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Tuesday, April 20, 2010

IPAB - Goskomtsen redux

One of the provisions of the new health care law is the Independent Payment Advisory Board. If there was ever was a better example of history repeating itself, I cannot imagine a better example than the newly minted IPAB and the former Soviet Bureau of pricing, Goskomtsen.

Gomkomtsen was charged with setting all prices within the former Soviet Union. Incorrect pricing resulted in massive and chronic mis-allocation of resources of the in communist state. Arguably, incorrect pricing may have been the single most important factor in creating such a dysfunctional economic state.

The approach to setting prices was based upon examining inputs and cost of production. The information used for these calculations was almost always either incorrect at the time of collection or became incorrect shortly thereafter.  This approach to pricing shares remarkable similarities with the calculations underlying the RBRVS (from Wikipedia).
RBRVS determines prices based on three separate factors: physician work (52%), practice expense (44%), and malpractice expense (4%).[1][2] It does not include as factors outcomes, quality of service, severity, or demand: it is determined by producer factors, not consumer factors.[3]
It is not particularly clear how prices will be set by the IPAB. My guess is they will use an approach which will be similar to the approach taken historically by the RUC, with modifications driven my political expediency. This does not inspire confidence. There is little doubt that they will get the prices wrong and the erroneous signals from the incorrect pricing will continue to provide perverse incentives.

1 comment:

  1. Psychoanalysts sometimes utilize the Freudian principle of repetition compulsion in order to reverse certain destructive behaviors. Repetition compulsion represents an inability to discern that learned behavior A coupled with learned behavior B will always result in outcome C (A + B = C). The individual afflicted with repetition compulsion believes that repeated behaviors (A + B) can ultimately lead to a different outcome D (i.e., A + B = D), when in reality A + B will never equal D. The repetitive pursuit of outcome D often results in self-destructive behavior. For example, a victim of recurrent spousal abuse is the prototypical sufferer of this insidious process. Second to abused spouses are health care economists, who continuously repeat learned behaviors in the desperate search for the A + B = D paradigm. The concept of administratively set pricing is like a Siren calling them to chronically bash themselves upon the rocks of economic indicators and productivity adjustments. They just can't help themselves. Nor can they alter their perennial pursuit of administrative pricing tools— the A + B component. To make matters worse, health care economists are often married to government where repetition compulsion is genetically ingrained. The result is an endless parade of progeny imbued with the curse of repetitive, non-productive behavior, for which we all pay the price.