Congressman Ryan has now produced his fundamental health care reformation to support a “consumer-directed” vision in which services would be bought and sold like other goods and service in the economy. Indeed, responding to the Congressional Budget Office’s assessment that 24 million Americans would lose their health insurance if the House legislation becomes enacted, Ryan was rather nonchalant about that outcome, reasserting the conservative vision that, “People are going to do what they want to do with their lives because we believe in individual freedom in this country,” just as they do across all sectors of the economy.

In many ways, the House’s American Health Care Act’s reliance on consumers to fend for themselves in buying health care services represents a fundamental rejection of the prevailing policy viewpoint, brilliantly formulated by Nobel laureate, economist Kenneth Arrow, in his 1963 article, “Uncertainty and the Welfare Economics of Medical Care.” Coincidentally, Arrow died on February 21, as the Republican proposal was taking shape. In a recent Health Affairs Blog post, Victor Fuchs paid tribute to Arrow’s seminal work. As testament to its impact, in 2002, the Journal of Health Policy Politics and Law devoted an entire issue to reprinting the paper along with 22 essays by a “who’s who” of health policy experts across a broad ideological spectrum, each one reviewing a particular aspect of the 33-page paper — it was that packed with novel insights.

Kenneth Arrow on Health Care Markets

To oversimplify this remarkable work, Arrow articulates the unique aspects of what were then called medical care markets, including uncertainty about diagnosis and prognosis, and, therefore, also about insurance risk; substantial asymmetry of information between the buyer—the patient—and seller—the physician providing medical care services; the mutual benefits of a trust-based relationship between the patient and physician, who has a professional duty to act in the patient’s best interests. Layered over these unique aspects of the physician-patient relationship, the broad desire for and reliance on insurance to protect against the uncertain need for medical care, inevitably produces “moral hazard” — an overuse of services and indifference to prices, as patients are insulated from the actual costs of the care they receive.

Some conservative policy experts forthrightly have acknowledged that their advocacy of consumer-directed health care markets runs up against Arrow’s argument that health care markets are fundamentally different. Avik Roy, in particular, takes on Arrow directly in “The Gospel According to Ken Arrow.” Working his way through the core tenets of Arrow’s paper, he argues that what Arrow proffered as unique aspects of health care markets now are actually quite common in many sectors and that, nevertheless, market-based solutions have been found, without the need to resort to government “interference.”

So, extended warranties, traveler’s insurance, and a range of other instruments have developed to protect again the unpredictability of life. Similarly, Roy argues that consumers, having to confront increasingly technical information in many parts of their lives, now have ready access to expert intermediaries to address information asymmetry, for example, financial advisors on investments. Some argue—while others dispute—that the internet has reduced information asymmetry, suggesting that individuals can, in essence, act as their own physicians for routine care, as they are expected to do under high-deductible plans.

Roy also takes on Arrow’s unique role of trust in physician-patient relationships, arguing that trust is important not only in medicine but in many other commercial transactions, citing the trust consumers have that airline pilots and airline mechanics are competent. I get on a plane only because the Federal Aviation Administration regulates the competence of pilots and mechanics and establishes rules to assure safety, and because airlines face massive corporate liability for the negligence of their employees, adding a powerful incentive for the airlines to assure the competent performance of their pilots and mechanics. I am glad that pilots’ and mechanics’ professionalism provides intrinsic motivation to perform expertly, and, of course, the pilot has a strong personal interest in not screwing up. I don’t put my life in their hands because of trust. And even though I’ve logged over 1.5 million miles of travel, I am competent only to compare airlines prices, leg room, and on-time records, not safety.

In health care, government falls short in assuring clinician competence and provision of acceptable quality. In fact, the limited roles of state licensing boards and board certification actually provides consumers a false sense of security. It could do more. Nor does the medical liability system work well to assure quality and safety for a range of reasons related, yes, to the unique nature of medical care. Republicans want to reduce malpractice liability’s already compromised role in protecting safety even further.

Roy also misses the fundamental point Arrow makes about trust — that the mutual desire for trust between physician and patient fundamentally changes the nature of the transaction between the seller and the buyer. It is not just that we trust a party to protect our safety but also that consumers, as patients, do not want to adopt a typical “buyer beware” attitude in seeking health care as they are comfortable doing for other most goods and services. This attitude was well captured in a focus group conducted by the former Foundation for Accountability, finding that consumers did not want to use performance measures to help them shop for providers but rather they want the measures to help their trusted providers “to do better.” In short, actual patients don’t want the consumer-directed role the Republican legislation envisions for them.

Medical Care Services Are Not Commodities

For blog readers not current on their clinical journal reading, I share the results from a recently published, peer-reviewed study comparing the MRI interpretive findings reported for one patient scanned at 10 different MRI centers over a period of three weeks in The Spine Journal. They were interested in testing the broad perception that the MRI is considered a commodity, such that patients can be advised to select a provider based on price and convenience alone.

They find that across all 10 study examinations, there were 49 distinct findings reported related to the presence of a distinct pathology at a specific motion segment (of the spine). Not one finding was reported as common across all ten examinations (remember this is the same patient each time). Compared to reference exams performed immediately before and after the 10 MRI exams, the study identified meaningful variability in reported diagnostic findings from center to center with an average interpretative error count of 12.5 and a miss rate of 43.6 percent. In short, 10 imaging centers produced 10 different MRI interpretations of one person’s back — and none of them would have been correct. The authors’ conclusion is that where a patient obtains his or her MRI examination and which radiologist interprets the examination may have a direct impact on radiological diagnosis, subsequent choice of treatment, and clinical outcome.

The study does not raise just theoretical concerns about misinterpretations of MRIs. As Atul Gawande recounted, spine surgeons at Virginia Mason Medical Center in Seattle, a Center of Excellence for back surgery, found that about 30 percent of the spinal procedures that employees were told by physicians they needed were inappropriate and, therefore, not performed. This suggests that MRI misinterpretation as demonstrated in this Spine Journal study can be part of a cascade of misjudgments that often leads to unnecessary back surgery.

The Spine Journal study is not an anomaly. A recent Institute of Medicine report found that errors of diagnosis are a pervasive quality and safety problem, finding that in the outpatient setting 5 percent of US adults experience a diagnostic error each year, while such errors contribute to approximately 10 percent of patient deaths and 6 to 17 percent of adverse events in hospitals.

Yet, this major quality problem—a continuing, prominent example of Arrow’s uncertainty in action—had been largely ignored by providers, health plans, and policymakers. I have argued that a major reason the policy community ignores diagnosis errors is that we don’t and can’t routinely measure such errors. In essence, policymakers have become so enamored of measurement as the major route to accountability for quality, using public reporting and pay-for-performance, that they ignore problems not amenable to such measurement. And in their zeal to adopt new benefit designs like reference pricing and new payment methods like bundled episodes, policymakers similarly assume wrongly that the conditions they want to commit substantial streams of payment for are correctly identified and that the procedures being performed are appropriate for the patient.

The Problems with High-Deductible Plans and Health Care Consumerism

But the main relevance of the finding of major misinterpretation of MRIs is related to the Ryan’s and others’ paradigm shift to so-called, consumer-directed health care. The growth of high-deductible plans assumes that consumers can act as smart shoppers with their own money, except when their situation results from clinical and financial catastrophes beyond their control, when insurance protection needs to kick in. So, the rationale goes, high-deductible plans are desirable not only to reduce “sticker shock” from major premium increases by effectively hiding the spending increases in the increased subscriber cost-sharing, but more fundamentally by making consumers more prudent in the kind and quantity of services they seek and the prices they are willing to pay.

Consumers Often Don’t Know What Care is High Value

Indeed, actuaries have found that high-deductible benefit designs reduce spending — on the order of 10-15 percent a year for typical commercial insurers source. But their effect is indiscriminate; that is, consumers reduce their use of both unnecessary and useful services. In the classic RAND study, patients reduced services they consumed producing short-term cost savings, but cut back on physician visits to have their blood pressures controlled. Yet, uncontrolled hypertension is a major source of morbidity and mortality, leading to heart and renal disease, strokes, and, often, dementia. The RAND researchers projected a 10 percent reduction in mortality when patients did not face financial barriers to care. In short, the one-year savings attributable to high deductibles does not tell us about the long-term health care costs or the financial effects on workforce productivity or societal health and spending more broadly considered.

In terms of Arrow’s argument that consumers face asymmetry of information, Mark Pauly, commenting on Arrow years ago, reasonably argued that consumers’ ability to shop prudently varied based on the nature of the medical care under consideration, arguing that consumers can in some circumstances become “reasonably well informed” to sufficient experience to gain purchasing competence. He pointed specifically to prevention, chronic conditions, and drugs as clinical areas in which one could expect consumers to have such purchasing competence, unconstrained by the health literacy concerns Arrow raised.

It is true that for primary prevention services there should be relatively little uncertainty or information asymmetry ––studies produce straight-forward prevention guidelines available to all and understandable by all, while issues of trust in a particular health professional don’t much arise. Yet, even for prevention services, because of apparent distrust in science, many consumers make bad decisions about whether to have their children immunized, thereby affecting not only their own kids’ health but others’ as well. Those with chronic conditions should be able to become expert about their conditions, at least about how best to manage them, if not their pathophysiology. The internet now does provide extensive, often reliable, information that most patients can readily access to support wise purchasing of care for their chronic conditions.

Consumers Don’t Purchase Care They Should Know is High Value

Empirically it turns out consumers overall display mediocre purchasing competence for preventive services and care for chronic conditions. Indeed, based on the broad experience that consumers facing high deductibles often choose not to receive effective, preventive services, high-deductible plans that link to health savings accounts are allowed under IRS rules to cover preventive services, such as vaccinations and mammograms, without cost-sharing to increase uptake.

With regard to chronic conditions, here, also, studies show that consumers—now patients—do not act very wisely in their own best interests, even under health insurance policies that do not impose much patient cost-sharing. Across a broad range of chronic conditions, it turns out they obtain recommended tests and treatments, based on good evidence, only about half the time overall.

In short, for both preventive services and management of established chronic conditions, consumers have not proved they have purchasing competence. Private and public policy has developed other strategies—mostly supply-side ones in which payers try to influence providers to improve care—rather than imposing the responsibility for making impossible choices on the backs of consumers. So far these supply-side strategies have had only modest success, but that is where the focus should be.

Which brings us back to The Spine Journal article. If, as I argue, consumers and patients make poor purchasing decisions on prevention and chronic condition management, that is, clinical matters in which theory suggests they should be able to gain expertise and purchasing competence, should we really expect them to act as smart consumers to make good decisions on the need for a MRI scan and from whom? And then to somehow divine that the MRI interpretations are flawed and should not be relied on?

Conservatives espouse “personal responsibility” for consumers to make health care decisions as they do for most things they purchase. By encouraging even low-income Americans to purchase lean insurance policies featuring high deductibles, the AHCA is built on a flawed concept. Government paternalistically—and correctly—permits insurers eliminate cost-sharing in high-deductible plans to make it relatively easy for consumers to obtain primary prevention services — services about which consumers reasonably should be able to make prudent decisions for themselves but don’t. Then for complex decisions, which in contrast to prevention often do involve Arrow’s elements of uncertainty, asymmetry of information, and desire for a trusting clinician-patient relationship, the AHCA would have insurers say, “You are on your own with your high deductible. Good luck with that.”