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Duke University Press - Peter J. Hammer

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This volume revisits the Nobel Prize-winning economist Kenneth Arrow's classic 1963 essay "Uncertainty and the Welfare Economics of Medical Care" in light of the many changes in American health care since its publication. Arrow's groundbreaking piece, reprinted in full here, argued that while medicine was subject to the same models of competition and profit maximization as other industries, concepts of trust and morals also played key roles in understanding medicine as an economic institution and in balancing the asymmetrical relationship between medical providers and their patients. His conclusions about the medical profession's failures to "insure against uncertainties" helped initiate the reevaluation of insurance as a public and private good.Coming from diverse backgrounds-economics, law, political science, and the health care industry itself-the contributors use Arrow's article to address a range of present-day health-policy questions. They examine everything from health insurance and technological innovation to the roles of charity, nonprofit institutions, and self-regulation in addressing medical needs. The collection concludes with a new essay by Arrow, in which he reflects on the health care markets of the new millennium. At a time when medical costs continue to rise, the ranks of the uninsured grow, and uncertainty reigns even among those with health insurance, this volume looks back at a seminal work of scholarship to provide critical guidance for the years ahead.ContributorsLinda H. AikenKenneth J. ArrowGloria J. BazzoliM. Gregg BlocheLawrence CasalinoMichael ChernewRichard A. CooperVictor R. FuchsAnnetine C. GelijnsSherry A. GliedDeborah Haas-WilsonMark A. HallPeter J. HammerClark C. HavighurstPeter D. JacobsonRichard KronickMichael L. MillensonJack NeedlemanRichard R. NelsonMark V. PaulyMark A. PetersonUwe E. ReinhardtJames C. RobinsonWilliam M. SageJ. B. SilversFrank A. SloanJoshua Graff Zivin

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Economic history

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Publié par	Duke University Press
Date de parution	08 décembre 2003
Nombre de lectures	0
EAN13	9780822385028
Langue	English
Poids de l'ouvrage	5 Mo

Informations légales : prix de location à la page 0,1548€. Cette information est donnée uniquement à titre indicatif conformément à la législation en vigueur.

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U N C E R T A I N T I M E S

U N C E RTA I N T I M E S :

K E N N E T H A R RO W

A N D T H E

C H A N G I N G

E C O N O M I C S O F

H E A LT H C A R E

Edited by

Peter J. Hammer,

Deborah Haas-Wilson,

Mark A. Peterson,

and William M. Sage

D U K E U N I V E R S I T Y P R E S S

Durham and London 

Printed in the United States of

America on acid-free paper 

Typeset in Minion by Tseng Information

Systems, Inc. Library of Congress

Cataloging-in-Publication Data appear

on the last printed page of this book.

Portions of this book originally appeared in the

Journal of Health Politics, Policy and Law.

C O N T E N T S

ForewordMark V. Paulyvii

PrefaceVictor R. Fuchsxiii

Kenneth Arrow and the Changing Economics of Health Care: ‘‘Why Arrow? Why Now?’’ Peter J. Hammer, Deborah Haas-Wilson, Mark A. Peterson, and William M. Sagexvii

Uncertainty and the Welfare Economics of Medical Care (American Economic Review, ) Kenneth J. Arrow

PART 1: SUPPLY, DEMAND, AND HEALTH CARE COMPETITION

General Equilibrium and Marketability in the Health Care IndustryMichael Chernew

Arrow’s Concept of the Health Care Consumer: A Forty-Year RetrospectiveFrank A. Sloan

Uncertainty and Technological Change in Medicine Annetine C. Gelijns, Joshua Graﬀ Zivin, and Richard R. Nelson

Human Inputs: The Health Care Workforce and Medical Markets Richard A. Cooper and Linda H. Aiken

Health Care as a (Big) Business: The Antitrust Response Clark C. Havighurst

PART 2: RISK, INSURANCE, AND REDISTRIBUTION

Health Insurance and Market Failure since Arrow Sherry A. Glied

Can Eﬃciency in Health Care Be Left to the Market? Uwe E. Reinhardt

Valuing Charity Richard Kronick

Medical Service Risk and the Evolution of Provider Compensation Arrangements Gloria J. Bazzoli

The Role of the Capital Markets in Restructuring Health Care J. B. Silvers

PART 3: INFORMATION, KNOWLEDGE, AND MEDICAL MARKETS

Arrow and the Information Market Failure in Health Care: The Changing Content and Sources of Health Care Information Deborah Haas-Wilson

The End of Asymmetric InformationJames C. Robinson

Managing Uncertainty: Intermediate Organizations as Triple Agents Lawrence Casalino

Moral Hazard vs. Real Hazard: Quality of Care Post-Arrow Michael L. Millenson

PART 4: SOCIAL NORMS AND PROFESSIONALISM

Arrow’s Analysis of Social Institutions: Entering the Market-place with Giving Hands? Peter J. Hammer

The Market for Medical Ethics M. Gregg Bloche

The Role of Nonproﬁts in Health CareJack Needleman

Arrow on TrustMark A. Hall

From Trust to Political Power: Interest Groups, Public Choice, and Health CareMark A. Peterson

Regulating Health Care: From Self-Regulation to Self-Regulation? Peter D. Jacobson

The Lawyerization of Medicine William M. Sage

PART 5: RESPONSE BY PROFESSOR ARROW

Reﬂections on the Reﬂections Kenneth J. Arrow

Contributors 

Index 

Foreword

MARK V. PAULY

Kenneth Arrow’s article made research in health economics respectable, but it did more than that. It also made it interesting. His essay was the gracious response of an already distinguished economic theorist to an invitation to write something for the Ford Foundation on the economic properties of the medical services in-dustry. Before this article appeared in , economists, even those interested in industry applications, had either steered clear of trying to understand (much less analyze) a product and an industry that appeared to depart so greatly from the competitive model, or they had written policy papers alternately justifying or condemning the diﬀerences from that model. Either perspective was largely irrelevant because medical care was ‘‘special’’ or because economics could be ap-plied only to show that the guild and regulatory features of this industry were the result of a long-term conspiracy by medical providers to gain monopoly rents at the expense of eﬃciency and consumer welfare. Arrow’s article was and still is exciting, I believe, for two reasons:

. It showed how some behaviors in medical markets could be brought within the purview of standard economic models of competing, maximiz-ing agents. The primary examples of this type are those having to do with insurance.

. It oﬀered an explanation that atypical institutional arrangements in medi-cal care markets are a reaction to special features of this market. The pri-mary source of the problem here is imperfect or asymmetric consumer in-formation, and the hypothesized solution was nonmarket organizations, public or private. In doing so, it discussed concepts that made (and make)

viii

Pauly

economists attentive but uncomfortable, liketrustandmorals. (These con-cepts do not tend to disquiet lawyers or policy makers.)

The essays in this remarkable collection reﬂect on these two diﬀerent sets of ideas. They analyze and dissect them, they contrast their implications for what medical markets were like then and now, and how they have changed, and they oﬀer suggestions about where to go from here. I will not summarize the indi-vidual essays, but in what follows I will oﬀer my views on the reactions to the two sets by these scholars, by researchers in general, by the market, and by the policy arena. From the viewpoint of applied microeconomic theory, a major contribution of Arrow’s article was the development of some typically elegant and provocative models of optimal insurance. There was a policy question here, of course. In , why was it that many medical care services were not covered by insurance and that many people had no health insurance coverage at all? (The proportion of uninsured then was about twice what it is now.) Arrow began the discussion that actually generated the most-published commentary on his article by restating the well-known proposition that if insurance is available at actuarially fair pre-miums, all risky events should be insured. But he then pointed out in the text, and developed further in an often-quoted appendix, that in real markets with insurer administrative costs, the optimal pattern of insurance is full coverage above a deductible. He also hinted at (though not forthrightly enough for my tastes) the idea thatmoral hazard—any eﬀect of insurance coverage on expected losses—could also explain incomplete coverage and that one remedy here would be proportional co-insurance. The introduction to health economics of the topic of moral hazard ignited a ﬁrestorm of interest in the impact of insurance on the process of care, with both theoretical and empirical dimensions. The major empirical topic was the measurement of the extent of moral hazard, and the major theoretical question was how that magnitude would aﬀect the ideal design of an insurance policy that relied on patient cost-sharing to limit medical spending. The Rand Health Insurance Experiment deﬁned the measurement of moral hazard as a key em-pirical question and provided bulletproof evidence on the question, but both the theoretical and empirical investigations of this topic continue the extension of Arrow’s initial modest hints. The main theme of Arrow’s article, as a number of essays in this collection note, was that nonmarket institutions tend to arise to deal with the special fea-tures of markets in medical services or medical insurance that cannot be handled eﬃciently in conventional markets. What Arrow was arguing for here is what might be calledpositive Pareto optimality: if markets fail to achieve the eﬃcient outcomes (as economists deﬁne them), that observation is more than a stimulus

Foreword

to hand wringing.Ineﬃciencyin economics means more than waste or sloth; it means that mutual gains that could be achieved have not been achieved; there is money (or welfare) left lying on the table, and one would expect institu-tional arrangements to emerge in order to permit people to claim it. Nonproﬁt organization of health care and health insurance providers proceed from, or are explained by, this model, as is the role of trust in patient relationships with medical providers. Arrow’s insights here are very imaginative and appealing to noneconomists (who have trouble, for example, with moral hazard, especially the moral part). What is surprising (and more than a little disappointing) is that these insights have been much less aggressively pursued in health economics. There has been some modeling and analysis of nonproﬁt ﬁrms, especially hospitals. And there have been some attempts to model patient behavior in searching for doctors or in reacting to physician advice. But I think it is fair to say that there have been no deﬁnitive breakthroughs on either front. We still have few deﬁnitive formal models of market equilibrium with physicians and patients having diﬀerent sets of information and few empirical tests of the economics of trust or of the eﬀect of patient information on market equilibrium. (There has been a voluminous but aggressively inconclusive literature on demand inducement, which is largely atheoretical and in any case does not refer to Arrow’s article.) Why has this happened? One obvious answer is that, in contrast to a theory of insurance, developing a theory of trust or even of nonproﬁt ﬁrms puts economists in much less well charted territory, with few familiar or reassuring signposts and few guarantees that they will be able to refer any new work to existing theory to generate face validity. Some of these things are just too weird, from the viewpoint of conventional economics, and there are no quick rule-of-thumb tests of pro-fessional respectability. You could get tenure for developing an economic theory of trust, but you could also be viewed as a kook. In this sense, the special fea-tures of medical care that Arrow tried to tame still lie in wait for the cautious researcher. But I believe there is another and even more remarkable reason that Arrow’s insights about health economics are still being regarded with various amounts of speculation. The special nonmarket features that existed in  either no longer exist or have been substantially transformed, and we don’t understand why, either from Arrow’s or any other theory. The missing link here is a theory of what might be calledinstitutional transformation. To be more speciﬁc: Arrow’s analysis provided a rich and perceptive treatment of what might be called the ‘‘Marcus Welby medical economy.’’ That respected but ﬁctional physician worked in a world of benign nonproﬁt institutions, self-sacriﬁcing health professionals with well-developed (and good) reputations in