Physicians

Cost-consciousness and clinical decision-making

With computerized health systems, physicians can place orders as easily as they can shop online at Amazon.com. Just a few clicks and your physician can purchase a panel of blood tests, futuristic imaging and diagnostic procedures that will hopefully guide their path to solving your ailments.

Search. Click. Submit. Repeat.

Except, unlike online shopping, physicians don’t see the price tags and they never get the bill. Doctors are the true consumers of health care dollars, but the rules of economics falter when the consumers aren’t the ones that pay up. This disconnect is a fundamental cause of the uncontrollable inflation of health care costs in the US. Ignorance about cost fuels spiraling inflation in healthcare because without cost-related restraint in utilization there is no incentive for suppliers of healthcare services to get any cheaper.

But the system’s stuck. While physicians ultimately control the tap of healthcare costs, exerting that control can contradict their primary objectives. Physicians feel a responsibility to do the most they can to make the patient in front of them better. If young doctors don’t order a test, a superior may berate them for not considering it in their differential. Malpractice always lingers as a consequence for a diagnosis missed. Some claim that it is irresponsible or unethical for physicians to consider cost in their clinical decision making. Perhaps good doctoring should be blind to finances. And after all, it’s no skin off the doc’s back to just click a little more, some of that money may even end up back in their own pockets.

Despite all these pressures pushing physicians to just do everything imaginable, many realize that physicians also have a responsibility to balance the health of the individual and the health of the community. No matter how much we try to ignore it, health care is a limited resource and giving more to one inevitably means less for another. In Cooke’s 2010 NEJM article on cost-consciousness in medical education she writes, “[We must] stop hiding behind the myth that every physician should and does apply every resource in unlimited degree to every patient for even minimal potential benefit”. The reality is, physicians already dictate how finite resources are allocated in the hospital. Physicians decide who gets how much of their time, who deserves a consult from a specialist and who should be in an ICU bed. Why don’t physicians exhibit the same judgment and restraint for expensive tests and imaging studies? Cost-consciousness at this scale may be beyond human cognitive capacity, especially when competing with disease differentials and medication lists. It’s far easier to count down the hours in the day and notice when all the ICU beds on one wing are full than to be mindful of the obscure strings of digits and commas that represent their health care spending. The finances of health care are far less visible but just as real.

While respect is growing for skyrocketing health care costs, the average doctor is clueless about the price tag of their day-to-day clinical shopping-sprees. In a 2008 review of 14 studies, Allan et al. found that doctors came up with estimates that were within 25% of the true cost of diagnostic tests less than one-third of the time. And, interestingly, they found that the country, level of training, and specialty of those surveyed did not impact accuracy. This tells us a few things: doctors have no idea how much they’re spending for their patients, it’s not just US doctors or super-specialists who are clueless, and most importantly, it doesn’t get better the farther along young docs get in their training. The Chief of Medicine who can diagnose Peutz–Jeghers syndrome from across the room may have no idea how much it costs to do a colonoscopy or a genetic workup for the patient. It’s not just students who are naïve and, sadly, financial insight doesn’t come with time.

For our generation, this deficit threatens to spin out of control. The stakes rise as physicians become capable of doing more and more for each and every bullet point on their differential diagnosis. Immunoassays and genetic tests are available for the obscurest pathologies. Imaging technology can produce increasingly fantastic windows into the human body. But as these options become more numerous and specialized, our grasp on what’s necessary to produce quality care only slips further.

If cost-consciousness among physicians is the goal, how do we achieve it? Competition for doctor’s time and brain-space is fierce. Cooke thinks that health finance should be integrated into medical school curriculum from the start. Educators suggest dual-degrees in business. Researchers have tried post-graduate education campaigns. Hospitals try to intervene with computerized decision-support systems. Insurance companies stall with mandatory pre-authorizations. But few interventions have shown substantial increases in awareness of cost or changes in physician behavior.

Health information technology (IT) may be partly contributing to the ease of over-zealous ordering, but it may also hold the potential to curb it. Two large randomized controlled trials conducted at a large teaching hospital attempted to show that the inclusion of costs in the ordering system itself might increase awareness of physicians and decrease the over-utilization of diagnostic laboratory tests and radiological imaging. Although it was conducted over four months and involved over 24,000 patients, the study showed a statistically insignificant 4.5% decrease in the number of laboratory tests ordered and almost identical rates in the number of imaging studies ordered. The authors concluded that more intrusive measures were needed in order to affect change, like prompts similar to those in decision-support. Price tags alone weren’t enough.

Ultimately, the judicious and cost-effective utilization of limited health care resources remains a physician’s responsibility. They’re trained to make clinical decisions and manage treatment plans but those same decisions dictate the finances of patients and the health sector as a whole. These dual roles are inseparable and increasingly consequential yet the majority of physicians are too unaware or unprepared to meaningfully incorporate financial consequences into clinical decision-making. Any efforts to reform health care policy to reduce costs and spend our health care dollars more efficiently and equitably must start with assisting doctors make better and more informed decisions for their patients. Physicians must wake up to the reality of modern medical practice and start educating themselves about the economics of their patient care methods and they must demand the information when it’s lacking. This will require a culture shift in how medicine is practiced and future generations of doctors are trained. In a world of competing priorities and information overload, physicians will need help. More cost-effectiveness data is needed so that physicians have an evidence base for rational allocation of resources. Health IT, decision-support, payment reform and institutional leadership are all essential strategies to encourage cost-consciousness and appropriate health care spending, but none can be effective in isolation. The tap of health care dollars that threatens to run dry is controlled by thousands of physicians and their daily interactions with unique patients. Only through innovative programs and education campaigns can we reduce the flow of excessive health care spending and help physicians avoid irresponsible clinical shopping sprees and begin to make evidence-based decisions with a broader context in mind.

REFERENCES
1. Cooke M. Cost consciousness in patient care — what is medical education’s responsibility? N Engl J Med 2010;362:1253-1255
2. Abbo ED, Volandes AE. Teaching residents to consider costs in medical decision making. Am J Bioeth 2006;6:33-34
3. Goold SD, and Stern DT. Ethics and professionalism: What does a resident need to learn? American Journal of Bioethics. 2006. 6(4): 9–17.
4. Allan GM, Lexchin J, Wiebe N. Physician awareness of drug cost: a systematic review. PLoS Med. 2007;4(9):e283.
5. Allan GM, Lexchin J (2008) Physician Awareness of Diagnostic and Non-drug Therapeutic Costs: A Systematic Review. Int J Technol Assess Health Care 24: 158–65
6. Bates et al. Does the computerized display of charges affect inpatient ancillary test utilization? Arch Intern Med. 1997;157(21):2501-2508.

Ian Metzler is a medical student at Harvard Medical School, currently studying health systems improvement at Children’s Hospital Boston.

Costs of Care (Twitter: @CostsOfCare), where this post was originally published, is a Boston-based nonprofit organization that collects anecdotes from doctors and patients. We feel these stories are poignant because they put a face on some of the known shortcomings of our system, and also because they unveil how commonplace and pervasive these types of stories happen.

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45 replies »

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  2. I agree, I think that those types of classes should be infused into the curriculum. Doctors should have the knowledge that they need to make the best decisions possible. Of course, I think it’s important to lean in favor of giving the best treatment to the patient.

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  5. The 2010 midterm clearly said taxed enough already. It clearly said stop the bleeding. It clearly expressed buyer’s remorse. It clearly was a turn away from bigger government.

    Most voters are not paying the bills. That is the other problem.

  6. (Hint, you can do this and still have insurance/medicare/medicaid)

    Not so far.

  7. @ Ian,

    You are confusing issues here. My whole point is that health care services and resources are not what is limited, money is. For someone to ask me, the physician, to determine who should or should not have access to a given resource based on their ability to pay would be ridiculous. But it is equally ridiculous for me to categorically deny access just on the principle that it costs too much period. So what you really must be talking about is my adherance or non-adherance to practice guidelines, and that is a whole different discussion. You cannot ask a whole group (physicians) to act in a way that is not natural. People do what people do. You can force us or you can focus on the areas that are really going to make a difference – either give the healthcare market over to governtment ownership (like the VA) or work on incentives or disincentives for the consumer. As much as you would like to make me out to be, I am not the consumer. When you make the decisions about what health care resources to access a decision between two parties instead of three, you are finally making progress. (Hint, you can do this and still have insurance/medicare/medicaid)

  8. Truth again. I forgot the computer scientist hat. CPOE and EMR is slow, clunky and inefficient. It takes longer to see each patient, and each patient gets less time with me. So, it’s a lose-lose scenario.

  9. Ian,
    I have to agree with Quack and hell MD, although you are certainly right for the truly sick (or: reasonably worried) patients.

    The other thing I wanted to mention: COE (computer order entry) makes ordering more cumbersome and time intensive, not less. In the past, you just had a form, made a checkmark (or told the MA exam and question and she took the signature stamp) and that was it. Not that I think it should be supereasy, just commenting on the preparation of your first thought.

  10. “I think physicians should expect an insatiable desire for cure from patients.”

    What makes you think all your patients are going to be sick? It is the worried well and the worried chronic but stable patient that spends like a drunken Congressman.

    You don’t sound like you are heading for primary care.

  11. Mr. Metzler,

    At one time, the physician and the priest were one and the same person. But time and knowledge have expanded such that we are now two different people. One looks after the body, the other after the soul. I do not pretend to be a priest.

    The basic duty of the physician is to diagnose and treat disease and repair injury in his/her patient. That alone is enough responsibility for any one wo/man’s plate. It’s nice when we can prevent disease and injury as well, but we really cannot imprison or control our patients.

    Our society, unfortunately, has loaded our plates with a bunch of other junk which is really not our work. We are to be insurance claim adjusters, secretaries, job counselors, police officers, social workers, lawyers, and accountants. And now you seek to add financial planner for the patient as well as guardian of the public purse. Can we do it? Of course we can. We are (historically at least) some of the smartest, hard-working people with good executive function in our society.

    But should we do all these things? All this money/legal/social stuff can best be done by other people with other training. The fact is, there are only so many hours in a day. The more am I bogged down by administrative garbage, the less of a doctor I am. I went into this to do the best job I can with diagnosis, and recommend the best treatments available. I am not here to obfuscate things for my patients and sell them on a second rate treatment. I’m not a salesman, either. If they cannot afford the best, I am happy to then recommend the next best; and so on. But I’m not here to keep track of their money, or the government’s for that matter. That is the responsibility of those who are spending the money.

    I am here to diagnose and treat my patients to the best of my ability. I’m a doctor, not a financial planner!

  12. I’ve decided that the only reasonable way to proceed is to go ahead and make the appointment for my mammogram. When I arrive at the facility, I will tell them how much I am willing to pay for the procedure. They can then either accept my offer, reject my offer, or make me a counteroffer. If they are annoyed that I took up a time slot, then they should learn to state their charges in advance like other businesses do.

  13. @April – Thanks for sharing your struggle, I really admire your efforts. So many other people are oblivious to the realities your facing and are later blindsided by the bill. I wish there were more resources for you or a clearer path and I hope that the next generation of physicians will be better able to answer your questions.

  14. @ Dr. Mike – The limits of our health care resources are not seen by long lines at your MRI machines or shortages in labs because we live in a system that will pay for what is ordered and build more if there is too long of a line anywhere. But that unhampered availability comes with a price to insurers who then raise premiums next year, out of reach of more and more of our population. This is the group of people that suffers the limits that you say you cannot see. You likely don’t see them because they can’t pay to come to the doctor.

  15. Thank you to everyone for the thoughtful discussion.

    I write from the soon-to-be physician perspective, but I firmly believe that the burden of cost-consciousness should also be shared by patients, providers, insurers and policy makers. This must be a team effort if any progress will be made.

    But to the many commentators, MDs among them, that shirk the responsibility of cost-awareness onto the “demanding” patient, I ask you to consider the psychological state that a patient is in. How could you possibly expect anyone, when faced with a threat to their life in the form of illness, to rationally consider cost in weighing their options for care? I woke up tomorrow with cancer, I would want every last diagnostic test or possible intervention if it meant a better chance at life. To think otherwise would be inhuman.

    I think physicians should expect an insatiable desire for cure from patients and accept that it is our job to educate patients about the value of the therapy options. Physicians already do this for concerns of side effects, disability, time and suffering that could be a consequence of a treatment, but for some reason it is blasphemous to also educate about cost-effectiveness.

    I’m not saying that physicians should make cost-minded decisions for their patients, or ever put finances ahead of the optimum medical care, but I think they should be able to counsel about the cost of the care they provide. But physicians are clueless about cost, even if patients ask. Please see @April’s comment about her search for the cost of her mammogram. Patients just don’t have the information they need to make these decisions, and even if they do, I think their doctors should be the ones that provide it and interpret how it fits in their care. Even if the physicians reading this don’t change their practice one bit, don’t you think they should know what sort of bill their patients will take home?

    It doesn’t have an ICD9 code, but bankruptcy is certainly damaging to your health.

  16. “beneficial” is not an exact term, so the principal decision will vary with individual assessment.

    I do agree that a decision needs to be made, but do you think the physician should be the one making that decision (2 cans of Napalm or 5% better odds for Mr. Jones)?

  17. The recommendations for a national health basket of service should require expertise, but ultimately people will have to decide how much they want to be taxed. I am not suggesting a vote on every pill, but in the fantasy world of national health care, I presume the hard choices will be made on election day by those who pay the bills.
    We don’t vote on what weapons the air force chooses, but we do vote on platforms (and candidates) to increase or decrease defense budgets, and in local elections we do vote on specific Propositions to increase taxes for specific purposes. Perhaps adaptable to direct democracy?

  18. It’s a principal decision that beneficial things are covered and nonbeneficial or unproven stuff is not, not and individual assessment.

    Society already does weigh on risk of human life vs other benefits; take car traffic, for instance: there are standards, but you are still allowed to drive your 60 collectible car w/o air bags, crumple zones, ABS, and not everyone maintains their cars. Requiring 4 airbags, ABS, good crumple zones and biannual safety checks would save lifes, but immobilize a lot of poor people and cost a lot of resources, resources that society thinks are not worth the outcome.

  19. Margalit,

    That taxpayers vote on this (what? on every device, every new drug, every new procedure) is like taxpayers deciding, say, to what extent bridges or nuclear power plants should be constructed to resist natural disasters, or how flight control centers should be staffed, or what weapon systems the airforce should purchase … it’s a question that requires maximum expertise and is, IMHO, not open to direct democracy.

  20. “how many patients (with a life theratening condition, I assume)would choose the slightly less effective (but cheaper therapy) based in the situation that both are covered by a 3rd party?”

    Yes, this is the problem. However, I don’t believe that what we perceive to be the solution at this particular moment in time, should be directed or unduly influenced by physicians. In my opinion your job is to recommend the best possible course of action from a clinical perspective. This includes abstaining from frivolous orders, whatever the rationale for those may be. The rest is up to the patient.
    I also don’t think that “experts” and “advocates” should be in charge of these decisions (they should recommend). Taxpayers should vote on these things. Granted, this is very hard when only a portion of taxpayers are covered by public money. It would be much easier to make societal decisions if all of society paid into one pot of health care resources, and probably a lot cheaper too.

  21. I realize the “drones” reference is humorous, but are you really asking docs to say to their patients something along the lines of “Yes, there is a small chance that this treatment may benefit you, but we’re going to forego it, because, in my opinion, any other way in which society uses the money is more appropriate”!

  22. “Otherwise, whatever trust remains between patients and doctors will disappear into thin air (as it did during the HMO gate-keeping glory days).
    For example, I would expect a physician to say something like “this therapy is extremely expensive, it has 15% chance to help you, while this other therapy is a fraction of the price and has 10% chance of helping”. At this point the good citizenship should be left to the patient.”

    Margalit, how many patients (with a life theratening condition, I assume)would choose the slightly less effective (but cheaper therapy) based in the situation that both are covered by a 3rd party?

    To decide what is worth societal health care money (e.g. taxpayor money for medicare), a societal decision has to be made. Rationally, this decision would have to come from experts that are supervised by patients, patient adviocates and the interested part of the general public. I agree that a doctor should discuss the best care with the patient (and what options are covered or not) … but he should also be on the same ship by acknowledging the (hypothetical) societal contract that states: money for marginally beneficial treatments is better spent for schools, roads, health care for all, drones bombing other countries etc.

  23. I agree with both Dr. Shah and Ms. Gur-Arie. Do no harm must be a doctor’s first and most important responsibility. Cost effectiveness may be discussed with a superior and the patient. Including the patient while allow doctors to advocate for their patients.

    While we do no harm, patients are entitled to help make a decision which affects their lives. Even if a therapy is only 5% more effective and incredibly expensive then it’s up to the patient to help decide.

  24. Both the provider and the insurer are lying. They both know, based on what your coverage is, how much the mammogram will cost.

    However, your contract is with the insurer, not the provider. You should demand to know how much you will pay at the various facilities. If they stonewall you, go to the next level, and be sure to get your HR rep involved.

  25. Dr. Shah,
    I agree with do no harm and I agree with effectiveness assessment. Cost effectiveness, I’m afraid is something that a physician should perhaps share with the patient, but as Dr. Subramanian puts it simply, this is not a decision that belongs with the doctor.
    Patients need to know that their physician’s sole concern at the point of care, and elsewhere, is the one patient, and the ethical responsibility to the individual patient must trump the ethical responsibility of a good citizen to society as a whole (within the limits of the law). Otherwise, whatever trust remains between patients and doctors will disappear into thin air (as it did during the HMO gate-keeping glory days).
    For example, I would expect a physician to say something like “this therapy is extremely expensive, it has 15% chance to help you, while this other therapy is a fraction of the price and has 10% chance of helping”. At this point the good citizenship should be left to the patient. If the payers (or government) will only pay for the cheaper therapy, the same complete information should be shared.
    Cost-effectiveness considerations must be transparent to patients, and as much as possible within their purview.

  26. @Margalit, who said anything about recource allocation being a doctor’s primary responsibility?

    The first responsibility is to do no harm. If a test or treatment is known to be safe, the second responsibility is to make sure it has a reasonable chance of working. If it is safe and effective, the final responsibility is to make sure it is reasonably cost-effective.

    Once we accept this, we can move on to the more important and challenging question of what “reasonably cost-effective” means and how a doctor at the bedside should go about determining this.

  27. Valid point.

    However, this is you (the patient) making a cost-concious decision, which you should be empowered to make.

    I think the author is suggesting that the doctor make this cost-based decision for you….

  28. Trying to compare costs is extremely frustrating. Right now, I need to have a mammogram performed, and I have been calling around to find out how much it will cost me. When I tell the health provider that I have high deductible insurance, but the mammogram will not be covered by my insurance because I have not met the annual deductible, they say that they are unable to tell me how much the procedure will cost. They say I must come in and get the procedure first and then they will send the bill to my insurance company to determine how much to charge me. I have been told this by several providers.

    I have also called my insurance company. The representative told me that she can’t tell me the cost either. She said that the provider should be able to tell me the cost in advance because they have the contract. I can’t even figure out who is responsible for telling me how much I will be charged—is it the provider or the insurance company? However, I cannot agree to have this procedure performed until I know how much it costs.

  29. As a patient, I find it very concerning to know that a doctor will take into account the price of a treatment before prescribing it to me (or my loved ones).

    IMHO, there should be only TWO things that are used by the doctor to determine what treatment is chosen or what options are presented to the patient – patient safety and quality of the outcome. (Did I miss anything else?)

    Am I too liberal to think thus?

    -Siva

  30. The Veterans Administration is a Communist plot. Hospitals, labs, everything owned and operated by the government and staffed by people on salary. No business plan, pro-forma, P&L statements, shareholder meetings, market studies, profit-sharing, nothing resembling free enterprise.
    And all paid for with tax revenues.
    Who knew?

  31. “Ultimately, the judicious and cost-effective utilization of limited health care resources remains a physician’s responsibility”

    Not my responsibility at all. Can’t say I’ve ever seen a “limited” health care resource. I live in a county with less than 150,000 total population. Within 10 miles of my office are three MRI machines, three CT machines, Three full service labs, two hospitals, two surgery centers, etc etc.
    Do you really think that I am going to tell a patient that despite the abundant availability of health care services, they are not going to be able to have access to them because I want “to do the right thing save their insurer a little money?” Really? This is how communism starts – someone has this ideal in their head about how people should behave, but when people keep acting like people the idealist has to start forcing them to behave by assuming total control. How can you not know this?
    You have one of two choices – either provide the healthcare service yourself in the form of a government owned healthcare system (not single payer – i.e. government funded third party insurance) OR you can inject free-market economics into the health care system by introducing the patient to the economic realities of their health resource consumption. There is no other choice that will ever meaningfully reduce costs.

  32. I agree with Dr. Shah – responsibility for the culture of irrational overutilization is with both patients and physicians (it has to be kept in mind that there already are both patients as well as physicians who keep value and resources in mind).
    Physicians are interested in: satisfying the patient&avoiding litigation in case there is a bad outcome (these 2things are linked), being more thorough and accomodating than the competing doctor, making the occasional rare diagnosis before any other provider the patient may encounter sooner or later, and let’s not forget financial slef interest (physician owned imaging facilities etc)
    The patients want: the explaining diagnosis (even if for many patients, the answer is somatization disorder or other not medically explained symptom complexes including fibromyalgia) and the best treatment – which, thanks to culture and direct to consumer advertising, may be just the latest fad … or it may be overly aggressive or even futile treatment in moribund patients, often pushed by family members.

    IMHO, the only rational and fair solution is: determine what is reasonable value and what is not. That could be done by boards consisting of experts and patient advocates. Of course, conservatives would call that a death panel, but of course that’s dishonest as everyone may purchase any intervention he/she wants, either vias self pay or suuplemental insurance.

    In other words, resource oriented medicine may occur based on evidence and practiced by societal agreement and allocation of resources.

  33. I find it curious that several of the comments suggest that cost-control should be exclusively left to politicians or patients rather than physicians that determine which tests go on the bill. One of the primary reasons for market failure in healthcare are the stark information asymmetries that exist between the providers and everyone else. Surely, the clinician-the one who knows the true value of a test or treatment bears some responsibility.

    Given the intractability of patient demand for the “best”, it should be and in practice is the job of the physician to frame the value of health care services. Moreover, responsible stewardship of resources is the ethical responsibility of any good citizen.

  34. “Educators suggest dual-degrees in business.”

    “Any efforts to reform health care policy to reduce costs and spend our health care dollars more efficiently and equitably must start with assisting doctors make better and more informed decisions for their patients.”

    “More cost-effectiveness data is needed so that physicians have an evidence base for rational allocation of resources.”

    How very patient-centered.
    I’m sure people will be thrilled to know that their doctor’s primary job is to rationally allocate resources.

  35. BS is neither liberal nor conservative, my good colleague. And BS this is.

    This author is totally clueless about the actual practice of medicine. As a a matter of fact, there are no ethical or legal imperatives to care for the system, just the patient. I didn’t go to school to diagnose and treat systemic problems. I treat people. That is the politicians’ responsibility, and they’re trying to drop it like a hot potato. Kind of like the guy in the photo at the beginning of this article. You can say it’s my responsibility until you’re blue in the face, but that doesn’t make it so.

    As long as patients can demand whatever they want, and physicians can get hit with delay to diagnose, you’re not going to get a handle on this cost problem. Get patients to stop asking for stuff, get “delay in diagnosis” off the docket, and we can save some serious money.

  36. A good follow-up and complement to Dr. Levy’s post yesterday.

    Regarding this quote, it is a grave error to conflate sick or well patients with “consumers” or imagine the delivery of health care is a function of market economics.

    Aside from that select group who can afford to retain a concierge practice, the only consumers in the game are corporate entities, from insurance companies to providers often more interested in volume arrangements with other so-called providers, both for-profit and not-for-profit than delivering appropriate quality, AFFORDABLE, reasonably good health to individuals in accordance with a variety of lifestyles. (Sick people without sufficient financial resources, insurance, or Medicaid eligibility need not apply.)

    After observing a large community health care system for years which was officially “not-for-profit” I came to the conclusion that surrounded by a multitude of individual practices, clinics, labs, groups, and multistory specialty treatment centers, the main hospital is in a symbiotic, incestuous relationship with the rest of the medical community, serving to launder money for tax purposes and maintain good public relations for everybody.

    It was like catching my parents naked. I wish I had never seen it.

  37. What a crock of liberal BS.

    There is no limit to the appetite for free stuff. Until the patient demands less, there will be no changing physician behavior. Until malpractice is a systemic process and not a tort process there will be CYA testing all day long.

    There is no salvation in technology and no salvation in “evidence-based medicine”, which is a crock in its own right.

    As long as everone looks at the provider as the controller of costs and spending and not the patient, you will continue to fail.

  38. Our hospital laboratory tried something like this years ago to no effect. This whole thing sounds good, but you are swimming upstream. I have to just say flatly, it ain’t gonna happen short of some forcing mechanism – the other incentvies such as malpractice avoidance are just too strong.

  39. Good article. Economics works if supply and demand quantities are determined by price. In this case, doctors don’t see the price and consumers do not see the price when they are shopping for medical care. The end result is that all of us (both sick and healthy) will have to pay through higher insurance cost.

    Also, could there be a vested interest by doctors who just bought the medical equipment to recommend more medical tests?

  40. Very nice article. Brings to mind this:

    “CONCLUDING REMARKS

    The potential role ascribed to the moral paradigm in this article is large. But it’s far from sufficient to guide all health-care decisions that any system must make. It is, after all, of no help in encouraging productive efficiency or in assessing scientific issues about what benefits (if any) of various treatments have. Nor should it have escaped attention that the moral paradigm has still left us with no answer to the question of how precisely to make trade-offs between health care and other social goods. That matter remains largely “incorrigible to moral reasoning.”

    To address those issues, we must rely on market, professional, and/or political paradigms for making resource allocation decisions. But why should we have any more faith in those decision-making processes, and what role should we ascribe to which process? Clearly, a full justification for the healthcare system I advocate requires more than an assessment of the strengths and weaknesses of the moral paradigm, which is all this article offers. It requires a comparative assessment of the strengths and weaknesses of the other paradigms. The details of a full comparative paradigm analysis will have to await another day, but a sketch of the argument is probably necessary to provide context to this article’s analysis of the moral paradigm.

    As I see it, the strength of the market paradigm are the standard ones: if consumers are knowledgeable, have similar resources, and have incentives to trade off the benefits and costs of each product, then market competition promotes productive efficiency, accommodates varying consumer preferences, and achieves allocative efficiency. The problem of unequal resources is largely external to the market paradigm and potentially remediable through vouchers. But the more fundamental problem of the healthcare market flows from an inherent division between knowledge and incentives. Unlike other markets no decisionmaker exists who has both the knowledge and the incentives to decide when the costs of supplying a particular good or service exceed its social value. Patients lack the knowledge and, even the fact that others (such as insurers or employers) cover much of the social costs, also generally lack the necessary incentives. Physicians and other healthcare providers are knowledgeable about medicine but not about social benefits and costs. Moreover, under current American market systems they either have incentives to provide too much care (if paid on a fee-for-service basis) or incentives to provide too little care (if paid on a capitation basis). Insurance plans generally lack the information to make case-by-case cost than if it decisions and have incentives to provide two little care, or to select for low-risk enrollees unlikely to need much care, because the insurers pay the cost of health care but do not enjoy its benefits…

    … Where markets and self-regulation fail, it is natural to turn to the political process. The main advantages of the political paradigm are (1) that it can make the open-ended trade-offs between healthcare and other social goods that do not lend themselves to objective scientific analysis and (2) that, unlike decision-makers under market and professional paradigms, political decision-makers have incentives to weigh benefits against costs because both are experienced by the polity. The disadvantages are that the political process is inevitably too centralized to effectively trade off the benefits and costs of health care in individual cases, and is susceptible to problems of majoritarian bias, intransitive choices, an interest group politics. These weaknesses counsel for limiting the political process to one global issue: how high to set a national (or state) level of health care spending and associated tax. This avoids the political processes in ability to make operational decisions, and lessens the concern of majoritarian bias because funding levels are more likely to affect everyone equally and decisions about which treatments to fund. This way of framing the political decision is also more likely to produce both “single peaked” preferences resistant to intransitivity problems and, more important, Lowell political information costs that render the process less susceptible to interest group dominance.” [pp 1542-4]

    That was 1994. Einer Elhauge’s “Allocating Health Care Morally.”

    http://www.law.harvard.edu/faculty/elhauge/pdf/82califlrev1449.pdf

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