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Wednesday, August 15, 2007

Excellent Health Care Blog

I recently came across John Goodman's blog and found some excellent posts here:

...If the answer to the first question is "no," the plan will not control costs. If the answer to the second question is "no," the plan will not improve quality. If the answer to the third question is "no," the plan will not increase access to care. If the answer to the full set is "no, no and no" (and I believe in almost all cases it is "no, no and no"), the plan is hardly worth talking about.

Two hundred years from now, anthropologists will look back on our era and wonder why there was so much sound and fury over plans that from the get-go could not possibly succeed. To help them out, I plan to entomb this Alert in a cornerstone somewhere.

Health care is a complex system. It may be the most complex of any social system. Complex systems cannot be managed, planned, controlled, etc., from above. If they are functional, it is only because the people down below face good incentives and feedback loops. If 300 million potential patients make just 10 health care decisions every year, that's 3 billion decisions on the demand side of the market alone. No one can manage, plan, control, etc., 3 billion decisions, to say nothing of the supply side of the market. The problem with all of the plans you have been thinking about is that they all violate this principle.

How do we know if the participants in a complex system face good incentives and good feedback loops? We can begin by asking whether they have the power to make things better. Although the three questions above are very good questions, here are three that are even more fundamental:

4. Does the plan allow doctors and patients to freely recontract, so that a better, higher-quality bundle of care can be provided for the same or less money?

5. Does the plan allow providers to freely contract with each other to reduce costs or raise quality?

6. Does the plan allow the insured and the insurers to freely recontract in order to change the boundaries between self-insurance and third-party insurance and arrive at more desirable allocations of risk?

The really disconcerting thing is not that the answer is "no, no and no" for all of the plans. I'm sure you already anticipated that. The really troublesome thing is that the answer is "no, no and no" for the current system.


In our fee-for-service payment system, doctors are slaves to the way they are paid. It doesn't matter whether the payor is public or private. It also doesn't matter whether we are in the United States or in Canada. Doctors have no freedom to repackage and reprice their services. More precisely, regardless of how they repackage, they cannot reprice. So almost any innovation that raises quality or lowers the patient's costs means less - not more - net income for the physician.

Fortunately, there are exceptions to this generalization. There are isolated markets here and there that are bustling and teeming with entrepreneurial activity. These islands of health care innovation are easy to spot. They are the places where the third-party payers are not.

TelaDoc is headed toward its one millionth customer. If that doesn't immediately knock your socks off, stop and consider: Almost one million people have stepped outside the traditional health insurance system and paid with their own money for a few simple services that our institutionalized, bureaucratic, archaic, third-party payment system cannot deliver. In addition to telephone consultations, TelaDoc patients have portable electronic medical records. Also, their prescriptions can be ordered electronically, taking advantage of software that reduces medical errors.

Another entrepreneurial venture — walk-in clinics in pharmacies, supermarkets and shopping malls — has recently discovered for medicine something nonmedical professionals have known about for several decades: the computer. Nurse practitioners not only enter patient data electronically, they follow computerized protocols in making decisions, and they can order prescriptions electronically as well. A MinuteClinic survey of 58,000 sore throat cases found that the nurses conformed to evidence-based treatment guidelines 99.15 percent of the time. By contrast, the RAND Corporation found that system wide, doctors deliver appropriate care only 55 percent of the time.

Big market changes are not driven by entrepreneurial buyers. They are driven by entrepreneurial producers and sellers.

The posts are impressive for their clarity and emphasis on really important insights.


erp said...

Howard, I am indebted to you and your thorough review of this issue. My own eyes glaze over when I read the words," health care systems," so when the time comes for citizen action, I'll look here for the last word on the subject and act accordingly.

Just one less thing I need to worry about. Thanks.

Hey Skipper said...

Complex systems cannot be managed, planned, controlled, etc., from above.

That is as good an argument against intelligent design as one is ever likely to find.

Bret said...

hey skipper,

I think Mr. Goodman was assuming that no deities would be available to do the managing, planning, or controlling. I think deities are generally exceptions to the "no one" clause.

Bret said...

I see only one way to "fix" health care and that is to stop "fixing" it and let the market do its thing. I know many people think my preceding statement terribly naive, but really, what system would answer "yes, yes, and yes"?

I agree with oroborous' frequent recommendation to eliminate the tax benefit for health care deductions to begin reconnecting people to the direct cost of health care. Employer based insurance programs should be eliminated. In addition, the AMA must be stripped of a lot of its monopoly powers. Same for the FDA.

Fairness is an issue for sure. But is it truly fair for everybody to get terrible and very costly healthcare? Perhaps the government could provide catastrophic family coverage (greater than $10,000 per year).

Oroborous said...

The problem that I see with the government providing catastrophic family coverage is that private companies providing such insurance cap the amount that will paid to a given policy-holder over a lifetiime.

But, once you make such payments government benefits, then you toss the decision about capping them into the political process, and as we can clearly see with Social "Security" and Medicare, among other programmes, the pressures in the political process are almost always to extend benefits, and rarely to save money.

Therefore I'd like to see the government remain the de facto but UNOFFICIAL provider of last resort.

Ali said...

Does the restriction on health insurance companies working across state lines have much of an effect?

Bret said...

Is the government really the de facto provider of last resort? Are you talking about the fact that hospitals are required by law to at least stabilize someone before they discharge them? Or something else? I'm not sure I see how the government pays for that.

It seems like that adds to the problem. I'm wondering how big it is relative to everything else though.

Oroborous said...

Yes, I suppose that I was thinking of the requirement that hospitals with emergency rooms treat everybody who shows up there.

There's also Medicaid.

erp said...

Let the market do its thing works best for almost anything you can think of.

Bret said...

When hospitals treat those who can't pay, they are not reimbursed much from the government. Everybody else pays (potentially much) higher fees in order to subsidize that cost. (This is according to my wife who works in health care administration at a hospital).