The Scary Reason Healthcare Can't Be Reformed

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It turns out that if you want to find good examples of healthcare institutions meaningfully improving quality and reducing costs at the same time, you don’t have to look very far. They’re right here in our own backyard.

The New York Times has a story on the unusual idea of paying doctors a flat salary, rather than fees for actions performed, thus cutting down on unnecessary tests to patients, while changing the incentive structure for the doctor:

Doctors in the United States are usually paid fees for each service they provide. The more procedures and tests they order, the more money they pocket. There is widespread agreement among health policy analysts that many of these procedures are unnecessary, raising costs in ways that often do nothing to improve patient health.

By contrast, Bassett — like the Cleveland Clinic and a small number of other health systems in this country — pays salaries to all of its doctors. No matter how many tests or procedures are performed, they take home the same amount of money. Medical costs at Bassett are lower than those at 90 per cent of the hospitals in New York, while the quality of care ranks among the top 10 per cent in the nation, surveys show.

This dovetails nicely with a recent New Yorker profile on the town of McAllen, TX, which is one of the most costly healthcare markets in the country, but also one that delivers poor results. The reason, tremendous over-utilization, and a money-at-all-costs attitude among doctors, encouraging them to perform as much as they possibly can on their patients. The whole 8 pages are a worthwhile read if you really want to get into the meat of the healthcare conundrum.

This part is fascinating:

Americans like to believe that, with most things, more is better. But research suggests that where medicine is concerned it may actually be worse. For example, Rochester, Minnesota, where the Mayo Clinic dominates the scene, has fantastically high levels of technological capability and quality, but its Medicare spending is in the lowest fifteen per cent of the country—$6,688 per enrollee in 2006, which is eight thousand dollars less than the figure for McAllen. Two economists working at Dartmouth, Katherine Baicker and Amitabh Chandra, found that the more money Medicare spent per person in a given state the lower that state’s quality ranking tended to be. In fact, the four states with the highest levels of spending—Louisiana, Texas, California, and Florida—were near the bottom of the national rankings on the quality of patient care.

In a 2003 study, another Dartmouth team, led by the internist Elliott Fisher, examined the treatment received by a million elderly Americans diagnosed with colon or rectal cancer, a hip fracture, or a heart attack. They found that patients in higher-spending regions received 60 per cent more care than elsewhere. They got more frequent tests and procedures, more visits with specialists, and more frequent admission to hospitals. Yet they did no better than other patients, whether this was measured in terms of survival, their ability to function, or satisfaction with the care they received. If anything, they seemed to do worse.

Then on the demand side, you have examples of private companies, like Safeway, slashing costs by creating the right mix of health and economic incentives for its employees.

So in a way this is all good news, right? You can point to instances where we’ve achieved the dual goals of higher quality and lower costs.

But it’s also scary. Becuase in the case of the Cleveland Clinic, Safeway and the Mayo Clinic (and on the opposite end, in over-tested McAllen, TX) the healthcare situation is the result of cultural attitudes. You can’t just create a Mayo Clinic by Congressional order. It’s the Mayo Clinic, after all. You can’t just pass a law that says: all doctors must put their patients’ best interest at heart and not weigh their own economic calculations.

You can do somethings by fiat, sure. You can say that all doctors will get paid by salary, period. But that doesn’t change the culture. That doesn’t turn a factory-like hospital into a Mayo Clinic. If anything, it could even push the greedier doctors out of the business, leaving the system even more capacity constrained than it currently is.

Solving this problem, via law, will be extremely difficult if not impossible, though we can think of a few ideas. One would be to simply expand the pool of potential healthcare givers, so that more routine procedures (ear, nose, throat, UTIs, etc.) can be done by more technicians with 2-year degrees than professionals. The AMA will scream bloody murder, though, if this ever begins to make a dent in doctor economics.

There’s something else, and it gets to the problem of any nationalized scheme. As the two sides dig in ahead of a final showdown, Republicans have adopted a new talking point, referring to the new, national healthcare scheme as: Fannie Med. Yes, it’s kind of obnoxious, particularly as Republican tunnel vision requires them to only see Fannie Mae (FNM) and Freddie Mac (FRE) as the sources of the housing bust.

But actually there is something apt. You can think of all those test-ordering doctors as Angelo Mozilo, exploiting the largess of a public entity (in this case Medicare) to ring up the cash register for themselves. Mozilo took advantage of cheap money from the GSEs to go nuts with lending. As long as there’s money flowing forth from DC — whether it’s for housing or medicine — some folks will do this.

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