The Economic Evolution of American Health Care: From Marcus Welby to Managed Care
Authors: Huw T O Davies
Journal: Journal of the Royal Society of Medicine (2003)

Health systems in most countries have undergone upheavals over the past two decades, largely in response to escalating costs. Nowhere have these changes been more dramatic (and even traumatic) than in the United States. In a single generation, healthcare has evolved from being a largely unorganized collection of interactions between individual clients and individual physicians, to a highly interconnected system involving many corporate bodies. The apotheosis of such change is the diverse assembly of arrangements gathered under the rubric of managed care. Managed care in turn has not been confined to the US. Many of its features and techniques—such as selective contracting and utilization review—have found wider application in Europe, Australia and New Zealand, and are being pushed as solutions to the health system needs of developing countries. The UK began experiments with managed care approaches in the early 1990s with the internal market, and many vestiges are resurfacing in current health policy. Thus an understanding of how and why health systems change, and a clarification of the relative merits of alternative policy approaches, remain important goals.

Economics provides one very useful lens to aid such understanding. It uses an analytic framework that identifies actors within the system (individual and organizational), assumes some degree of rationality within these actors, and ascribes to them desires that they seek to gratify. Thus shifts in organizational arrangements (e.g. mergers and alliances) and trends in organizational parameters (e.g. costs, volume, quality) are both explained and predicted by analysing and resolving the respective forces of self-interest that are assumed to operate. In The Economic Evolution of American Health Care David Dranove is commendably candid from the outset: ‘I have always been a big believer in the benefits of competition... when I first started to write this book, I fully expected it to be a sweeping endorsement of managed care’. While suggesting subsequently that ‘my optimistic view of managed care's potential has [since] wavered’, little of the main text betrays any such wavering. Throughout, Dranove is relentless in lauding the achievements of managed care to date and in promoting the likely contributions of managed care to come. His main argument is that managed care was highly successful in cutting costs in the 1990s, with little (demonstrable) effect on quality, and that, although such gains have now stalled, they were in themselves worthwhile. More than this, he sees the need to revitalize managed care as a means of driving further efficiencies and quality improvements. The power at work underpinning managed care is, of course, competition, and Dranove emerges as relentlessly pro-market and anti-planning. Regulation is seen as anathema unless it is in place to promote greater market competition.

The opening chapters do provide a very readable introduction to the changing nature of American healthcare, and are engaging in explaining the difficulties in treating healthcare as a tradable commodity. Moving on to explain the broader shifts in the US health economy, the rise of managed care, and the fight-back by vested interests (physicians), Dranove's pacy account never wavers from its economic focus. Competition, self-interest and rationality are the only forces invoked to explain broad and complex change. Such a focus provides an accessibly coherent account, but the reflective reader may wonder about other possible explanatory frameworks (what of intrinsic motivation, of obligation, of professionalism, or social capital?). In addition, there is an almost complete absence of international reference points. Thus the narrative always relates to US benchmarks, never asking why, for example, if managed care is so cost-containing, the US still spends more than any other country on healthcare while leaving almost one in five Americans without adequate cover.

Any wavering about the merits of managed care consists simply of an elaboration of the key requirements that need to be in place for competition to work its magic—competitive markets free of collusion and cartels; informed consumers willing to shop around; and effective market information. While the current challenges to these are outlined, the tone remains essentially optimistic. Dranove believes that the public (or their representatives) can be persuaded to exercise consumer power, and that data systems will rise to the challenge, providing sufficient information to allow rational decision-making based on quality rather than just price. On whether the markets will be able to remain unfettered Dranove is less sure, seeing darker forces of vested self-interest and the dead hand of bureaucratic frameworks as likely to intercede.

The sheer single-mindedness with which this book explains complex change, and its complete neglect of the underlying sociopolitical systems that sustain national health systems, should be sufficient to caution against any uncritical transference of ideas. While few would deny that economic forces and incentives are important for understanding organizational and individual behaviour, the highly socialized systems of healthcare in most countries also require multiple ways of understanding, and suggest the need for a multiplicity of coordinating and regulating mechanisms. While markets have some role, hierarchical control and relationship networks may be at least as important, and a failure to address these and attend to social capital will leave us all the poorer.