A primer, health incentives and more: The roundup

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One of my favorite bloggers, who goes by the handle Maxine Udall, Girl Economist, wrote a piece not long ago about explaining the health-care marketplace to her dad.

“How, I asked myself, do I explain health and health care to him? The information asymmetries; the third-party (insurance) payment that insulates purchasers from prices and prices from accurately reflecting resource costs; the agency problems; the pharmaceutical industry that capitalizes on taxpayer financed research and retains the apparently unfailing profits for itself; the other large, wealthy interest groups that work daily to undermine any effort to rein in health care costs…how, I thought, do I make this sector understandable to him? …

” ‘OK. Let’s talk about the differences between your business and health care,’ I said. ‘Your customers are usually not feeling fear or desperation about their symptoms or their need to make a purchase. In addition, your customers can comparison shop on quality and price all over town and the internet.  If you were a physician or hospital selling medical treatment, your patient won’t be able to comparison shop because it’s nearly impossible to find out what different providers charge for the same procedure. There’s another difference, too. If she’s insured, she’ll pay out of pocket only a fraction of whatever you charge her. The combination of ignorance about price, quality, and whether or not something is even marginally beneficial to her combined with desperation and someone else picking up most of the tab is a potent demand enhancement mechanism. In the absence of a fee schedule or strong market or moral constraints, you could pretty much charge her whatever you felt like charging. The reasons you wouldn’t do that are that there are still some weak market forces constraining you and you are trustworthy and moral and insurers won’t pay you any price you like.”

“Now imagine that what you as a health care provider sell has been shaped over time to favor curing disease rather than preventing it. The technology you use has been shaped by market forces that favor diagnosis and treatment over prevention. And you’re not paid for prevention. You’re paid by piece work, so everything you sell, you can bill and get paid for (if she has insurance). If you make a mistake, you don’t have to accept returned merchandise and refund the payment. In fact, you may actually get paid more for trying to fix the mistake.” More…

Thomas Goetz, the executive editor of  Wired magazine, wrote a book titled “The Decision Tree: Taking Control of Your Health in the New Age of Personalized Medicine.” It’s on the reading list; meanwhile, here’s a piece of his from The Health Care Blog from March 2010.

“One of the great humdingers in the current debate over healthcare reform is the duplicitous role of technology in increasing costs. Sophisticated medical technologies save thousands of lives every year, giving us scans that spot tumors early and devices that keep our hearts beating and our blood flowing.

“But these miracle technologies come with a paradox. In nearly every sector of the economy, technology drives costs down – just as your digital camera gets cheaper and better every year, so technology drives down the cost of manufacturing, the cost of retailing, the cost of research. But for some reason, in healthcare, technology has the opposite effect; it doesn’t cut costs, it raises them. In fact, medical technologies – from CT scans to stents to biologics – are a significant factor in the 10% annual growth rate of healthcare spending, a rate that’s nearly triple the pace of inflation. (Overall, the US is now estimated to spend a stunning $2.7 trillion on healthcare in 2010.)

“This was made clear once again last week, when a Massachusetts state audit found that healthcare costs rose 20% from 2006 to 2008, largely because of new imaging technologies. The single largest increase was for digital mammography, a new – and expensive – way to screen for breast cancer.

“What’s going on here? Why can’t technology work its magic in healthcare, the way it does in the rest of the economy? More…

Ron Lieber writes in “Your Money” in The New York Times about incentives:

“Over the last decade or so, some companies have made sporadic efforts to adopt workplace wellness programs, some of which had incentives of various sorts attached. Their hope was that the cost of rewarding good behavior would be dwarfed by the cost savings that come from lower medical costs and higher productivity later on.

Two things have happened recently that will probably bring more incentives to more people.

First, the new health care law explicitly grants permission to employers to offer rewards of at least 30 percent of the total cost of health insurance to employees. Those winnings, often in the form of lower premiums, will go to people who join wellness programs and hit certain health goals.

Second, UnitedHealth Group, one of the nation’s largest insurance companies, now has its own program, called Personal Rewards. Companies like Pitney Bowes and Jones Lang LaSalle, a real estate services firm, have signed up.  More…