“More is Less,” the most recent radio episode of This American Life looks at the rising health care costs and asks who is to blame. Are doctors unnecessarily ordering procedures and prescribing medications? Are patients demanding costly services they don’t need? Are insurance companies doing little to keep the prices down? The short answer is yes, to all of them. It’s a fascinating listen and I recommend it highly.
All through the debate on reforming health care, something has not sit well with me and it is the fact that we as a society have arranged ourselves primarily as an economic entity. We make our choices based on our wallets and arrange our laws in such a way to reward and punish behavior financially. Many of the solutions discussed for health care reform have to do with how we address the market—tweak it, leave it alone, etc. But is health care really just a basket of goods and services that can and should be understood in purely economic terms? I don’t have a real answer for this, but I’ll give you some examples of why I see a purely economic view of health care as one that breaks down. These have to do with the fee-for-service aspect of health care.
My wife has a family friend who was a surgeon in the U.S., but due to increased insurance costs, decided to practice medicine in New Zealand, where the state pays for the vast majority of health care and patients are not allowed to sue their doctors. The growing cost of malpractice insurance created disincentives for him to continue practicing medicine in the U.S. In New Zealand, he and his staff were paid flat salaries for their work. He expressed a frustration over the fact that he was not doing nearly as many surgeries per day as he did in the U.S. Because the staff was paid a flat salary, there was no economic incentive for them to work faster and do more surgeries in a day. They were paid the same if they did three operations or seven in a day. This surgeon knew there were dozens of people in the queue waiting for these surgeries and it bothered him that his office could work faster, but people simply chose not to. If we do the math, they were actually paid more per unit of work and time if they did less procedures.
On the other hand, when we go to a fee-for-service model like one we have in the U.S., there are economic incentives for doctors and staffs to do more procedures, to see more patients. (Though the U.S. patients hava a longer wait-time to see doctors than in many countries with single-payer health care, which I don’t completely understand.) This model encourages efficiency and competition. It also exacerbates the issue that nearly 30% of health care spending in the U.S. is wasted. By paying more for more procedures and paying more for costlier and riskier procedures, we have created economic incentives for doctors to order unnecessary and expensive tests, operations, medications, etc. That is not to say all doctors do write unnecessary orders just to make money, but in our system the temptation is clearly there and the practice is clearly rewarded financially.
I’m not opposed to economics playing a role in health care. At the same time I am uncomfortable with changes in our health systems happening using purely economic tools. I don’t have real answers to the problem, this is just an aspect of the debate that has had me thinking for a while.
Any thoughts?

