Managed Health Care Ideology: Capitalism or Communism?

Robert P. Nirschl, MD, MS
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Fall 1996
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Much has been said about the importance of market competition reigning in health care costs. It has been stated the turnaround in costs has been in large part due to the managed care evolution, if not revolution. Indeed, managed care companies, especially Health Maintenance Organizations (HMOs) loudly trumpet their part in restoring cost control through free market competition. A close analysis of the cycle of events concerning market forces and managed health care, however, tell a much different story, particularly from the patient’s perspective.

In review, capitalism may be described as an economic system in which most of the means of production and distribution are privately owned. Production is guided and income distributed largely through free markets. Conversely, communism is a system based upon common property and equal distribution of wealth in a controlled environment. The collective good, therefore, supersedes the individual good. As recorded by history, the common end point of a collective or communist system is involuntary servitude as determined by the leadership.

How does Wall Street style managed health care financing fit into these economic ideologies? For starters, managed care companies are privately owned, score one for capitalism. From this point forward, however, the scene becomes murky.

Patients in a closed network HMO (e.g., limited or no choices outside the network) are, in essence, all treated equally each to his/her own needs as determined by the management company. More importantly, individual patient interests are, or can be, sacrificed to the altar of the collective good (e.g., cost control or company profits). Make no mistake about this point: Contract physicians in the HMO system are in servitude to the management company for patient referrals. They can also be unilaterally deselected (fired) at the whim of company management. No matter how much rationalization, the physician is clearly in the untenable position of subjugating the best interests of the patient to the interests of the management company. The evil of capitation (e.g., the physician is paid by the management company a set fee for covered lives) magnifies the dilemma by fostering an economic bias to withhold medical services for profit (e.g., the collective good). Regrettably, some physicians have become active collaborators in patient capitation in hopes of “controlling market share.” Collaborators or not, these physicians and their  patients remain in servitude to the management company. Overall,  score two big ones for communism.

As noted, managed care companies claim to save money by restoring competition to the market place. Free market competition is based on value generated from the freedom to choose. In most instances, in an employer-employee relationship, the employee has limited or no choice. Medical service is highly individual and in a free market the user of the service (e.g., the employee/patient, not the employer) must be the determinant of the value. The user must also have some financial responsibility in the process and be free to choose elsewhere if need be. Employer control and prepayment for the health benefits package precludes patient freedom of choice. It is also axiomatic that the actual provider of the service (e.g., physician/medical center, not the management company) must be the one competing. In effect, the current managed care company/business alliance has not created free market competition but a controlled monopoly.

For clarification, let’s take a simple analogy, the purchase of an employee food benefits package. The employer buys (using a transfer of employee salary) a food service contract for the employee. One dollar is pre-paid to ABC food management company who subcontracts to XYZ restaurant company. The ABC company promises to return 75 cents in food service (the HMO industry standard keeps 25% of each premium dollar for profit and expenses). The covered employee goes to the subcontractor XYZ restaurant and asks for a hamburger. The clerk says, “Not so fast. Our restaurant has rules from the ABC company which tell you what you can have!” The employee wishes to go elsewhere but since that part of his salary dedicated to food service has been spent by his employer, he does not have the financial resources to do so. The employer has, in effect, chosen the restaurant via the management company who, in fact, controls the service. The above scenario may not be pure communism but it certainly is not free market capitalism.

From the patient’s and the physician’s point of view the current overall managed care approach is, in essence, a hybrid communistic system controlled and owned by a capitalistic bureaucracy. The collective goal of cost control is not delivered by market competition. Enormous profit to the management company is made by enforced price controls, pre-payment schemes, and the rationing of medical services. In this system patients are also bought and sold by the management company as the more covered lives the better. The most recent sale of U.S. Healthcare to Aetna illustrates the point. $8.9 billion was paid to U.S. Healthcare, a company with essentially no assets other than some computers but with 1.8 million covered lives (e.g., selling price $3,180 per patient).

Although there has been price moderation in recent years, the mantle of managed care presents serious problems. Our citizens are increasingly subjected to rationing, clinical research is declining, and medical education is in disarray. Clearly, something needs to be done as managed care in its current form cannot deliver satisfactory services and endure.

The solution to this ideological and very practical nightmare is a return to true free market competition. The employer who, in my opinion, has been abused both by so-called traditional insurance and managed care must rethink and revise the benefits approach. This includes the transfer of some control including financial obligation for the health benefits package to the employees (voluntary group buying associations are an excellent venue).

A return to true insurance products (e.g., coverage for unanticipated events) which are less costly than HMOs and individual payment for maintenance services are also key to the solution. These concepts are easily implemented through medical savings accounts (MSAs). In view of the non-competitive environment HMOs have established, the strident efforts of the managed care industry to suppress MSAs are not surprising. Incredibly, in the initial vote on the Kassebaum insurance reform bill, Democrats in the Senate voted against MSAs; and President Clinton had even promised a veto, claiming to protect the poor. This misguided understanding of the medical market place merely enslaves the poor in an HMO version of the Soviet Proliteriat system. Five year plan, anyone?


 Dr. Nirschl is a practicing Orthopedic Surgeon in Arlington, Virginia. He is a member of the editorial board of the Medical Sentinel, Associate Clinical Professor of Orthopedic Surgery at Georgetown University, and Chairman of the Jeffersonian Health Policy Foundation.

Originally published in the Medical Sentinel 1996;1(3):21-22. Copyright ©1996 Association of American Physicians and Surgeons (AAPS).



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