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Letter   |    
More on Profit and Quality in Managed Care
Alan A. Stone, M.D.
Psychiatric Services 1998; doi:

To the Editor: Fuller Torrey (1), in the Taking Issue column in April 1998, advanced the thesis that profit and high-quality managed care are incompatible. Barry Blackwell (2) responded in the same column in September 1998 somewhat tongue in cheek. He set out his credentials as an "immigrant" and a "recovering academic" who later worked in managed care. In fact, he was part of the 1970s brain drain from Great Britain and became chair of a department of psychiatry here in the colonies.

Dr. Blackwell's current claims about the American health care system follow the standard corporate line of his most recent employers. He criticizes Torrey for citing selected examples of corporate excess and leaving out the big picture of American health care. He concludes his own polemical overview of the complex economic and sociopolitical realities with a profession of faith: "I believe profit and quality are as compatible in health care as in any other product."

Dr. Blackwell's categorization of health care as like "any other product" will raise the hackles of many ethicists. After all, there is no American law that requires McDonald's to provide its product to the starving poor or requires Ramada to provide its product to the homeless. But by law every hospital must provide its product in an emergency to anyone who urgently needs it. This requirement reflects a political-ethical judgment by American lawmakers that medical care is not just another product. Britain's National Health Service reflects the same societal judgment.

Much more troubling than Dr. Blackwell's failure to consider the special political-ethical dimension of health care is his omission in his big picture of the basic economic distinction between the market for health care and markets for most other products. The fundamental problem of the health care market was identified by the Nobel-prize-winning economist Kenneth Arrow (3) in a landmark essay in 1963. Arrow highlighted the fact that efficient markets—those that, for Dr. Blackwell's purposes, might allow for profit and quality—require that purchasers be able to acquire sufficient information. Arrow recognized that the ordinary patient could never have enough information about the nature of his or her illness or the qualifications of the doctor to make the prudent self-interested decisions necessary for efficient markets to work.

As Dr. Blackwell seems to recognize, during the years of fee-for-service health care, some physicians profited by exploiting their patients' lack of information and provided more than optimal care. However, he fails to mention that today managed care plans are profiting by exploiting that same lack of information and provide less than optimal care. It is pure conjecture, but I assume that most parents with a sick child (to use Arrow's example), facing uncertainty and forced to choose between these options, would prefer the former.

An equally important part of the complex economic reality is that managed care has led to the concentration of power in the health care market. Now health plans exercise oligopsonistic purchasing power—a relatively few purchasers and a vast array of sellers—to dictate terms and conditions of treatment to providers. This is a market in which individual patients and doctors are powerless. Dr. Blackwell dismisses this sense of powerlessness in the doctor-patient relationship in patronizing terms: "Professional guilds and public crybabies lament their loss of control." But an autonomous profession cannot exist unless doctors and patients have some independent measure of control.

Dr. Blackwell, like many other physicians employed by the managed care industry, seems to underestimate the importance of the market forces that have been unleashed. (Perhaps they overestimate their own control). But the health care system is now being driven not by physicians but by entrepreneurs who are caught up in merger mania, market share, Madison Avenue, and Wall Street. These entanglements have nothing to do with quality, but they have a great deal to do with profit.

There are markets—luxury automobiles, for example—-where profit and quality are compatible, as Dr. Blackwell suggests. However, he fails to identify the special political-ethical and economic complexities that characterize the present American health care system. Given the information problem in the health care market, there is no reason to believe that managed care entrepreneurs will use their oligopsonistic market power to produce quality until they have fully exploited their current economic advantage. By then they will have destroyed the infrastructure that made American medicine the envy of the world and brought people like Dr. Blackwell here.

Dr. Stone is professor of law and psychiatry at Harvard Law School in Cambridge, Massachusetts.

Torrey EF: Is for-profit managed care an oxymoron? Psychiatric Services 49:415,  1998
 
Blackwell B: Profit and quality in managed care. Psychiatric Services 49:1121,  1998
 
Arrow KJ: Uncertainty and the welfare economics of medical care. American Economic Review 53:941-973,  1963
 
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References

Torrey EF: Is for-profit managed care an oxymoron? Psychiatric Services 49:415,  1998
 
Blackwell B: Profit and quality in managed care. Psychiatric Services 49:1121,  1998
 
Arrow KJ: Uncertainty and the welfare economics of medical care. American Economic Review 53:941-973,  1963
 
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