Medicine and the not-so-free market

In the health care reform debate, some people argue that the solution to skyrocketing cost of health services is to encourage more "free market" competition to lower prices, rather than expanding public funding and controls. There is some value to this argument; generic drugs, which cost as little as $4 for a 30-day supply at national retailers such as Wal-Mart, Target, CVS, and Giant, have helped to take a bite out of many people's prescription costs.

Unfortunately, most of American medicine does not function like a free market or obey the laws of supply and demand. In an true free market, the supply of MRI machines would correspond to the number of scans that needed to be performed. In fact, MRI machines are huge money-makers for hospitals and radiology practices, which create their own artificial demand. Instead, the maxim uttered by Kevin Costner in "Field of Dreams" (If You Build It, They Will Come) applies. The more MRI scanners there are in a given city, the more MRI scans will be done, regardless of the actual need for this test. Every few days, I get a phone call from a private radiology unit in the DC area to "let you know that we have open appointments for today, just in case you need to refer a patient to us." While I'd like to think that I wouldn't order an MRI for something like back or neck pain unless it was really needed, same-day availability is awfully tempting to physicians and patients. (This also explains why there are so many more MRI machines in the U.S. than there are in Canada. It isn't that they have too few, it's that we have many more than we actually need.)

This practice isn't limited to Radiology, either - for examples of how the availability of procedures drives up costs related to heart procedures, see Atul Gawande's recent piece in the New Yorker. Build a cardiac catheterization laboratory, and more catheterizations will be performed. Build more hospital beds, and more patients will be admitted instead of sent home for treatment. For the past quarter century, a team of researchers at Dartmouth has been using data from Medicare to produce an atlas that documents wide variations in health resource utilization across the U.S. Not only have they found that where you live has everything to do with how much health care you receive, but there is no relationship between cost and quality of that care. So much for the free market!