Eventually, Medicare should completely transform the way it pays physicians and hospitals.  Instead of paying doctors and hospitals separately and reimbursing them for how much care they deliver, it will want to begin paying them as a group on a per-capita basis, depending upon the number of patients they care for.  (Because outcomes of their patients will be monitored and eventually made public, these integrated systems will not want to attract more patients than they can handle simply to boost their incomes.)

That is from Shannon Brownlee’s new Overtreated: Why Too Much Medicine is Making Us Sicker and Poorer, which should be read by anyone interested in health care economics.  I have a few points:

1. The early chapters are too anecdotal for my tastes, but later the book becomes more analytical.

2. The author writes as if doctors can be steamrollered into submission and forced to adopt better compensation schemes; in this sense the public choice analysis is naive.  Yes maybe that is what "should happen" but I predict that greater government involvement will be geared toward protecting the rents of American doctors, not making them passive servants of the public interest.

3. The (favorable) discussion of VHA is more insightful and more subtle than the usual treatments.  For instance we learn that the much-heralded computerization of VA records was created in direct violation of government law.

4. The chapter on the rise and fall of managed care was excellent.  Yet the core problems with managed care also would plague the author’s proposal for compensating doctors and hospitals, quoted above.

5. The policy prescriptions focus on changing the bundle of health care, rather than just cutting back on health care, so the title is not strictly accurate.  The author is not a radical Hansonian but rather favors more "integrated care" and more primary physicians.

Robin Hanson, now there’s a guy who favors gross cutbacks in health care, he argues they won’t cost us actual health.  See the recent forum over at CatoUnbound.

Addendum: See also this NYT magazine article, "Do We Really Know What Makes Us Healthy?"


Damn, you're fast! I was in Barnes and Noble a few days ago and asked for the book, and they didn't have it in yet. I still need to get it.

"...I predict that greater government involvement will be geared toward protecting the rents of American doctors."

Amen to that! The AMA steamrolls every effort to reduce costs or improve quality in healthcare. I have attended two conferences recently on quality improvement in healthcare and never met such a dispirited group. They have been trying to introduce statistical process control techniques in health care for 40 years and have failed for the most part. The main obstacle? Doctors.

Paying docs based on the number of patients they treat will result in the best doctors treating the most healthy patients and leaving the the scraps to those least capable. Medicare used to reimburse HMO Medicare Advantage plans (AKA "Part C" plans) on a weak risk model that just took age/sex into account... as a result the HMOs would pick off the healthiest people and exclude the unhealthy, making gobs of cash. Now MA plans are reimbursed based on disease conditions of plan members... so a plan gets $X to treat a disease no matter how much it costs them. Thus it is in the plan's best interest to keep diseases under control and also not to over-treat.

The difference between MA HMO members and regular HMO members is that the Medicare Advantage members have the option of dropping the plan and going with straight Medicare (or switching to another MA plan) if the HMO isn't doing a good job. So it isn't just a matter of limiting costs... they also have to make the case to their members that they're doing a good job. HMOs are still adjusting to this... their regular members generally have less options... either a few other HMOs in town or being uninsured.

Of course, none of this directly affects doctors or hospitals... the financial benefits of keeping patients healthy go to the HMOs, not the practitioners. But smart HMOs will figure out how to structure things to properly motivate doctors. This is markets at work. Every HMO can try a different way of doing this and the market will reward the best. It has taken them a decade to come up with the current model for dealing with MA HMOs... which is a lot easier than dealing with doctors and hospitals, IMHO.

Who pays?
If someone don't get these explosive caplets out of my neck, everyone's gonna pay.

The sort of capitation model described was the "next big thing" in the early and mid 90s, and it flopped for a number of reasons.

One of the biggest reasons was the requirement for Family Practice docs to be gatekeeper; the FPs lacked the IT infrastructure, time, knowledge and business sophistication to serve the gatekeeper role.

Anyone who has ever sat through a meeting with hospital executives and physicians knows what a cluster-mess this would be.

And who takes Hanson seriously? He loves to stir up conversations.

save_the_rustbelt a lot of people take Hanson seriously. Harvard's David Cutler claims that what Hanson is shouting from the rooftops is already conventional opinion.

Why not just enslave all with medical skills, and as time goes on, enslave all with medical aptitude.

It would be much cheaper than paying them. After all, if you have a choice of coercing a majority of people to pay a minority, or coercing a minority to serve a majority of people, it is more efficient to coerce the minority.

Stands to reason, right?

I think that marginal healthcare (say the last 50%) does have some benefit but that if we knew how small it was and had a mechanism too exclude it we would not buy it. So what need is a scheme that allows people to determine how much marginal medicine helps and a mechanism to allow them to decline care above a given level and receive the benefit for declining it themselves. Living wills are great but the do nothing for the person who signs them though they benefit their insurance company and Medicare. Perhaps the insurance companies should give discounts to those who sign living wills.

Further you could take the cancer that is most expensive to treat per year of life and offer people to exclude that type of cancer from their insurance policy and see how many people would choose the lower bill and that type of exclusion. An impossible to implement way to handle this would be: If the doctor looks on your lab results and sees that you have that type of cancer he does not even tell you that you have it.

Another idea is that perhaps the insurance companies could offer a buy out. It could work like this: the insurance company offers to pay for your treatment or pay you say $100,000. You could leave that money to your family and friends or you could spend it or maybe use part of it to get care in India from Apollo healthcare.

Has anyone other than me noticed how much a veterinarian will do for a couple of hundred bucks compared to what a doctor will do? So deregulation might help I wonder why a company called “Mastectomies are Us† does not exist.

BTW IMHO some vets are pretty good. I wonder if anyone have compared their cure rates and accident rates to doctors.

Now MA plans are reimbursed based on disease conditions of plan members... so a plan gets $X to treat a disease no matter how much it costs them.

This of course creates an incentive to treat people with the less-complicated cases of the disease. (So you treat say the 25-year old with a broken leg and not the 75-year old with the broken leg and diabetes complicating the healing process, oh and he broke his leg ten years ago, and he has arthritis).

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