New Marketplace

We Can’t Spend All Our Money on Health Care

Interview · April 13, 2018

Fiona Scott Morton and Tom Lee

Thomas H. Lee, MD, interviews Fiona Scott Morton, PhD, Theodore Nierenberg Professor of Economics at Yale University School of Management.


Tom Lee:  This is Tom Lee from NEJM Catalyst, and we’re talking today with Fiona Scott Morton, the Theodore Nierenberg Professor of Economics at Yale University School of Management. It’s almost exactly 5 years since Fiona and I first met, and I remember because it was not an easy day for me, and it was not an easy conversation. We were sitting on opposite sides of the table in the Department of Justice, and I was representing a provider organization that was under investigation by the Department of Justice for whether we were using our market power to command high prices to the detriment of consumers.

That organization was Partners HealthCare, and I say that because I’m pretty confident that the issues that we were discussing that day are not specific to Partners alone. They are generalizable to lots of other stakeholders in health care. In my remarks that day, I talked about the many, many good things that my colleagues and I were doing that were not covered or were not adequately covered by our fee-for-service payment.

I was talking about mental health, inpatient beds, social needs stuff, keeping expensive burn unit facilities and other technologies available 24/7, and my point was that we might be getting higher rates than others in the marketplace, but we weren’t paying our personnel more — we were doing more good things that they might not be, things that society valued. And after going through my carefully prepared remarks, I remember you listening and nodding, and then when I paused, you said, “That’s all very nice, but no one gave you permission.” I was confused and I didn’t know what you meant, but then you went on to tell me. Can you summarize the point for our audience that you were making for me that day?

Fiona Scott Morton:  Sure. A provider with market power has the ability to extract a lot of revenue from their client base. If you’re a mission-driven organization, like Partners is, you’re then going to spend that money on mission, but the issue for the consumer is that might not be the use of the money that they most prefer. What if the consumer would like the burn unit to be available less often, not 24/7, and instead have lower premiums? That consumer isn’t given a choice about that. That consumer is not asked, “Would you like lower premiums or would you like this additional health care quality that we at Partners are excited about?”

Instead, Partners — or anybody, the provider with market power who’s got these funds available — can choose to use the funds for any exciting research topic or investment that they feel is pro-mission and that might be helping people to some degree, but it might not be their choice. There might be better things that you could do with those dollars that would make people even healthier. For example, if they had lower premiums and therefore more money, maybe they could go on a holiday and that would give them less stress, or maybe they could afford to buy more fresh fruit and that would give them lower blood pressure and better health. There are many choices outside the context of the provider that people might want to pick for ways to use those dollars.

Lee:  I think the sign of just how engrossing the work of health care is, is that most of my colleagues and I had not thought of your point — at least I hadn’t thought of it that day. I’m secure enough to admit it, and I refer to that moment as my “Fiona moment” when I talk about it in various settings, and I’ve been brooding about it ever since. My colleagues and I, on the provider’s side, we tend to think that we’re good people doing good work. Why can’t everyone leave us alone and get off our backs? You teach a lot of physicians and other health care providers in various courses, so I know I’m not the only person you’ve met who had the tunnel vision issue. What is your reaction to that perspective?

Morton:  Well, it’s very natural. These are mostly physicians who’ve spent their whole lives working on technologies and therapies to help patients. They want to do more of it, and they’re given resources because their organization can extract those resources from the marketplace. It is absolutely logical for people to do this, and not bad — there is no moral content to this. It’s natural and right for the provider to want to take that money and go out and do good things with it.

The problem is that we have a competition issue in health care where the marketplace is not giving the right signals. Suppose instead of having market power, a hospital or a provider were subject to normal amounts of competition, marketplace competition. That would impose some discipline on what they did with their extra money. First of all, they wouldn’t have much extra money because people might say, “Oh, look, this provider over here is cheaper. Even though they don’t have gold-plated chairs in the waiting room, I’m going to go there because I don’t mind forgoing the gold-plated chair.” Or [in] a more concrete example: “The nurse spends 2 minutes less with me, or the waiting time until I get an appointment is an additional week, but I’d rather go there because it’s cheaper.”

A provider facing that competition is going to have invest in lowering costs and isn’t going to have that extra money to have machines with gold plate on them and other kinds of services that maybe consumers would rather not have, given how much they cost. So, if you have a marketplace with competition in it, then the provider gets the right signals. Then when people want a flu clinic that’s available in lots of places at convenient times, the provider who provides the flu clinic gets a lot more business. And that’s the signal that we want in a marketplace — to say, “Yes, consumers value that investment, that innovation, and you should go out and do that one.”

Lee:  You’re painting a picture where my colleagues feel competition and that makes us work to be innovative and efficient at the same time. One example that you and I spoke on the phone about recently was a provider organization with a socioeconomically disadvantaged population that I told you about, that has been spending a lot of resources addressing literacy in their patients. They’ve been hiring all these people to teach their patients not [only] how to understand medical things, but also how to read because a lot of them couldn’t. This is an organization that’s barely in the black. They want to do even more to address social needs in that population, and they are pushing for higher payments from their payers to support that. Your reaction?

Morton:  My reaction is that that’s not what your health care premium dollar is supposed to be for. It is supposed to be for health. It’s a bad situation and you want to help the patients, and the way to help them is to go to the relevant local government, city or town or state, assemble all the other providers and other stakeholders who care about literacy, and raise a red flag — this is a huge problem. We have citizens who can’t communicate with their providers over their health care. We need the government, society, volunteers to be providing some literacy and not make literacy a reason for higher health care costs, that those should really be driven by the health care part.

Lee:  So partnering, perhaps, with community organizations that are the doing the real work of doing this, but not investing in the way that you’re taking away resources that might be needed for things like burn units. Let me turn to the burn unit example. We brought up burn units when we were down there at the Department of Justice because not that many years before there had been that terrible nightclub fire in Rhode Island, and a whole bunch people got brought to Boston because we’re not that far away, 45 minutes, and we had burn unit beds available in Boston to take care of this tremendous surge. It was terrific that Boston had those beds, but having those beds — which I hope and assume are lying empty right now, but generating costs as they lie empty — how do we think about things like burn unit beds, and how do we pay for them, and how should a provider organization be thinking about them?

Morton:  That’s a really, really good question, and really the heart of the hard questions in health policy. We have to think about how much we want to spend on health according to how much it’s worth to us at the margin. What do I mean [by] “at the margin”? Let’s imagine we add another burn unit bed. Suppose we decided that there should be more burn units and we were going to build them in every town across America. How many millions of dollars would that cost, and how many lives would they save? They’d cost many millions of dollars and they’d save hardly any lives. That isn’t a good use of investment.

Suppose, instead, we [decided to] expand prenatal care and expand that to all low-income and moderate-income women. How many millions of dollars would that cost and how many lives would it save? I don’t know the number of millions of dollars, but I know that the literature tells us it saves lives, and it’s fairly cost effective to save lives. That’s an activity we want to carry out. Building more burn units is an activity we don’t want to carry out in the scenario we’ve got here, and maybe we even have somewhat too many burn units considering how much they cost and how many lives they save.

We can’t spend all our money on health care. Imagine if 90% of GDP were spent on health care. We’d all be alive, but we would have nothing to eat, we’d have no iPhones, we’d have no holidays, we’d have no cars. It would be a pretty grim existence. Not clear why you want to be alive if you have nothing to eat and no place to live. It’s not the case that we can just say, “Buy it all.” We can’t buy it all.

How do we make a decision about what not to buy? That’s a complex social choice. You see other countries in Europe having their governments choosing what not to buy. Here in the United States, we essentially have a combination of the government and the marketplace choosing what not to buy, and the marketplace doesn’t always do a great job.

Lee:  If we’d been able to continue our conversation over a glass of wine [that day], you might have said to me you want places like my hospitals to consider and even build some burn unit beds so there’s some around, but you’d want us to be restrained in how many we build by our ability to create efficiencies elsewhere and the other care we deliver, as opposed to [going] to the marketplace and [getting] paid more.

Morton:  That’s partly right. I wouldn’t even say create efficiencies somewhere else. I’d say ask how much the burn unit costs and how many lives it saves, and maybe consider calculating that number across a few other of your subunits in your hospital or in your activities and figure out [that] this one is incredibly cost effective and this one is not, and this one is cost effective in general but I don’t need more of it. [If] I built more beds, I wouldn’t be saving any more lives because all the people who need to be saved already have a bed, right? We don’t need more beds. That’s the kind of reasoning I am talking about. [As for] efficiencies, if you can get efficiencies in other parts of the organization, do that anyway regardless of what you do with the burn unit.

Lee:  In the 5 years since we had that conversation, I’ve learned to see the world a bit more from your perspective. I’ve come to think that what you said earlier on is true, that competition everywhere, at every level of the health care system, is an essential part of the problem. Your concern that day that my organization didn’t have enough competition, we won’t revisit that issue, but competition is important and having no restraints is not good. If you were to put yourself in the position that I was in that day, the leader of a health care organization, not necessarily a Partners but a Yale where you are, what would you be telling the leaders about plunging into that [type] of marketplace? Clearly you don’t want them to fight off and deflect competition. What would you like from them?

Morton:  I’d like them to think about competition as a healthy thing that helps them direct their activities in the direction that consumers want. What do consumers want? Not what do research scientists want or what do donors want, or something like that, but instead thinking about, what is it that people really need? Because we’ve started to reach the upper limit of what we can afford to pay in health care costs. We’re seeing tremendous social tension in this country because we don’t have money to pay for schools and roads, and all the low-income people who need health care, and everything else that goes into a productive civil society — infrastructure, and so on.

Why not? Because we’re paying such high health care bills. They can’t go up, and I would like to see the leaders of health care organizations think about the innovation they can do that takes a procedure and causes its cost to fall by 70%. Maybe it’s not better. Maybe it’s the same quality it was before, but it costs a lot less. How about that kind of innovation, instead all the innovation going into making the procedure slightly better and costing twice as much? That’s where we need to move.

Lee:  What you say makes a lot of sense, and I hope in the next 5 years that we find ourselves sitting on the same side of the table instead of the opposite one.

Morton:  That would be great fun.

Lee:  And then we’ll bring you back on NEJM Catalyst and we’ll talk about it more. Thanks again, and I think our audience appreciates your comments today.

Morton:  Thank you very much. It was a pleasure.

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