From the Magazines

Friends and family shared with a me a couple of good articles, which I'll link here and summarize.

The first is "The Cost Conundrum:what a Texas town can teach us about health care," by Atul Gawande in the New Yorker. Gawande looks at Medicare costs by region across the US, picks one of the most expensive (McAllen, Texas) and compares it to a nearby and much less expensive region (El Paso). After talking with residents, doctors and heads of hospital, Gawande concludes (having been tipped off to this by the doctors themselves) that the core problem is one of overuse. Doctors in McAllen simply prescribe more meds, tests and procedures than their counterparts elsewhere. He traces the reason for this to an "entrepreneurial" mentality among certain physicians, who see medicine as, well, a business, a way to make money. And he suggests that the variations among regions are essentially determined by which type of medical practice sets the tone in a region, much as an anchor tenant sets the tone for a shopping district: is the region's culture dominated by those who view patients as a profit center, or by those who work together to increase the quality of care and drive down costs? I found this article very persuasive. Note that this problem is not one that the big Obama health plan (HR 3200) would seem to address.

The second article is "How American Health Care Killed My Father," by David Goldhill, in the Atlantic. The author's father, at 83, was admitted to a hospital for pneumonia, and died thereafter from hospital-borne infection, leading the author on a long investigation of how this could happen in what's supposedly one of the most advanced health systems on Earth. I found this also to be an excellent article. A number of Goldhill's points have been echoed in other overviews of health care costs (which I think makes his points more compelling, not less so). He sees many problems with our system(s) of health insurance: the moral hazard of buying care with OPM (other peoples' money); the belief that all health care should be paid for by insurance; and the opacity of prices to the consumer. Like Gawande, he compares a high-Medicare-cost area (Dallas) to a less expensive one (Salem, Oregon), and concludes that the higher supply of physicians in Dallas leads to more tests and procedures prescribed. This is a little less damning than Gawande's portrait of certain physician-entrepreneurs, but the conclusion ends up the same: physicians (and others in the system) behave rationally given the economic incentives before them. More tests equals more incomes, especially if, like some of the McAllen doctors, you have opened your own facilities that compete with those in hospitals.

Goldhill, in a fashion I obviously appreciate given my couple posts on cost control, dismisses cost control as focusing in the wrong place: cost rather than price. He suggests that costs have to be managed by incentives (i.e. bottom-up) not controls (i.e. top-down).

Given his personal story, the author focuses closely on hospitals, noting that hospital costs grew 3800% from 1970 to 2006 despite declines in the number of hospital beds, incidence of admission and length of stay. Hospitals are actually being used less, as hospitals, yet their share of overall health care costs (about a third) stays the same.

In general the author finds the health care market non-competitive. Costs for market-priced Lasik surgery, not covered by insurance, have declined about 80% since introduction, like a new plasma TV would. Costs for an MRI, very old technology but covered by insurance, where the prices are opaque, are still very high.

The author concludes that fundamental changes are needed in the way we pay for health care. He recommends the eventual dismantlement of giant private and public insurance pools, Medicare and Medicaid included. He suggests there should be a mandate for all citizens to have an HSA and pay into it increasingly over their lifetimes. He suggests a single national insurance pool, like Medicare/Medicaid, but limited to "truly catastrophic" costs (over about $50,000). He suggests some form of guaranteed benefit for lower-income brackets. But the key in all cases would be to give the money to consumers, and make them responsible for spending it.

One rule I can attest to from my experience in managing a business: in order to change outcomes, you must change incentives. Both of these articles, in their own way, conclude that the health care system we have now makes sense, given how its incentives are structured. The McKinsey report I cited early makes the same claim. I found these articles compelling, and frightening in their implications. I hope that before anyone demonizes doctors, hospitals, insurance companies, pharma companies, trial lawyers, or the government, they'll reflect on this essential contention: that the system we have now mirrors the incentives at its heart.

In upcoming posts I'm going to turn back to the McKinsey report, to see how its data illuminate what's been discussed so far.