Money-Driven Medicine: The Real Reason Health Care Costs So Much

Money-Driven Medicine: The Real Reason Health Care Costs So Much

by Maggie Mahar
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Money-Driven Medicine: The Real Reason Health Care Costs So Much by Maggie Mahar

Why is medical care in the United States so expensive? For decades, Americans have taken it as a matter of faith that we spend more because we have the best health care system in the world. But as costs levitate, that argument becomes more difficult to make. Today, we spend twice as much as Japan on health care—yet few would argue that our health care system is twice as good.

Instead, startling new evidence suggests that one out of every three of our health care dollars is squandered on unnecessary or redundant tests; unproven, sometimes unwanted procedures; and overpriced drugs and devices that, too often, are no better than the less expensive products they have replaced.

How did this happen? In Money-Driven Medicine, Maggie Mahar takes the reader behind the scenes of a $2 trillion industry to witness how billions of dollars are wasted in a Hobbesian marketplace that pits the industry's players against each other. In remarkably candid interviews, doctors, hospital administrators, patients, health care economists, corporate executives, and Wall Street analysts describe a war of "all against all" that can turn physicians, hospitals, insurers, drugmakers, and device makers into blood rivals. Rather than collaborating, doctors and hospitals compete. Rather than sharing knowledge, drugmakers and device makers divide value. Rather than thinking about long-term collective goals, the imperatives of an impatient marketplace force health care providers to focus on short-term fiscal imperatives. And so investments in untested bleeding-edge medical technologies crowd out investments in information technology that might, in the long run, not only reduce errors but contain costs.

In theory, free market competition should tame health care inflation. In fact, Mahar demonstrates, when it comes to medicine, the traditional laws of supply and demand do not apply. Normally, when supply expands, prices fall. But in the health care industry, as the number and variety of drugs, devices, and treatments multiplies, demand rises to absorb the excess, and prices climb. Meanwhile, the perverse incentives of a fee-for-service system reward health care providers for doing more, not less.

In this superbly written book, Mahar shows why doctors must take responsibility for the future of our health care industry. Today, she observes, "physicians have been stripped of their standing as professionals: Insurers address them as vendors ('Dear Health Care Provider'), drugmakers and device makers see them as customers (someone you might take to lunch or a strip club), while . . . consumers (aka patients) are encouraged to see their doctors as overpaid retailers. . . . Before patients can reclaim their rightful place as the center—and indeed as the raison d'être—of our health care system," Mahar suggests, "we must once again empower doctors . . . to practice patient-centered medicine—based not on corporate imperatives, doctors' druthers, or even patients' demands," but on the best scientific research available.

Product Details

ISBN-13: 9780060765330
Publisher: HarperCollins Publishers
Publication date: 05/09/2006
Edition description: New Edition
Pages: 480
Sales rank: 1,144,028
Product dimensions: 6.00(w) x 9.00(h) x 1.45(d)

About the Author

Maggie Mahar is the author of Bull! A History of the Boom and Bust, 1982–2004, a book Paul Krugman of the New York Times said "makes a devastating case against the contention that the market is almost perfectly efficient." In his 2003 annual report, Warren Buffett recommended Bull! to Berkshire Hathaway's investors. Before becoming a financial journalist in 1982, when she began to write for Money magazine, Institutional Investor, the New York Times, Bloomberg, and Barron's, Mahar was an English professor at Yale University. She lives in New York City.

Read an Excerpt

Money-Driven Medicine

The Real Reason Health Care Costs So Much
By Maggie Mahar

HarperCollins Publishers, Inc.

Copyright © 2006 Maggie Mahar
All right reserved.

ISBN: 006076533X

Chapter One

The Road to
Corporate Medicine

The story of health care in America is, first and last, a story about power. This, Paul Starr made clear in 1982 when he published his landmark study of U.S. health care, The Social Transformation of American Medicine.

Starr's history opens with a single, stark statement: "The dream of reason did not take power into account."1 Medicine, perhaps more than any other science, epitomizes the "dream of reason" -- the Enlightenment hope that, in the end, the human mind can tame nature and find order in chaos -- or, in the case of medicine, make sense of flesh. But that pure, scientific endeavor does not unfold in a vacuum. It takes place in society, in a world of men. Inevitably, those men will jockey for position.

Throughout most of the 20th century, the nation's physicians won the battle to control American medicine. For decades, they held virtually unchallenged economic, moral, and political sway over what we now call the "health care industry." Doctors were able to gain dominion, in part because their patients wanted them to rule the nation's health care system, and in part because the market'snormal laws of supply and demand do not apply to medicine.

In most industries, supply responds to demand. When it comes to deciding what to produce -- and in what quantity -- the supplier follows the customer's lead. Or as UCLA economist Thomas Rice puts it in The Economics of Health Reconsidered, "In the traditional economic model, demand is key; supply is essentially along for the ride."2 But in the case of health care, the supplier (traditionally, the doctor) plays a much more active role in determining what consumers believe they want -- or need. Indeed, health care providers enjoy nearly unparalleled influence over demand for the very services that they sell.

This is completely understandable. Health care is different from other "purchases" in large part because the customer faces so much ambiguity. Dr. Atul Gawande, a surgeon at Boston's Brigham and Women's Hospital puts it best in Complications: A Surgeon's Notes on An Imperfect Science: "Medicine is an enterprise of constantly changing knowledge, uncertain information, fallible individuals. . . . the core predicament of medicine, its uncertainty, [is] the thing that makes being a patient so wrenching, being a doctor so difficult, and being part of a society that pays the bills so vexing."3

While Consumer Reports can rate midpriced refrigerators briskly and clearly, in a way that makes comparisons easy, it is all but impossible, even for a physician, to be positive of the relative benefits of a great many medical procedures.

"Uncertainty as to the quality of the product is perhaps more intense here than in any other [market]," Kenneth Arrow, the Nobel laureate economist who launched the study of health care economics, observed in 1963. "Recovery from disease is as unpredictable as its incidence . . . and further there is a special quality to the uncertainty: it is very different on the two sides of the transaction. The information possessed by the physician as to the consequences and possibilities of treatment is necessarily very much greater than that of the patient, or at least so it is believed by both parties."4

This is what makes the purchase of health care so different from any other purchase: it is a transaction based on trust.

Granted, today both physicians and patients enjoy access to far more information than ever before, and "with all that we know nowadays about people and diseases and how to diagnose and treat them, it can be hard to . . . grasp how deeply the uncertainty runs," Gawande writes. Yet as anyone who has ever been seriously ill knows all too well, the more one learns about a disease and the odds of success with possible treatments, the more ambiguous the situation can become.5

A Transaction Based on Trust

It is not just the complexity of the human body, but the uniqueness of each body that makes it so difficult to predict health care outcomes. Put simply, health care is not a commodity. While two consumers may derive pretty much the same value from the same midpriced refrigerator, a particular course of treatment can have a drastically different effect on two different bodies. This makes it difficult for heath care "shoppers" to rely on their friends' experiences the way they might when choosing, say, a computer or a car.

Nor can the consumer rely on his own past experience. Three out of four health care dollars are spent on products and services that the patient has rarely, if ever, purchased before -- and probably hopes never to purchase again.6 To make the consumer's dilemma even more wickedly difficult, when purchasing health care, he knows that there are no warrants and no guarantees. The patient cannot return an unsuccessful operation. And if he winds up unhappy with the outcome, he may find himself stuck with something far worse than a bad haircut.

The patient wants to believe -- needs to believe -- not only that his doctor possesses superior information, but that his doctor is committed to putting the patient's interests ahead of his own. As a customer, he is in a uniquely vulnerable position: he cannot sample the product beforehand; there is real possibility that the product will do him more harm than good; and yet, even if it proves useless, he is expected to pay for it. How could he go forward with the purchase if he did not trust the seller?

As Arrow emphasizes, whether the buyer's belief in the supplier's superior knowledge and complete professionalism is wholly justified is not the question.7 It is simply that without it, the health care market could not function. This is one marketplace where "caveat emptor" cannot apply.

This is not to say that the 21st-century health care consumer places blind faith in his physician. Today brave-hearted patients research their own conditions, and armed with computer printouts, many participate in each treatment decision. But the truth is, however one strains against surrender, even the 21st-century patient has no choice but to place considerable faith in his doctor.8


Excerpted from Money-Driven Medicine by Maggie Mahar Copyright © 2006 by Maggie Mahar. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Money-Driven Medicine: The Real Reason Health Care Costs So Much 4.7 out of 5 based on 0 ratings. 3 reviews.
Guest More than 1 year ago
Every chapter except one hits the nail on the head. As I was reading the book I kept saying 'This is what I have been thinking for years'. She did an excellent job researching the book for the most part. The only chapter that I felt she missed the marked on was the chapter dealing with the VA. She should have interviewed some of the veterans waiting in line for their medications or asked them if they had a second doctor in the private sector. This is the dirty little secret. Many veterans retain a private doctor in case of an emergency. They also get most of their testing in the private sector because they trust the results more. I see around 10 patients who are veterans and they only go to the VA to get their 'free' medications. Could this be the reason the VA is so cost efficient? Most of the expense of acute care and testing is done in the private sector at the patient's request.
owldog More than 1 year ago
Written in common English, yet intelligent and comprehensive, everyone can benefit from the tons of information in this book. It should be the bible for anyone interested in the current debate on health care reform, as well as standard reading for all medical students, especially medical ethics classes. This book's value to serious medical professionals cannot be overstated. It is also a must read for anyone with medical problems or those caring for someone with chronic health problems requiring professional care. Professionals involved in all aspects of medicine can benefit immensely from this book. People who earn their living in pharmacy, insurance, medical practice, medical devices, hospital administration, etc. etc. all have something to learn from this book, as does the average intellectually curious individual. For some, it could literally be a life-saver. Mahar's volumes of research is apparent from her many interviews, references, and statisical dredging, on which she bases her profound conclusions. A large book, 9.5" x 6.25" hardcover (text fills the page) of 450 pages with 83 pages of fine print footnotes (The type is large in the text) and a 20 page index, this book is obviously one of the best bargains in the bookstore. It is listed as a textbook, and as such one of the best bargains for the classroom as well. Mahar gives a "just the facts, Ma'am" dissertation - devoid of any liberal or conservative leaning, however, dispelling the myths and false claims on either side of the political spectrum. As a person with severe [multiple] chemical sensitivity, I found the ink and paper non-toxic, and I read it without problems. My only complaint as a reader is that, with the copy I had, some pages had weaker shade of black print ink than I thought it should have had.
Guest More than 1 year ago
The author kept my attention so well it was like reading a thriller. Not a dull moment in it. But be warned. It'll make you think twice about heading for a hospital, especially if you don't have insurance.