In a post on the economic issues around health insurance, Professor Dan Saviro makes the standard “moral hazard” argument:
Consumer demand drives the market, but it is largely the demand of subsidized consumers who are not actually paying at the margin for what they get. Suppose that in the market for groceries or cars we had consumer demand in the driver’s seat (as we do), except that people didn’t actually have to pay for what they purchased (or maybe they just had a small co-pay). Whole Foods and GM might like this, but it wouldn’t be good socially. Yet in healthcare, that’s effectively what we have, much of the time, for people on Medicare, Medicaid, or employer-provided health insurance that overpays at the margin (relative to the optimal insurance level) due to the distorting effect of the tax subsidy.
There are a number of problems with moral hazard arguments in healthcare. For example, the biggest hit in healthcare costs is when choose one sick, and if people were “actually paying at the margin for what they get” such that it would change their behavior when they were really sick, they’d probably go bankrupt.
But there’s a more basic problem with this argument. Saviro assumes consumers have meaningful info about the healthcare “product” they’re considering buying. If you want to buy a car from GM, you can see what Consumer Reports or Road & Track said about it. But what about the pill your doctor just recommended you take?
Let’s assume that unlike many folks, you’ve got the high-level reading skills and the time needed to read up about it. Here’s the catch: you can’t trust what you read. According to the New York Times,
A growing body of evidence suggests that doctors at some of the nation’s top medical schools have been attaching their names and lending their reputations to scientific papers that were drafted by ghostwriters working for drug companies — articles that were carefully calibrated to help the manufacturers sell more products.
Got that? Drug companies aren’t just paying doctors to do research. They’re also helping the lazy bums who can’t even be bothered to write the paper themselves. A case in point from a hormone drug lawsuit:
The [deposed] documents offer a look at the inner workings of DesignWrite, a medical writing company hired by Wyeth to prepare an estimated 60 articles favorable to its hormone drugs. In one publication plan, for example, DesignWrite wrote that the goal of the Wyeth articles was to de-emphasize the risk of breast cancer associated with hormone drugs, promote the drugs as beneficial and blunt competing drugs. The articles were published in medical journals between 1998 and 2005 — continuing even though a big federal study was suspended in 2002 after researchers found that menopausal women who took certain hormones had an increased risk of invasive breast cancer and heart disease.
One lazy physician who was assisted by DesignWrite was Columbia professor Dr. Michelle P. Warren.
Her article was published in The American Journal of Obstetrics and Gynecology in 2004, when women feared that Wyeth’s brand of hormone drugs could be causing particular problems. The thesis of the article was that no one hormone therapy was safer than another.
The published article acknowledged help from four people. But it did not disclose that DesignWrite employed two of those people and the other two worked at Wyeth. Court documents show DesignWrite sent a prepublication copy to Wyeth for vetting and charged Wyeth $25,000 for the article, information not disclosed in the paper.
When the Times contacted Dr. Warren, here’s how she defended herself:
She said she worked on the project in phone conversations and in meetings — contributions not reflected in the court documents, she added. She said that it was a mistake not to have disclosed the writers’ payment and affiliations in the acknowledgment; articles published today involve more detailed disclosures, she said. DesignWrite scoured the scientific literature on hormone therapy for the article, she said. “I would never undertake this without some help,” said Dr. Warren, who is the Wyeth-Ayers Professor of Women’s Health at Columbia. “It’s too much work. I am not getting paid for it.”
Next week: what this means for building a better economic model.