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Bureaucrats vs. Entrepreneurs

I used to think the biggest obstacle to getting agreement about health care reform was ideology (socialism vs. capitalism). Then I decided it was sociology (engineers vs. economists). I now am inclined to believe it is psychology (bureaucrats vs. entrepreneurs).

I came to this realization after reading through a long list of comments to a Health Alert I posted the other day about a health care entrepreneur (more on that below).

The entrepreneurial approach is the way we are trying to solve big problems in many other fields. Take the Ansari X Prize, established by citizen-astronaut Anousheh Ansari and her husband, Amir. They awarded $10 million to the first group to build a privately-funded spacecraft capable of carrying three people 100 kilometers above the earth’s surface twice within two weeks. Interestingly, 26 teams from seven nations spent more than $100 million competing to win the prize.

A slew of other prizes soon followed:

Currently, all kinds of other prizes are on the drawing board — in education, economic development, energy and environment, exploration, life sciences, etc. In fact, if you have some money and want to get involved, it looks like a fertile field.

To my knowledge, there is no award for any discovery in paying for or delivering health care, however. But why not?

I meet entrepreneurs every day who are in the “business” of health care. Many of them are already solving problems the public is not aware of. Others are startups. They are all trying to make money, and the problems they solve are not always social problems. Building a computer system that helps a hospital maximize against reimbursement formulas, for example, may help the hospital. But it may not help society as a whole.

In my experience, health care entrepreneurs all tend to view the world in the same way. They tend to believe that:

  • The source of most of our health policy problems is government, and insurance companies and hospitals whose behavior is not much better than the government’s; and
  • If you could remove the perverse incentives created by ill-advised government policies, entrepreneurs and competition and free markets could solve almost all the remaining problems.

The bureaucratic mind, by contrast, could not be more different. In all my years of attending health policy conferences in Washington, D.C., I’m not sure I’ve ever heard anyone use the term “entrepreneur.” So I can’t say for certain what bureaucrats think about entrepreneurs. But I’m pretty sure they don’t like them.

Have you ever heard a bureaucrat encourage everyone to “think outside the box”? Probably not. The box is his home. Outside-the-box thinking is inherently threatening to bureaucratic job security.

What caused the shift in my thinking was a post the other day in which I recounted Atul Gwande’s description of Dr. Jeffrey Brenner in The New Yorker. Brenner is a true entrepreneur. He discovered that a small number of patients were generating a very large share of medical costs and he found that he could save society millions of dollars by treating these patients in unconventional ways. By unconventional, I mean doing things that Medicare, Medicaid (and Blue Cross, for that matter) do not pay for. And since he’s not getting paid for most of what he does, Brenner is able to survive only on grants from private foundations.

I suggested, almost as an afterthought, that we could solve a lot of problems if we let Brenner get rich. That is, let him keep some fraction of what he’s saving the government and then encourage every other doctor in the country to seek out entrepreneurial savings in their own ways.

What followed in the comments section was a torrent of objections that surprised me. One critic (a hedge fund manager!) said doctors shouldn’t expect to make a lot of money doing what Brenner does. It’s their professional duty, he said.

I believe I have uncovered a very important psychological divide. But I’m not sure why it exists. What do you think?

John C. Goodman, PhD, is president and CEO of the National Center for Policy Analysis. He is also the Kellye Wright Fellow in health care. His Health Policy Blog is considered among the top conservative health care blogs where health care problems are discussed by top health policy experts from all sides of the political spectrum.

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17 replies »

  1. Interesting and thoughtful article…. thanks! Of course, if we go with the “bureaucrats vs. entrepreneurs” model, then what underlies that, except basically the old dilemma of “group think vs the individual” (along with the risks & advantages of both).

    For example, on the one hand, the safety and security of the bureaucracy can eventually degenerate into mindless fascism. While on the other hand, “free market” entrepreneurs may be great, that is until things start getting “Darwinian” in the absence of any “regulations”, and then they simply become economic & political “super-predators” (like the hyper-conservative & activist billionaires, the Koch brothers).

  2. bev M.D. says
    I think the divide is fundamentally a matter of trust. Do we trust entrepreneurs with our lives? No. Would airlines spend money on maintenance to keep crashes to a minimum if the government didn’t make them? No. Would there be seat belts and air bags in cars if the auto companies weren’t required to have them? No. All those things add cost. What is your solution to that dilemma in health care, John?”

    This is the exact problem the first commenter mentions. You place an irrational amount of value in risk. This is perfectly acceptable as an individual, but when bureaucrats responding to public sentiment err on the side of risk, you kill people by seriously stunting innovation, as is the case with the FDA.

    The simple fact that you believe airlines have no incentive not to make sure their passengers survive is mind boggling to me. If this short sightedness is present within the MD population, then there truly is no hope for smart regulation that analyzes true costs/benefits to individuals. People have trusted entrepreneurs throughout all of history. If they hadn’t, we wouldn’t be living in this world. I know it may be hard to remember, but we didn’t always have government saving people from themselves!

    Steve, it is not a false assertion. Private insurance companies are able to maintain profit margins with the explicit help of government regulation, mainly Medicare and price controls. You also see this with health system as well, with many buying up practices to increaser referrals for whatever revenue stream Medicare once to decide is profitable. There is too much risk to investing in new delivery systems if you already have a profitable operation set up that is backed by the government. It reduces the risk of liability and is usually more predictable.

    I also wish the author distinguished between political entrepreneurship and market entrepreneurship. There is a distinct difference.

  3. @ John Dennison, @Matthew Holt and @John Lynn:

    I became aware of the Heritage prize after I wrote this piece. There is a post about it at my blog.
    @http://healthblog.ncpa.org/can-a-3-million-prize-solve-a-2-5-billion-dollar-problem/

    @ bev M.D.: Do you really think airlines are safe because of government regulation? Or isn’t it more likely that airlines have cooperated to become very safe because safety is a lot more profitable that having planes crash? Do you think the reason you don’t get food poisoning every time you enter a restaurant is because of local health department? Or is it because the restaurant wants you to come back?

    I think government regulation of safety is basically irrelevant, except in health care, where it is probably making things worse.

    See my recent posts on hospital safety at the Health Affairs blog, here: http://healthaffairs.org/blog/2011/04/21/will-price-competition-lead-to-quality-competition/
    and here: http://healthaffairs.org/blog/2011/03/24/why-is-there-a-problem-with-health-care-quality/
    and at my blog.

  4. You can read more about the $3 million Heritage Prize on Neil Versel’s blog: http://www.meaningfulhitnews.com/2011/03/27/heritage-health-prize-launching-next-week/ So, there is some movement that way. You do point out the somewhat obvious: bureaucrats and entrepreneurs think so differently.

    There’s a new healthcare incubator getting started that I’m planning to write about soon. That could be another place where we see nice entrepreneurial change in healthcare.

  5. Oh yes, and insurance company will insure whatever the payor will pay for… A true false economy.

  6. “I now am inclined to believe it [the biggest obstacle to getting agreement about health care reform] is psychology (bureaucrats vs. entrepreneurs).”

    No, the biggest obstacle in reaching agreement is the thinking expressed here that we just need to find the right generalized slogan to put on our victory banner.

  7. Whether someone identifies with being an entrepreneur or merely considers themselves a problem solver, incentives still matter. If we want to encourage people like Dr. Brenner, we need to reward them. Or at least compensate them for their innovations sufficient to allow them the resources to accomplish the task they are trying to improve upon.

  8. This is incoherent rambling. ‘Left’ vs. ‘Right’ according to what criteria? What about risk in other areas?

  9. John.You may be right but on one minor point you’re (not yet) informed. There is indeed at least one huge health prize — $3m from Heritage Provider network to help figure out how to predict hospital admissions, and lots of little ones from both public and private sector players–including (ahem) the Health 2.0 Developer Challenge from the Health 2.0 Organization run (in part) by that dastardly socialist bureaucrat promoter….err, me.

    And BTW the Obama Administration is promoting prize challenges as public policy! Perhaps they’ve failed as bureaucrats?

  10. Oh, and don’t tell me the legal system is the answer, either. A very unfair process to ALL sides.

  11. I think the divide is fundamentally a matter of trust. Do we trust entrepreneurs with our lives? No. Would airlines spend money on maintenance to keep crashes to a minimum if the government didn’t make them? No. Would there be seat belts and air bags in cars if the auto companies weren’t required to have them? No. All those things add cost. What is your solution to that dilemma in health care, John?

  12. “In my experience, health care entrepreneurs all tend to view the world in the same way. They tend to believe that:
    The source of most of our health policy problems is government, and insurance companies and hospitals whose behavior is not much better than the government’s; and
    If you could remove the perverse incentives created by ill-advised government policies, entrepreneurs and competition and free markets could solve almost all the remaining problems.”

    False assertion. Rest of argument fails. Private insurance companies already have a profit motive. They are not controlling costs.

    Steve

  13. I would say it is status quo versus regulation, versus politics versus, absentee payors, versus march of technology, versus aging population, versus the right to have healthcare in a grand “tag-team” wrestling match… Where everyone is getting paid.

  14. I just wanted to add one more competition to your discussion. The heritage health prize is a 3 million dollar data mining effort to predict hospitalizations. As a employee of a healthcare startup(accurately described in your post), that works to make hospitals more through the application of predictive analytics in the healthcare space, I would agree with general sentiment of the post but have to disagree with it’s assumptions. The dichotomy at hand is if the delivery of healthcare a social service akin to homeless relief or a market for goods and services best compared with spa treatments. (I know a distinction that has been brought before but one I’ve personally never been satisfied with) .
    Regardless of how one decides on this distinction, it does not exclude the use of market/entrepreneurial forces to innovate. But it does influence where the pay off has come from, private or public.

  15. “Witness the comments on the latest Goozer article on this site, where the liberal wing is certain Paul Ryan’s objective is to kill more old people, sooner. This is beyond disagreement; they are sure it is his OBJECTIVE.”
    __

    Classic Straw Man.

  16. Dr. Brenner is not an entrepreneur and neither is he a bureaucrat. He is a learned professional. There is a huge difference.

    If someone set out to make money (i.e. entrepreneur) out of saving insurers money on high utilization, the end result would not have been a Dr. Brenner. It would have been more like HCA.

    Although it may seem strange to so some, there are people out there that have motives other than making a fortune on an IPO. Perhaps a better term would be “social entrepreneur”. As a society, we should support them, not by frivolous prizes, but by a concentrated effort to recognize and reward such individuals so they can afford to continue and expand their vision. We are not doing that now.

    As to the liberals being “certain Paul Ryan’s objective is to kill more old people, sooner.”, I think you are missing the point, Tim.
    Paul Ryan’s objective is to protect the wealth of the wealthy. If more old people die sooner in the process, that’s acceptable collateral, since those who would die do not belong to the ranks of those that Paul Ryan is speaking for.
    On second thought, considering the flimsiness of his “budget” proposal, I am starting to doubt that Mr. Ryan had any objective in mind other than publicity aimed to furthering his own career.

  17. John, try Sowell’s term “vision”. Conflicts of vision are not rationally refereed. Both sides look to the other like monsters. Witness the comments on the latest Goozer article on this site, where the liberal wing is certain Paul Ryan’s objective is to kill more old people, sooner. This is beyond disagreement; they are sure it is his OBJECTIVE.

    But to answer your question: try “locus of control”. The Left, rich and poor among them, have a vision wherein the locus of control is external to the individual. The Right, rich and poor among them, see the world the opposite. In their vision, individuals control their own destiny. Both sides allow for exceptions, but their rules of thumb are opposite.

    So, for the Left, the moral course is to remove risk. It doesn’t much concern them if returns are removed as well, since returns are not a reward for risk, but are an entitlement. Then, you might reward the hard workers with some extra grant. Remove risk is the rule, reward the exception.

    For the right, the moral course is individual freedom, and that necessitates both risk and return. Then, you might ameliorate the occasional unjust result. Freedom is the rule, give charity to the exception.

    Both sides are completely convinced and sincere in their moral vision.

    By the way, these are visions of everyone else. Individuals from both sides will act like the other side, in the context of their personal fortune. A Leftist who comes into a windfall, either through luck or hard work, will treat his own fortune like a conservative. A conservative who suffers misfortune will often look to society to fix it. in the midst of both these personal journeys, they will continue to advocate their same political views.

    There is no indication that these two societal visions have any predictable effect on the tendency of the individual to personal charity.

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