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Sunday, August 18, 2013

Hoping for a different outcome

I watched one of my favorite movies yesterday, Groundhog Day. In this film the hero, Bill Murray, gets the opportunity to live a particular day over an over again until he can get it right. While he first becomes very discouraged that he is stuck in Punxsutawney, Pennsylvania reliving Ground hog day, over and over, he ultimately is able to realize that he is able to learn and adapt, ultimately getting it right and winning the girl, Andie MacDowell. 

In reading JAMA Internal Medicine this week, I feel like I am in Punxutawney. Sinsky and Dugdale (Sinsky & Dugdale) publish an article objectively demonstrate that those who do procedural work (cataract surgery and colonoscopy) are paid substantially more per unit time of work than those who do primarily cognitive work. (Table 4) They conclude yet again that a major reason our health delivery system is so focused on procedures is that the economic incentives drive the players in that direction. 

We have suspected this for a long time, perhaps 40 years or more. In the accompanying commentary titled "Using Science to Shape Medicare Physician Payment" by Paul Ginsberg, he notes that there have been repeated efforts to correct this bias in the payment system which have repeatedly failed (Ginsburg Commentary). Dr. Ginsberg seems to lack a certain sense of history by invoking science and price fixing in the same sentence. 

Dr. Ginsberg seems to view price setting as a simple accounting exercise, much as did earlier thinkers who embraced a similar use of science to set prices. I am referring to the application of scientific socialism which embraced the idea that economies could obtain better outcomes if they were intentionally planned, right down to using science to assign prices for goods and services. That did not go so well. 

In market systems, prices are simply information relating to value assigned by the public and scarcity. Items which are abundant and not viewed as valuable tend to command low prices while items more highly valued and scarce command higher prices. Prices set by market mechanisms send information to both consumers and to producers and are capable to responding quickly to both changes in demand and changes in supply. High or increasing prices flag what are unmet needs. No one needs to study such markets to identify where there are unmet needs. Just look where goods or services are expensive.

In contrast, scientifically set prices are essentially prices without any real information about supply or demand. Economies based upon administratively set prices may go years or decades without being to identify unmet needs.  Even when the unmet needs are recognized, the cycle time required for price adjustment is interminably long, much too long to have any meaningful allocative function. Ludwig von Mises recognized this over half a century ago.

Despite this recurring theme, authors such as Ginsburg repeatedly write suggesting that with just a bit more tweaking and application of scientific principles, the price mechanism in health care can be supplanted by administrative planning and controls. That is not the lesson I glean from the previous efforts. As the health care economy grows to engulf ever larger portions of resources, the administrative pricing approach dooms more and more resources to mis-allocation. We get to relive our experiences, much like Bill Murray in Ground Hog Day, the difference being he seems to learn from his experience while we are committed to the same mistakes.

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