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The Health Care Marketplace

In the Healh Care Marketplace the patient is not an effective customer and the level playing field is almost perpendicular. Contracts for care are with others who are the real customers. Competition is unrelated to the patient or his care. The patient becomes a pawn in the system, a profit body, an object used by each cog to milk more profit from the system.


1. The Health Care Customer

2. The Level Playing Field

3. Who are the Real Customers?

4. Competitive Advantage

5. The Impact of the Stock Market on Care

6. The Market Claimed it would Eliminate Bureaucracy

7. Bankruptcies, Mergers and Takeovers

8. At the End of the Day

1. The Health Care Customer-- (contents)

Market Arguments and the Consumer:- The unchallenged assumption behind arguments for a market based health care system is that market principles can be successfully applied to health care. Basic to this is the idea that the patient, a word which implies disempowerment and dependency is renamed a consumer or customer. By changing the words the previously disempowered patient can now function as an effective distrustful customer and suspiciously shop for quality of care and cost. The argument is that he will be distrustful of what is offered and will not be the gullible victim of corporate marketing.

By using words to change the way we think about health care it becomes legitimate, even desirable for one group of humans to benefit from the misery and suffering of others.

Words and Reality:- By changing words ideologists change the meaning and in doing so escape the requirement that they confront reality. The Canadian writer John Ralson Saul describes how corporate society uses words to create a new reality rather than grasp the one which exists.

In practice only a group of well educated and well informed people would qualify as customers, and then only while they are young and do not have major or serious problems. This group is growing but there is a long way to go. Shopping around to have your inoculations or your hernia operated on certainly gives a nice sense of empowerment but these are not major life events.

The majority are still "patients" with all the vulnerability and lack of power which that implies. It is usually the doctor who through her informing and discussion empowers the patient and gives him a sense of understanding and control. These two are interdependent - a social bond. For this to work they must be honest and come to trust one another.

CLICK HERE -- for more about the misuse of language.

The Impact of Illness:- Serious illness even in a family member causes acute anxiety. Such people have little interest in competition or shopping. They are looking for someone they can trust to help them. They will latch on to any con man who sympathetically offers help or advice and then hold them in high esteem. We all respond in this way. As a doctor I should be a most discerning customer, yet when I was placed in this situation I behaved in exactly this way.

Exploiting People when they are down:- The bulk of serious illness and cost, and so provider profit does not occur in effective customers but in vulnerable groups who simply cannot act as customers. - the elderly, children, psychiatric patients, substance abuse hospitals, head injuries, advanced cancer care. Here anxious families readily accept glib explanations and promises such as those offered by Sun Healthcare. These vulnerable groups are the least visible in society with little access to the press or the law. It is no coincidence that it is these groups which have been ruthlessly and repeatedly exploited for profit in the USA.

2. The Level Playing Field-- (contents)

A Fundamental Concept:- The market is promoted as providing a level playing field for customers and this is an appealing notion readily sold to the public as it empowers them. It was promoted by our Dr Wooldridge in 1996. A level playing field is a fundamental principle underpinning the idea of a successful market. It allows true believers to claim that competition is fair. They need no longer defend competition as a fundamental "good" rather than as being good, bad or irrelevant depending on social context.

An Imbalance of Power:- The reality is that on the health care playing field there is a gross imbalance of power. However hard the health professional tries to live up to professional ideals and provide objective information, he or she still has a considerable impact on the final decisions as the patient will ask for and be guided by advice.

If the doctor were in a position to act for the patient as an advocate on the level playing field this might have some prospect of working. The level playing field is even more steeply tilted against the doctor. In the corporate market system the doctor is a corporate employee or bound to the corporate interest by a contract. In each instance his or her status, career prospect, mortgage payments and children's education is bound to compliance with the corporation. This reduces much of the profession to corporate lackeys, acting for the corporation to sell corporate products or in the case of managed care restricting the use of products already sold.

Business Strategy:- Califano as long ago as 1984 pointed out that by taking control of doctors careers and their income they could be induced to do what corporations wanted. Tenet/NME was the most successful in doing this during the 1980's and early 1990's. Doctors were induced to hand the care of their patients over to corporate staff1. The doctors walked through the hospital each day then billed for "howdy rounds" and "wave therapy". They were expected to attend regular "charting parties" and so ensure that the written records supported the fraud and that both could bill medicare and insurers. Team players became wealthy. Those who were not team players were starved.

(1. Court documents 1994 - US Security and Exchange Commission vs National Medical Enterprises)

The effectiveness of managed care in containing costs is entirely due to its success in applying Califano's advice. The net consequence of this is that even the opportunity to develop even a limited competitive level playing field in which an informed customer supported by a motivated health care professional shopped for "products" has been lost.

Profit Bodies:- There are few effective consumers in a corporate health care market place. Patients therefore become profit bodies - objects to be manipulated for profit2. Corporate integrated systems allow corporations to move these objects through the various integrated services so maximising the money which can be extracted from each patient by each of the different services. Each service is provided by a different wholly owned subsidiary. Nursing home and chronic psychiatric patients were paid for by the state's medicaid program. They would also be eligible for a number of weeks of more intensive much more profitable medicare paid care in a hospital each year. It would have been very easy to play pass the parcel with bodies by generating a demand for services.

(2. see Lindorff D. "Marketplace Medicine")

Columbia/HCA owned both hospital and rehabilitation services. Many long term groups including Sun Healthcare operated pharmacy subsidiaries which provided services in their nursing homes. I know of allegations that profit bodies were shuffled around in integrated systems but do not know how extensive this practice was. There have been no court actions and these practices like all systemic patient care issues would be extremely difficult to prosecute. When the conduct of the corporations in other areas is considered it is unlikely that they would have missed any opportunities to make more money.

3. Who are the Real Customers?-- (contents)

Competition for what? A market implies competition and there is very strong and aggressive competition between the various corporate groups. Each is intent on wresting as much of the medicare dollar as possible for shareholders.

Structure:- There is a very varied structure to the complex US health system and many different sorts of groups compete. In a broad way groups, particularly HMO's compete for the custom of large businesses groups who insure their employees. They also compete for the control of medicare patients. Those HMO's promising more for less win the contracts. Providers of health care of many types then compete for contracts with these HMO's. Once again the lowest bidder claiming to offer the services secures the market.

Patients in the marketplace:- The contracts are with the employer on the one hand and with the corporate provider or the individual doctor on the other. The patient is a pawn in the process. The contracts are primarily about cost which the patient, not a party to the contract incurs.

Contracts continuously fail or are changed and when this happens patients are short changed and shuffled around. Each HMO has its own group of doctors which patients must attend if they are to be covered for the costs. These constantly change. The consequence is that there is little continuity of care and patients do not establish useful therapeutic relationships with those who care for them.

There is ongoing conflict with the medical profession so that doctors and groups of doctors are often delisted by the HMO or resign in protest at the HMO's conduct. The whole medical service in Texas was severely disrupted when Aetna, the most hated of the HMO's and the largest in Texas unilaterally imposed unacceptable conditions on all its doctors. They promptly refused Aetna patients.

Bankruptcies cause whole services to collapse. Serious disruption of care happens so often that legislation has been introduced to force HMO's to continue paying the patient's existing doctor until the current episode of care is completed.

4. Competitive Advantage-- (contents)

Market Dominance:- If competition is not about care it is most definitely about market share - dominating the market. If competitors can be forced out then profits will increase. Each group struggles to dominate a region or a service sector by undercutting competitors in every way possible until they sell. Even in the 1980's Lindorff described the way nursing home operators would buy up all the nursing homes in a region then thumb their noses at regulators who could not close homes without throwing patients out into the street.

PACMAN Activity:- Columbia/HCA was the most aggressive of all the corporations and its practices were admired and copied by others. It targeted not for profit community groups which at the time actually owned and operated 75% of US hospitals. They often had large physical assets paid for and built by the community. These were small groups of hospitals, even isolated hospitals. With aggressive marketing and local cost cutting by the competing Columbia/HCA hospital they could be rendered uncompetitive and forced to sell at bargain prices. Columbia/HCA could then raise prices to support the same activity with the next target. The pain of selling was often sweetened by reappointing the local directors to very well paid jobs in Columbia/HCA.

Marketing:- In its US $100 million a year advertising campaigns Columbia/HCA aggressively attacked the whole concept of not for profit hospitals and the care which they provided - care which a study has shown was superior. Columbia/HCA put up advertising boards outside not for profit competitors asking "Why stop here". If a child attended a local adult hospital or a Columbia/HCA doctor and Columbia/HCA did not own a children's hospital in the region the child would be taken long distances to a Columbia/HCA children's hospital and not to the not for profit children's hospital in the next street.

Graeme Samuel in his speech to the World Bank believes that with the aid of contracts specifying access the market will willingly provide services close to where people live. Once Columbia/HCA had secured market dominance it closed local hospitals so that residents had to travel long distances. When competitors responded to local pleas and offered to buy the hospital and reopen it Columbia/HCA refused to sell. Columbia/HCA was so successful at absorbing competitors and not for profit hospitals that it was known as the PACMAN.

5. The Impact of the Stock Market on Care -- (contents)

The Nature of the Market:- The sort of care given to patients in a stock market controlled company is heavily influenced by the attitude of the market. Stockbroker's reports are all important.

Almost all of the health care corporations were growth companies. Their share value depended more on growth than profit and growth was meteoric. Sun Healthcare grew from 7 facilities to over 400 and Columbia/HCA from 4 to about the same number in less than 10 years.

Success depended on mergers, takeovers, purchases and when other avenues were closed international expansion. When there were local problems shareholders were promised international growth. When Tenet/NME bought into Australia it promised growth. When the expansion of Australian Medical Enterprises (AME), Tenet/NME's Australian operation was restricted by a probity review in Victoria, by their rejection in Queensland and by the federal government in 1995 AME shareholders were promised lucrative expansion into China instead!

A Cash Flow:- Any company which was not growing was a target for a takeover. It was a case of grow or go under - expand or die. This required an enormous cash flow and survival depended on generating the money to raise loans to make purchases. A vicious spiral developed as care was squeezed again and again to generate the needed funds.

The funds for the rapid expansion of Sun, Vencor, IHS, Mariner, Beverly, Columbia/HCA and many others could only come by taking it from the money paid for them to care for patients, and from rorting the funding system. There were no other sources. Their rate of expansion is a reflection of their success in doing this.

Economists and company directors claim that profits come from efficiency and purchasing power but this is not what happened. Vast sums intended for the care of patients were appropriated. Expansion and corporate survival could not have occurred without it. It was a case of taking more money from patient care or being taken over. The systems of care were severely distorted to meet these priorities.

The Board Room and Care:- Care depended on the need for profit and not the need for care. Several reviews have now confirmed the findings of the 1994 consumers survey of aged care. The performance of for profit providers is worse than not for profit providers with some exceptions among the privately owned companies. Those companies which trade on the stock market almost all perform badly. Although the number of facilities is too small for any valid assessment government owned and run facilities have generally performed surprisingly well. This is hardly surprising once the myths of efficiency and buying power are exploded. The not for profit and government facilities devote all their resources and all their intellectual effort to care. Publicly listed companies have more pressing problems.

Market Phases:- US health care has operated as a market for a long time. Early market pressures created a system with excellent resources but one dogged by overservicing. The marketplace has gone through a phase of first feeding this excess (eg Tenet/NME) and then making money out of restricting it - managed care. While the spiral of cost has been halted by managed care the actual impact on care has been much greater because a far greater proportion of the money paid for care is now directed to profit and so to growth. The number of parties taking a cut from medicare and insurance payments has increased. The nursing homes are the best example of the impact of these practices on care.

6. The Market Claimed it would Eliminate Bureaucracy

The Bureaucracy of the Corporate System:- While government run systems may have a bloat problem, the structure of the privatised system in the USA is an organisational nightmare. There are vast numbers of profit hungry groups each competing to build its empire and get as much for itself as it can from the system. There are large doctors groups battling for survival. Corporate providers of all sorts and shapes must also make a profit. They are being squeezed by competitive pressures and have fewer and fewer resources to provide care. If they are to grow then they simply cannot continue to provide good care. Built around and over them are a number of oversight organisations, some contracted to government and some to insurers.

In addition there are the extensive state and federal government structures for funding, for surveillance, for policing and for prosecuting fraud. The stronger the market pressures the greater the need for these processes and the more staff are required. Then of course there are several accreditation bodies.

Corporate Overheads:- Each of these corporate groups requires a set of administrators and a budget for the all important marketing and lobbying. To survive they must grow, another demand for profit before care. Each group will take 10-50% of the money passing through its hands for these purposes. IHS nursing homes for example spend only about 50% of the money they get on the care of patients. I am not sure whether this is before or after the parent company has taken its cut for administration and marketing. IHS was one of the most extravagant in buying political support.

Even the Market Agrees:- This assessment of the elaborate and disorganised US marketplace is not only mine. The new group Healtheon has identified exactly the same problems. Because of the problems Healtheon has so clearly identified it believes that it can take a large slice of the medicare dollar if it imposes another layer of service using the internet to organise and structure this system. Jim Clark, Bill Gates and Rupert Murdoch have invested vast sums in this project. They believe that they can recover their money and make more profit by using the internet to make it even more competitive - squeeze more from the system. Australia's Graeme Samuel would approve.

7. Bankruptcies, Mergers and Takeovers-- (contents)

Winners and Losers:- The market achieves its goals by having winners and losers and by continuously restructuring. Losers eventually go out of business. Hospitals are continuously sold and bought or closed down to meet corporate profit strategies. There are continuous changes in management and in style of command. Community services are disrupted. Staff hardly have time to settle down and establish services before the whole process is disrupted by a set of decisions from a new board.

Patients:- Patients are once again the meat in the sandwich especially when homes close because of board decisions or regulatory intrusion. The human costs are well illustrated by the doubt, confusion, tears and anger so vividly displayed on television when Riverside nursing home closed in Victoria. Such closures are more common in the USA. Corporate owners have exploited the reluctance to close facilities in order to outplay regulators. Market theorists in the wisdom of their theories believe that these pawns in the system are effective "customers".

Selfcorrection by the Market:- Market theorists may well consider that this drawn out and ongoing stressful human process is as Sun's chairman claimed simply the market sorting itself out. Those companies which misused patients and borrowed to fuel expansion have failed. All this stress and suffering is simply part of the process and if the market is to work then we must accept it. I suspect that most citizens would, if they had all the information tell these theorists including our Graeme Samuel exactly what they can do with their ideas. This is not acceptable.

8. At the End of the Day-- (contents)

Theorists argue for a market on the basis of efficiency. The market system is the most inefficient, destructive and wasteful system of health care in the world. This is what market based competition policy has produced. If the model Graeme Samuel presented to the World Bank is to have credibility then he must explain to all of us why his model will be different and why this sort of market will not develop across the world once the World Trade Organisation has liberalised health care.

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This page created April 2000 by Michael Wynne