January 13, 2009 12:06PM

Coordinated Care Requires Free Markets

In their zeal to achieve universal health insurance coverage, President‐​elect Barack Obama and congressional Democrats are likely to exacerbate a real crisis in America’s health‐​care sector.

Americans generally receive medical care from a fragmented collection of doctors, hospitals, pharmacists, and other health care providers. All too often, those providers don’t communicate and collaborate. The result is too many unnecessary services and too many medical errors. The problem is particularly acute when it comes to complex patients with multiple conditions.

In a paper released today by the Cato Institute titled, “Does the Doctor Need a Boss?”, Arnold Kling and I explain that government prevents coordination of care, and that improving coordination requires reducing government’s role:

Medical care typically lacks coordination, in part because payment systems such as Medicare have not kept pace with technology and patients’ changing needs, and because many doctors are unwilling to cede authority to a boss. Medicare and other payers continue to pay doctors according to the independent‐​craftsman model. For example, Medicare’s payment system generally does not reward coordination. Instead, Medicare and other fee‐​for‐​service payers tend to favor technologically intensive specialist services over those of general practitioners who might be best suited to play the role of project manager…

In the home‐​building analogy, it is as if the concrete contractor, the drywall contractor, the electrician, and the plumber all refuse to work under a general contractor. Instead, they each try to do their jobs independently, regardless of the impact on the rest of the project.

The culprit is not market forces, but government interventions that protect physicians from competition from better‐​coordinated providers.

Licensing of medical professionals, state health insurance regulations, corporate‐​practice‐​of‐​medicine laws, and policies that encourage fee‐​for‐​service payment (i.e., Medicare, Medicaid, and the federal tax code) hold at bay the market forces that would improve coordination of care…

Improving coordination of care requires two consumer‐​empowering reforms:

First…consumers should control the money that purchases their health insurance, and should be free to choose their insurer and health care providers.

Second, state licensing regulations make it difficult for corporations to design optimal work flows for health care delivery. Under institutional licensing, regulators would instead evaluate how well a corporation treats its patients, not the credentials of the corporation’s employees. Alternatively, states could recognize clinician licenses issued by other states. That would let corporations operate in multiple states under a single set of rules and put pressure on states to eliminate unnecessarily restrictive regulations.

By centralizing control in Washington, the ruling Democratic left will give new strength to the protectionist forces that have blocked quality improvements in health care.