CIRM bosses bagged huge salaries, but as the San Francisco Chronicle observed last September, “not a single federally approved therapy has resulted from CIRM-funded science. The predicted financial windfall has not materialized.” No royalties appeared until May, 2018, when a check for $190,345.87 arrived, less than the $225,000 salary of former state senator Art Torres, a CIRM hire. 

The $3 billion in bond funds authorized in 2004 “are expected to run out for research awards as early as September,” wrote David Jensen of California Stem Cell Report in May. Founder Robert Klein wants “more cash for creating a greater stem cell work force in the Golden State.” Klein has other ideas, including “a possible $5 billion bond initiative to rescue the agency from financial death.” So more money is the life-saving therapy for this failed state agency, which from the start was better described as the California Institute for the Redistribution of Money. With that in mind, taxpayers might note another Robert Klein project.

The president of Klein Financial Corporation “served as the Principal Consultant, Joint Committee on Community Development & Housing Needs for the California State Legislature from 1973 to 1975 during which time he designed, wrote and negotiated the legislation that established the California Housing Finance Agency.” 

As CalHFA explains, “For more than 40 years, the California Housing Finance Agency has supported the needs of renters and homebuyers by providing financing and programs so more low to moderate income Californians have a place to call home.” The supposedly self-supporting CalHFA has not been able to prevent the housing crisis decried by state legislators. Gov. Gavin Newsom is on record that “Housing is our greatest challenge” and “it took us decades to get to this place.” 

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Daniel Musher, MD, of Baylor College of Medicine, served on the Advisory Committee on Immunization Practice of the Centers for Disease Control and Prevention, which considered guidelines for a dual vaccine approach for pneumococcal vaccination for adults. He disagreed strongly with the published recommendation, but was prevented from publishing his opinion alongside the recommendation.

Dr. Musher believes the publishing of dissenting opinions is very valuable to the progress of knowledge:

As citizens of the United States, we are as much bound by a 5-4 decision of the High Court as a 9-0 vote (although closely passed decisions are more likely to be overturned in future cases).¹ Similarly, as practitioners of medicine, until new guidelines are written, we are seriously constrained by, if not actually bound by, existing ones, without regard to the unanimity of opinion in the recommending committee. Nevertheless, there is much to gain from studying dissenting opinions, as was famously shown by the writings of Justices Holmes and Brandeis, many of whose minority opinions, in time, became the law of the land.² I propose that the failure to publish differing or dissenting views in medical guidelines presents our profession with an inappropriately monolithic view—one that is studied as gospel by physicians-in-training and forced on practitioners by incorporation into a variety of performance measures.

This proposal seems very reasonable, especially in a time when expert guidelines determine the flow of billions of tax dollars and access to treatment. There was a lot of controversy circa 2009 and 2010, when the Affordable Care Act was passed, about whether women in their 40s would get “free” mammograms every year.

In 2009, the US Preventive Services Task Force issued guidelines recommending annual mammograms for women starting at 50 years, not 40 (as previously recommended). Needless to say, this change upset many people. The American Cancer Society maintained its recommendation that preventive screening start at 40, as did the Mayo Clinic. Politicians took note, and made an exception in Obamacare for mammograms, such that the 2009 USPSTF revision was ignored when it came to Obamacare’s “free” preventive care. (In January 2016, USPTF maintained is recommendation.)

We are entering a period when access to care will be centrally determined by political appointees who project an inappropriate degree of certainty when they issue their guidelines. They could at least allow dissenting experts the right be heard.

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The doctor knows more than the patient. As a result, doctors can recommend unnecessary care that enhances their incomes, even though it may be of no benefit to the patients. Doctors might also recommend one drug over another or one medical device over another because of their financial relations with the producers. Because of their limited knowledge, patients have no reliable way of evaluating the quality of the advice they are getting ― especially when they get different advice from different doctors.

About the only check on the system is third-party payer utilization review. But this is crude and highly imperfect activity engaged in by another party that has a financial interest in the outcome.

Arrow said this flaw in the market justifies occupational licensing and other government restrictions on doctor behavior. Health economics textbooks have generally accepted Arrow’s critique, holding that the free market for medical care has no answer to the problem.

Until now.

2nd.MD is a Houston-based company that has come up with an ingenious solution. The company arranges virtual consultations with some of the top doctors in the country so that patients can get a second opinion. The doctors represent 250 subspecialties and they are at places like Harvard Medical School, the Cleveland Clinic, Mayo Clinic, etc. Since the doctor who gives the second opinion has no financial interest in the patient’s subsequent care, the only motive behind the advice is the welfare of the patient.

The system works like this. Employers sign up with 2nd.MD and make its services available to the employees for free. If an employee questions whether a recommended procedure (surgery or an MRI scan, for example) is really needed, the employee can contact 2nd.MD’s Care Team and they direct the patient to an appropriate group of specialists. The patient can go on line and read about the specialists, check out their credentials, choose one (there are usually two or three choices) and let 2nd.MD arrange for the consultation.

The Care Team helps obtain the patient’s medical records and makes them available to the specialist in advance. The consultation can be by phone or by video.

Why are some of the top-rated doctors in the nation willing to give “second opinions”? One reason is that the remuneration is attractive. They receive from $100 to $400 for a consultation that usually lasts about 20 minutes. Another reason is the ease of performing the service. They can do it from their home or office and they can choose the hours when they consult. Also, there is very little fear of a malpractice problem. But if the specialist is worried that a malpractice claim might emerge, she can choose to pay $3 and get immediate insurance covering the consultation before it takes place.

Here are some obvious questions:

• How are the specialists able to get around state laws that require doctors be licensed to practice in the state where the patient receives the care? Answer: these doctors are not actually “practicing medicine”; they are just giving advice.
• Why is the malpractice premium so low and why does this insurance not fall under state regulation of malpractice insurance? Answer: again, these consultations are not considered “practicing medicine”; so the insurance is not technically “malpractice insurance.”
• Do the employers urge or require the employees to use the service prior to expensive care? Answer: so far, the consultations are completely initiated by the employees; but in the future “nudging” is a possibility.
• If employers are picking up the tab, they must think medical costs will be lowered. But how do we know that the specialist won’t recommend procedures that are even more expensive than the original doctor? Answer: Academic doctors and staff doctors are naturally more conservative than fee-for-service physicians.

2nd.MD is currently covering about 30,000 employees and that number could double or even triple in the next few months. Clint Phillips, the entrepreneur behind the venture estimates that:

• Every 100 consultations results in the avoidance of 11 surgeries, 12 optical scans and 12 further physician visits.
• Overall, he says the average specialist consultation saves about $1,986 in direct medical costs.
• Among the most impressive results, these consultations have avoided an unnecessary liver transplant, saved a patient’s eyesight, saved a patient’s hearing and saved two patient lives (because they were being mistreated for cancer).

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As I wrote in my recent book, Priceless: Curing the Healthcare Crisis, virtually all recent variations on these two models are attempts to ameliorate and control those perverse incentives—usually by introducing features that have a new set of perverse incentives. It is probably no exaggeration to say that the evolution of health insurance is one of cascading perversions, with each new wave of design trying to overcome the bad outcomes of the previous designs.

Under the fee-for-service model, insurance is designed to pay a separate fee for each service rendered, with patients responsible for some portion of the fee— in the form of a deductible, coinsurance or co-payment amount. Under the HMO model, providers receive a fixed fee, irrespective of the amount of service rendered.

When healthcare is perceived as free (the HMO model), patients will have an incentive to consume it until its value at the margin approaches zero. Since the cost of care is well above zero, this implies that unconstrained patients will consume healthcare resources very wastefully. The deductibles and co-insurance that are features of a typical fee-for-service plan are only a small improvement on these distorted incentives. If patients pay 20 percent of the bill, for example, their incentive is to consume care until its value at the margin is worth only 20 cents on the dollar.

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As I wrote in my recent book, Priceless: Curing the Healthcare Crisis, where there is price competition, transparency is almost never a problem. Not only are prices posted (e.g., at walk-in clinics, surgicenters, etc.), they are often package prices, covering all aspects of care (e.g., cosmetic surgery, LASIK surgery, etc.), and therefore easy for patients to understand.

Wherever there is price competition, there also tends to be quality com- petition. In the market for LASIK surgery, for example, patients can choose traditional LASIK or more advanced custom Wavefront LASIK. Prices vary with type of procedure and where it is performed, ranging from less than $1,000 to more than $3,000 per eye. [1]

Even when providers do not explicitly advertise their quality standards, price competition tends to force product standardization. This reduced variance is often synonymous with quality improvement. Rx.com, for example, initiated the mail-order pharmacy business, competing on price with local pharmacies by creating a national market for drugs. Industry sources maintain that mail- order pharmacies have fewer dispensing errors than conventional pharmacies. [2]

Walk-in clinics, staffed by nurses following computerized protocols score better on quality metrics than traditional office-based doctor care and have a much lower variance. [3]

In general, medical services for cash-paying patients have popped up in numerous market niches where third-party payment has left needs unmet. It is surprising how often providers of these services offer the very quality enhancements that critics complain are missing in traditional medical care. Electronic medical records and electronic prescribing, for example, are standard fare for walk-in clinics, concierge doctors, telephone, and email consultation services, and medical tourist facilities in other countries. [4] Twenty-four/seven primary care is also a feature of concierge medicine and the various telephone and email consultation services.

Competition in the provision of amenities is also common in the niche markets. Cancer Treatment Centers of America takes third-party payment, but its patients usually have to travel some distance to get to its facilities—at both inconvenience and expense. To attract them, the Centers go to great lengths to ensure the comfort of its patients and facilitate the needs of accompanying family members—offering services similar to what medical tourist facilities offer in other countries (they also post their cancer survival rates). [5]

In general, providers who compete on price are competing to lower the money price of care. Where this occurs, they tend to compete to lower the time price as well (hence the term “MinuteClinic”). Teladoc promotes its services by publishing the response times (a doctor’s return call) for its clients. Most concierge doctors promise same-day or next-day appointments. Some diagnostic testing services make the test results available to patients online within 24 to 48 hours. [6]

In general, these markets do not appear to be fundamentally different from non-healthcare markets. Competition tends to produce more uniformity of fees and waiting times than would otherwise be the case. Similarly, quality competition also tends to produce either uniform quality or a uniform trade-off between money prices and quality.

Note: Cross-posted at Psychology Today blog, “Curing the Healthcare Crisis”

[1] Liz Segre and Marilyn Haddrill, “Other Corrective Procedures,” AllAboutVision .com, October 13, 2011.

[2] J. Russell Teagarden et al., “Dispensing Error Rate in a Highly Automated Mail- Service Pharmacy Practice,” Pharmacotherapy 25 (2005): 1629–1635.

[3] Minnesota HealthScores.

[4] Devon M. Herrick, Linda Gorman, and John C. Goodman, “Information Technology: Benefits and Problems,” National Center for Policy Analysis, Policy Report No. 327, April 2010.

[5] Herrick et al., “Information Technology: Benefits and Problems.”

[6] Devon M. Herrick, “Healthcare Entrepreneurs: The Changing Nature of Providers,” National Center for Policy Analysis, Policy Report No. 318, December 2008.

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