Thursday, July 23, 2009

The President's Press Conference on Health

Professor Obama sees an inefficient health care system. Health is a prominent example of "household production theory". You do not have an innate desire to take blood pressure medication. Such a drug is an "input" into feeling good and not having a heart attack. The President has claimed that if doctors were compensated for keeping you healthy rather than being paid for by "fee for service", we would have a win-win of healthier people at a lower social cost.

How would this work? First, patients would need to be randomly assigned to doctors. If doctors could choose their patients, then doctors would cherry pick the healthy ones and would be paid a lot of money for "keeping them healthy" but we all know the counter-factual here. The healthy would be healthy even if Dr. Nick from the Simpsons' was their doctor.

Now don't forget transport economics. Doctors are located at a physical place and different neighborhoods of different racial and income levels are located at different distances from the Doctor. You don't have to be Hotelling to anticipate that Doctors in an inner city tough community will demand an "adjustment" because their patients will be sicker than the average. So, how will the Obama Team's pay to these doctors work? Will it be based on a "value added" criteria relative to a baseline? But who will determine what the baseline health of these residents is?

This is a similar issue when we reward teachers for student test scores. What is the right control group? The national average? The child's score at the start of the year?

Perhaps a solution is "Yardstick competition". Suppose that for each person, we knew five of his family members and five of his friends at work and in the residential community. If there were a set of observable indicators such as a cholesterol reading, one could calculate group averages and compare the individual's time series of cholesterol readings to these two peer groups. If the individual improves relative to the peers, the doctor team gets a bonus. This approach would control for a number of trend issues. Basic statistical techniques could be used to correct for age differences but the key issue is identifying a valid control group for identifying quality doctor "inputs" when they are delivered.

Swithing Subjects: Here is the future of UCLA. Like Elton John, He is a Rocket Man.


Carlos Ferreira said...

How about a flat rate payment to doctors and that's it? Anything that stops doctors from having an interest in patients on being more or less healthy, and just have them get on with their work. OK, I suppose doctors might resent the opportunity to earn an extra buck. Allow them to work extra hours, maybe?

Rodger Malcolm Mitchell said...

In the discussion about universal health care affordability, one question seems never to be asked or answered: Which hurts worse, large federal deficits or millions of people suffering with inadequate health care?
Most people who don’t have health insurance can’t afford health insurance. So a law requiring people to buy health insurance is silly.
Requiring businesses to pay for health insurance is equally silly. To pay more for health care, businesses would have to lower salaries or reduce the profits needed to survive. Which poison do you prefer?
Any “savings” in the health care system will come from doctors, hospitals and/or pharmaceutical companies. Pay doctors less and you’ll have fewer doctors. Already, some doctors have opted out of Medicare because of insufficient payments.
We want hospitals to offer CT scans and PET scans, lots of well-trained nurses and emergency rooms that accept everyone who walks in. The machinery costs millions. The nurses, always in short supply, cost millions. Pay hospitals less, and you’ll have fewer and less equipped hospitals and fewer nurses.
The pharmaceutical companies we love to hate, spend billions developing drugs to ease our pain and save our lives. Getting a drug developed, tested and approved costs hundreds of millions. For every success, a thousand failures. Pay pharmaceutical companies less and your cancer may not be controlled, and “swine-flu” may kill a million souls.
Now consider those large federal deficits, we also love to hate. The media tell us deficits should be minimized. Except, no evidence exists that deficits have any negative effect on our economy.
No, deficits have not caused recessions, depressions, inflations, deflations or stagflations. Deficits actually have helped cure most of these problems.
No, deficits cannot force the U.S. into bankruptcy. In 1971, we went off the gold standard to give the government the unlimited ability to pay its bills.
No, deficits will not make foreign nations stop buying our debt (though we can pay our bills without borrowing.)
The simple fact the media never tell you: While federal surpluses have caused every depression in U.S. history, growing deficits have cured every recession and depression, and are necessary for economic growth.
So, which hurts worse, large federal deficits, which historically have had a positive effect on our economy, or millions of people suffering with inadequate health care?
The federal government can and should pay for universal health care via deficit spending.

Rodger Malcolm Mitchell