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Crisis of Abundance: Rethinking How We Pay for Health Care
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     In 1963, Stanford economist Kenneth Arrow, who later shared the Nobel Prize in Economics with John Hicks, wrote a seminal piece in the American Economic Review stating that classic market theory could not be applied to medical services. But that was just before health care started to become heavily commercialized and began to represent a large and growing share of the country's economic output. Since then, the aptness of Arrow's analysis has faded. The market view of medical care has come to the fore and now plays a major role in shaping U.S. health policy.

    A large amount of literature on health economics has emerged over the past few decades, much of it based on the assumption that medical care is just another service market, abiding by the same economic laws. Most economists believe that in health care, consumers (i.e., patients) and vendors (i.e., doctors and hospitals) are driven by similar self-serving motives, supply and demand operate nearly in textbook fashion, and prices measure value, just as they do in other markets.

    Arnold Kling's Crisis of Abundance is the latest addition to this school of thought. The author, an economist with conservative, libertarian leanings who trained at the Massachusetts Institute of Technology, has apparently had no previous professional experience with health care policy, but he has obviously learned enough about its essentials to produce this instructive book. Like most economists writing about health care today, Kling does not consider whether Arrow was correct — that is, whether the conceptual tools of economics are appropriate for an analysis of health care problems. He assumes that they are and wades right in. He has done a much better job than most of his colleagues. His book is clear, concise, and eminently readable; he writes in straightforward English prose, not economic jargon; he is modest, posing questions more often than he answers them; and he considers alternatives to most of the policy options he discusses.

    Many readers will know that I am a longstanding critic of the economic approach to health care policy, but I liked this little book and can recommend it highly. I disagree with many of Kling's assumptions and conclusions — for example, that medical "cost–benefit" analyses are as important as he thinks, that prices in health care are related to costs of production, that we cannot have health care that is both accessible and affordable while still insulating consumers from its cost, that professional regulation mainly serves the interests of physicians who wish to restrict competition, and that the best way to control costs is to shift more responsibility to patients of all ages through health savings accounts and insurance with high deductibles. Above all, I think he is terribly mistaken in believing, contrary to Arrow, that free markets can largely replace government in protecting the public's interest in health care.

    Nevertheless, I was attracted by a certain freshness and directness in much of Kling's argument, and I found myself agreeing with many of his observations. I think he is right in attributing our present cost crisis mainly to the practice of what he calls "premium medicine," which overuses expensive forms of technology that is of marginal or no proven benefit. I agree with him that more attention should be paid to the systematic evaluation of new technology and that an independent private agency should generate voluntary guidelines for the benefit of doctors and patients. I agree that an effective and efficient health care system requires both more integrated responsibility for reporting outcomes and an integrated electronic record system. A major impediment, he correctly appreciates, is the fragmentation of health care.

    Kling concludes by saying that he offers no solutions but intends only to "raise the level of understanding of the realities, issues, and tradeoffs pertaining to health care policy." I think he succeeds pretty well at that, so I warmly recommend his book to general readers who want to understand what economics has to say about health care. After they have read it, though, I suspect many will ask themselves whether medical care is just another market. When we are sick, don't we all want something more?

    Arnold S. Relman, M.D.

    Harvard Medical School

    Boston, MA 02115(By Arnold Kling. 110 pp. )