Health care gluttony and grazing at the all your can eat health care buffet

Everywhere I look I see parallels between individually bad human behaviors and collective problems. Human beings have a tendency to overgraze when there is food and it is free or its cost is not really linked to the volume consumed. We know we should not consume so much but the immediate impact of overconsumption is generally inconsequential and can be dealt with by popping a few Tums or the purple pill. The long term consequences may be dire but they are ..... long term meaning not now. Without some immediate consequence, let say an electric shock or painful vomiting, we can be assured that the legions of the over consuming consumers will be well represented if provisions are plenty and cheap. We simply can't help ourselves.

Similarly, we can expect that any product if provided at steeply discounted prices as compared with its real costs, will be treated like the all you can eat buffets. Thus we have the health care economy. The health care restaurateurs have also been provided with rich incentives to induce their clients to graze, not just on cheap pasta and other fillers, but more so on caviar, foie gras, lobster tail, and truffles. Not unexpectedly the diners consume beyond their needs, the providers see no reason to withhold anything, and those who pick up the tab are going broke.

There appears to an increasing appreciation of the looming financial calamity which will not be responsive to financial gimmicks and robbing from Peter to pay Paul. The NEJM has actually published two recent commentaries which have all but declared that something fundamental has to change. The continued rate of growth in the costs of health care above and beyond the growth of the underlying economy will consume us, no matter how much waste is ferreted out and no matter how high the tax rates climb.  This is well articulated in the article:

The Specter of Financial Armageddon — Health Care and Federal Debt in the United States

Posted by NEJM • March 17th, 2010 • Printer-friendly

Michael E. Chernew, Ph.D., Katherine Baicker, Ph.D., and John Hsu, M.D., M.B.A., M.S.C.E.

http://healthcarereform.nejm.org/?p=3170&query=TOC

 However, when the authors have a chance to look at the really difficult choices we face, they include a list adapted from a WSJ piece by David Cutler:

Proposed Strategies for Reducing Health Care Spending.*

Establish insurance exchanges.

Reduce excessive Medicare payments.

Shift from a volume-based to a value-based payment system in Medicare.

Tax generous insurance plans.

Empower an independent Medicare advisory board.

Address and reduce fraud and abuse within the Medicare program.

Enact malpractice reform.

Invest in information technology and comparative-effectiveness research.

Invest in prevention.

^{*Cutler D. Health reform passes the cost test. Wall Street Journal. March 9, 2010}

There is something missing here. Where are the incentives for patients to not gorge at the all you can consume health care buffet? No matter how complex and comprehensive the regulation, enforcement has to happen in a world filled with clever and motivated providers highly incentivized not to leave money on the table and buttressed by the prize of providing the best care for their patients using someone else's money. 

Administrative pricing + third party payer involvement + further insulation of recipients from the costs of the services they demand + command and control management systems = Solution to financial Amagedon?? I don't think so. As long as the underlying structure which drives health care inflation is preserved, the Federal government will be impotent in reigning in the costs and the gluttony will continue.

Perverse payment systems as brakes on needed innovation

There is lots of low hanging fruit when it comes to creating a more effective, efficient,  and patient oriented system. In virtually any other realm of business, innovators would be constantly probing and experimenting, looking for opportunities provide better services, with innovators being rewarded for doing a better job. Why does this not happen so readily in health care?

A basic tenant of economics is that people respond to incentives. The most powerful and consistent incentives are financial and there lies the rub. What happens when you take a basically virtuous population and create financial incentives to do only a very narrow set of behaviors and create financial disincentives to do anything else? You end up with a very narrow set of behaviors which happen to be the ones which are rewarded. Seems simple.

In the realm of health care, the payment system pays physicians for a very narrow and unchanging set of behaviors. Value to the physician comes when they see patients face to face and do any number of activities in the presence of the patient. Some of these activities may have value for the patient while others appear to be of value only because they allow the physician to use specific billing codes. Not only does the administrative pricing system pervert medical decision making because it sets prices incorrectly at a quantitative level, it precludes the deployment of novel approaches to care because it locks all parties into  an archaic model of care delivery.

I look though my office visits, particularly my follow up visits, and I have to ask, what value does the face to face encounter actually bring to the patient? What decision that we make (the patient and the doctor) during an office visit actually requires the patient come to my office? What piece(s) of information are an exclusive product of the actual visit to my office and is that information actually required for relevant decision making and worth the patient time consumed? Exactly what part of the information derived from the physical exam is crucial or even consistently reliable warranting the absolute requirement for a face to face encounter for payment for services?

Obviously a face to face encounter is needed for scenarios where a procedure is required. Short of this requirement, technology affords us a wealth of options for collecting information, virtually none have which have been deployed effectively. Telemedicine has made some inroads, but it has been hamstrung by a host of mandates defining specifics of the technologies to be used. I have little doubt that without the brake of the stifling payment system countless models driven by a host of entrepreneurs would spring up to deal with every imaginable patient problem and complaint.

However, at this point it is not clear that those with vested interests in the old service model which delivers mediocre care for a high price are quite ready to move to a model of care which holds the promise for better, faster,  and cheaper. Why not? For doctors it means taking a risk and putting yourself in a position where they must rely on some mechanism other than insurance to get paid. For patients, it means that they might need to pay for their care with their own money.  However, these drawbacks may begin to appear less worrisome and the retail model of medicine may begin to look increasingly attractive, particularly in the low margin, mundane domains of care.

If there is anything that recent history teaches us it is we are dismal at predicting what the world will look like in the future, particularly relating to what people value and which tools will be deployed to best attend to those needs. That will not stop me from making a prediction. What I predict is as the administrative payment system becomes more and more divorced from rewarding innovation in attending to patient needs, it will become marginalized. Patients will begin to invest their own money to pay for care delivered under different care models. How quickly this comes about is hard to predict and what technologies and tools with prove to be dominant is anyone's guess. It will happen.

More data on the uselessness of screening

A Danish study looking at the effectiveness of screening mammography in a n asymptomatic population of women.
http://www.theglobeandmail.com/life/routine-breast-scans-dont-affect-mortality/article1510290/

Key points:

Dr. Jørgensen and his team analyzed and compared data from the regions with screening and those without and found:

In the 55-to-74 age group, breast-cancer mortality declined by 1 per cent annually in areas with screening and 2 per cent a year in areas where there was no screening;

In the 35-to-54 age group, where screening is not recommended, breast-cancer mortality fell 5 per cent a year in areas with screening and 6 per cent in those without.

In the 75-and-over age group, there was no change in mortality in any area.

Breast-cancer mortality dropped steadily in the 10 years prior to screening beginning.

I don't expect that this will alter behavior of physicians and patients quickly but I will be interested in seeing the landscape in five years. Either we will witness a gradual erosion on the number of patients who get screening mammography, or the entire literature will be forgotten. What will make a difference is if payment for the services makes their delivery a money loser. Then the enthusiasm for the activity will fall precipitously.

Backstopping our way to disaster

One of my first blogs was on the financial disasters happening in California. As it turns out the circumstances in California are not unique and that the rigor which our state and local governments have addressed their financial houses has left much to be desired. The accounting assumptions have bordered on criminal, all based upon the ability of those in political office to be able to buy the most votes from monies stolen from future generations.

How could anyone behave so badly? The answer is because we it is our national pastime to subsidize those in the public and private domains who make bad decisions. In such an environment, those decisions look pretty good since those who make them are place in a win-win situation. Game the system and come out way on top. Game the system and get burned? No worry, the federal (or state and local) government will backstop you!

Backstopping in the form of insurance allows people and entities to take risks they could not take without the insurance. However, insurance has moral hazards which prompts people to take some risks they should not take. The more people are insulated from their stupidity, the more stupidly starts to look less stupid. In such an environment the most stupid thing to do is to not take advantage of whatever backstops are available.

Up until now, state governments, unlike the federal government, have generally been required to balance their budgets. This has acted as a brake on state spending. However, this is about to come to an end. The Federal government has figured out a way to assume the debts of the states through the Build America Bonds. When states borrow money, the feds are going to pick up about one third of the interest cost. This is a boondoggle which pays off virtually everyone! Wall Street will make a fortune on fees. States see their borrowing costs plummet. And what is a few hundred billion dollars added to the national debt (chump change). 

This is a direct inducement for states to change their economic policies to take on more debt. What part of this sounds like a good idea? This is like the housing bubble on steroids and meth-amphetamines. While investors are snarfing these obligations up in the great quest for returns now that Madoff is in jail, these returns may be based upon a similar house of cards. Apparently the bond markets are beginning to be skeptical of US debt and are pricing as a higher risk than private debt such as Berkshire Hathaway. http://www.bloomberg.com/apps/news?pid=20601010&sid=aHjVRrVodt4g

I can't say that I am surprised. Our economic engine requires that it remains juiced up on the financial equivalent of steroids, narcotics, and meth-amphetamines. It has been on steroids and stimulants for more than a quarter century. Now that the financial tachyphylaxis has kicked in, we cannot derive sufficient effects by dosing the financial steroids and narcotics through a single delivery portal. We need to delivery them po, IV, IM, and into every inflamed economic joint. For those of us who desire to remain clean and sober, we are just silly economic puritans. Are we ready for our financial 12 step program?

Is Deficit spending like steroids and narcotics?

When a patient comes to me with some sort of inflammatory disorder disaster and they are acutely ill, I always have treatment with systemic steroids as my ace in the hole... at least in the short term.  I frequently see patients who have gone to that well once too often and the long term effects can be devastating. However, in the short term, it takes care of conditions which are acutely uncomfortable. I think other physicians deal with a similar phenomena when dealing with patients with chronic pain and use narcotics.  The challenge is to wean people from steroid and narcotic dependency. It virtually always requires some other type of medication which has potential side effects, many very scary. In addition, it is a long, arduous, and frequently uncomfortable process.

In watching how governments deal with economic problems, I see many parallels between how physicians use, and patients demand steroids and narcotics and how politicians and public use deficit spending. Patients placed on steroids (and I am not talking about anabolic steroids) and narcotics generally feel great, no matter what you are treating. If the problem is not self limited, these drugs do little to treat the underlying problems. Similarly, there are few economic problems which won't be made much better (at least in the short term) by an nice hefty infusion of borrowed or printed money. Everybody feels better off, at least in the short run.

There are serious discussions regarding whether whether deficit spending is really bad for the economy. My gut feeling is well summarized by Michael Kinsey in his article in the Atlanta Monthly when he discusses the implications of the massive economic stimulus and deficit spending:

But this cure has been one ice-cream sundae after another. It can’t be that easy, can it? The puritan in me says that there has to be some pain. That’s not to say that there hasn’t been plenty of economic pain. But that pain has come from the recession itself, not the cure.

The entire article can be read at http://www.theatlantic.com/magazine/archive/2010/03/my-inflation-nightmare/7995/ and the exchange between Paul Krugman and Kinsey is on Greg Mackiw's blog http://gregmankiw.blogspot.com/2010/03/inflation-debate.html.

Our politicians are behaving like physicians run a muck, operating a clinic where patients line up to get their fixes of steroids and oxycontin. As long as they can continue to dose everyone, everyone appears to be happy.  There is an element who believes that this situation can be managed without any real pain. I have my doubts. As Kinsey goes on to write in his response to Krugman and Matt Yglesias:

A final word to Matt Yglesias, who thinks my problem is "thinking too moralistically about the economy," because I express doubt that we can escape without pain from the dilemma we find ourselves in. Obviously (or perhaps not) this is a prediction and not a hope. I am not in favor of pain. I just don't see any way to avoid it. Yglesias apparently believes that we can escape our fiscal dilemma without pain. I would like to know how. And if there is such a way, why have we denied ourselves for so long? Why do we ever bother to show fiscal restraint? Why have taxes at all? Why deny ourselves anything money can buy? If $15 trillion in debt can be a freebie, why not $30 trillion or $60 trillion?

After another exchange with Krugman, who justifies his opinion by linking to his book chapter stating his opinion, Kinsey simply states " Meanwhile I (along with others of his fans) am still waiting for Paul’s inflation-free recipe for getting us out of this mess."


Like the doctor who  places a patient on steroids or narcotics, we need an exit strategy, something not well articulated by the Nobel laureate economist.  I share Kinsey's skepticism about how this will happen. It appears their approach is to give the sick patient  more and more drugs to make them feel good as opposed to treat their disorder. Sounds like hospice. 

Guest Blog: The Fallacies and Failure of Health Insurance Reform

The Federal government attempts a major overhaul of our health care system every 20 years on average. Universal health care is always the lynchpin. While universal coverage was not achieved this go-around, those advocating the European way of doing things are hoping that the newly passed legislation will ultimately lead to the Holy Grail of health care-- a single payer system. But the European wannabes won’t have to wade through the 20-year cycle before “Medicare For All” is soon back on the table. The reason is that the new laws restructuring our health insurance system will fail in relatively short order. This prophecy of doom is embedded in large part in the very principles of insurance reform. For the past half-century, every major push has been based on four flawed assumptions:

1) Insurance is the exclusive currency by which patients purchase goods and services offered by health care providers
2) Health care is only affordable if covered by insurance
3) The inability to obtain health insurance translates into a failure to access health care
4) The intrinsic value of health care is unique and therefore, cannot be entrusted to the free market

Failure to devise a health care system outside of these parameters inhibits plasticity and therefore, undermines the system's viability. Governmental and corporate entities have always struggled to contain health care costs using the combined forces of public and private insurance coupled with administratively set pricing. But constraining health care costs by exerting external pressures and price controls has never worked. Yet the new law represents a dramatic expansion of this flawed approach. Accordingly, the new reformation movement will fail by design.

Unfortunately, few are willing to throw free enterprise into the fray. Not that the free market can by itself save the day. It's not designed for the indigent, the elderly or the disabled, who passively consume the lionshare of health care. These beneficiaries are forever plugged into the government bureaucracy and happily so. But the vast majority of Americans are neither poor, old, nor disabled. They are open to more innovative means of purchasing health care-- outside of the realm of insurance, if need be. They are empowered with choice and have the financial leverage to pursue those choices. But their choices are limited to insurance policies and plans. Medicine was cut off from free enterprise long ago, and we have been paying the price ever since. When innovative consumer markets compete directly for health care services with less reliance on insurance and bureaucratic pricing, the inherent prices of those services drop. The real costs then reveal themselves and provide an opportunity for insurance to actually see what it's overpaying. Free market interventions also increase the plasticity of the health care economy and help drive down costs in a more direct fashion than the external pressures of public and private insurance. What country other than the United States is better suited to mobilize free enterprise in novel ways to combat rising health care expenditures? At the moment, we seem to be moving in the opposite direction by rejecting free market paradigms. Ergo, is passage of the health care bill one more signal that American capitalism is dying? Just the opposite. Passage will exacerbate all that is wrong with health insurance and will lead us back to the free market for solutions...single-payer be damned.

$79 per month for what?

Today in the NYT was a story:

A Health Care Plan So Cheap, They Made Him Raise the Price

By ARIEL KAMINER

Yes, for $79 for month, you get unlimited physician visits. I have to wonder, what does this mean? I checked their website and pulled up their "classic agreement". This is what is says.

I.

Membership Benefits:

(A) Included Benefits: All AMG Members in good standing shall be entitled to unlimited regular preventive checkups for adults and/or well baby checkups for $79.00 per member per month for Classic Plan and for $119.00 per member per month for Premium Plan. Preventive checkups may include all treatment, testing and care identified on Appendix I and Appendix III.

(B) Benefits at Additional Charge: AMG Members will also enjoy the benefit of up to 15 sick visits per fiscal year charged at $33.00 per visit. Such visits may include, but are not limited to, lab tests, x-rays, sonograms, office-based surgeries and physical therapy and all other treatments, testing and care identified on Appendix II and Appendix IV.

(C) Services Not Available: THIS AGREEMENT DOES NOT COVER HOSPITAL STAYS, EMERGENCY ROOM VISITS, SERVICES OF SPECIALISTS NOT EMPLOYED BY AMG, TREATMENT (INCLUDING BUT NOT LIMITED TO IMAGING) PROVIDED ANYWHERE OTHER THAN AT AMG’S FACILITIES, AND ALL LAB TESTS OTHER THAN THOSE IDENTIFIED ON APPENDIX V.

There is a list of covered services posted at http://amgmedicalgroup.com/pdf_form/Classic_Plan_Full_List[1]_5.pdf
 as well as a rather impressed list of "covered labs" http://amgmedicalgroup.com/pdf_form/LabTest_11.pdf


This amounts to a subscription service and they explicitly claim this does not represent insurance. It will serve a basically well population fine and may also be appropriate for patients with chronic conditions such as hypertension. I could see combining this with a catastrophic care program. 


I wonder how this will fare in a world where patients are mandated to buy comprehensive insurance? They might be tempted to change their business model. On the other hand, in a world where is limited access to primary care, there may be substantial patients who will pay the nominal additional fee in order to get access to a visit.  

Disruptive Campaign Technology

It appears that disruptive technology may render Citizen's United vs. FEC moot. The internet combines low cost with a remarkable ability to disseminate messages. With the blurring between television, computer, and phone, and the ability to spread creative ads virally, it may marginalize the historically important (and expensive) media outlets. In her story in the NYT today, Jennifer Steinhauer describes the use of low cost and rapidly deployable ads in the gubernatorial campaign in California. Who needs to pay for expensive actors when you can build an avatar! Who needs expensive TV air time when you have YouTube! Who needs an expensive studio when you can build ads on the cheap on your own desktop.

Dose of Venom for Candidates Turns Ads Viral

By JENNIFER STEINHAUER

New campaign attacks in California are using sophisticated, low-cost technology to create nasty ads.

http://www.nytimes.com/pages/todayspaper/index.html

More on gaming

I read Megan McArdle's piece in the Atlantic on the math behind the CBO's assessment. There  is simply no way for the math to work out. I am the first to understand that we need to bend the cost curve of health care but this bill will do quite the opposite. It will stifle the very disruptive innovation which can bring down costs and simultaneously will continue if not worsen the disconnect between the cost of care and the public understanding of cost.

 I thought it was ironic that on the same page was an ad for a book entitled "No one would listen".

Telling it like it is

There is a sobering piece in the NEJM this week entitled:

The Specter of Financial Armageddon — Health Care and Federal Debt in the United States http://healthcarereform.nejm.org/?p=3170&query=TOC

This piece describes why the unfolding current political drama in Washington is really a distraction from the real issue that we will be facing in the not to distant future. There are a few key items highlighted.

The United States has a substantial, growing structural deficit, much of which reflects current and projected increases in federal spending on Medicare and Medicaid. This federal health care spendingamounted to 5% of the gross domestic product (GDP) and 20% of federal outlays in 2009 and is forecast to reach 12% of the GDP by 2050.¹ Health care spending is thus a key driver of long-term debt. This does not mean that we cannot run a structural deficit, but deficits must be small enough that debt grows more slowlythan the GDP....

Projections made by the Congressional Budget Office in 2007, before the current fiscal crisis began, suggest that to finance federal spending, the highest federal tax bracket would have to rise to 92% by 2050, assuming health care spending grows 2.5 percentage points faster than GDP, which is approximately the historical average.³ A final option is cutting spending on valued public programs. For Medicare and Medicaid beneficiaries, this approach could mean large increases in cost sharing, poorer benefits, limited eligibility, and diminished access. For health care providers, it could mean drastic reductions in Medicare and Medicaid payments.

Basically when health care cost outstrips GDP growth, the miracle (tragedy) of compound interest will consume our economy. For virtually any party involved in this discussion, they have a vested interest in fixing this problem. As health care costs consume an ever growing portion of governmental resources, it will invariably crowd out something else. If you have a vested interest in maintaining or growing research funding, you should be on board for controlling health care inflation. If you believe it is important for those of modest means to be able to access and afford health care, it is important to find a solution which controls health care costs. If you believe it is important to have a growing economy and avoid financial calamity, it should be a priority to develop approaches match growth of health care to overall GDP growth.

Of course the devil in the details and that is where the politics kick in. We cannot delude ourselves into believing that we can spend our way out of this. The problem with addressing this as a political problem is there is little evidence that those who work in political sphere have the wherewithal to solve this since a solution will almost certainly require austerity measures unlike anything seen by any living American. It will involve political suicide and/or some sort of solution imposed from the outside.

We are seeing hints of this in other local realms. Municipalities, strapped for cash, are simply closing down services, laying off police and fireman, closing schools,  and stopping bus services when they do not have money to make payroll. The federal government is a little different. At some point the Feds will run out of options for borrowing and be forced to degrade the currency by simply printing more money ala the Zimbabwean model.

This does not have to happen. All it will take is coming to a consensus that we all need to make a sacrifice of some sort. This is a consensus which is hard to come by. I am reminded of a introduction from Samuel Bowles book on Microeconomics. The author describes traveling through Palanpur, a particularly poor  state in India. He meets a sharecropper and strikes up a conversation finding that it was common knowledge among local farmers that they would have better yields if they planted earlier. However, no single farmer was willing to do so since doing so alone would result is huge losses from the birds eating their seeds. They all would be better off if they got together and all planted earlier. When the author asked the sharecropper why they did not do so, the answer was, "If I knew how to do that, we would not be so poor."

The hardest problems involve coordination the activities of human beings. Our circumstances are not much different from those poor farmers in India.

   

The triumph of the amateurs again.

There was an interesting story in the WSJ today about AK Barnett-Hart, a Harvard undergraduate who wrote a thesis on the economic meltdown. http://online.wsj.com/article/SB20001424052748704588404575124042479755812.html#mod=todays_us_money_and_investing

This thesis served as a major source for Michale Lewis' best selling book "The Big Short; Inside the Doomsday Machine".  The inside story is very interesting in that she apparently received scant encouragement from her professors to pursue this project. However, through networking with Harvard Alums and garnering access to the LehmanLive database, she generated an insightful piece judged to be superior to much of the "professional" research. Her thesis can be found online at:
http://www.hks.harvard.edu/m-rcbg/students/dunlop/2009-CDOmeltdown.pdf

Another interesting piece is a video of Andrew W. Lo, director of the Massachusetts Institute of Technology’s Laboratory for Financial Engineering. He does a great job of explaining the CDO model and the assumptions which led to its undoing. 
http://www.researchchannel.org/search/sitesearch.aspx

The lesson from both of these pieces is catastrophe always looks easy to spot once it has already happened. Before the event, it is much more difficult to spot and the ecosystems where catastrophes develop are marked by no shortage of sentinel events which generally precede nothing.

Guest Blog:The Theory of Plasticity

Thanx to the MC for allowing me to share his space:

Evolution is the process of imbuing living things with plasticity, whereby loss of function signals a rerouting of biologic systems in an attempt to regain function. The mammalian brain, for instance, is prototypical. Here, irreversible damage is accompanied by the adaptation of local cells that do not normally carry electrical impulses to ones that do. The new impulse-carrying cells detour the electrical signal around the injured area in an attempt to re-establish function. The immune system is equally elastic. When certain proteins once thought to be essential to the immune response are genetically deleted in experimental animals, the effects are minimized by other proteins that realign their purpose and establish immunocompetence. Plasticity is also necessary for learning. Our brain learns by creating new pathways to unused parts of the cerebral cortex. Our immune system constantly programs itself through surveillance of self and non-self antigens, shutting off certain signals and engaging others in an attempt to stave off the deleterious.

Adaptation is oftentimes but not always the culmination of elasticity. Adaptation is a matter of form, whereas plasticity is a matter of function. Accordingly, plasticity can manifest beyond the cellular level as recognizable phenotypes of adaptation-- the color of the skin, the curve of the beak, the shape of the claw. In sum, plasticity is inherent to most biologic systems and is required in order to adapt and to survive. Living things with nominal plasticity may survive but do not thrive and therefore, are at risk for demise. Of note, simplicity of life forms does not negate plasticity, as evidenced by the rapid adaptation of certain bacteria to adverse conditions.


The theory of plasticity can be extrapolated to societal systems, as well. Societies are comprised of individuals just as living things are comprised of cells. Like cells, societies that organize activities efficiently and interact optimally with their environment improve their chances of thriving. But to flourish requires an inherent plasticity. Centralization of government services may provide a highly organized structure for society but it is the antithesis of elasticity. Consequently, highly centralized governments either fail (ala, Soviet Union) or simply survive (ala, North Korea) but rarely thrive. Complex societies also tend to generate complex economies, the successes of which depend on their plasticity. It’s no coincidence that the American economy is perhaps the most elastic in the world and consequently, the strongest. Capitalism promotes plasticity by fostering a multitude of economic sectors. When one sector collapses, investments reroute to any number of other sectors to shore up the economy. History has shown that even small gyrations towards a centralized economy are detrimental to the vibrancy of American business.

China, on the other hand, is a seeming paradox— a Communist country with a prosperous economy. But the key to China’s success is due in large part to its partial decentralization and promotion of capitalism. If the theory of plasticity could be formulated, however, its computations would predict the end of China’s prosperity in large part because of its socialist roots. Even casual Communism has its limits and cannot escape its inherent rigidity. Information is at the heart of society's plasticity because information is power. A society that curtails information or propagates misinformation curtails its elasticity. The demise of Google in China is the first major sign of the country’s failure to progress towards greater plasticity and therefore, is a harbinger of economic stagnation.

But as Frank Zappa points out, not all things are subject to plasticty;

"I searched for years I found no love. I'm sure that love will never be the product of plasticity."

e-doc

Striving to double the failure rate

I just finished reading a very interesting book, A Drunkard's Walk: How Randomness Rules our Lives by Leonard Mlodinow. For those of you who have read other pieces I have written, you will know of my skepticism of those who purport to predict the future with any degree of accuracy beyond coin flips. It is a great book to provide not only the historical framework for the study of probability, but also the relevance of these knowledge base to our present world. 

As I have lamented before, humans have a hard time with understanding numbers. On top of what appears to be this hard wired weakness are additional fundamental characteristics; the ability to discern order and patterns where none exist and the desire to control our environment (or at least feel as though we are in control). This issue fundamentally colors the way we view success and failure. Perhaps the most enlightening quote from the book came from IBM pioneer Thomas Watson who declared, "If you want to succeed, double your failure rate". This is based upon the assumption that major success is to a great degree based upon chance and it any  game of chance, the more bets you place, the higher your chance of winning a wager.


I tried to think how this philosophy could play out in academic medicine. What would happen if I came to my department chair and told him I needed to fail more? What would happen if the Dean of the Medical School came to the Vice President of Health Sciences and asked to place failures on the balanced scorecard with the idea that more is better?


Intuitively I see the merits of making lots of small bets, understanding that many if not most will fail. This is a concept which Nassim Taleb championed in the financial markets. He strongly pushed the wisdom of bleeding a little bit all the time, suffering many small failures, showing patience required to land a really big fish. However, such behavior is not really possible within the confines of large organizations with large vested interests in no fundamental change. True "game changing" innovation means putting the large investment in the old game at risk.

Lamenting the lack of Philosopher Kings

I very much enjoy Peggy Noonan's column every Saturday. Today's piece resonate's particularly with me. There was one specific paragraph which was particularly insightful:

But the overwhelming fact the book communicates is that our candidates for president are emotionally volatile, extreme personalities. They spend a lot of time being enraged. They don't trust those around them. They desperately want power and want to be celebrated, but they don't know what they want to do with power beyond wield it, and they seem incapable of reflection about why they need to be admired. Most seriously, they show little interest in, or even awareness of, the central crises of their time.

http://online.wsj.com/article/SB10001424052748703625304575116091277942862.html?mod=WSJ_Opinion_BelowLEFTSecond

The insight here is not actually unique but it is timeless. Since people's ideas have been put down on paper, great thinkers have recognized this basic human flaw and how it translates into complex human systems and governance. Those most interested in power are the ones least likely to exercise it in such a way to benefit the governed. The barriers to rising to a position of power are sufficient to cull out all but those with ambitions and narcissism so extreme as to preclude having the skill sets to govern wisely.

Where does that leave us? Plato proposed the role of philosopher kings. A noble idea but a denial of human nature. This is not so say that there are not individuals who, when placed in leadership positions with  substantial power, will actually act nobly and not totally driven by narrow minded self interest. George Washington comes to mind. However, over time, centralized power will always attract the worst element. Fredrich von Hayek eloquently details this in his classic books the  Road to Serfdom and the Fatal Conceit.

We are left with systems which have decentralized power and all the inefficiencies and imperfections which come with them. In order to stymie the ambitions of the power hungry, we must also accept imperfect systems of governance that are incapable of assisting all those in need. I think it is well worth the trade off.

Getting off the screening bandwagon -doubtful

Richard Albin, PhD, the researcher who discovered the prostate specific antigen in 1970, has made a very public declaration.

"I never dreamt that my discovery 4 decades ago would lead to such a profit-driven public health disaster," Dr. Ablin says.

"The medical community must confront reality and stop the inappropriate use of PSA screening," he states. "Doing so would save billions of dollars and rescue millions of men from unnecessary, debilitating treatment."

http://www.medscape.com/viewarticle/718351?src=mpnews&uac=42504PY&spon=7

I have my doubts his voice will be heard. The screening principle is just too seductive and the counter-intuitive arguments to the contrary and just too... counter-intuitive, despite the fact they are very likely correct. On top of this there is still too much money to be made.

The Ant and the Grasshopper

This is an interesting article from Der Spiegel, conveying a conservative German perspective on the debt crisis in Europe and the fate of the Euro.

http://www.spiegel.de/international/europe/0,1518,682432,00.html

On one side is the collapse of Greece and the ripple effect on the Euro and the other side is bail out, moral hazard, and eventual collapse of the Euro. Some choice...

The premise of the European union was that debts of poorer countries would not become debts of the Germans and French. However, if the Germans and French have no exit strategy other than bailing out Greece (and eventually Itlay, Spain, etc), those debts become their debts. Why be fiscally responsible if your reward is to bail out those who are not? This is not a new concept. It sounds like the parable of the ant and the grasshopper.

More on Reconciliation - "Byrd Baths"

There appears to be no end to the palace intrigue associated with the health care bills. This very interesting piece in the health care blog regarding one aspect of reconciliation called "byrd baths" was most enlightening.

http://healthaffairs.org/blog/2010/03/11/gregg-use-medicare-cuts-to-plug-budget-gap/

Gregg warned House Democrats that their Senate colleagues might prove unable or even unwilling to move all the agreed-upon modifications through the Senate using reconciliation. He said Republicans would subject a reconciliation bill to sentence-by-sentence scrutiny under the “Byrd rule,” named for Democratic Senator Robert Byrd (WV), which is designed to ensure that reconciliation is used only for legislation focusing on budgetary issues. Under this process, known as a “Byrd bath,” any sentence for which policy significance outweighs budgetary significance can be stricken from the bill through a Byrd rule point-of-order, which takes 60 votes to waive, Sen. Gregg argued.

The only way around this is for the House to pass the Senate bill unchanged. However, this is not likely to happen. The Democrats simply do not appear to have the votes now. There are almost an infinite number of scenarios which can be run which could result in a narrow majority, but if the conditions were right, the vote would have already happened.  In the short term, it is hard to assess whether the odds could improve the likelihood of passage but in the longer term, the odds will fall as the fall elections approach.

More on Toyota and third grade math

This is a great piece from the NYT. http://opinionator.blogs.nytimes.com/2010/03/09/toyotas-are-safe-enough/?emc=eta1

The bottom line is we simply have no concept of numbers and risk and are willing to invest ridiculous sums of money in the effort to reduce risks which, although real, are trivial when compared to more mundane risks in every day life. I strongly suspect that there are software glitches that can cause our cars to screw up. However, when compared to the risk of using any car, these risks are simply so small they almost vanish.

The problem is third grade math (perhaps fourth grade) which involves numerators and denominators. We focus on numerators without any concept of denominators. This is a big  problem within medicine as well. Reports of undesirable outcomes present their data in terms of relative risk and absolute numbers of events and rarely actually present data on absolute risk. Never are these risks compared to the risks associated with mundane life events (driving, walking, falling in the home). Risk of death is rarely placed in the context of risk of death for any given age cohort. Don't tell me about risk and danger unless it can be placed in terms of absolute risk.  What does a 1:10,000 annual chance of death mean in an age cohort which starts with a 1:200 risk to start with.
http://www.medicine.ox.ac.uk/bandolier/booth/Risk/Agesex.html

There must be some sort of inherent tendency for us to be fascinated by the rare and spectacularly bad. If such behavior and misunderstanding were isolated and the consequences of such idiocy suffered by the ignorant few we could have a good chuckle. However, the hysteria is widespread and permeates the thinking of decision makers who control vast amounts of common resources. We cannot find such waste at all humorous and can only be viewed as tragic. If we could only do a better job teaching third grade math.

Ireland and Greece

The financial calamity unfolds throughout the world. After the real estate bubble burst, the net effect was to remove huge sums of money from the economy. For an economy which was predicated on leverage, this was devastating. As the asset bubble deflated, those most leveraged found themselves underwater. This is a particular problem for a world which consistently rewarded what amounted to reckless leveraging and risk.

Now that the economic reckoning appears to have commenced, there are many voices chiming in recommending appropriate courses of intervention. The markets are also commenting. I tend to believe what markets tell me. Perhaps one of the most telling stories revolves around the risk premiums associated with the debt of Greece and Ireland. The Irish have responded by initiating an austerity program. While less income means less spending and perhaps even negative economic growth in the short term, perhaps this is the appropriate behavior when you suffer loss of wealth and income.

Greece has responded similarly with an austerity program targeting to bring the annual deficit from 12% to below 3% over the next two years. However, the markets simply do not believe these efforts, based upon a history of corruption and financial parlor tricks. They are looking for "help" from Brussels in terms access to cheaper capital. There is great skepticism that such aid would result in any enduring change of behavior as evidence by Greece's continued high borrowing costs. The questions are, will Ireland be rewarded for its austerity and will Greece really initiate any meaningful austerity plan? If the answer to the latter is no, the answer to the former question will also be no. Furthermore,  the only real credible threat to induce austerity plans will be the actual collapse of states like Greece. You have to wonder who is really taking the biggest risk. Why tighten your belts if you can expect a bailout?

These events have tremendous implications for the Greece's and Ireland's within our own borders. Before the Federal debt becomes unmanageable,  states with the most tenuous finances and ill conceived budgeting will have to face the music. While the Greeks look to Brussels, states like California and New York look to Washington, on the assumption that some sort of rescue will be forthcoming.  However, unlike Brussels, Washington does not even appear to have any inclination to impose any austerity programs on even the most poorly administered states. No scale back of actuarially unsound and financially devastating programs is likely to happen if the most profligate states can expect the Feds to bail them out. It is moral hazard writ large. Ultimately, somebody will pay.

More unintended consequences

This piece highlights a September Washington Post piece: http://www.coordinationproblem.org/2010/03/dept-of-unintended-consequences-file-obamacare-will-hurt-poor-women-with-kids.html

This is reminiscent of an earlier post. No matter how detailed the proposed legislation, the only thing certain is there will be unlimited gaming opportunities.

The underpants gnome

I was discussing the current plans for health care reform with a colleague who pointed me to a source of wisdom to assess the current debate, that being the animated comedy series South Park. While I do not believe that South Park is on the same philosophical level as the great philosophers such as The Simpsons, there still is worthwhile content.

The specific episode he pointed to was episode 30 entitled "The Underpants Gnomes". This episode is nicely summarized in the Wikipedia entry http://en.wikipedia.org/wiki/Gnomes_(South_Park). The gist of the story centers around the presence of gnomes in South Park who are secretly stealing underwear. When the boys find their secret hideout they find the underpants along with a business plan which goes as follows:

1. Steal underpants
2. ?
3. Profit

What a ridiculous business plan! The underpants gnome episode has been adopted by the entire political spectrum to vilify various ideas and initiatives. For the right, various liberal initiatives have been summarized as:

1. Broad legislative initiatives or social engineering idea
2. ?
3. Utopia

http://savecapitalism.wordpress.com/tag/defense/

For the left, various conservative initiatives have been summarized as:

1. Tax cuts or deregulation
2. ?
3. Prosperity

http://delong.typepad.com/sdj/2008/07/john-mccain-the.html

I must admit I had to chuckle when I saw the episode but as I thought more about what it implied, I became more skeptical. I don't either side has it quite right. In fact life is filled with many experiences which fall into the pattern of:

1. Act on a hunch
2. ?
3. Success

I suspect that the impact of most high impact innovations were unanticipated. While there might have been something in the place of the ?, but it was way off base. If we always expect to know the steps between 1 and 3 before act, we will almost never act.