Market-based solutions are needed to reform the United States health care system, said a former chief executive officer of pharmaceutical giant Merck at The Bond Buyer’s 501(c)3 conference.

The former CEO, Raymond Gilmartin, is now a professor of management practice at Harvard Business School. In a keynote speech, he relayed the thoughts of five recent HBS graduates who are working in the health care industry. Three weeks ago the alumni told him that in the industry they are seeing cuts in research and development, doctors preparing to leave medical practice, and continued increases in health care prices.

President Obama’s Patient Protection and Affordable Care Act, passed in 2010, is taking the country’s health care system in the wrong direction, Gilmartin said. It does not do enough to reduce health care prices and it will impede the system’s innovation, he said. It may lead some doctors to not take Medicare and Medicaid patients.

The conventional wisdom about health policy is that the size of the health care industry should be pegged at a certain percent of gross domestic product, Gilmartin said.

This wisdom says Doctors are not inherently motivated to help their patients and they should be given incentives to look after their patients’ interests.

A government panel should decide what procedures should be followed, this wisdom says.

With Medicare’s requirement that doctors follow particular medical procedures in order for them to gain reimbursement, we are already going down this road, Gilmartin said. Instead, health care decisions should be left to doctors to decide upon, he said.

The conventional wisdom also focusses on cutting administrative costs as a route to cutting health care costs, Gilmartin said. A superior market-driven approach would focus on improving administrative productivity. It would take advantage of the knowledge of doctors and nurses, he said.

In general, market-based approaches should be used to reform the health care sector, Gilmartin said.

When Congress was considering how to introduce a prescription drug benefit, Gilmartin convinced then-U.S. Senator Edward Kennedy to consider a market-based approach. In this approach health plans would compete to offer prescription drug coverage to the elderly. Kennedy took Gilmartin’s suggestion and Medicare’s prescription coverage is market-based. The program’s costs are 40% lower than the Congressional Budget Office projected, Gilmartin said.

A market-based solution should first be brought to Medicare and then to the health care sector as a whole. “I’m advocating the unleashing of the forces of disruption,” Gilmartin said.

There are Democrats as well as Republicans in Congress working to introduce market-based solutions to medical costs and improve medical care, he said.

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