Brilliant health care idea: replacing fee-for-service with fee-for-no-service
February 25, 2013, 4:03 pm
Filed under: Uncategorized

Richard Thaler writes on health care, advocating among other things:

A fee for health rather than fee for service model. Doctors and hospitals should be paid for keeping their patients well. Paying them for doing more tests and surgeries creates bad incentives.

Arnold Kling asks:

When Thaler plays chess, does he think even one move ahead?  I am sure that my readers do not need me to tell them how doctors would respond to a “fee for health” incentive system, do I?

Heh. Quick doctors/hospitals, who wants to get to administer time-consuming experimental or at least palliative care to this incurably-diseased patient on a ‘fee for health’ basis? Don’t all raise your hands at once. Meanwhile, I sense some good business opportunities for PR and advertising firms offering services to doctors helping them sign up a bunch of ‘healthy’ patients that they can almost-never-see but regularly bill for…’Dear Health Ins. Co.: I kept this 19-year-old athletic male healthy again this week. No visits/tests/treatments. Send me $370 please!’

But seriously, this raises the question: what would ‘fee for health’ even mean? Someone appears to have forgotten that actual healthy people mostly aren’t even seeing a doctor, for anything, in the first place. That’s part of the definition of ‘healthy’. Isn’t it? It’s sort of like saying supermarkets should be able to bill…(someone?)…for the length of time that…(some group of people?)…doesn’t need food. Say what?

In any event, Obamacare will basically be a fee-for-health model anyway: if you’re healthy enough that you’re drawing breath, you pay. Whether you need health care or not. The way out of paying is to lose your health enough that you die. The rest is just accounting and administration, and so the distinction between that and ‘fee for health model’ is a distinction without a difference. So rest easy, Richard Thaler, you’ve gotten your wish.

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The core of a good idea is there. Doctors see someone and treat them. They present them with a bill:

Cost of removing xxx condition: $yyy

Rather than

Test A $a
Test B $b
Treatment A $e

In the never-neverland where this works it works well. Conditions are classified and costed (it costs $x to get rid of condition y and $z to get rid of condition v). Doctors then make profits based on getting rid of conditions and so will try to cure patients instead of trying to treat them. They can even make more money by curing a condition with cheap, minimally invasive life changes by the patient – switching diet, etc.

Given what goes on this article, however:

I’m not so optimistic.

The problem is that there are evil or amoral people running health care who have absolutely no problem over-charging by 1000% knowing that individuals have no ability to dispute those charges. Worse than that, the medical field doesn’t even really feel the need to actually improve the health of it’s patients in exchange for all the money they charge. Everything is about the “standard of care”. You’ve got Seth Robert’s blog on your blogroll – the things he writes about are frankly horrific. Doctors have seemingly no interest in addressing the causes of anything if an expensive drug or surgery to treat the symptoms is available.

How would people who have created the current system warp the proposed new one? The first way I can think of is by simply treating to the metric. Define “high cholesterol” as a disease and “treat” it with statins. Definition of the “cure”? Lower cholesterol. Meanwhile you haven’t decreased total mortality – just shifted it away from heart disease into cancer (clearly a net decline in patient welfare) all the while you’ve caused the horrific side effects that statins have.

Then I read this at the bottom of the article:

“Richard H. Thaler is a professor of economics and behavioral science at the Booth School of Business at the University of Chicago.”

Oh, never mind then. This is just another species of “assume a can opener”. Economists seem to believe that whenever something is inefficient you just have a market that isn’t being given the correct parameters due to some government intervention or path dependency. In this case you’ve got a far larger set of problems:

1) Medical research is mostly less than worthless.
2) We used to have a high trust society and we’re transitioning into a low trust society.
3) Institutions that work fine in high trust societies don’t work well at all in low trust societies.

Oh well, I guess we should just assume that we’re still a functioning high trust society and ignore any possible reasons why we’re moving away from that state.

Comment by Steve Johnson

“Cost of removing xxx condition: $yyy”

A lot of, and probably most of the effort put into ‘health care’ deals in probabilities, not certainties, and also is often about alleviating rather than ‘removing’ anything per se. Such-and-such cancer treatment will have a 70% curative rate (where ‘curative’ doesn’t mean curative, but ‘5+ years survival’).

It’s all well and good to suggest that such treatments are therefore the wrong approach and should be de-incentivized. I don’t disagree with that (e.g with Seth Roberts) in many of those cases. At the same time though, that logic might not appeal so much to the marginal patient who actually has such a condition for which a “70%” type treatment is, in fact, their least-bad option. Telling their doctors that their compensation is now (by fiat?) a crapshoot/has some kind of a binary option payoff structure (if patient survives to time T they get paid X, if not they get 0) doesn’t seem tremendously healthy to me. Notice that (among other things) this makes doctors all life insurers (i.e. “long” all their patients’ longevity, just like a life insurance company). Do they need collateral and to be regulated by the state insurance regulator too? Also, such payoff will lead to very ‘choppy’ compensation – X one month, 3X the next..will doctors/hospitals need to start securitizing and selling off their ‘compensation-risk’ to Wall Street in order to hedge and smooth out their cashflows so that they can, you know, pay rent and make payroll? Will we start seeing Collateralized Healthcare Obligations (CHOs)? Where does it end with these ‘clever’ payoff structures?

It’s at this point I still wonder why not just actually try markets and freedom – the way we do for, like, everything else?

“The problem is that there are evil or amoral people running health care who have absolutely no problem over-charging by 1000% knowing that individuals have no ability to dispute those charges.”

I actually disagree that this is ‘the’ problem. Not to say there aren’t evil or amoral people in health care. And all other fields for that matter. But for every ‘overcharge by 1000%’ you can point to, I’ve no doubt I could point to some other area where they (are forced to) *under* charge by 1000%. Including in that article, which keeps asking why the self-insured patient pays X when Medicare pays (by fiat/regulation, i.e. by a price control) X/3. Um, that question answers itself.

Neither over- nor under-charging is surprising in the slightest in a health care ‘market’ in which prices bear practically zero, or at best coincidental, relation to actual supply/demand market forces, but rather, are basically dictated by a centrally determined schedule of Medicare ‘codes’ (and, insurance-company compensation rules that just key off those ‘codes’). Not to mention one in which we’ve enacted feelgood measures like EMTALA that essentially force all people performing this service to take losses on certain clients. Those feelgood measures and Medicare price controls can’t overturn economic realities like hospitals having to make the books balance and so it would be shocking indeed if they didn’t find ways to ‘make up for it’ elsewhere i.e. by ‘overcharging by 1000%’.

Also, ‘overcharge’ compared to what? Says who? This implies some free-market, liquid price visibility by which one can evaluate either way. There is no such thing of course.

Again, why not try markets?

Comment by The Crimson Reach

“A lot of, and probably most of the effort put into ‘health care’ deals in probabilities, not certainties”

Agreed on all these points – these are the obvious outcomes of Thaler’s idea.

I’m mixed on this though – right now we have patients taking on these risks (sort of) – they pay for a chance to get cured but they don’t understand their chances of improvement (doctors lie), they don’t understand probability (most people aren’t smart enough to), and they won’t gain he experience needed to deal with these situations (because you’re not likely to get cancer more than twice). Doctors aren’t in this situation – they are supposed to be experts in treating disease, they are significantly smarter than the average member of the public, and they deal with these situations all the time. Does that make Thaler’s proposal a good idea? No. Does it mean that the core of a possibly good idea (that might well be impossible to implement) is there? I think it kind of does. Why not switch to a system where the most informed people take on the risks?

“I actually disagree that this is ‘the’ problem. Not to say there aren’t evil or amoral people in health care. And all other fields for that matter.”

I think this is the primary problem. Doctors don’t give a damn about patient health. They do destructive things to line their pockets. This is evil. When I read this:

I can’t think anything other than that the doctors involved are evil or amoral.

“Again, why not try markets?”

Why not? Because people (mostly) aren’t competent to transact in health care markets – they’re far to ignorant and unintelligent to sort out truth from lies and beneficial health care from dangerous and damaging treatments. People who are in a position to know better are supposed to serve a public trust and be honest with patients but they sure as hell don’t act that way in our society. Something is deeply wrong.

If market prices are really the cure then what’s an acupuncture treatment worth for cancer? Faith healing? Holistic medicine? Yeah, they’re all “worth” what their purchaser will pay. At the same time, people will still wind up dead.

“Also, ‘overcharge’ compared to what? Says who? This implies some free-market, liquid price visibility by which one can evaluate either way. There is no such thing of course.”

(from the time magazine article)

“Patient was charged $18 each for Accu-chek diabetes test strips. Amazon sells boxes of 50 for about $27, or 55¢ each”

That’s overcharging and padding the bills. How would a market correct that? Some other hospital would eat their lunch by not inflating charges on test strips and gauze? What if an area can only support one or two hospitals (true) and all the hospital administrators know one another and see things the same way? Adam Smith:

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Ultimately people will have to band together and hire experts to evaluate health care provision for them. What do you do about the fact that industry that’s supposed to represent the purchaser of health care – the insurance industry – is seemingly totally uninterested in doing their job and would prefer to buddy up to a corrupt medical industry in exchange for a cut of the loot? I really don’t know*.

*I do know that socialism of the traditional or the stealth American kind** isn’t the answer.

**Stealth American socialism is where government sets the policy then deputizes a bunch of people who get rich implementing it. Stealth American socialism serves lots of functions but here are some examples:

Corporate speech codes
Cigarette criminalization
NAM mortgages

Comment by Steve Johnson

See, I would say stealth American socialism is exactly the problem with health care too. All these price distortions ultimately trace to socialism being laundered through the health care system: if you ‘pay too much’ it’s because one way or another you, Peter, are being robbed to pay Paul. On your itemized bill it may be labeled the price for your aspirin pill, or whatever, but that’s not really what it is.

But even this conclusion is hard to really prove, in the absence of actual markets. What is the ‘right’ price for a Thingamajig being given to you in a hospital by an RN? It’s hard to say, and Amazon comparable strikes me as unpersuasive. Wine costs more opened in a restaurant than if you buy it at Bevmo. A hot dog costs more at a baseball game than in a 12 pack at Ralph’s. Soda in a movie theater. Macadamia nuts in a hotel room. (Do all those other markets also need clever pricing-structure revisions thought up by economists?) So why shouldn’t aspirin cost more in a hospital? Why not way more? I don’t know of a good non-emotional answer to that.

Which is exactly the point. I don’t know what any of these things ‘should’ cost. Nor, I hasten to add, does any other individual. This is what markets help tell us.

You say insurance companies are ‘supposed to represent the purchaser’ – but insurance companies only have the role that they have because health care socialism is laundered through them. In reality, the purchaser is supposed to represent the purchaser. You raise the point that consumers don’t know enough to evaluate things on their own. Well, you know what I do when I don’t know enough to properly evaluate something, I abstain and look for substitutes, or research, or ask for help. If Seth Roberts is indeed right, this is less of a shocking and ridiculous idea in health care than it probably sounds at first blush to most people.

Comment by Sonic Charmer

I think your spam filter caught my response – there were two links in it so that might have set it off.

Comment by Steve Johnson

You know what might work? What if people who felt a need for some kind of intervention in a health problem chose to pay doctors according to how well the intervention worked. That is, they’d judge whether the intervention actually improved their health, and then they’d use their own money to reward the doctor accordingly. That’s kind of a fee-for-health system, isn’t it?

Comment by Texan99

[…] first — is “fee for health,” as distinguished from “fee for service.” It doesn’t sound too distinguished to the Crimson Reach, […]

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