Chapter 11: Regulatory Reform and the Disruption of Health Care

INTRODUCTION

The quintessential con artist of the nineteenth century was the snake oil peddler who sold sham elixirs to vulnerable patients—and it was the specter of his parasitical existence that ultimately spawned the Food and Drug Administration.¹ The FDA's essential oversight of certain elements of the health-care industry was just the beginning of regulatory influence, however. The tentacles of governmental control now stretch throughout America's health-care system in a deep, tangled, and pervasive way—to the point that health care isn't private enterprise in the sense that automobiles, semiconductors, and strategy consulting are private. Indeed, much of the current public discourse on health-care reform focuses on whether private industry can be expected to fix the current system—or whether the government will have to become even more deeply involved. In many other economically advanced countries, of course, the government is the health-care system.

In this chapter we will catalog the ways in which government policies influence health care for good and ill, and we'll recommend regulatory changes that are essential to successfully disrupting the system. To do this, we have reviewed the history of government intervention in a range of industries whose products or services have been considered "public goods"—where the public interest has been broader than what market mechanisms might be expected to serve autonomously. These include education, ground and air transportation, financial services, telecommunications, and health care. All policies can't be lumped together and treated alike, of course. But it seems that in general terms, the intent of schemes to influence and regulate these industries in the public interest evolves through three stages:

1. Subsidizing the foundation of the industry

2. Stabilizing and strengthening the companies involved, ensuring fair and equal access to their products and services, and assuring that their products are safe and effective

3. Encouraging competition to reduce prices²

We've organized most of this chapter around these three stages, because government's interaction with the health-care industry can also be grouped into these categories. Much of its energies to date have been expended in the second of these stages. In discussing those regulations, we'll show how the pattern that typified other industries is now at work in health care: regulations whose initial purpose was to protect the patient ultimately get used to protect the provider. After modeling these, we'll draw on our studies to suggest how private-sector innovators can cause policy- makers to begin focusing on the third stage—and help them distinguish the types of regulatory reforms that can predictably lead to lower costs versus those that will predictably backfire.³ Finally, we'll close the chapter by assessing whether adopting a government-led single-payer system will help or hinder the sorts of reforms we need in our system—and we'll apply those insights to the situation in other nations, where national health ministries already provide most health care.

SUBSIDIZING THE FOUNDATION OF INDUSTRIES

Governments sometimes conclude ...