battles over the scope of patent rights in the US are routinely fought in the US Congress. The US Supreme Court has recently opined on a number of fundamental issues in patent law in rapid succession. Legislation like the Hatch-Waxman Act prescribes a regime of protections and obligations for drug manufacturers that is extraordinarily complex, and continually contested. The FDA is involved in every step of a drug’s approval and marketing process. Medicare Part D legislation also significantly increased the US Government’s involvement in the pharmaceutical sector, providing an enormous amount of funding for spending on drugs for the elderly. International treaties like TRIPS also play a very important role in the pharmaceutical sector. In short, if there is one sector where state action is not simply a side constraint on “the market,” but rather serves to constitute it, that is the pharmaceutical sector.

Therefore, the US government needs to be much more involved in shaping both the output and the business practices of the industry to reflect national and humanitarian needs. On the humanitarian side, there are many excellent ideas in the book Incentives for Global Public Health. On the industrial policy side, perhaps there are lessons to be learned from this article on Chinese practice:

Foreign companies have been teaming up with Chinese ones for years to gain access to the giant Chinese market. Now some of the world’s biggest companies are taking a risky but potentially rewarding second step—folding pieces of their world-wide operations into partnerships with Chinese companies to do business around the globe.

Several earlier joint ventures inside China have soured over concerns that Chinese partners, after gaining access to Western technology and know-how, have gone on to become potent new rivals to their partners. “Foreign partners are seeing they will have to sometimes sacrifice or share the benefits of the global market with the Chinese partner,” says Raymond Tsang, a China-based partner at consultancy Bain & Co. “Some of the [multinational corporations] are complaining. But given the changing market conditions, if you don’t do it, your competitors will.”

To the extent that big Pharma is a truly global industry, US policymakers should be just as aggressive as Chinese ones in assuring that present private profits leave behind infrastructure that meets national needs for both quality healthcare and a balanced and highly skilled workforce. To neglect these imperatives is to declare unilateral economic disarmament vis-à-vis a competitor to which we are already massively indebted, and which has shown no qualms about taking US-developed intellectual property. If China wants certain concessions from multinationals for the good of its citizens, the US should demand no less.

Short Circuited Surge Capacity: Lessons from the Blizzard for Public Health

Bad weather recently caused massive failures at Heathrow Airport, and brought chaos to air travel in the New York area. Both scenarios suggest an intriguing set of dilemmas in health law and policy. We should be doing much more to prepare for sudden, disruptive events in both the transportation and health sectors. But economic short-termism rules the roost, undercutting the infrastructural investments that a more enlightened America would make.

Stuart Altman has wisely compared hospitals and airlines, and worried that many of the former would suffer the fate of legacy carriers:

By 2025 the need for general hospitals to cross-subsidize [i.e., use payments from the well-insured to pay for others' care] will greatly increase, but their ability to do so will be diminished. U.S. hospitals could begin to resemble U.S. airlines: severely cutting costs, eliminating services, and suffering financial instability. . . .

There are numerous similarities between the airline and hospital industries. Both comprise companies that built a complex infrastructure and provided cross-subsidized services. Both were protected by a lack of price transparency and limited competition. In the recently deregulated airline industry, price competition and specialized airlines have emerged that do not have to serve all cities and can focus on the most profitable routes. They need not charge higher prices for these routes to make up for losses incurred elsewhere. Similarly, in the hospital industry, specialty hospitals have emerged that can focus on the most profitable patients and do not have to treat the uninsured or provide money-losing services.

The new specialty hospitals, like the new low-cost carriers, are not saddled with fixed costs from old plant and equipment and do not have to contend with excess capacity that resulted from historical changes in demand.* Both use their inherent cost advantages to compete for more price-sensitive consumers. Legacy airlines cannot raise fares to cover costs because price-sensitive customers can now obtain transparent price information on the Internet and shop for the lowest fares. California is now requiring, and many advocacy organizations are encouraging, hospitals to post their prices on the Internet. Hospital patients, facing increased copayments, deductibles, and other out-of-pocket costs, could begin to behave more like airline passengers. . . .

Because of increased price transparency and specialized competition, legacy airlines could not raise prices sufficiently to cover their costs. Between 1 October 2001 and 31 December 2003, they cut costs by $12.1 billion. They stopped serving some locales and reduced seat capacity. They cut labor costs, services, and amenities. Nevertheless, from 2001 through 2003, the legacy airlines lost $24.3 billion, while the low-cost carriers reported profits of $1.3 billion.

The past few years have witnessed a recovery for many airlines pushed to the brink after 9/11. They filled more seats in each plane (leading to higher “load factors”) and otherwise “cut the fat” (sometimes endangering passengers in the process). Nate Silver observes that filling up planes has some positive effects on prices and the environment, but also sets in motion dynamics that few fully consider until the unexpected strikes:

[L]oad factors have been rising steadily. A decade ago, they were closer to 70 percent, which permitted quite a bit more slack in the event of cancellations. At a 70 percent load factor, there are 2.3 passengers for every available seat, which means, roughly speaking, that one day’s worth of cancellations might take two days to clear through the system. At an 82 percent load factor, on the other hand, there are 4.6 passengers for every seat — roughly twice as many — so one day’s worth of cancellations might require four or five days to get everyone home.

The societal trade-offs here are tough, and airlines need flexibility in determining how far they should go to crowd planes and maximize profits. But in the realm of healthcare, I am much more concerned that a long series of hospital closures will leave the system disastrously overwhelmed in case of an infectious disease outbreak, terrorist attack, or extreme weather event. Like airlines, hospitals have been cutting their surge capacity in order to improve the bottom line. As I noted over four years ago, the asymmetry between projected demand and supply for something as fundamental as ventilators is shocking. A 2006 estimate suggested that only 5,000 spare ventilators would be available to as many as 742,500 people in need in the case of a serious pandemic.

In a 2005 article in the Journal of Contemporary Health Law and Policy, Lance Gable et al. discuss surge capacity as “the number of critical casualties arriving per unit of time that can be managed without compromising the level of care,” and propose ways of increasing “the availability of skilled health professionals to supplement the existing health workforce.” I applaud their approach and attention to the problem (astonishingly, it is the only article in the Westlaw JLR database with “surge capacity” in the title). But I also worry that scarce physical space is going to cause as large a problem at hospitals as personnel shortages. Like its airports, New York’s community hospitals are fraying:

In New York’s many community hospitals, which provide an essential first line of defense in the effort to safeguard public health, the danger of failure is particularly acute. Combine growing costs, decreasing revenues, and high debt loads, and you can’t dig out. Then what happens? “If you’ve accumulated any reserve over time,” an executive at a major local hospital says, “the first thing you do is eat it up. Then you cut costs on staffing and support services, sometimes below levels you know are safe. Then you stop spending money to keep your physical plant and equipment up to date. The condition of the physical plants of many New York City hospitals is staggering. Then, when there’s nothing else you can do, you declare bankruptcy. That’s the life cycle of a New York hospital.”

Given all these strains, hospitals may have to choose between community service and solvency in the wake of a major outbreak of illness. Vickie J. Williams’s article “Fluconomics” presciently examined the bad financial incentives that hospitals would face in case of a serious outbreak of infectious disease:

[W]e currently have no means of ensuring that hospitals acting as isolation, quarantine, and treatment centers in a pandemic will survive the loss of revenue that they will experience in protecting the public’s health. Our hospitals depend on a fragmented financing system that presumes the hospital’s ability to shift costs from low-paying public payors to higher-paying private payors, and from less lucrative cases to more lucrative, often elective, procedures.

Read more

Judge Hudson, Bartleby the Scrivener and the “Tribeless, Lawless, Hearthless One”

As I think about Judge Hudson’s decision in Virginia, I’m struck by the espoused (and yesterday winning) concept of the individual mandate to procure health  insurance (if not exempted for religious belief) as an unprecedented  regulation of “inactivity.” As I consider this choice of supposed “inactivity,” I’m struck by the insistence to supposedly not engage in the social contract: to reap the benefit of social structure in a medical sense– to have the piece of mind which comes with knowing that EMTALA, a valid law passed by a duly constructed governing body,  insures that an emergency room may not shun you if you darken its doorway, but to insist, when it comes time to make arrangements to pay to keep those doors open, that like Melville’s Bartleby the Scrivener, you’d simply “prefer not to.”  It is perhaps constructive to remember that Bartleby ultimately exercises whatever free will he has into his own starvation  inside a prison of his own preference– or more aptly, as the result of his “preferring not to” engage in activity.

In a moral sense I suppose we may consider this justification of opting  out of the individual mandate as a form of persistent objection wrought from consent based theories of governance.  The argument stems from a concept of individual liberty. But as the Supreme Court has often said, ours is a system of “ordered liberty.” It must be. Every conscription to war has told us so– in the starkest terms possible.

And given the social nature of our existence, the inter-dependence– who but Homer’s and Aristotle’s “Tribeless, lawless, hearthless one” can claim to have not reaped the benefits of the social contract? In a medical sense? Research? To oversimplify through analogy, can you drive down the road each day, but object to pay the tax for its construction and upkeep? Which is to say, can you partake of the benefit without obliging yourself?

Governing inactivity? If you fail to shovel your walkway full of snow, may you not be fined for causing a potential public harm? If you fail to provide for the regular education of  your 12 year old daughter, will there not be legal consequences? The failure to shovel or educate both qualify as inactivity– we regulate inactivity for the public good all the time. These examples leave much to be desired as matters of commerce to be governed federally, but of course, health care itself is not “regular” commerce– the economics of healthcare are essentially different from the economics of standard market transactions.The economics of healthcare are, as Professor Frank Pasquale has written here, “unconventional.”

Professor Brad Joondeph over at ACA Litigation blog, makes the point that

perhaps the biggest single legal challenge for the administration will be to convince judges that the health insurance market is unlike any other market, and that Congress’s use of the commerce power to enact 1501(b) will not justify the compulsion of Americans to purchase any other good or service.

I think that’s right.

Having said that, there is some precedent regarding the mandate to procure in defense of the common weal. For those who refer to the individual mandate to have health insurance as an “unprecedented” federal mandate, we’ve already covered that misnomer here on HRW with Bradley Latino’s piece on the “The Original Individual Mandate, Circa 1792.” For those of you unfamiliar, it may be worth quickly recapping:

The Militia Acts of 1792, passed by the Second Congress and signed into law by President Washington, [which] required every able-bodied white male citizen to enroll in his state’s militia and mandated that he “provide himself” with various goods for the common weal:

[E]ach and every free able-bodied white male citizen of the respective States . . . shall severally and respectively be enrolled in the militia . . . .provid[ing] himself with a good musket or firelock, a sufficient bayonet and belt, two spare flints, and a knapsack, a pouch, with a box therein . . . and shall appear so armed, accoutred and provided, when called out to exercise or into service

As we further wrote:

Of course, the procurement of supplies under the Militia Acts did require Americans to engage in commerce, and, perhaps, Interstate Commerce. But it is not particularly tenable to cite the Commerce Clause as the power under which Congress and President Washington moved. More apt would be the Militia Clause, wherein Congress may “call forth the Militia” coupled with the Necessary and Proper Clause:  ”Let the end be legitimate, let it be within the scope of the constitution,” as Justice Marshall famously wrote in McCulloch v. Maryland “and all means which are appropriate, which are plainly adapted to that end . . . are constitutional.”   Importantly, McCulloch is still good law (for some idea of the breadth of the Necessary and Proper Clause power, See U.S. v. Comstock, recently decided by the Supreme Court). And yes, the Necessary and Proper Clause may work in tandem with the Commerce Clause.

What is “Necessary and Proper” to the execution of one power (Militia Clause), however, may not be ultimately determined by the Court to be constitutionally so for another (Commerce Clause). But as Constitutional Law Professor Edward Hartnett of Seton Hall Law has pointedly queried, “At least so long as McCulloch v. Maryland is good law, why would the necessary and proper clause in aid of the militia power allow for an individual mandate, while the necessary and proper clause in aid of the commerce power would not?”

I don’t believe Judge Hudson has answered that question to satisfaction. But perhaps he would prefer not to.

Sunlight is a Weak Disinfectant

One of the most robust “memes” in contemporary law is the power of disclosure. In health law, disclosure comes up again and again: patients need to give “informed” consent, insurers are supposed to explain their policies clearly, and conflicts of interest, when not proscribed, should at the very least be exposed. But there are growing challenges to the disclosure meme, both within health law and without.

George Lowenstein and Peter Ubel note some problems with disclosure approaches in this article on the weaknesses of behavioral economics generally:

It seems that every week a new book or major newspaper article appears showing that irrational decision-making helped cause the housing bubble or the rise in health care costs. Such insights draw on behavioral economics, an increasingly popular field that incorporates elements from psychology to explain why people make seemingly irrational decisions, at least according to traditional economic theory and its emphasis on rational choice. . . . But the field has its limits. As policymakers use it to devise programs, it’s becoming clear that behavioral economics is being asked to solve problems it wasn’t meant to address.

[T]ake conflicts of interest in medicine. Despite volumes of research showing that pharmaceutical industry gifts distort decisions by doctors, the medical establishment has not mustered the will to bar such thinly disguised bribes, and the health care reform act fails to outlaw them. Instead, much like food labeling, the act includes “sunshine” provisions that will simply make information about these gifts available to the public. We have shifted the burden from industry, which has the power to change the way it does business, to the relatively uninformed and powerless consumer.

The same pattern can be seen in health care reform itself. The act promises to achieve the admirable goal of insuring most Americans, yet it fails to address the more fundamental problem of health care costs. . . . [T]he act tries to lower costs by promoting incentive programs that reward healthy behaviors. . . . [But s]tudies show that preventive medicine, even when it works, rarely saves money.

At its worst, disclosure can become merely pro forma; as Kafka (via Trudo Lemmens) puts it, “Leopards break into the temple and drink to the dregs what is in the sacrificial pitchers; this is repeated over and over again; finally it can be calculated in advance, and it becomes part of the ceremony.” Omri Ben-Shahar has argued that disclosure is one of many aspects of consumer protection law with little real impact on individual welfare. As Amelia Flood reports,

Ben-Shahar, who spent last summer studying all the mandated disclosure statutes in Illinois, Michigan and California, argues that consumer protection advocates have gotten it wrong when it comes to mandating information access for consumers. He says consumers get lost in a sea of technical language, unread disclaimers and long-shot lawsuits. . . . According to Ben-Shahar, disclosures are of more use to consumer ratings groups like Zagat and Consumer’s Digest than they are to most consumers.

So perhaps there is some hope here: third-party aggregators and raters might use disclosures as part of an overall effort to rate various hospitals or doctors. The question then becomes–who shall pay (and rate) the raters? One irony here is that doctor rating sites have themselves been accused of being insufficiently transparent about the ways in which they evaluate physicians. New York Attorney General Cuomo even pursued the matter. His office eventually settled with insurers who ran rating sites. They pledged to “fully disclose to consumers and physicians all aspects of their ranking system.”

What’s the lesson here? First, that consumers are, by and large, too busy to process piecemeal disclosures by professionals like physicians and other health care providers. Second, third party raters can fill some of this information gap by aggregating information. Third, this process of aggregation and rating itself will likely need to be closely supervised by a good-faith regulator, lest it fail to take into account the full range of interests (and quality of information) proper for the task.

Mirror, Mirror on the Wall–Who Has the Most Free Market Health Care System of them All?

At least since legal realist Robert Hale published his Freedom through Law, the question of what constitutes state “intervention” in the market has been complex. For example: at what point does licensing of doctors move from being a natural aspect of any competent health system to being termed a suspect “intervention”? If there is to be free trade in services, don’t we at least need some information about what constitutes genuine medical care? “Perfect information” is a cornerstone of idealized markets—isn’t some baseline of information necessary to any actual market?

In health policy circles, the United States health care system is often seen as the most “free market” system internationally. But even the US would appear to be more interventionist than China, on a cursory reading of Blumenthal and Hsiao’s 2005 article in the NEJM:,

in the early 1980s, China virtually dismantled its apparently successful health care and public health system overnight, putting nothing in its place. In retrospect, this startling and almost inexplicable event seems to have been collateral damage from a much more carefully planned and successful policy strike: the privatization of China’s economy and a general effort to reduce the role of Beijing’s central government in China’s regional and local affairs. Only recently have Chinese authorities recognized the pain and the massive disruption in health care that they have caused.

By contrast, by some calculations, “the current tax-financed share of health spending is . . . 59.8 percent.” Very recent Chinese stimulus spending may be reversing prior privatizations there. But it’s clear that Chinese savings rates are still high, largely because so many citizens are scared of being sick and broke in a market-driven health care system.

Of course, it’s hard to develop any clear metric of private/public here; Blumenthal & Hsiao’s piece may only speak to financing and not other practices. Nevertheless, if Americare fails, the US and Chinese health care systems may be en route to superfusion.

Coping with Commodified Caregiving

Roger Scruton has complained that, in our society, “too many goods have a price.” He makes a Walzerian argument that certain experiences cannot be bought and sold without doing violence to their ultimate social meaning:

A century and a half ago John Muir in America and John Ruskin in England initiated the movement to save our world from spoliation. They rightly understood that nothing would  be saved if we simply defend it on economic grounds. A valley might be useful as farmland, but it might be even more useful as a reservoir or an opencast mine. Only if we recognize the intrinsic value of nature will it be proof against our predations; hence we should esteem landscapes and forests for their beauty, for their sacred quality, for the part they play in defining us and ennobling our settlements, rather than for their use. Only this will keep the market at bay and prevent us from consuming our world. . . .

Love is priceless, not because its price is higher than we can pay, but because it cannot be purchased but only earned. Of course, you can purchase the simulacrum of love, and there are people who are accomplished providers. But love that is purchased is only a pretense. Goods like love, beauty, consolation, and the sacred are spiritual goods: they have a value, but no price.

Economists don’t like spiritual goods. Such goods are connected to us not as things to be used, consumed, and exchanged but as parts of what we are. To lose them is to lose ourselves.

Perhaps the ultimate revenge of the economic mindset on commitments like Scruton’s is the rise of the caring industry, which Ronald W. Dworkin incisively examines in a recent article:

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