Posted on November 30, 2007

Markets Have Failed in U.S. Health Care


Embargoed Until:
Thursday, November 29
7:00 PM EST

Steffie Woolhandler, MD, MPH (617) 665-1032 or (617) 312-2766
David Himmelstein, MD (617) 497-1268 or (617) 312-0970
Ida Hellander, MD (312) 782-6006

Create High Costs and Low Quality
Says British Medical Journal Article

Calls VA Health System “Major
Success Story in U.S. Health Policy”

Click here to read the full-text of the review.

Market-based medical reforms have failed in U.S. health care and should not be tried in Europe, according to a detailed review in the December 1 issue of the British Medical Journal (BMJ). The article, by two Harvard Medical School faculty members, is prominently featured on the BMJ website along with several responding commentaries.

The article documents that efforts to make Medicare “competitive” by contracting with private HMOs have wasted billions of tax dollars annually due to the HMOs’ high profits and overhead costs. The largest Medicare HMO reported overhead of 15% v only 3% in traditional Medicare. One HMO’s profits were so large that it paid its CEO’s $225,000 per day for five and a half years.

While Medicare HMO’s are far less efficient than the traditional Medicare program, they continue to make profits, according to the authors, by cherry picking. That is, they enroll healthier-than-average seniors, who bring hefty premiums (paid by Medicare) but cost the HMO little. HMOs have also profited by successfully lobbying Congress and winning payments that are at least 12% higher than the costs of care in traditional Medicare, and sometimes through outright fraud. These multi-billion dollar taxpayer subsidies have allowed HMOs to amass financial power which has, in turn, become a political roadblock to terminating this failed experiment in market medicine.

Similarly, the involvement of investor-owned firms in hospital, dialysis, and nursing home care has brought no “market efficiency” to healthcare. The article cites rigorous comparisons (meta-analyses) of investor-owned and non-profit health facilities which find that investor ownership is associated with worse quality among nursing homes, 19% higher costs and 2% death rates among hospitals and 9% higher death rates among outpatient kidney dialysis centers.

The advent of market medicine in the U.S. has generated immense bureaucratic and paperwork costs. The proportion of health funds devoted to administration in the U.S. has risen 50% in the past 30 years and now stands at 31% of total health spending, nearly twice the proportion in Canada which, like most other developed nations, relies on non-profit national health insurance.

The authors call the government-run Veterans Health Administration (VA) the “major success story of U.S. health policy” because it offers “more equitable care, of higher quality, at comparable or lower cost than private-sector alternatives”.

The authors argue that health care cannot meet the conditions required for effective market competition. Half of Americans live in regions too sparsely populated to support real competition. (A town’s only hospital or cardiology group cannot compete with itself). Seriously ill patient (who consume most care) cannot comparison-shop, reduce demand when prices rise, or accurately appraise quality. They necessarily rely on their doctor’s advice as to what tests and treatments to “purchase.”

The BMJ article is aimed at European reformers who have looked towards the U.S. market-oriented system as a model. “Most of the presidential candidates in both parties want to funnel even more public dollars through private insurers and continue the privatization of Medicare. But the data is very clear. For-profits provide inferior care at inflated prices.” said study author. David Himmelstein, an associate professor of medicine at Harvard. Co-author Steffie Woolhandler (also an associate professor at Harvard) added: “The U.S. health care system is failing because we have adopted a for-profit, market-driven model. Americans die younger and pay more for their care than people in nations with non-profit national health insurance. Health care should be a public service, not a business.”


Physicians for a National Health Program is a national organization with 14,000 physician members that supports single payer national health insurance. PNHP has chapters and spokespeople across the U.S. For local contact information, write or call 312-782-6006.

Steffie Woolhandler and David Himmelstein’s article, ” Competition in a Publicly-Funded Health Care System: The U.S. Experience,” appears in the December 2007 issue of the British Medical Journal and is available, along with the commentaries at or