Arnold Kling  

Information and Incentives

The Long Tail... Survey of Regulation...

Paul H. O'Neill writes

Today, in many corners of even our most significant federal payment systems, we still pay clinicians and facilities for activity, not for the quality of the job they did for the patient.

...The federal government should start the mapmaking by commissioning a detailed, three-month analysis of the nation's leading hospitals to fully document not only the cost of errors but also the wasted time, effort and resources embedded in much of health care delivery. Such a study could be accomplished for $10 million and would make the case for change in a management framework that couldn't be ignored. The team of experienced industrial engineers and health care leaders I work with in Pittsburgh has yet to encounter a health care process that could not provide higher quality at half the current cost.

The second comment points to lack of information as a reason for underperformance in health care. The first comment points to bad incentives.

Personally, I would place my bets on incentives as the culprit. You get what you pay for. In health care, we reimburse providers for procedures, regardless of outcomes. Doctors and hospitals rarely are put out of business for being inefficient of substandard in quality.

My guess is that if competition in medicine were more rigorous, the market would discover the information needed to institute best practices. But information in the absence of competition will not produce real learning.

For Discussion. If a study found the most efficient and effective ways to deliver health care, what factors would inhibit adoption of best practices?

Comments and Sharing

COMMENTS (6 to date)
David Thomson writes:

I hope that someone, maybe a retired doctor, starts a blog revolving around health issues. This may be far more helpful than a government study. Should we really feel confident that the bureaucrats might get their act together? An educated and concerned citizenry still remains our best hope.

Lawrance George Lux writes:

Government agencies enter into bureaucracy, abiding by established policy to the point of idiocy, while fully cognizant of the error--due to the loss of support base by changing things.

Health Care in this Country faces the same bureaucracy. Entrenched policy--even though seen as foolhardy--simply because it is established practice. It is so bad Doctors conduct medical procedures less successful than other known procedures, simply out of fear of malpractice. It becomes five times worse when medical fees are challenged. lgl

Jim Erlandson writes:

We reimburse providers for procedures because we haven't thought of an alternative. And we haven't thought of an alternative because we don't have a rational, measurable objective for healthcare.

There was a time when you went to the doctor because you were sick or had a broken leg. The doctor's job was to make you well or set your fracture. If your leg came out crooked, you didn't go back to that doctor and neither did your neighbors. The objective of health care was to heal the sick. And the patient paid the bill so it tended to be cost effective.

Today we go to the doctor because our blood pressure is too high or our cholesterol is too high or for cancer screening. Today, healthcare not only heals the sick but works to keep us from getting sick. And the patient pays the bill indirectly through a third party. Prevention is good for the patient, but we can't say for sure if it is cost effective.

Today also, medicine has the power to extend a patient's life in ways that are neither compassionate nor rational. And the patient never sees the bill. Many would agree that this money could be better spent.

Can we pay doctors and hospitals for preventing disease? How do we measure "disease prevention?" Ratio of work days to sick days? Most pain-free days? Fewest dollars spent on treatment (as opposed to prevention)? Age at retirement? Fewest days of paid disability? Fewest coronary bypass procedures? Lowest cholesterol?

Short of putting an dollar value on each life (which would make the exercise academic but unpopular), an economic solution will be impossible.

Note: Mr. Kling argues against using life expectancy as an objective in his August 2004 essay.

p writes:


excellent point on the changing nature of health care (ie, from illness treatment to wellness). This change represents a major change for the institution of health care / wellness care (or should I say wellness care).

Wellness introduces a new set issues, namely the behaviors associated with well being. Is society now charged with the responsibility of everyone's wellness? I think not. The definition of wellness is open and thus impossible to define socially.

It also raises the question if we have the problem we think we have. Namely, is health care broken in a way that we understand. I would argue, as Arnold has, that we are no longer in the age of insurance. This means that some of our favorite stats to cry over are questionable (eg, number of uninsured, health/wellness inflation). These stats may look bad but they may not be that bad. What are they really measuring?

I would posit that the opportunity is to transfer the full cost of health/wellness to people and extract corporations from the mix. Individuals must make these choices as well as bear the full costs. Anything short merely creates a funding crisis. To raise the issue that some people will make poor decisions and thus we must be structured accordingly just does not make sense. Let non-profits address the issue. All those committed to doing "good" will be able to act without imposing their values upon others. These institutions will be able to negotiate real terms with those who seek help.

I would also like to note that O'Neill's idea of an army of industrial engineers is naive at best. Yes, some processes can be improved, but they are not the source of the majority of the dollars spent in healthcare. The issue in healthcare that makes standard engineering approaches limited is the simple concept of efficacy. In the engineering world we can look at and define efficacy and strive for 100%. We know all the parts need to assemble a Chevy (its very objective). As one defines inputs, processes and outputs one defines specifications. The system can be fully specified with a reasonable level of effort.

In health care we do not have a definition of wellness that is objective or even fully specified as we do with a car or watch (a very good reason for Arnold's dissatisfaction with the concept of wellness versus illness). Rather, we have a very subjective definition of wellness that is defined by each patient (Chevy's do not have a point of view on there quality status - conformance to specifications is the objective criteria).

I know that there are people who will say that the same that is done in the auto business can be done in the health care business. The only question is the need for time. I will respond briefly top that point. False. Humans as a system are FAR from being fully specified. Each of us would need to be speced (that is both physiologically and psychologically).

Dewey Munson writes:
hope that someone, maybe a retired doctor, starts a blog revolving around health issues. This may be far more helpful than a government study. Should we really feel confident that the bureaucrats might get their act together? An educated and concerned citizenry still remains our best hope.

With "an educated and concerned citizenry" out go the bureaucrats.

Meanwhile, an idea:

I am considering a family group in which their inheritance is in a trust? from which all medical bills are paid. Each person has a catastrophic policy and each contributes annually a percent of the going medical insurance rate for them.

A significant problem is gaining a cash payment benefit from a doctor et al whose overhead continues to be burdened by the innefficiencies I am trying to avoid.

Now a question. The Govt is a group of people gathered together to produce. This too is the definition of business which is the bulwark of Capitalism.

Why doesn't Capitalism find it in their own best interst to teach efficiency to the Gov't?

Adam Crouch writes:


I hope that someone, maybe a retired doctor, starts a blog revolving around health issues.

Just as the business and economics blogosphere has the Carnival of the Capitalists, the medical blogosphere has The Tangled Bank. If you poke around there you'll possibly be able to find a blog like you described.

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