Health Care: Let’s Face Reality

Henry J. Aaron
Henry J. Aaron The Bruce and Virginia MacLaury Chair, Senior Fellow Emeritus - Economic Studies

January 23, 2000

Congress is deadlocked on whether and how to permit patients to sue managed-care organizations for improper denial of care or medical malpractice. These issues are important but pale beside a larger issue that few seem prepared to face: whether Americans are willing to vest in managed-care organizations, many of which are run for profit, the power to ration medical care. The debate about the right of patients to sue such organizations is a referendum on whether and on what terms to continue that experiment.

Over the past two decades, Americans have discovered that even this rich nation cannot afford a health care system that pays without restriction for all of the beneficial care that medical science can now provide. Furthermore, the old way of paying for care—if someone thinks something helps, provide it, pay for it and don’t ask too many questions—fostered waste of many kinds, including useless care and needlessly costly methods of providing beneficial services.

Enter managed care, a collection of management systems designed to hold down costs. At first, many believed that managed care could permanently rein in costs by eliminating waste. For several years curtailing waste actually did help hold down growth of health care spending. But one cannot eliminate waste more than once. Now, all knowledgeable observers understand that technological advance and population aging are inexorable and costly and that sustained control of health care costs is possible only by denying some beneficial care to some people.

But denying beneficial care is the nub of the debate about suing managed-care organizations. The fundamental problem is that few medical interventions absolutely guarantee benefits, and nearly all carry some risk of adverse consequences. Furthermore, the essence of competition among managed-care organizations is that different plans emphasize different areas of strength and use different managerial styles and incentives to physicians and nurses to effect cost savings. That is, managed-care plans deny different kinds of potentially beneficial care and do so in different ways.

These facts would not be problematic if insurance contracts could provide clear rules that covered every possible situation. But in the case of medical care, this standard is unachievable. There are thousands of conditions, and patients have dozens of characteristics that increase or decrease the likelihood that any given medical intervention will work. The number of conditions and indications for care runs into the hundreds of thousands, if not millions.

To make matters worse, many established procedures have never been evaluated. The scientific base of medical care is evolving so fast that even physicians have a hard time keeping up with developments beyond their particular subspecialty. In this situation, contracts cannot cover all contingencies. Judgment and discretion are inescapable and desirable.

Of course, managed-care organizations and other health care providers can egregiously breach their duties to help patients. The practices of some organizations have been scandalous. Public outrage against such practices is driving the effort to broaden patients’ rights and to ensure that injured patients can either enforce provision of adequate care on a timely basis or win reasonable compensation for its denial.

The problem is that in the real world of limited medical resources, denial of beneficial care is inescapable. And the diversity of managed-care organizations means that they are likely to adopt different rules and to reach different judgments about what care, though beneficial, is not worth the cost.

Congress is now focusing on whether to expose managed-care organizations to increased litigation and what limits to place on patients’ rights to sue. These are important issues that, one hopes, Congress will resolve this year. But even if Congress passes a bill the president can sign, the most difficult issues—for Congress, the courts, and the American public—will remain. Is the denial of beneficial care acceptable? Who should decide?

In particular, since the courts are a very costly place to make decisions and resolve disputes, are they the right place to resolve the fundamentally political question of how much beneficial care the nation is willing to pay for and, by inference, how much beneficial care it is prepared to deny?