health care economics


Must-See Video: If Dr. Seuss Took On Hospital Overspending

Hat tip to the Globe’s Chelsea Conaboy — who in turn hat-tipped the Washington Post’s Sarah Kliff of Wonkblog — clearly this thing is going deservedly viral…

The talented Marketplace health care reporter Gregory Warner posted this yesterday, a decidedly Seussical animated short about hospital competition in “the fictional city of Hobbs.” He writes:

Its mayor has a big problem: How will he implement his scheme to bring in good clean health care jobs when every other American city is trying to do the same? How far will he go to nab those fabled ‘medical tourists’? And what will the ensuing medical arms race mean for insurance premiums and taxes?


Later this week on Marketplace, I tell the real-life version of this story from Detroit, a city asking this question: Can local politics influence hospitals to overexpand, driving up insurance premiums and taxes and even creating a health care jobs bubble?

Gee, do you think maybe the answer might be yes? And that there might be some Boston parallels?

My favorite bit of the video: As the hospital competition mounts, the mayor concludes that his hospital should buy “The All-Organ-Blast-n-Make-Younger Machine,” exorbitant and still under testing, but sure to attract more patients.

The Price Of Human Life, The Shlumpinator, And How to Cut Costs Of Care

By his own description, he’s just a little country economist. But his rural burrow is among the ivied halls of Princeton, and Uwe Reinhardt is one of the most incisive economists writing today about the conundrum of health care costs. He spoke earlier this month at the annual meeting of NEHI, and they’ve kindly posted four chunks of about 15 minutes each of his speech here.

One of the more memorable passages:

I wrote a blog post where I said the idea that human life is priceless is romantic and silly.
So I testified before — Waxman’s committee, I guess it was — and Congressman Gingry from Georgia, MD, asked me, “Did you write this?”
I said: You just told me I wrote it, yes, I did.
He said: How dare you tell me what my life is worth?
I said: But I never told you what you should think your life is worth. I was talking about how much I would pay for your life — and it’s finite.
And he was muttering, ‘This German thinking of another era.’ And I said, ‘No no no, it had nothing to do with that. You sent my son into combat without a flak jacket, don’t tell me you didn’t put a price on his life. Not enough flak jackets right? And this kid out there in an unarmored humvee without a flak jacket. How do you think I feel about that?
And interestingly, he took the entire exchange out of the written record, it’s not in there. So I do think a lot about human value and I thought my son’s life was priced rather poorly by the Congress and the DOD.

On a lighter note, Uwe bemoaned the love many hospitals have for new technology, whether or not it’s a significant improvement. He said:
‘I always say, ‘Partners, why don’t you put ‘We have the only glandular shlumpinator in Boston’? You don’t even have to have it, but people will say, ‘If I had a baby, that’s where I’d go. It may need shlumpination.’ This would sell, even if it hurt. You, in fact, shouldn’t shlumpinate a kid.’

Like every other health care economist I’ve ever seen, Uwe recommends that the United States move toward an Asian or European-style system that provides better care to more people for less. He has several specific recommendations in his talk, including this:

“I would get rid of individual negotiation on prices with providers. You’re not buying anything cheaply for anyone doing that. All you do is shift costs and create what is arguably the most hideous price-discriminatory system that exists in the world. If you’re a middle-class uninsured person, you pay list [price.] And the biggest insurers pay small. And then Medicaid essentially engages in fraud in the low prices it pays. This is a hideous system…
This system we now have is expensive, mindless, inefficient, and unfair and we have to get rid of it.”

Girl Economist Explains Health Care Costs To Dear Old Dad

Maxine Udall, girl economist – (I understand this is actually a pseudonym for a university professor) — does an amazing job in her blog post here of breaking the health care cost conundrum down into terms an elderly businessman can understand.

Here’s a taste, but it’s really worth reading the whole thing. I’ve often asked researchers to explain complex subjects as if I were an eighth-grader. From now on, I’m going to ask economists to explain health care as if I were an old-style businessman…

How, I asked myself, do I explain health and health care to him? The information asymmetries; the third-party (insurance) payment that insulates purchasers from prices and prices from accurately reflecting resource costs; the agency problems; the pharmaceutical industry that capitalizes on taxpayer financed research and retains the apparently unfailing profits for itself; the other large, wealthy interest groups that work daily to undermine any effort to rein in health care costs…how, I thought, do I make this sector understandable to him?

“Dad,” I said, “imagine that you’re in a business where the more you sell, the more money you make. Only imagine that you’re in a business where the customer believes that you know way more about what she needs than she does. In fact, you do know more than she does. She comes to you and asks your opinion about what you should sell her and what she should buy. And she trusts you to recommend only what she needs, that you will not be influenced by any conflicting incentives you might have to make more money or publish more papers or bring in more research grants.

“Gee, Maxine, that’s not much different from my own business. What’s your point?” said dad.

“OK. Let’s talk about the differences between your business and health care,” I said. “Your customers are usually not feeling fear or desperation about their symptoms or their need to make a purchase. In addition, your customers can comparison shop on quality and price all over town and the internet. If you were a physician or hospital selling medical treatment, your patient won’t be able to comparison shop because it’s nearly impossible to find out what different providers charge for the same procedure. There’s another difference, too. If she’s insured, she’ll pay out of pocket only a fraction of whatever you charge her. The combination of ignorance about price, quality, and whether or not something is even marginally beneficial to her combined with desperation and someone else picking up most of the tab is a potent demand enhancement mechanism. In the absence of a fee schedule or strong market or moral constraints, you could pretty much charge her whatever you felt like charging. The reasons you wouldn’t do that are that there are still some weak market forces constraining you and you are trustworthy and moral and insurers won’t pay you any price you like.”