A New York Times column the other day by Eduardo Porter began by describing a 30-year-old finding that church affiliated nursing homes in southern Wisconsin were more than four times as likely as for-profit nursing homes to give their patients sedatives. Economist Burton Weisbrod, according to Porter, has an explanation: sedatives are cheaper than other forms of care and profit-maximizing institutions are more likely to minimize costs.
From this 30-year-old finding, Porter launches into a wide-ranging discourse on the evils of profit — in hospitals, in health insurance and everywhere else in medicine. Other countries haven’t been so foolish, he asserts, and he throws in a batch of international statistics to support his contention that our health care costs more and is of lower quality precisely because of the pursuit of profit.
Porter doesn’t stop there. The profit motive, he says, has unfortunately invaded pensions, education and even bail bondsmen services. Everywhere, of course, doing great harm.
I don’t think I have ever seen an editorial in the Times with so many non sequiturs and misstatements of fact.
Here’s what Porter neglected to say:
- Other countries are privatizing their health care services (trying to become more like us!) — Sweden, which began privatizing its hospitals some time ago is now privatizing its entire welfare state and Britain is allowing National Health Service patients access to private doctors and facilities — precisely because they find the private sector can deliver higher-quality services for a lower cost.
- Within the U.S. Medicaid system, 70% of enrollees are now in private health plans because state governments have discovered that these plans deliver higher quality, lower cost and better access than government-run Medicaid.
- One in four Medicare enrollees are in private plans that have, on the average, lower costs than traditional Medicare and in the best-run plans costs are substantially lower and quality is substantially higher.
- As for international comparisons of cost and quality, I dealt with that last week and reviewed the literature several years ago.
- And so as not to slight all the other areas Porter would like to nationalize, let’s quickly add:
- The public schools are contracting their worst-problem students out to private sector institutions because they find this activity lowers costs and better meets the students’ needs;
- The charter school and voucher programs have come into existence precisely because inner city public schools are so dreadful (Sweden, by the way, has turned completely to school vouchers);
- Private pensions are more likely (though not always) to have funding, rather than being run like public sector Ponzi schemes, and all funded government pensions are run by private sector firms;
- Private bondsmen (like Lee Majors in “The Fall Guy”) do a better job than public sector bondsmen.
Ah, so there. Now let’s back up.
What did the health care system look like 30 years ago? For those too young to remember, it was completely dominated by non-profit institutions. This was not a natural development, however. As I described in Regulation of Medical Care, it was an explicit political goal of the American Medical Association and organized medicine at the state level to discourage for-profit firms and encourage non-profits.
Not only were most hospitals non-profit, the very idea that a hospital should be run like a business was actually controversial! Church-run institutions may have been motivated by charitable concerns, but they were horribly inefficient. Porter writes:
Hospitals run for profit are also less likely than nonprofit and government-run institutions to offer services like home health care and psychiatric emergency care, which are not as profitable as open-heart surgery.
Yes, but do we really want every hospital to try to meet every need? Or is it better to let some specialize? And in deciding how to specialize, do we really want hospitals to ignore revenues and costs? Thirty years ago, that’s what they tended to do.
I don’t know anyone in hospital management who wants to turn back the clock. A hospital can’t survive these days unless it is run like a business and with few exceptions, there is not much difference between those we call “for-profit” and those we call “non-profit.”
Now quite apart from the issue of profit, there is the problem of third-party payment. As loyal visitors to this blog know quite well, third-party payment of medical bills creates perverse incentive for everyone — patient, doctors, hospital administrators, etc. And government-run third-party insurance probably creates more perversity than private insurance. In such a world, providers will tend to see the third party, rather than the patient, as their real customer. Further, they will tend to maximize against payment formulas rather than doing what is best for the patients. But this distortion and these perverse incentives are there, regardless of whether the firm is for-profit or non-profit.
As for the nursing home study, here is my challenge. Go through the back issues of just about any large newspaper in any state and search for “mental health scandal.” I’ll bet you will discover horrible treatment of patients — and not just over-sedation — by government-run mental health facilities, unmatched by any private sector abuses. In fact, any time a newspaper needs to boost circulation by revealing a scandal, the nearest mental health facility is almost a sure thing.
Now perhaps mental health facilities run by nuns are nicer to patients than government employees are. Maybe they are even nicer than for-profit employees. Perhaps the ideal is to have facilities run by Wal-Mart, but staffed by nuns. The problem is: there are not enough nuns.