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Overtreated
Eventually, Medicare should completely transform the way it pays physicians and hospitals. Instead of paying doctors and hospitals separately and reimbursing them for how much care they deliver, it will want to begin paying them as a group on a per-capita basis, depending upon the number of patients they care for. (Because outcomes of their patients will be monitored and eventually made public, these integrated systems will not want to attract more patients than they can handle simply to boost their incomes.)
That is from Shannon Brownlee's new Overtreated: Why Too Much Medicine is Making Us Sicker and Poorer, which should be read by anyone interested in health care economics. I have a few points:
1. The early chapters are too anecdotal for my tastes, but later the book becomes more analytical.
2. The author writes as if doctors can be steamrollered into submission and forced to adopt better compensation schemes; in this sense the public choice analysis is naive. Yes maybe that is what "should happen" but I predict that greater government involvement will be geared toward protecting the rents of American doctors, not making them passive servants of the public interest.
3. The (favorable) discussion of VHA is more insightful and more subtle than the usual treatments. For instance we learn that the much-heralded computerization of VA records was created in direct violation of government law.
4. The chapter on the rise and fall of managed care was excellent. Yet the core problems with managed care also would plague the author's proposal for compensating doctors and hospitals, quoted above.
5. The policy prescriptions focus on changing the bundle of health care, rather than just cutting back on health care, so the title is not strictly accurate. The author is not a radical Hansonian but rather favors more "integrated care" and more primary physicians.
Robin Hanson, now there's a guy who favors gross cutbacks in health care, he argues they won't cost us actual health. See the recent forum over at CatoUnbound.
Addendum: See also this NYT magazine article, "Do We Really Know What Makes Us Healthy?"
Posted by Tyler Cowen on September 16, 2007 at 07:36 AM in Books, Medicine | Permalink
Comments
Damn, you're fast! I was in Barnes and Noble a few days ago and asked for the book, and they didn't have it in yet. I still need to get it.
Posted by: Arnold Kling at Sep 16, 2007 7:58:57 AM
"The author writes as if doctors can be steamrollered into submission and forced to adopt better compensation schemes; in this sense the public choice analysis is naive."
This is what happened at the time of the creation of the NHS in the UK. The solution, in the words of the Minister in charge, to persuading the doctors was " I shall stuff their mouths with gold". And they did. Average GP (ie family doctor) income is now £100,000 a year: $200,000 or so (and note that in general UK incomes are substantially lower than US). As that's around average US doctor incomes, assume that this number will have to rise to get doctors to agree to a change in compensation arrangements.
Worth also noting that UK GP incomes are exactly what is in that quote. Capitation fees. An annual fee for each and every patient on the books of the practice (with extras for meeting targets like vaccination rates etc).
Posted by: Tim Worstall at Sep 16, 2007 8:22:04 AM
"...I predict that greater government involvement will be geared toward protecting the rents of American doctors."
Amen to that! The AMA steamrolls every effort to reduce costs or improve quality in healthcare. I have attended two conferences recently on quality improvement in healthcare and never met such a dispirited group. They have been trying to introduce statistical process control techniques in health care for 40 years and have failed for the most part. The main obstacle? Doctors.
Posted by: Fundamentalist at Sep 16, 2007 9:51:46 AM
As we spend more and more on health care, the rent seekers have more and more to gain, and politicians have more and more reason to spend more on health care. Is it ever going to stop? :(
"Stuffing their mouths with gold" seems to be the common tactic employed by government whenever some socialistic enterprise isn't doing so well.
Posted by: G at Sep 16, 2007 11:11:59 AM
Paying docs based on the number of patients they treat will result in the best doctors treating the most healthy patients and leaving the the scraps to those least capable. Medicare used to reimburse HMO Medicare Advantage plans (AKA "Part C" plans) on a weak risk model that just took age/sex into account... as a result the HMOs would pick off the healthiest people and exclude the unhealthy, making gobs of cash. Now MA plans are reimbursed based on disease conditions of plan members... so a plan gets $X to treat a disease no matter how much it costs them. Thus it is in the plan's best interest to keep diseases under control and also not to over-treat.
The difference between MA HMO members and regular HMO members is that the Medicare Advantage members have the option of dropping the plan and going with straight Medicare (or switching to another MA plan) if the HMO isn't doing a good job. So it isn't just a matter of limiting costs... they also have to make the case to their members that they're doing a good job. HMOs are still adjusting to this... their regular members generally have less options... either a few other HMOs in town or being uninsured.
Of course, none of this directly affects doctors or hospitals... the financial benefits of keeping patients healthy go to the HMOs, not the practitioners. But smart HMOs will figure out how to structure things to properly motivate doctors. This is markets at work. Every HMO can try a different way of doing this and the market will reward the best. It has taken them a decade to come up with the current model for dealing with MA HMOs... which is a lot easier than dealing with doctors and hospitals, IMHO.
Posted by: sj at Sep 16, 2007 11:17:05 AM
The key fact about health care is that it's a frighteningly subtle thing to properly value on an individual patient level. Anyone who says there is too much of it in the aggregate has to provide a foolproof (or at least out to three sigmas) way of saying for each patient circumstance: "this is the right thing to do."
There simply are no universal metrics or set of cost/benefit parameters that will provide such a solution either under central planning or a market-driven regime. But a market-driven system will at least provide a more adaptive mechanism toward greater efficiency. Meaningful "reform" will have to maintain a market test with sometimes messy, sometimes costly competitive options.
Posted by: M. Hodak at Sep 16, 2007 11:45:51 AM
Who pays?
If someone don't get these explosive caplets out of my neck, everyone's gonna pay.
Posted by: Snake Plissken at Sep 16, 2007 1:39:55 PM
Not sure if the book's been mentioned here, but 'A Second Opinion' by Dr. Arnold Relman is also a very informative health economics read. Whether one agrees with him or not, his position as a Harvard Med School professor and government policy adviser certainly make his perspective worth considering alongside the many 'opinions' from individuals with lots of general econ knowledge, but little experience with the medical profession.
Posted by: Jancer at Sep 16, 2007 2:09:38 PM
The sort of capitation model described was the "next big thing" in the early and mid 90s, and it flopped for a number of reasons.
One of the biggest reasons was the requirement for Family Practice docs to be gatekeeper; the FPs lacked the IT infrastructure, time, knowledge and business sophistication to serve the gatekeeper role.
Anyone who has ever sat through a meeting with hospital executives and physicians knows what a cluster-mess this would be.
And who takes Hanson seriously? He loves to stir up conversations.
Posted by: save_the_rustbelt at Sep 16, 2007 3:45:10 PM
The sort of capitation model described was the "next big thing" in the early and mid 90s, and it flopped for a number of reasons.
One of the biggest reasons was the requirement for Family Practice docs to be gatekeeper; the FPs lacked the IT infrastructure, time, knowledge and business sophistication to serve the gatekeeper role.
Anyone who has ever sat through a meeting with hospital executives and physicians knows what a cluster-mess this would be.
And who takes Hanson seriously? He loves to stir up conversations.
Posted by: save_the_rustbelt at Sep 16, 2007 3:47:39 PM
save_the_rustbelt a lot of people take Hanson seriously. Harvard's David Cutler claims that what Hanson is shouting from the rooftops is already conventional opinion.
Posted by: TGGP at Sep 16, 2007 5:53:09 PM
Every single health care finance "fix", including this one, has thus far failed to take into account the issue of demand. In the U.S. there is near total insulation between the consumer of health care services (the patient) and the cost of said services (see Kling; "Crisis of Abundance"). Provider demand is driven by the desire to prevent the initiation of malpractice lawsuits, and if initiated to prevent the loss of those lawsuits. No amount of additional health care services is enough if just a little more will be enough to insulate the provider from a tort. Unlimited demand results in infinite expense. Innovative care strategies at this time expose the innovators to both civil and administrative risk; even in the absence of increased compensation for additional care provided there is still a counter-incentive to consider the societal effects of care ordered.
Government's role should be to protect the consumer from fraud, protect the provider from frivolous torts, and perhaps to create the information technology necessary to allow informed consumer (patient) decisions. Under those circumstances the open market will encourage the same type of innovative solutions that have brought us more choice and more quality at lower cost in such varied spaces as computers, cars, and consumer finance.
Posted by: bingo at Sep 16, 2007 8:49:37 PM
Why not just enslave all with medical skills, and as time goes on, enslave all with medical aptitude.
It would be much cheaper than paying them. After all, if you have a choice of coercing a majority of people to pay a minority, or coercing a minority to serve a majority of people, it is more efficient to coerce the minority.
Stands to reason, right?
Posted by: Don Meaker at Sep 16, 2007 11:15:37 PM
It is relatively easy to sit in a faculty office and decide how much
healthcare spending is wasted and how to cut it.
I know, I've done that myself.
It is something else to design, implement and operate a new system
(assuming it can be made politically palatable) that actually works,
including managing a massively complicated transition.
I doubt any economists or journalists will be aroung during that work,
except on the sidelines.
This is a giant "whose ox is gored" problem.
Posted by: save_the_rustbelt at Sep 17, 2007 9:37:34 AM
I think that marginal healthcare (say the last 50%) does have some benefit but that if we knew how small it was and had a mechanism too exclude it we would not buy it. So what need is a scheme that allows people to determine how much marginal medicine helps and a mechanism to allow them to decline care above a given level and receive the benefit for declining it themselves. Living wills are great but the do nothing for the person who signs them though they benefit their insurance company and Medicare. Perhaps the insurance companies should give discounts to those who sign living wills.
Further you could take the cancer that is most expensive to treat per year of life and offer people to exclude that type of cancer from their insurance policy and see how many people would choose the lower bill and that type of exclusion. An impossible to implement way to handle this would be: If the doctor looks on your lab results and sees that you have that type of cancer he does not even tell you that you have it.
Another idea is that perhaps the insurance companies could offer a buy out. It could work like this: the insurance company offers to pay for your treatment or pay you say $100,000. You could leave that money to your family and friends or you could spend it or maybe use part of it to get care in India from Apollo healthcare.
Also:
Has anyone other than me noticed how much a veterinarian will do for a couple of hundred bucks compared to what a doctor will do? So deregulation might help I wonder why a company called “Mastectomies are Us” does not exist.
BTW IMHO some vets are pretty good. I wonder if anyone have compared their cure rates and accident rates to doctors.
Posted by: Floccina at Sep 17, 2007 10:14:10 AM
It sounds like what the government already does with it's automobile fleet: gives the maintenance contract to the lowest bidder. The result is that the contractor mechanic tries to figure out what he doesn't have to do to fix each car. I would not like my car to be repaired by that mechanic.
Posted by: jolly at Sep 17, 2007 2:13:27 PM
Now MA plans are reimbursed based on disease conditions of plan members... so a plan gets $X to treat a disease no matter how much it costs them.
This of course creates an incentive to treat people with the less-complicated cases of the disease. (So you treat say the 25-year old with a broken leg and not the 75-year old with the broken leg and diabetes complicating the healing process, oh and he broke his leg ten years ago, and he has arthritis).
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