Health Reform As Self Reform

This article in the Atlantic is the best “conservative” argument against the health system/reform that I’ve read. Regardless of how you feel about the policy proposal, the description of the root problem is entirely accurate and rarely addressed.

For my money, I find two major problems with his proposal as well as a few over generalizations. Market competition relies on the option of one service over another. That sounds trivial, but it applies to both supply availability and demand ability. Efficient markets require some demand elasticity, where consumers have the ability to move to another company or opt out entirely. The former is commonly discussed (although not equitably applied), while the latter part is equally important but nearly universally neglected. Sans the ability to go without, market networks of individual actors will start acting more like a monopoly in pricing power, and simply cede market share to each other since they can continue raising profit without attracting more customers.

Therefore the two questions are:

“How much choice do people really have in selecting treatment?” If the bulk of our expenditures are for ailments that have some discretion in when they are treated, and the bulk of people have the mobility to go to the best places, then demand may prove elastic. If there is little possible mobility (either because the bulk of the system is spent on emergencies or people just have the inability to travel far) then demand will stay inelastic.

“Which aspects of the health industry have high entry costs and which have low ones?” The areas where there are large barriers for new companies will see monopolistic behavior because they don’t have to fear competition. I agree that a lot of the entry barrier is due to bad regulation (especially in the insurance industry) but in pharmaceuticals and advanced technology, it is either due to prohibitive R&D or patent protection.

I’m sure there is data on this and if anyone can point to it I’d be grateful. If I have more time at a later date I may do some actual research.

Intuitively, it seems like the health industry is pretty much split down the middle both in demand elasticity and entry costs. This is why I am moving to the position similar to Mr. Goodhill’s: insurance should only be used for “unforeseen events.” He is rather glib about the ability to save up $50,000, which is why I think that we will need private insurance to cover the $3k-$50k range. It’s also entirely unrealistic to expect people to pay for pregnancy costs out of pocket regardless of whether it was “unforeseen.” Yes deliveries are known months in advance, but could you raise $10-$20k in 9 months? Those quibbles aside, his position is close to one I inarticulately raised at the end of a recent post.

I also suggested that we target the supply side by having government awards/grants to companies that are willing to design, build and license the high tech aspects of health care at low costs. I’m not convinced that we can get much competition for MRIs, et al., but I do feel like a solid non-profit competitor would significantly change practices at the current giants. As long as the government supported start up only (i.e. not give out annual subsidies) then this could prove to be a very valuable source of competition.

Mr. Goodhill alludes to the gross inefficencies in diagnostics and treatment, but I am not so sure that his market driven answer is a good solution. His summary clearly suggests that he feels that with enough information, people will be able to choose the most efficient provider (and perhaps even which diagnostics/treatments are performed) so they get the best use of their money. However, these types of statistics will give most individuals little insight on their own condition because they will be inadequately educated to weigh them and/or people will have unique situations.

Markets with large amounts of information asymmetry are far from efficient and — combined with the high emotional stakes — health care is a perfect storm for encouraging individuals to make faulty decisions. Based on my conversations with people in the field, I think it’s clear that the professional ethos must change.

Here is a little segue:

I believe that analyzing human behavior purely through the lens of economic self interest is not only faulty, but systematic of why we have the problems we do. Marxism famously ascribes nearly all collective political conflict to economic class struggle, and while I agree that it definitely acts as a feedback, the root causes are far more complex. Thus I find it highly ironic that American conservatism simultaneously rejects his descriptions while completely buying into the Chicago School of Economics homo economicus view that all individual behavior is driven by rational economic self interest.

Mr. Goodhill implicitly suggests that the reason why every year 100,000 people needlessly die from improper sanitation and upwards of 200,000 die from preventable bloodclots is because there is no hit to their revenue streams. I’m not sure this is incorrect either, which is what is disturbing. In this way the health industry is highly analogous to the financial industry: it has been so thoroughly coopted by homo economicus that it is seen as “normal” (i.e. natural) when it only responds to economic gears and levers.

Yves Smith at Naked Capitalism frequently mentions that when she got into the financial industry, there was an explicit social contract between it and the general public: unless you run a bank absolutely horridly (cough) our monetary policy makes it impossible to lose money, the banks understood this and they made sure to provide enough of a public service that they wouldn’t lose this privileged position. However, starting in the 80s (with the rise of credit cards and deregulation) the banks lost their way and started viewing the public as sheep to fleece. The social contract has been destroyed, and now it’s not only a given, but even defended as a positive that the industry does whatever it deems most profitable, regardless of whether it is in the general interest of the public. She suggests that much of the problem in the financial industry is not external regulation or policy, but that there is internal rot that has throughly corrupted the entire culture by normalizing [short sided and vain] self interest. Obviously this is a part of human nature, and why checks/balances are so important for long term success, but that doesn’t mean that we can’t aspire and slowly move back towards a holistic approach.

While the medical industry isn’t quite as bad as the financial industry, it does have many similar characteristics. Doctors are explicitly and implicitly taught that they should have very self centered views in approaching their work. Whether it’s surgeons that operate to fix a heart valve even though the person is going to be dead in a few months from liver failure or bedside doctors that don’t listen to their nursing staff about probable cause and instead order massive batteries of unproductive tests, the culture rewards egomania, “thoroughness” and novelty, while overlooking empathy and efficiency. Although the health insurance industry is rightly vilified in rejecting procedures and squirreling out of its responsibility, the fact is that it needs to. Through conversations both with doctors/nurses, and statisticians that have been analyzing treatments at various hospitals, it’s clear to me that the common answer to any problem is to “run all tests” and treat for anything/everything. This is of course insanely expensive and in 95% of cases, following a rule of thumb would give the same outcome.

The provisions in the health reform bills for setting up agencies in charge of researching efficacy are in there because this problem is well known in health reform circles. It has led to charges that panels will dictate what can and can’t be done, but this is ludicrous. The only aim is to provide better information to doctors, and to help foster a cultural change so they think about their decisions on a more systematic level. However, just like the financial industry, that cultural change has to come within. It will not come from government mandates, and it won’t come from inherently being a part of a market, it will come from change about what is socially desirable.

Hospitals implementing Pronovost’s checklist had enjoyed almost instantaneous success, reducing hospital-infection rates by two-thirds within the first three months of its adoption. But many physicians rejected the checklist as an unnecessary and belittling bureaucratic intrusion, and many hospital executives were reluctant to push it on them.

Tens of thousands of people die needlessly every year, but physicians don’t want to change their ways because it is “belittling” (what an egotistical viewpoint) and executives are reluctant to push it on their employees probably because they are worried that the doctors would take their ball and go to another place where God forbid, they are actually critiqued. This highlights a disturbing lack of empathy in our culture and that’s what should be focused on, not just suggest that people will be browbeaten into doing things differently because they don’t get paid otherwise.

Sorry for the segue, but to me it’s really not. While we do need reform to make the math add up in energy/health/finance/education/etc. we must realize that true reform is not going to take place merely on the policy level, but that it must take place on the cultural level as well.