Problem Solved, No Government Program Needed

In a classic article, Stanford University professor Kenneth Arrow argued that the market for medical care is inherently flawed because of asymmetric information. In what follows, I am going to embellish on the argument, making it even more forceful than it was in the original text. My book, Priceless: Curing the Healthcare Crisis, offers many such market-based solutions.

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).