Alberto Mingardi  

Thoughts from the hospital

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I am just back from an unplanned vacation in a hospital. In a very fundamental way, I know I was lucky. I live in Milan, in Lombardy (9.7 million people, GDP per capita € 33.500), where we enjoy good quality healthcare. In 1997, Lombardy established a quasi-market in healthcare. Although the Regional government finances the system, the functions of purchasing and providing care are formally separated, allowing for patients' free choice. As funding follows patients, private hospitals flourished and to a certain extent now compete now with government-run ones. Quality breeds reputation: Lombardy is consistently the Italian region that attracts more patients from the other ones.

The Lombardy system isn't perfect, but as compared with socialized medicine as we know it all over Italy and Europe, it is definitely better. It is the magic of competition: very often, just a little drop is enough to substantially increase quality and better check costs.

That healthcare needs to be more of a market and less a planned economy is straightforward and clear, when you witness from your hospital bed the wide variety of operations that go on all around you.

A hospital brings together factors of production that are very heterogeneous. People immediately think of high technology for diagnosis and surgery, and of highly skilled doctors. But just looking at doctors, it is quite amazing the variety of skills you do need to match to have a hospital that both works well and leaves patients happy, particularly when the hospital also offers learning opportunities to university students.

Think about nurses, who aren't all quite the same, as they differ widely for skills and such wide differences are mirrored in the different functions they perform. Plus, a hospital is up to a point a hotel, and a good part of your customer satisfaction is based upon only apparently trivial matters such as the quality and taste of food, and the courtesy and sense of humanity of the personnel.

If you are of a romantic bent, you might believe that people willing to do such a hard job (long hours and low wages) like a nurse's one should be driven by some kind of love-thy-neighbour principle more than by any other kind of incentive. There might be a hint of truth in this view, but in our prosaic world it is much better to work to set and maintain a standard in conduct - as McDonald's or Starbucks do, with their personnel.

Such a variety of factors of production requires strong management skills, of the sort that bureaucracies seem rather unable to foster and attract. Even if you believe that government should be involved in financing access to care for everybody, you'd better recognize that managing a hospital is a horribly difficult job - of the kind that calls for the ingenuity of private enterprise.

COMMENTS (7 to date)
Daublin writes:

That's a very helpful perspective, Alberto.

People like to imagine that there is an encyclopedia out there listing out the right way to do every medical procedure that a person will ever want. In reality, modern medicine involves a dense, ever-shifting network of expertise and effort. It *has* to be a market-based internally, with all of the components being possible to swap out under competitive pressure.

Get better soon.

MingoV writes:
Such a variety of factors of production requires strong management skills, of the sort that bureaucracies seem rather unable to foster...
Hospital leaders need strong management skills and medical knowledge. One of the biggest tragedies in American health care was the demise of the physician hospital director. Such positions were common in the 1960s but rare by 1990. The demise was a planned and concerted effort of two groups: the American Medical Association (AMA) and medical school educators. The AMA's motive for wanting non-physician administrators as hospital directors is unclear. Medical educators preached to medical students that physicians who were not directly practicing medicine or performing medical research were wasting their years of medical training and experience. Again, the motive for advocating the demise of physician hospital directors is unknown. What was known: physician run hospitals, on average, had better quality than MHA- or MBA-run hospitals. Physician directors knew what clinicians needed to do their jobs, and they strove to meet those needs. They also knew when needs were desires to play with new, unproved, and costly technologies, and they did not waste money on those needs. They also knew that a vital need was quality nursing staff, and they worked to recruit and retain good nurses.
Steve J writes:
unplanned vacation

That many medical procedures are unplanned is one of the reasons I doubt the efficiency of markets for healthcare. Another reason is the inability to compare one doctor to another - how can we tell which doctor is better? And how do I even evaluate how well procedures have been performed? Sorry I don't see how shopping for a surgeon will ever be as objective as shopping for a car. Do I get a warranty with that brain surgery and what does it cover?

Methinks writes:

If you are of a romantic bent, you might believe that people willing to do such a hard job (long hours and low wages) like a nurse's one should be driven by some kind of love-thy-neighbour principle more than by any other kind of incentive.

I was disabused of this romantic notion early in life when, as a child, I took a four-year unplanned detour into Soviet hospitals. The nurses verbally and physically abused us regularly. As we in the children's ward struggled for our lives, they treated as annoyances, not patients. Family wasn't allowed to visit us because Soviet medicine believed germs came from outside the hospital (my mother negotiated to "earn" the privilege by agreeing to bleach the hospital floors). The nurses regularly stole the care packages family members asked them to pass on to us. I only learned about the stolen care packages because one decent human being actually passed one on to me. I distinctly remember only this one nurse in Sokolniki Hospital because she was the only kind human being I encountered in the Soviet medical system.

I remember ambulance drivers who refused to cart me away to the hospital until they received a bribe. If they didn't think the bribe was good enough, they made sure they administered the adrenaline shot necessary to save my life with enough force to inflict maximum pain to punish my parents for the inadequacy. In the end, the only reason I got the care I needed to save my life is because my parents were well connected and we had access to doctors and medicine ordinary Russians didn't have access to. Oh, how I don't miss the joys of socialized medicine.

If you doubt the market's ability to deliver medical care, Steve, you haven't experienced the inadequacies of socialized medicine. I don't know how you choose doctors, but I've always chosen mine by asking around. Good doctors have good reputations. Some publication in every American town and city I've ever lived in published a list of "best doctors" by speciality. You can tell if the procedure has been performed well if you are happy with the result. What's curious to me is if you think a market system can't solve these problems, by what mechanism do you believe these problems are solved in a socialized system? In a market system, suppliers of medical care must compete for your business. In a socialized system they don't; as a patient, you're not a customer, you're a cost.

MC writes:

Very true, Alberto, get well soon.

Steve J writes:

Methinks you are correct I have been lucky enough to avoid socialized medicine. And note I said I doubt the efficiency of the medical market not that it is still the best system. Certainly it is easy to shop around for someone to do Lasik but not quite as easy to shop for emergency care.

> You can tell if the procedure has been performed well if you are happy with the result.

Hmmm... then back surgeons may be about the most overpaid profession in the country.

Methinks writes:

Steve J,

My mother had debilitating back issues many years ago. She went to see a celebrated back surgeon about it and he pretty much told her what you said. Back surgery is rarely a good option, but people prefer it to making the effort to rehabilitate their backs. Mother chose to do the work over surgery and 35 years later she is missing 5 disks, but has no pain and 10 years ago began running. Anecdotal, but....

I understand that it's easier to shop around when you are not facing an emergency. However, so long as competition is not prevented, emergency centers that earn a reputation for abusing their patients won't stay open for long. Market competition increases patient choice and creates the sort of incentives that minimize the probability of becoming the hapless victim of a hack. However, consistently perfect outcomes you will, of course, never attain in this world.

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