A Book Review of 'Priceless' by John Goodman

          John Goodman played a leading role in the historical movement to increase patient control over their health-care dollars. Due largely to his efforts, the U.S. Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act in December 2003, which included the provision for Health Savings Accounts (HSAs) (NCPA 2004). Most of his ideas on how to increase patient independence were outlined in his co-authored 1992 book Patient Power (Musgrave and Goodman 1992). Almost ten years later, Mr. Goodman has released a follow-on book attempting to address what he suggests could have been titled “Doctor Power.” The book is, in fact, mostly an effort to respond to the passing of the Affordable Care Act (ACA) and as the author states in his conclusion, “The focus of this book has been . . . identifying the perverse incentives created by government policies and considering ways to remove them with a minimum of social disruption.” (Goodman 2012).

          The book Priceless by John C. Goodman is built on his foundational argument that the lack of clear pricing signals in the healthcare system is at the heart of almost every one of the myriad problems. The new book takes a very different position from his previous book, which focused on patient or demand side issues. Mr. Goodman states, “What I didn’t anticipate was that the changes on the supply side of the market would be far more profound than the changes on the demand side” (Goodman 2012).

          Early in the book, Mr. Goodman proposes that the heated debate over health care is primarily the result of differences in the terminology used to describe the issues and the perception of political motivations. He claims that while economists refer to patients as consumers and health care as a medical marketplace, others take offense at the notion of health care as an economic system—that “econospeak” somehow dehumanizes a system focused on service. He then goes on to suggest eight additional conflicting perspectives of health care including; the importance of individual preferences, the public vs. private approach, economic vs. engineering social views, and the nature of entrepreneurial activities.

          The book presents the incentives of doctors, employers, government, and insurance companies, describing how they are at odds with patient objectives. Goodman then presents an historical analysis of the dramatic ramp-up in health-care expenditures and why the ACA and other efforts to reduce costs will not deliver the hoped for results. He follows by describing past efforts including; price fixing, output controls, Medicare Part B price controls, and the difficulty in expanding generic drugs. Particularly insightful, is Goodman’s explanation of why we cannot compare the spending levels of other countries with those of the United States. He explains how the pricing of health care consists of artificial prices and costs resulting from the suppression of market forces. In one example, he describes how in Greece, the bribes, and other informal payments are almost equal to the formal or measured costs.

          The book lists the three dimensions of care as quality, quantity, and amenities, explaining that the time cost of care is the single largest factor determining true cost. This discussion is similar to that of the printing industry, which offers three dimensions of service and asks that you select any two—quality, price, or timeliness. Like any industry, health-care must force patrons to make the same choice. Mr. Goodman argues that the quality dimension is effectively hidden because the third-party payer system negotiates the direct price and amenities and the patient experiences effectively only the time price. The result is a lowering of quality to accommodate the other two.

          In the middle of the book, Goodman presents his arguments for why increases in the time cost of care will be more keenly felt by the poor. He points out that the wealthy will be able to negotiate around the time cost thus pushing the poor even further back down the waitlist. After recounting the results of numerous studies that see to determine the effect of being insured on mortality rates, Goodman concludes that the evidence most strongly suggests that insurance does not affect the life expectancy of Americans. He proposes that it would be much more efficient to incent providers to improve quality as a way of increasing life expectancy. In one example, the book describes the Parkland Hospital in Texas. With 16,000 births a year (leading the nation) and the majority of the new mothers being illegal immigrants, the hospital is able to innovate in the delivery of care rather than suffer from typical bureaucratic rules. Midwives instead of physicians perform the majority of births and nurses provide the prenatal care. Goodman concludes this section laying out the reasons the ACA will only exacerbate the access problems in the health-care system.

          The book provides an insightful account of the evolution of the health-care system and explains the difference in true insurance and the third-party payer system. Goodman highlights the difference between payment from insurance and from subsidies and the economic impact of the two very different reimbursement approaches on the level of health-care consumption. The book then provides an exhaustive list of options for increasing the patient role in setting levels of health-care spending.

          The second half of the book is devoted to offering solutions to the health care cost crisis. Goodman begins by focusing on ways to make the patient responsible for more of the health care decisions and follows with suggestions for improving incentives for doctors and insurance companies. The list of suggestions is comprehensive and as a result confusing and overwhelming. Another section is devoted to a discussion of malpractice insurance and liability. Not to be let off the hook, the author provides two chapters dedicated to offering suggestions for Medicare and Medicaid and then reviews the new ACA law and its ramifications. Lastly, before drawing his conclusions, Goodman addresses what laws need to be repealed and what can be replace in the new law.

          Goodman’s conclusions are simple and straightforward. First, patients should pay a price for care equal to the marginal social cost. Second, providers should receive a price equal to the marginal value of their care. Lastly, these prices should ideally be determined in competitive markets.

          The book is chock full of ideas, many of which are probably useful. The style is readable, with enough antidotes to keep the reader’s interest. Unfortunately, the book is almost as confusing as the health-care system. There are too many moving parts, too many clever ideas, and not enough high level insights into how to cut the Gordian health-care knot. As hard as it is to make changes in the U.S. health-care system, it is unlikely the author’s suggestions will find a listening ear.

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Works Cited

Goodman, John C. Priceless: Curing the Health-care Crisis. Oakland: 
          The Independent Institute, 2012.

Musgrave, Gerald L, and John C Goodman. Patient Power: Solving 
          America's Healthcare Crisis. Washington, DC: Cato Institute, 1992.

NCPA. "A Brief History of Health Savings Accounts." National Center 
          For Policy Analysis. April 13, 2004. http://www.ncpa.org/pub/ba481
          (accessed November 7, 2013).

The Quest for Order: A Clash of Assumptions and Strategies

          It is often difficult to understand the motivations of political agents based only on their choice of political party or their vote on a specific issue. However, if we can determine their political core—their prime directive, key assumptions, and choice of strategies—then analyzing and predicting actions by the polity is greatly simplified. The purpose of this paper is to isolate the prime directive of the polity and the various ways it is put into action based on key assumptions and strategies. For simplicity, only the political core of progressives and classical liberals will be considered.

          For any politician, the chance to address a crisis, real or imagined, is seen as an excellent career move. Former U.S. Representative and White House Chief of Staff, Rahm Emmanuel expressed this concisely in 2008, “You never want a serious crisis to go to waste. Things that we had postponed for too long, that were long-term, are now immediate and must be dealt with. This crisis provides the opportunity for us to do things that you could not do before" (Seib 2008). Politicians see a crisis as a situation resulting from chaos that creates uncertainty in the electorate. It is this chaos, real or threatened, and the resulting uncertainty that is used to make the case for political action. Thus, the prime directive of the polity is to reduce chaos and uncertainty. In simpler terms, this directive can be restated as an effort to increase order.

          If the prime directive of the polity is to increase order, what are the underlying assumptions of progressives and classical liberals that determine the strategies they choose to achieve that order? There are two opposing views about the emergence of economic order. Similar to the ongoing debate between cosmologists over evolution and intelligent design, is the rift between economists over spontaneous order and induced order. Fredrick Hayek wrote of spontaneous order as “functioning without a designing and directing mind . . . the spontaneous collaboration of free men often creates things which are greater than their individual minds can ever fully comprehend” (Hayek 1948). In contrast, induced order refers to the effort of a hierarchical polity seeking to foist order by executing centrally conceived master planning.

          Progressives and classical liberals stand together in their desire for economic order and the avoidance of uncertainty. Both groups also point to the importance of well-defined and enforced property rights as essential to an efficient economy. The bifurcation begins with their key assumptions about the nature of economic markets. Classical liberals assume that free markets will, under the guidance of the Smithian invisible hand, result in spontaneous order while approaching Marshallian optimality. Progressives, on the other hand, assume that markets require the oversight and management of a central planner, implementing induced order as the only way to avoid or remedy the inevitable market failures and achieve Kaldor-Hicks optimality. Thus in the quest for order, the opposing parties clash in the marketplace of political ideas. Based on these two underlying assumptions, progressives seek a commanding heights form of governance, while classical liberals attempt to encourage self-governance. The commanding heights approach allows induced order to be imposed by the progressive central planner, while the classical liberal sees self-governance as essential for the emergence of spontaneous order in free markets.

          The dichotomy between these two philosophical approaches to bringing about economic order can be illustrated by comparing the business cycle theories of Keynes and Hayek. Keynes sees the underlying cause of cyclicality as the result of market failure in the form of animal spirits that requires a commanding-heights fiscal policy to restore the market to equilibrium. In contrast, the Hayekian or Austrian view is that business cycles result from monetary disturbances, usually instigated by the central bank, that create market distortions. The remedy, then, is to restore interest rates to their natural rate and let the market forces work to bring about a recovery from the boom/bust cycle.

The final impact of induced order is the attempt to use the same commanding heights approach to remedy so-called “social injustice.” Thomas Sowell, in his book The Quest for Cosmic Justice, explains how progressives seek to expand the use of commanding heights to induce order and bring about market equality of results. In other words, the polity moves beyond fiscal policy and attempts to remedy such things as disparity in income and education (Sowell 1999). Once Pandora’s box of induced order has been opened, opportunities for its use will be difficult to restrain.

          In conclusion, while both progressives and classical liberals seek well-ordered markets, they diverge over the explanation of how to create such order. Progressives seek to address the problem by using commanding heights to induce order, while classical liberals look to well ordered free markets and self-governance to generate order spontaneously. This great philosophical divide continues to fuel the political and economic debates over efficient public policy and is likely to continue for some time.

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Works Cited

Hayek, Friedrich. Individualism and Economic Order. Chicago: University of Chicago 
           Press, 1948.

Seib, Gerald F. "In Crisis, Opportunity for Obama." The Wall Street Journal. November 
           21, 2008. http://online.wsj.com/article/SB122721278056345271.html (accessed
           October 13, 2013).

Sowell, Thomas. The Quest for Cosmic Justice. New York: Touchstone, 1999.