When Market Incentives Lead to Bad Outcomes

One of our readers recommended a fascinating and important article on health care economics, “The Cost Conundrum,” in The New Yorker. It’s by Atul Gawande, a surgeon and a professor of public health and surgery at Harvard.

Gawande contrasts McAllen, Texas, which has some of the highest health care costs in the country, with El Paso, Texas, a demographically similar city with moderate health care costs, and with low-cost communities such as Rochester, Minnesota (home of the Mayo Clinic) and Grand Junction, Colorado. To simplify greatly, his conclusion is that the medical community in McAllen practices medicine as a business, while the community in Rochester or Grand Junction practices it as a way of improving health. But the aberration isn’t the profit-loving doctors of McAllen; it’s all the doctors who are not out there maximizing profits.

The real puzzle of American health care, I realized on the airplane home, is not why McAllen is different from El Paso. It’s why El Paso isn’t like McAllen. Every incentive in the system is an invitation to go the way McAllen has gone.

And the prognosis is not good:

In the war over the culture of medicine—the war over whether our country’s anchor model will be Mayo or McAllen—the Mayo model is losing. In the sharpest economic downturn that our health system has faced in half a century, many people in medicine don’t see why they should do the hard work of organizing themselves in ways that reduce waste and improve quality if it means sacrificing revenue.

In short, we have a health care system that motivates doctors to behave like businessmen and maximize their revenues from patients. In the long run, those incentives are wearing down whatever ethic of professionalism or feelings of altruism lead doctors to behave differently. But while the pursuit of profit in the free market is supposed to benefit the public – and probably does in most areas – here it has led to an explosion of costs with no measurable improvement in health care outcomes.

Let’s go out on a long excerpt designed to motivate you to read the whole article:

We are witnessing a battle for the soul of American medicine. Somewhere in the United States at this moment, a patient with chest pain, or a tumor, or a cough is seeing a doctor. And the damning question we have to ask is whether the doctor is set up to meet the needs of the patient, first and foremost, or to maximize revenue.

There is no insurance system that will make the two aims match perfectly. But having a system that does so much to misalign them has proved disastrous. As economists have often pointed out, we pay doctors for quantity, not quality. As they point out less often, we also pay them as individuals, rather than as members of a team working together for their patients. Both practices have made for serious problems.

Providing health care is like building a house. The task requires experts, expensive equipment and materials, and a huge amount of coördination. Imagine that, instead of paying a contractor to pull a team together and keep them on track, you paid an electrician for every outlet he recommends, a plumber for every faucet, and a carpenter for every cabinet. Would you be surprised if you got a house with a thousand outlets, faucets, and cabinets, at three times the cost you expected, and the whole thing fell apart a couple of years later? Getting the country’s best electrician on the job (he trained at Harvard, somebody tells you) isn’t going to solve this problem. Nor will changing the person who writes him the check.

By James Kwak

51 responses to “When Market Incentives Lead to Bad Outcomes

  1. Robin Hood

    …but why nobody talks about Tort Reform anymore. Where are the lawyers and the sick system in all this mess?

  2. Who gets better care? Rochester MN (Mayo Clinic) or either of the TX cities?

  3. I think this question begs the definition of “better care”. Society has been unable to settle on a universal definition, and this has been a real problem.

    Is the best health care system the one that is the most medically advanced? Or is it one that is able to treat the most people? I think that’s the basic dichotomy, and I don’t believe it’s a false one.

    Most likely it should be some combination of the two, but what is the right mix? And who should decide, and how? Until we decide what the result should like like, it will be impossible to design a plan to achieve it.

    Furthermore, those who reject the notion of socialized medicine must realize that we already have it. Americans are simply not willing to let people go without basic medical care. In order for true health care reform to work, we have to recognize this reality. True free market health care does not exist in this country. And that is a good thing.

    But trying pretend that it does, and rejecting policies because they do not fit into a free market system that doesn’t exist, will get us nowhere.

  4. Quite honestly, we are witnessing not just a battle for the soul of American medicine, but for the soul of America. Period.

    Maximizing revenue streams – damn the consequences – is all that “the shiny city on a hill” represents these days. And perhaps maximizing revenue is all that the great beacon of liberty has ever really cared about.

  5. I doubt there are enough missionaries to handle all of the people in America who need medical attention. But it was a very thought-provoking article.

    Gawande didn’t exactly sound like he was itching to establish an honest health care clinic in McAllen, Texas at the end there, but I don’t blame him for that. Someone would have to pay me an awful lot of money to live there.

  6. I live in Minnesota. Google the Mayo Clinic. It is one of the preeminent medical facilities in the world. The health care available in Rochester is outstanding.

  7. Also, what “market” incentives are we talking about here? The article says the per capita income for McAllen is $12,000. There is not a “market” for health care there.

  8. My point.

  9. Brooks Gracie

    Because tort reform is a red herring! Average damage awards have gone down over the past decade, and the number of successful lawsuits have gone down. It is ridiculously hard to sue a doctor and get an adequate damage award. Just to get your suit to trial, you need to get passed a Health Claims Evaluation Board, made up of 1/2 physicians and 1/2 others. After jumping this hurdle, you have to get a case through a judge and jury, with conflicting expert testimony, where plaintiff experts are routinely rejected by judges afraid of the healthcare lobby for their re-election. Educate yourself on the facts, not health insurance company rhetoric!

  10. strike three

    I had never thought about the medical profession in general and doctors specifically as revenue maximization machines. This article was informative and distasteful — but I should have already realized it.

    There are certain professions that need to work for the common good. Police, firemen, teachers – I would add to that, government employees. I am ready to support a process that includes the medical professionals in this category. And while you’re at it…. the ambulance chasing lawyers too. These vultures are on our local tv 24/7 begging accident “particpants” and recipients of medical care (I won’t say victims) to call today for “their money”. My son was in a minor fender bender six months ago and we just got a registered notice that he is being sued for $65,000. No damn wonder doctors and insurance companies are shell shocked and have an us against them (society) mentality.

  11. Why not include the insurance racket with the banking oligarchs? All insurance, not just “health”.

  12. Malpractice adds about 3% (at most) to the overall cost of US healthcare.

    Over treatment and ineffective treatment are the primary inefficiencies in the system. The rest of the inefficiencies are the economic distortions caused by the divergence of interests been patients and the insurance and medical supply industries.

    As for what constitutes “good” health care there are many commonly used measures. Among them include infant mortality rates and live expectancy. Some measures also factor in the number getting little or no adequate care.

    By all these measures, the US is at the bottom of the industrialized countries. The better performing countries (UK, France, Germany, Japan and Scandinavia) use a variety of funding mechanisms. From state run (the NHS in the UK) to private, regulated insurance in Germany and single payer in Canada.

    Not only are they cheaper but they provide better outcomes. The cries of “socialism” in the US are just fear-mongering. Medicare is “socialized” by this definition, but has a higher satisfaction rate among participants than do the private employer-based plans.

    It’s not “socialized” it government-administered. You get to chose your doctor and they get to chose the treatment. The government just pays the bills. Cost containment (if it worked properly) would be done the same as is done by private insurers, refusing to pay for ineffectual treatment.

  13. hmm, one of his datapoints doesn’t make any sense.

    in the article he talks about heart surgeries being performed “instead of” statins.

    however, if you have people overusing health services, you’ll certainly see them early enough — before you would think of doing surgery — and put them on statins.

  14. winstongator

    Note, less $ is spent in Rochester than either TX city.

    The article goes to great length to discuss this. Controlling for similar conditions he describes:

    In a 2003 study, another Dartmouth team, led by the internist Elliott Fisher, examined the treatment received by a million elderly Americans diagnosed with colon or rectal cancer, a hip fracture, or a heart attack. They found that patients in higher-spending regions received sixty per cent more care than elsewhere. They got more frequent tests and procedures, more visits with specialists, and more frequent admission to hospitals. Yet they did no better than other patients, whether this was measured in terms of survival, their ability to function, or satisfaction with the care they received. If anything, they seemed to do worse.

    Given the choice, even the physicians in McAllen would choose to be treated at the Mayo Clinic instead of their own hospital.

    Examples on how markets actually work would show how medicine is not really a functioning market as we’d like.

  15. winstongator

    “To make matters worse, Fisher found that patients in high-cost areas were actually less likely to receive low-cost preventive services, such as flu and pneumonia vaccines, faced longer waits at doctor and emergency-room visits, and were less likely to have a primary-care physician. They got more of the stuff that cost more, but not more of what they needed.”

    They are getting lots of semi-critical to critical care but almost no preventative or routine care. Procedures pay much more than prescriptions – at least for the MD.

  16. I’m not an economist so I don’t know what behavior constitutes “maximizing profits”, but here’s how it works for orthopedics in the state capital of a southern state.

    Hospital A refers ER visits to practice A1. Hospital B refers ER visits to practice B1. If you go to hospital A but call practice B1, you’ll get told they don’t accept those referrals and you have to go to practice A1. If you don’t want to go there (because you’ve already seen their particular specialist and think he’s a jerk), then you have to get your primary care physician to refer you to practice C1, which is a one person shop. Practice C1 is run by an African American physician and his waiting room, in contrast to waiting rooms A1 & B1, is filled with African Americans. (My conjecture is that hospitals A & B refer African Americans to practice C1 but I have no evidence to support this claim.)

    So, the orthopedic doctors and the hospitals doctors have carved up a large metropolitan area and determine who patients see. So they’ve controlled demand. Within every orthopedic practice (except for the one person shops), each doctor has a specialty and that’s all they do. They have an arm guy, a knee guy, ankle guy, etc. So now they’re controlling supply of doctors as well. (Note that there are a couple of other one person shops in town as well and I’m not sure how they fit in.)

    For the most part, health care is a commodity (at some level, I guess, broken arms are fungible) and as long as every practice gets about the same number of patients and they’ve all negotiated the same rate with the insurance companies, then they’ve got no reason to disrupt things by trying to compete.

    So, if you consider collusive behavior to be “maximizing profits” then, from my experiences, all doctors are engaged in “maximizing profits.”

  17. robertdfeinman says, “By all these measures, the US is at the bottom of the industrialized countries. The better performing countries (UK, France, Germany, Japan and Scandinavia) use a variety of funding mechanisms. From state run (the NHS in the UK) to private, regulated insurance in Germany and single payer in Canada.”

    Well as someone born and bred in the UK (I’m 64) and only now experiencing US medicine, I can say that anecdotal evidence is that the UK’s ambition to make the NHS more profit centred (whatever that means!) has meant a slow but steady decline in the quality of service. But poll after poll has shown the British public ready to spend more of their taxes on the NHS and less on such items as nuclear submarines.

    For me the answer is a combination of the two. Basic healthcare for all free at the point of delivery but a private service for all those who wish, in addition, medical attention for those many non life-threatening specialisms.

    Of course, setting the boundary between the two requires the judgement of Solomon, or maybe just a good democratic feed-back system!

  18. Tippy Golden

    I’m not an economist. But I do have some first hand experience with universal health care in Canada.
    I am totally amazed when I think about how lucky I am compared to Americans on health care.

    Health care reform is a very-hot topic in the United States. Some critics would argue the Obama administration is waffling on health care reform in the same way it waffled on reining in the Wall Street oligarchs.

    There is also a very major PR campaign underway in the United States. The for-profit health industry is afraid the U.S. might adopt universal health care, similar to that in Canada, so they are spreading misinformation about the single payer system.

    Any government (provincial or federal) in Canada, that openly tried to privatize health care — would get kicked out — come election time. Unfortunately, there is too-cozy a relationship between some Canadian politicians and the for-profit medical lobby. So they chip away at our universal health care in a “sneaky” way. Grrr…

    I am not saying the Canadian system is perfect. But we have it so much better than most Americans. Basically, there can be the distress associated with illness. But there are no worries about how to pay for medical care. Certainly much more humane.

  19. Tippy Golden

    I’ll add here.

    As a Canadian I am simply amazed Americans put up with the kind of health care system you have. My guess is change is on the way. It’s a matter of dealing with the entrenched for-profit interests. And they are not planning to go away quietly.

    I have heard that Canadians have — more choice — in health care than Americans. This may be true. Every citizen in Canada has a “care card” that entitles them to “visit” any hospital, clinic, doctor or specialist in the country. Mainly, you go to the one near where you live.

    Just shaking my head wondering how Americans can put up with the health care system you have !!!

  20. Donald Thieman

    Who gets better health care? Not just people in Rochester, Minnesota, home of the Mayo Clinic. Literature that goes back over 30 years correlates lower costs, stronger primary care, better quality measures, and better population health–whether studied by country, or by region in the U.S.–hands down. “Revenue maximization”, by extension, correlates with more unnecessary specialized care, higher costs, a weaker primary care system in the geographic area, and worse population health. There’s more than the Texas desert to make McAllen not a great place to live and receive health care.
    John Wennberg, the father of the Dartmouth statistical studies on variations in health care across the U.S., visited us in Portland, OR several years back. He talked about the results when physicians see their community’s areas of wasteful practice, and unite to change it–it can make great things happen. Asked how often he has seen that voluntary, successful cooperation occur, his rueful reply: “Not very often.” The “market” is not solving this set of problems.

  21. Tippy Golden

    As for “non-life threatening specialisms”, single payer in Canada does pay for cosmetic surgery.

    However, my company pays for my miniscule medical premiums and tops it up with dental, vision and prescription drug benefits, as well as paid sick leave. (More benefits and paid sick leave than I need in a year!)

    In Canada — unionized — near-minimum wage earners (eg, Starbucks and big box grocery chain workers) will get decent health benefits negotiated into their contracts.

    Put another way, unionized workers earning near-minimum wage, in Canada, probably have better health care than many middle-income Americans.

  22. The other part of my point.

  23. Also note the shortage of general practice physicians in the US compared to specialists.

    From my personal experience, I have received significant misdiagnoses four times, 3 othropedic 1 internal, because the appropriate tests were not considered necessary at the time. All have been resolved positively since, but it took years for each of the ortho things and extreme persistence for the internal (which may have saved my life) – all because they didn’t recommend tests. I see the system in the US as both overuse and denial of service, simultaneously, related to what kind of “insurance” a patient has.

    Why hasn’t anyone taken insurance companies or politicians to the State Medical Boards for practicing medicine without proper credentials? Denying care based on policy or fine print is de facto practice of medicine…

  24. The medical fraternity artificially restricts supply (high entrance marks, specialization operating as guilds etc.)to increase scarcity and price. Libertarians would say open the flood gates and let the markets decide.

  25. A self-employed friend, who either has no insurance or a high deductible catastrophic policy, decided to go to Guatemala for knee surgery. Very tiny cost compared to having it done in the US. I suspect outcome was not any worse.

    We have outsourced everything else to foreign countries. Why not health care? Obviously not for acute or emergency services. But if this were encouraged, would it not put the fear of God into the health industry here? Enough to lower their prices, I mean. Smart, frugal people are already doing this. We just need more incentives for others to follow their example.

    Also, the issue of iatrogenic illness has not been mentioned. It’s hard to get accurate figures, but I’d guess that our medical profession kills 100,000-200,000 people annually — unnecessarily. I know that’s a hard figure for most to swallow, but if you add up figures from studies estimating deaths from drugs mistakenly prescribed on an outpatient basis, plus deaths from hospital errors, unnecessary operations, etc., I think you conservatively get a sum in this range. We have too much medical care, or at least too much of the dangerous kind. And it’s deadly.

    I don’t have an answer. I would accept less care, as long as I have more freedom to choose. I detest the notion of government choosing what care I get and how much I must pay for it. I am disabled and uninsured, by the way. I do need catastrophic coverage, which I probably could not obtain at any affordable rate. Still, as far as I’m concerned, I want the government to butt out. Health care is not a right, not for me, not for anyone.

  26. Andrea Matranga

    One thing I don’t get is why direct-to-patient advertising of prescription drugs is even allowed.

    Why do some drugs require a presecription? Because a board of health care professionals has determined that the public at large does not know enough about how their bodies work to be able to decide whether they need it or not.

    By the same reasoning, shouldn’t consumers be protected from messages effectively designed to spread hypocondria?

  27. Robin Hood

    Health Claims Evaluation Board – that is not how it works in all states! That is why some states are in crisis and that is why malpractice insurance premiums are still up high.

  28. Alan McConnell

    I am not an MD. But if I were, I am sure that my
    altruism, which presumably led me into medicine,
    would be overwhelmed by the enormous debt that I
    would carry at the end of med school. Suggestion:
    aware 90% scholarships to all med students(in good
    standing) who, after their studies, would consent
    to be assigned to underserved areas. One thinks:
    Native American reservations, or rural areas of
    North Dakota, Wyoming, Oklahoma.

    Best wishes, Alan McConnell, in Silver Spring MD

  29. Let’s look at the undeniables:

    In Canada, with the single payer system, all have full access to health care 24/7, with no exceptions and no costs (other than paying taxes like us). There is no profit motive, but physicians and other health care workers are fairly paid, and all of the accounting is completely simple. And the man who started the single payer system in Canada is considered its greatest national hero.

    In America, about 1/5 of the population has no health coverage, and must visit the emergency rooms, a very high cost solution. About half of the bills generated there must be funded by the government, or hospitals would go broke. These people have no regular physician, and no regular care program at all. This explains why we are 17th amoung developed countries in life expectancy, although we have the highest income per capita. AND WE SPEND MORE PER CAPITA ON HEALTH CARE THAN ANY NATION IN THE WORLD!!!!

    Even Cuba has better health care. What does this tell us?

    And, we are somehow expected to believe that the insurers, HMO’s and PPO’s are going to reduce our costs over the next ten years? That is pure insanity, if we buy that idea. That is like licensing rapists and not prosecuting them. These are the oligarchs that have created a confusing, wasteful, dysfunctional system to enrich themselves while the rest of us suffer and die. That might sound overly harsh, if it weren’t 100% true.

    And, ultimately, the only cure for our problems is campaign finance reform so that the health care, energy, and finance interests can’t control us right into the toilet with their continuing bribes of Congress!! Time for real revolution while we still ahve money for tea bags.

    A vast majority of health care providers (doctors and nurses) fully endorse a single payer system.

  30. That is about as scattered as I can imagine. Good points about the drug and treatment issues, which really need to be addressed. But, health care is a right (that’s why doctors take the Hypocratic Oath) for everyone. Based on what you have said, unless a person can pay for care, we should just let them bleed to death. Sorry, I don’t buy it. It sounds like you work for an insurer.

  31. And, but the way, Canadians, with a full single payer system, all have the right to chose who treats them and how. Quit listening to the alarmists who say you won’t have and choice. It is pure, unadulterated BS.

  32. Tippy Golden

    Eric,

    In Canada we have have — far more choice — than Americans when it comes to medical care. With a “care card” a Canadian can “visit” any doctor, specialist, hospital, clinic, pharmacy in the country. Mainly, Canadians seek medical care somewhere near where they live.

    So it is — scare mongering — when the for-profit health lobbyists tell Americans they will lose personal control over their medical care under a Canadian-type system. In Canada, if a doctor or specialist makes me feel uncomrortable for whatever reason, I just don’t go back.

    A Princeton political economist Uwe Reinhardt has said Canadians have — far more choice — than Americans with private insurance. From what I can tell he is right.

  33. Tippy Golden

    Well, it might not have been Uwe Reinhardt who said this.

    But there is a great program on PBS Frontline you might want to check out.

    See: PBS Frontline Sick Around the World.

    Very charming story about Taiwan as a developing country with enough capital to bring in national health care. Their technocrats did an empirical analysis and chose to model it after Canada’s.

    http://www.pbs.org/wgbh/pages/frontline/sickaroundtheworld/

  34. “maximizing” revenue is only possible when there is limited or no competition…if I have a competitor willing to accept less revenue, I must also accept less or lose the business. Combine limited competition with (thus far) endless Federal dollars for medical “entitlements” and you have the perfect formula for the mess we’re in now.

  35. This is absurd. I am disabled. I am unable to work. Selfishly, I ought to expect you to pay my bills. But I refuse to be a leech. I believe in charity, and I contribute to charity. I believe that we should charitably support hospitals for those who cannot afford care. But I do not believe any man should have a right to another man’s back pocket. That’s the way I live my life, because my principles mean something to me, and I put my money and vote where my mouth is.

  36. Tippy, that is fine if you like that system. And I do not want America to be like Canada. Yes, there are downsides to this. But there are upsides as well.

    Someone with Canada Care does NOT have more choice than someone with a medical savings account, simply spending their own cash. For example, does Canada cover alternative medicine? Because if I get cancer, I am NOT taking chemo or radiation. I’ve seen it. I don’t want it.

    If my dollars are spent paying national health insurance for treatments I don’t want, then I have fewer dollars left to choose what I DO want.

    Your system is a form of benign slavery that you have convinced yourself is more free. If you are happy with it, I won’t criticize you. You Canadians may have what you like. Americans are not Canadians. Yet. I hope. Our biggest problem right now, as is the focus of this blog, is that banks and to some extent the health care industry and other corporations have captured the government. We really need to get that sorted out before we do anything about health care. Health care reform will be tainted anyway, unless we can break the power of the corporations.

  37. One of the interesting things about this administration is the direction that the NIH portion of the stimulus bill has taken the agency. I am a biomedical researcher (emphasis on the bio) but have followed NIH funding for many years and I don’t think we have ever seen the NIH choose to direct its funding in the way that the Challenge Grant program has been funded. (There may be selection bias here, I don’t usually read through the whole list of RFAs.)

    So, whats the difference: comparative medicine and behavioral medicine. Here are just a few of the hundreds of projects that the NIH wanted to fund through the stimulus program:
    01-CA-103 The role of health behaviors in cancer prevention.
    01-DK-103 Improved understanding of behavioral and social factors related to non-Adherence in people with diabetes.
    04-CA-111 Quality of Cancer Surgery and Outcomes.
    04-CA-112 Appropriate Use of Colony Stimulating Factors.
    The first two are asking the medical research community to look for behavioral, rather than medical, ways to treat and prevent expensive diseases. The next is essentially asking researchers to look at surgery outcomes to see if some surgeries are more effective than other protocols. And the last is asking researchers to look at whether CSF drugs are being used effectively.

    It would be very interesting to look at the history of the RFA programs to see whether this is really a shift or not. But what this seems to indicate is that the Obama administration will be adding comparative and preventative medical science to the mix.

    The reason this is so important is that currently the bulk of the pharmaceutical and device science is funded by and controlled by the industry. The drug/device manufacturers have no incentive to fund studies that compare patented to unpatented therapies. This research has the potential to be detrimental to shareholders, but may reveal that new patented therapies are no better than the old therapies. This leads to a perverse incentive to publish only data that describes new uses of patented pharmaceuticals. It is difficult to get funding to do studies to compared the effectiveness of therapies. An active sales force for patented therapies with little or no incentive to use old therapies, patients are given the latest most expensive therapies as a matter of course.

    Adding the NIH as a funding source to find best therapies and preventative interventions suggests that the Obama administration is aware of the weird incentives that exist in the medical marketplace. And is seeking ways to remedy these systemic errors.

  38. The US health “insurance” system has stacked all of the incentives against anyone who is anything but perfectly healthy. If you become sick or injured, care can be denied due to cost because the patient can’t or won’t pay for it. It is too easy to get dropped or denied coverage by so called insurance.

    The problem is the incentives for the doctors are wrong (time + materials billing), the incentives for insurance is really wrong (profits are best if you can nave only healthy people pay premiums and then not pay any claims), and the incentives for business is all wrong (by effectively requiring employers to offer health coverage to get quality employees).

    It is really, really easy to find a market solution for the rising cost of health insurance: let multiple insurers compete to drive down costs by denying more and more care. Oh wait- that’s what we have now. Its nothing more than a race to the bottom.

    The free market in the case of health insurance doesn’t work, since the best way to make a profit is to have everyone pay in and then not cover anything. As competition increases, less gets covered.

    This is slavery. After all, you pay for public schools, fire and police departments, and libraries whether or not you choose to use them. Should we opt out of them too, since socialism like that is un-American?

  39. It’s a great article. It’s a reminder of how simple changes in culture can lead to huge deviations from the norm in any activity.

    But health care is hardly a free market. For a host of reasons, asymmetrical information and tax subsidies being perhaps the two biggest, it’s not a desirably-functioning free market. Like housing, market demand is suboptimally warped by tax subsidies and prices are inflated as a result. Like housing, it has grown out of control for the past 2 decades. Unfortunately we seem unwilling in either case to recognize the problem and decrease the entitlement.

  40. One thing in the article struck me as hopeful. In comparing regions where medical expenses are vastly different, while medical outcomes are roughly the same, it turns out that medical treatment is pretty much the same when it has a firm basis. The main differences come in cases where medical science does not provide definitive answers and treatment depends upon medical discretion. That gives us, as patients and consumers a fair amount of leverage in terms of medical expenses.

    If we, as patients and laymen, question a test or procedure, and it is well grounded in medical science, the doctor will tell us so (or be guilty of mal-practice). When I was young and uninsured, I made it a practice to raise questions. :) I continue to do so, even if I forego something that my insurance would pay for. If an expensive test or treatment is not well-grounded, there is no reason for us, our insurance companies, or our government to pay for it.

    Now, in the article there was a counter example of a little old lady facing heart surgery. Them metaphor was one of the prey arguing with the predator. That is an extreme example, and it is curious to me why it was included in the artcle.

    It is unwise to argue with our doctors. But a few questions, especially if we live where medical costs are high, could save us all a lot of money. :)

  41. “the pursuit of profit in the free market is supposed to benefit the public – and probably does in most areas”

    This is a devastating micsonception. The pursuit of improvement and value benefits the public – and the successful pursuit of these qualitites results, in a functional society, in a profit that is sufficient sustains the effort.

    The pursuit of profit is, at best, Zen-like context free utilitarianism, and at worst a sociopathic quest to fill an empty middleman’s life with some kind of “score” accomplishment. Profit is the result, not the objective. It is a means – to allow us to continue to do what is valuable, and ideally, what we are good – if not best – at.

    The idea that the pursuit of profit – an idea that is ultimately nothing more but the grudging acknowledgement that, as a species, we are shortsighted, greedy, and stupid, and that the only way to put the lot of us to productive use is to redress juvenile egotism as enlightened self-interest – the idea that this is a net positive in any frame of reference is the life lie of the productivity extortion machine called “free market” capitalism. It makes a profound misrepresentation the foundation of what is proving to be a dysfunctional, unsustainable, and quite possibly lethal approach to organizing our lives, and that of our descendants.

    “Ancestors” will be a common curse.

  42. “We are witnessing a battle for the soul of American medicine. Somewhere in the United States at this moment, a patient with chest pain, or a tumor, or a cough is seeing a doctor. And the damning question we have to ask is whether the doctor is set up to meet the needs of the patient, first and foremost, or to maximize revenue.” — The Cost Conudrum

    “Take the mortgage broker who steered his client into a subprime mortgage when the client could have qualified for a prime mortgage (because the subprime mortgage paid a higher commission), thereby saddling him with interest payments the broker knew he couldnt’ afford; or the bankers who sold small towns in Wisconsin synthetic CDOs without making sure the customers knew what they were buying (but covered themselves by shipping hundreds of pages of unreadable disclosures).” — James Kwak

    What we’re really discussing here are people in professions that require them to give advice to a client who has limited knowledge and often limited resources but will bear the full financial and in this discussion health related consequences of the advice given. Whether doctor or broker, I don’t begrudge their opportunities to enhance themselves. Of grave concern however is that they don’t have to reveal the nature of the advice they are giving and the conflict of interest that I perceive this to be.

    Doctors routinely discuss the effects and potential consequences of a treatment with patients as this is a doctor being a doctor. Intermingled with the doctor being a doctor is the doctor functioning as pitchmen and agent for financial concerns in the medical industry; first up him/herself. The idea of “Disclosure” and “Conflict of Interest” have really taken a back seat in recent memory and it is unfortunate. When you see such erosion in the White House, the Supreme Court, Congress and the Pentagon, its not surprising that its a reflection of the community that is the United States.

    “But while the pursuit of profit in the free market is supposed to benefit the public – and probably does in most areas – here it has led to an explosion of costs with no measurable improvement in health care outcomes.” — James Kwak

    In free markets buyers and sellers supposedly don’t coerce each other. When doctors have concerns and relationships convened solely for the purpose of enhancing their financial position AND there is no improvement to the health outcome of the patient they aren’t behaving like a businessmen, they ARE a businessmen. After all, there being no medically relevant advantage realized from the concern or relationship vs. other courses of action, the only upside is financial. Thus, the doctor is the seller and the patient is the buyer only the patient doesn’t know they are a buyer. Most patients I think find it reasonable that their physician is compensated, many however don’t realize their being taken to the cleaners.

    Brokers being allowed to lie as they have is damaging and definitely not in keeping with free market principles. Free market “principles” NOT!!!!, have found their way into the examination and operating rooms of the country and its unfortunate that the very worst and corrupted of these so called “principles” take priority over the health and well being of trusting patients.

  43. They must be learning from the veterinarians. I have one that won’t let you leave the office until your bill is at least $250.00. He has a million toys to pay for and will talk you into every known vaccination you’re dog does not need.

  44. Tippy Golden

    Eric,

    In the province where I live (British Columbia) acupuncture and TCM Traditional Chinese Medicine is covered. Seeing a naturopathic doctor is also covered. In other words, some forms of “alternative” medicine are recognized by our universal health care system.

    Now if you wanted to see a shaman for cancer treatment you would be on your own. Both in America and the United states !

  45. DISCLOSURE: I am a trauma surgeon working in a public hospital as an employee of our county. Our practice model is similar to the Mayo Clinic as far as immediate availability of specialists, having as much time as needed for a patient, etc., although there is no incentives for practicing efficiently and no revenue-sharing arrangement (primarily because there’s no revenue: we take care of the indigent patients, and signed our ability to bill for professional services to the county for the few insured patients we do see). It’s hard to beat this model for quality and timeliness of care, although we have our own problems with scarce resources, having to work with a county government bureaucracy, etc..

    First a few words about the malpractice/tort reform/defensive medicine argument for increased costs. Most large groups like the Mayo Clinic or Kaiser Permanente require patients to sign an arbitration agreement, which limits exposure to jury trials and thus reduces the need for “defensive medicine”, so you really can’t compare private practice with these large groups. However, the author of the article, Dr. Gawande, dismisses the defensive medicine canard early in the article by pointing out that the cap on noneconomic damages in malpractice awards has reduced the number of malpractice suits dramatically, experience that has been seen in other states where similar legislation has been passed. There have been more studies regarding the cost of defensive medicine since the 1996 article that President Bush quoted when he was pitching national tort reform, and while the subject is still controversial, it looks like about 5% of savings could be realized if defensive medicine in all specialties was stopped. This includes unnecessary CT scans, hospital admissions, C-sections, etc. Anyway, even the doctors in McAllen admit that this is not the reason medical care is so expensive there.

    When I was in medical school (1970s), someone had the bright idea that increasing the supply of specialists would, through competitive market forces, necessarily decrease the price of the services provided by specialists. What they found was exactly the situation seen in McAllen: that is, the price remained the same, but the amount of care provided to the patients increased, resulting in an explosion in overall health care costs. Administrators are happy, because they want their assets to produce revenue so they can demonstrate a return on invested capital. Surgeons don’t want to let a paying patient get away, especially one who they can operate on and have a pathologist look at the specimen and report that there was, in fact, pathology. Patients are happy because they get the care they want when they want it, and don’t have to worry about having trouble on Christmas Eve or when they’re in Timbuktu on vacation. When a patient shows up in the Emergency Room with abdominal pain and gets a CT scan, it’s a win-win: the assets generate revenue, the patient gets a test that rules in or rules out disease that may require emergency treatment, the ER doctor can call the surgeon with a definitive diagnosis or has evidence admissible in court to justify his decision to send the patient home. The only folks who are losers with this system are those who have to pay for it….us.

    I couldn’t agree more with Dr. Gawande when he says that spending time talking with patients and collaborating with colleagues would reduce the amount of testing and thereby reduce costs. Unfortunately, that’s not possible in private practice managed care, where reduced insurance payments for office consultations have forced physicians to try to see more patients per hour, therefore limiting what they can discuss. The increased administrative requirements have had a negative impact on the time physicians can see patients. So, doctors order tests, more or less using expensive technology to screen patients with whom the doctor doesn’t have time to spend.

    Dr. Gawande listened to all the arguments about government’s interference in the health care sector, but he seems to dismiss those folks complaining as fat cats crying in their milk. It’s important to remember that the Federal government has been meddling in health care for over a century, resulting in the unsurprising distortion of market forces and unintended consequences. It’s jail-time and big time financial penalties if a community hospital offers a bigger discount to a patient trying to pay their bill than they offer to the Feds (Medicare); in fact, the whole pricing paradigm for hospitals is so distorted as to have no basis in financial sanity. By capping physicians’ fees and then regulating them downward, we get two major short-term consequences and one long term catastrophic consequence: short term, we see (1) the situation in McAllen, with doctors trying to maintain their incomes by churning, increasing their volume within a stable patient population and (2) as the opportunity cost of taking care of patients increases, fewer physicians are willing to take call in the off-hours and see patients in emergency situations. Low remuneration is also why we have underserved areas and over-served areas in the US healthcare market. Long term, we are seeing young people who don’t want to be surgeons or primary care physicians; the manpower shortage has been a major talking point for the American College of Surgeons for more than two decades, but no one is listening. By the time we notice and decide to take any kind of action, it takes 10 years plus to train a surgeon.

    As I said in the beginning of this post, it’s hard to beat a practice paradigm like the one I work in, or Kaiser or Mayo, in terms of offering cost-effective, evidence-based care. However, no matter how you analyze the features, it all comes down to rationing care: waiting in line to see someone who knows the evidence-based Best-Practice algorithms, tells you what you need and what you don’t need, and then puts you in the queue. More and more, it seems, those who want more than the algorithm suggests or who want to bypass the queue get on a plane to India or China and pay cash—much less cash than they would pay here. Doesn’t that bother anyone? Behold the globalization of the two-tiered system of health care.

  46. Pingback: When Market Incentives Lead to Bad Outcomes, Continued « The Baseline Scenario

  47. Pingback: Health Care: When Market Incentives Lead to Bad Outcomes, Continued

  48. Pingback: The McAllen Problem « The Baseline Scenario

  49. Pingback: Health Care: The McAllen Problem

  50. Andrew Long

    Eric:

    You are already paying for it. Who do you think is paying for the uninsured to go to their edmergency rooms at 10 times the cost of a visit to a clinic, the Canadians?

  51. I guess with all the special interests involved, you’re not allowed to be a cynic. Sorry.