Arnold Kling  

He's Not an Economist

Quizzes... Facebook Generation...

But he plays one at his blog. Dr. Bob offers his diagnosis of the health care system, in 8 parts. From Part 7.

one of the latest gimmicks the health care policy wonks have dreamed up, more commonly known as pay for performance. It’s based on the (highly disputable) notion that bad doctors are running up the cost of care by ordering unnecessary tests, recommending unneeded procedures and surgery, practicing costly medicine which lies outside the mainstream–renegades all, ransacking the health care treasury. The good guys in the white hats, on the other hand, walk carefully between the lines, following established standards of care, don’t cost the system nearly as much–and should be rewarded with better reimbursements.

Ten solid seconds of thought by anyone with an IQ over 50 should see problems with this idea. A superbly-trained physician saving the life of a desperately ill patient, on a ventilator in an ICU, will be spending a whole pile of money–whereas ol’ Doctor Feelgood, passing out antibiotics for your sniffles and pain pills like candy may not be spending many health care dollars at all. High quality — while not invariably more expensive–is often so. And what about those guidelines? Well, one problem is, by and large, they don’t exist — except in a few relatively straightforward areas of medicine. The reason, in no small part, is that quality medical care is a complex and constantly moving target: what was excellent care ten years ago may be marginal or even poor care today. Once you ossify guidelines into regulations governing payment, you run a great risk of freezing health care advancement. You will be paid for care meeting the guidelines–but not for better care, based on advances in medical knowledge and technology, which will tend to fall outside the guidelines.

Maybe David Cutler will start a blog, so that he can reply. But I'm with Dr. Bob on this one.

Next, we have Dr. Bob's solutions, in part 8.

Pay physicians by time: In virtually every profession and avocation, including law, accounting, consulting, and most trades, the primary measure of one’s efforts is the time spent performing the task at which you are trained and skilled. The hourly rate will, of course, vary widely based on your profession, training, and expertise; but, by and large, the time you spend on a task is well-correlated with its economic value.

...I would mandate that universal catastrophic coverage be required for all, with very large deductibles, perhaps $25,000.

...To cover this large deductible, secondary policies would be available, paid either by individuals or their employers. However these plans would not make payments to physicians; they would reimburse patients for their health care costs. The patients themselves would be the contact point for payment; they would be the ones who actually pay the physician’s bill.

...Provide tax credits for physicians to see the poor.

If you think you have a "gotcha" for how these suggestions could go wrong, then go read his whole post. He anticipates many concerns. I've said in the past that I really respect experts who discuss the possible weaknesses in their own views, not just the views of those with whom they disagree. Dr. Bob earns respect by this criterion.

His overall goal is to try to cut down on unnecessary overhead in medicine. He is trying to eliminate the paper chase between insurance companies and doctors.

I wonder what his solution would be for Medicare...

Thanks to commenter Spencer for the pointer.

Meanwhile, another commenter, Floccina points to Murray, et al, who studied longevity among different sub-populations in the United States.

About a year ago, the Harvard Gazette talked to two of the authors.

"Put in a global context, the disparities in mortality among the eight Americas are enormous," says Majid Ezzati, an associate professor of international health at the School of Public Health. "Our analysis indicates that 10 million Americans with the best health have achieved one of the highest levels of life expectancy on record, three years better than Japan for women, and four years better than Iceland for men. At the same time, tens of millions of Americans are experiencing levels of health that are more typical of people in developing countries."

...Increasing access to coverage is bound to narrow the gap in life span, but will not come close to eliminating it, the researchers speculate. "The variation in health plan coverage across the eight Americas is small relative to the very large difference in health outcome," notes Murray, who is lead author of the report. "It is likely that expanding insurance coverage alone would still leave huge disparities in young and middle-aged adults."

As Floccina notes, the point that variation in health plan coverage does not explain variation in health outcomes is quite Hansonian.

Comments and Sharing

COMMENTS (8 to date)
BT writes:

He's not an economist...

An economist and a friend were walking along the street when they spotted a $20 bill. The economist kept walking. The friend turned to him and asked "aren't you going to pick that up?" "Of course not," said the economist. "It's obviously a fake. If it was real, someone would have already picked it up."

fmb writes:

[I read the whole thing (part 8) & didn't find this addressed]

I figured that one point of charging by procedure was that it was an effective form of price discrimination and thus increased efficiency.

Nimish writes:

The last line from the Harvard Gazette quote -"... expanding insurance coverage alone would still leave huge disparities in young and middle-aged adults."

Does it mean that expanding coverage would eliminate disparaties in life span among children? Possibly so, if medical attention received in childhood affects health at later age.

bingo writes:


Sounds like he read your book prior to parts 7 and 8 regarding an insurance solution. Unfortunately he does not address the still unsolved issue of demand for services brought about by defensive medicine, medical care that is ordered for the expressed purpose of preventing a lawsuit or preventing a lost lawsuit. Removing the insulation between consumer and cost only covers half of the demand problem in health care in the U.S.

johng writes:

I am not sure that the "problems" with health care are because it has been under-wonked. It has been a government enforced cartel for about 100 years. For example, Pharmacists used to prescribe drugs. The cartel put an end to that. I've read that there used to be competing medical schools. Gone.

What other form of business other than cartel can get away with not even having to post their prices.

The complaint that there is a two tier health care system ignores the fact that this was the plan from day one. The goal was a high quality, employer paid health benefit for union members and a self financed one for everyone else. Mission accomplished.

Zach writes:

And suddenly, doctors are chatting with arthritic little old ladies and playing with cute little kids, all the while, no one is doing the 'work' of medicine. So would long winded, question filled patients be charged more? Would people of limited means seek out doctors who spoke quickly? This would make the medical system WAY more inefficient, anyone with any economic sense could tell you that.

Dr Bob writes:

Thanks for the link, and the kind words.

I would approach Medicare with similar principles, to wit:

1. Medicare should pay physicians based on time, not procedures/services, thereby doing away with the byzantine regulations and documentation insanity, and avoiding the current bias for procedures over face-to-face time.(documenting a Medicare visit, BTW, takes substantially more time than the actual time spent with the patient);

2. Means-test Medicare; it's insanity that wealthy Americans are eligible. I think Bill Gates and Warren Buffett can afford their own health insurance .

3. Raise the eligibility age to something more realistic for our current demographics. We're living longer in better health, and working until older ages.

Thanks again.

Dr Bob writes:

Just a few comments on a few comments:

1. The number one complaint of patients is not enough time with the physician. Paying by time -- combined with the patient assuming financial responsibility for payment -- means that chatty patient foots the bill for loquaciousness.

They'll figure out very quickly to get to the point about what's bothering them. Broad guidelines and audits to make sure time is appropriate for the severity of illness would address the two-hour visits for ingrown toenails.

2. The malpractice issue remains a huge financial drag on the system. Much of the "unnecessary" care which the current system propagates is driven not by greed, but by defense against liability.

I like the idea of an itemized bill, based on time:

Visit for Dr. Jones (20 minutes):

Practice overhead: $20
Malpractice insurance: $20
Physician professional services: $25

I bet, if the patient is paying directly for the small stuff (and they should), you'd see a lot more pressure to reform the tort system.

Comments for this entry have been closed
Return to top