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Health Care Cost-Containment Regulation: Prospects and an Alternative

Published online by Cambridge University Press:  24 February 2021

Clark C. Havighurst
Clark C. Havighurst*
Affiliation:
Duke Law School
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Abstract

Regulation of the health care system to achieve appropriate containment of overall costs is characterized by Professor Havighurst as requiring public officials to engage, directly or indirectly, in the rationing of medical services. This rationing function is seen by the author as peculiarly difficult for political institutions to perform, given the public's expectations and the symbolic importance of health care. An effort on the part of regulators to shift the rationing burden to providers is detected, as is a trend toward increasingly arbitrary regulation, designed to minimize regulators’ confrontations with sensitive issues. Irrationality and ignorance are found to plague regulatory decision making on health-related issues, even though it is the consumer who is usually thought to suffer most from these disabilities. The author argues that consumer choice under some cost constraints is a preferable mechanism for allocating resources because it better reflects individuals’ subjective preferences, has a greater capacity for facing trade-offs realistically, and can better contend with professional dominance of the resource allocation process.

In view of the unlikelihood of regulation that is both sensitive and effective in containing costs, the author proposes that we rely primarily on consumer incentives to reform the system. A simple change in the tax treatment of health insurance or other health plan premiums, to strengthen consumers’ interest in cost containment while also subsidizing needy consumers, is advocated. Steps to improve opportunities for innovation in cost containment by health insurers, HMOs, and other actors are outlined briefly.

Type
Articles
Information
American Journal of Law & Medicine , Volume 3 , Issue 3 , Fall 1977 , pp. 309 - 322
Copyright
Copyright © American Society of Law, Medicine and Ethics and Boston University 1977

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References

1 Economist Uwe E. Reinhardt describes the issue in this way, capturing the essential point that it is market failure, not cost alone, that matters. Address by Uwe E. Reinhardt, National Health Leadership Conference on Controlling Health Care Costs, Washington, D.C. Gune 26, 1977).

2 The classic demonstration of these problems, which reviews the technical literature, is A. L. COCHRANE, EFFECTIVENESS AND EFFICIENCY: RANDOM REFLECTIONS ON HEALTH SERVICES (1972).

3 Schultze, The Public Use of Private Interest, HARPER'S, May 1977, at 43, 44.Google Scholar

4 Id. at 62.

5 See, e.g., Havighurst, Regulation of Health Facilities and Services by “Certificate of Need,” 59 VA. L. REV. 1143 (1973);CrossRefGoogle Scholar Noll, The Consequences of Public Utility Regulation of Hospitals, in INSTITUTE OF MEDICINE, CONTROLS ON HEALTH CARE (1975).

6 E.g., Salkever, and Bice, The Impact of Certificate-of-Need Controls on Hospital Investment, 54 MILBANK MEMORIAL FUND Q.: HEALTH AND SOCIETY 185 (1976);Google Scholar Hellinger, The Effect of Certificate-of-Need Legislation on Hospital Investment, 13 INQUIRY 187 (1976);Google Scholar Special Section, Prospective Reimbursement, 13 INQUIRY 274 (1976) (results here are mixed but hardly reassuring). Unpublished studies of the PSRO program, conducted under the auspices of the Health Services Administration of HEW, show negligible impact on utilization and costs.

This is not the place to examine these and other studies, which give rise to substantial disputes over methodology and other factors. The text statement is perhaps debatable, but the lack of demonstrable success is striking.

7 The HSAs, as local planning agencies, could make an interesting difference if they were dedicated to “hard” planning, but there are many signs that planning methodologies are weak and that politics plays a predominant role. On the general problem, see Havighurst, supranote 5, at 1194-1204.

8 Usually rationing involves simply giving equal portions to each within broad functional categories denned by objective circumstances. Rationing health care requires parcelling out medical services in accordance with relative need, which entails comparing incommensurables and making myriad social valuations, all in a context fraught with potential personal tragedy.

9 See Havighurst, and Blumstein, Coping with Quality/Cost Trade-Offs in Medical Care: The Role of PSROs, 70 Nw. U.L. REV. 6 (1975);Google Scholar Havighurst, Blumstein, and Bovbjerg, Strategies in Underwriting the Costs of Catastrophic Disease, 40 LAW AND CONTEMPORARY PROB. 122, 150-53 (1976).CrossRefGoogle Scholar These sources argue, among other things, that PSROs could “ration” better if they were seen not as regulatory agencies but as agencies to define and appropriately limit the coverage of federal health programs.

10 Responses to a questionnaire recently circulated by the author indicated that 40 of 44 HSA administrators feel that “to eliminate duplication of services and save the costs of underutilized capital assets” is a better statement of the purpose of certificate-of-need laws than “to limit the availability of facilities as a means of forcing providers to make hard choices about their use.” See also Havighurst and Blumstein, The Role of PSROs, supra note 9, at 33-35; Havighurst, Blumstein, and Bovbjerg, Catastrophic Disease, supra note 9, at 145-50.

11 See Havighurst and Blumstein, The Role of PSROs, supra note 9, at 17.

12 See generally Havighurst, Blumstein, and Bovbjerg, Catastrophic Disease, supra note 9, at 138-53.

13 George Stigler and Claire Friedland have observed that “innumerable regulatory actions are conclusive proof, not of effective regulation, but of the desire to regulate.” Stigler, and Friedland, What Can Regulators Regulate? The Case of Electricity, 5 J. LAW & ECON. 1 (1962)CrossRefGoogle Scholar. Counting applications and denials may be meaningless since multiple applications to build a certain facility or to invest the same funds are possible. Also, applications granted are not always acted on, suggesting that not all are equally serious. Furthermore, planners take credit for modifying proposals—e.g., cutting a 10-story hospital down to 5—yet applicants may have inflated their requests. Empirical studies are necessary to document real changes. Compare Salkever and Bice, Impact of Certificate-of-Need, supra note 6, with Bicknell, and Walsh, Certification-of-Need: The Massachusetts Experience, 292 NEW ENG. J. MED. 1054 (1975).CrossRefGoogle Scholar

14 “The Hospital Cost-Containment Act of 1977,” H.R. 6575, 95th Cong., 1st Sess. (1977). Another current example of emerging arbitrariness in regulation is National Guidelines for Health Planning, 42 Fed. Reg. 48,501 (1977). See “Numbers Game” by HEW Concerns Critics of Draft Guidelines for Health Planning, HEALTH PLANNING AND MANPOWER REPORTS, November 28, 1977, at 2.

15 E.g., Interview with Joseph A. Califano, Jr., Secretary of HEW, on NBC's “Today” Show (October 11, 1977).

16 See Havighurst, Blumstein, and Bovbjerg, Catastrophic Disease, supra note 9, at 155-57;Google Scholar Blumstein, Constitutional Perspectives on Government Decisions Affecting Human Life and Health, 40 LAW AND CONTEMP. PROB. 237 (1976).CrossRefGoogle Scholar

17 See R. CROSSMAN, A POLITICIAN's VIEW OF HEALTH SERVICE PLANNING 26 (1972); Bosanquet, Inequities in the Health Service, 17 NEW SOCIETY 809, 912 (1974).Google Scholar Moreover, even though Britain has achieved a commendable emphasis on primary care and family practice, this allocational success resulted more from the preexisting and largely fortuitous subdivision of the medical profession into consultants and general practitioners than from any special success in combatting professional solidarity or in changing professional values.

18 For a fuller discussion of this issue, see Havighurst, Controlling Health Care Costs: Strengthening the Private Sector's Hand, 1 J. HEALTH POLITICS, POLICY & LAW 471 (1977); Havighurst, The Role of Competition in Containing Health Care Costs, Address to the Federal Trade Commission Conference on Competition in the Health Care Sector, Washington, D.C. (June 1-2, 1977).

19 See A New Scheme to Force You to Compete for Patients, MEDICAL ECONOMICS, March 21, 1977, at 23.

20 See Havighurst, The Role of Competition, supra note 18.

21 However, Professor Alain Enthoven, working as a part time consultant for HEW, has developed a substantial proposal for a “Consumer Choice Health Plan” that is currently being circulated in the bureaucracy. While this proposal contemplates somewhat less competition and somewhat more regulatory dictation than the proposal sketched here, it is unique among national health insurance proposals in the extent to which it would permit resources to be allocated by relying on the decisions of cost-conscious consumers.