Koan of the Week

Because it's National Punctuation Day, the weatherman on WBZ this morning attributed the sunny forecast to good comma.

Tort Reform: No Slam Dunk

I wrote a few weeks ago about Republican alternatives to Obamacare. One proposal is a tax law change: provide individuals the same health insurance deduction that employers enjoy. Another is tort reform: make it harder to sue your doctor for malpractice and limit the damages you get if you win.

I subsequently wrote that the tax proposal goes right to the root cause of high medical costs. Since current law encourages most people to get their health insurance from their employer, and thereby insulates them from its true cost, patients and doctors do not take costs into account when they make health care choices.

The effect of the American culture of litigation on medical costs is not as clear. By all accounts the actual costs of malpractice insurance, lawyers fees, and damage awards is small – somewhere between two percent of health care spending (1) and less than one-half of one percent (2).

However, the malpractice system adds other line items to the doctor’s bill besides insurance, lawyers, and damages. In particular, it adds the cost of defensive medicine, the practice of ordering medically questionable tests, hospital admissions, and other procedures for the sole purpose of preventing lawsuits; procedure with dubious value in the TLC department, but great value in the CYA department. Numerous studies show that this practice exists. A representative sample:

In a 2007-2008 survey of 900 Massachusetts physicians, 83 percent confessed to practicing defensive medicine, with an estimated cost of $1.4 billion (3).

In a 2003 survey of 824 Pennsylvania physicians, 93 percent confessed to practicing defensive medicine (4).

In an often-cited 1996 study, Daniel Kessler and Mark McClellan compared the costs of hospitalizing heart patients in states with damage caps and states without. The authors estimated that between 5 and 9 percent of the cost of treatment was due to defensive medicine (5).

Clearly, defensive medicine is widespread. Unfortunately, we cannot draw any conclusions about its overall costs from these studies; they are all limited to certain geographical regions (like Massachusetts) or certain specialties (like cardiac care). If we want to know the benefits of tort reform, we’re going to need a bigger study.

References:
(1) PriceWaterhouseCoopers, “The Factors Fueling Rising Healthcare Costs 2006”, www.ahip.org.
(2) Baker, T., The Medical Malpractice Myth, University of Chicago Press, 2005, cited in E. Klein, “The Medical Malpractice Myth” in Slate.com, 11 July 2006.
(3) “MMS First-of-its-kind Survey of Physicians Shows Extent and Cost of the Practice of Defensive Medicine and its Multiple Effects of Health Care on the State”, www.massmed.org, 17 November 2008.
(4) D. M. Studdert et al., “Defensive Medicine Among High-Risk Specialist Physicians in a Volatile Malpractice Environment”, JAMA 2005:293:2609-2617.
(5) D. Kessler and M. McClellan, “Do Doctors Practice Defensive Medicine?", Quarterly Journal of Economics, May 1996: 353-390, cited in ”President Uses Dubious Statistics on Costs of Malpractice Lawsuits”, FactCheck.org, 29 January 2004.

Toxins for Tocsins

The Obama Administration Interferes with Freedom of the Press

“When I covered Ronald Reagan for NBC in the 80’s, you know, some days you do a good piece, a positive piece, some days you do a tough piece. And you come in the next day and they always treated you professionally and I think it came from the top down, from the Old Man, Reagan who felt ‘You know, I’m going to get a good review today and a bad review tomorrow and it’s nothing personal.’ These guys, everything is personal – I got to tell you, everything. They are the biggest bunch of crybabies I have dealt with in my thirty years in Washington. They constantly are on the phone or emailing me complaining, ‘Well you had this guest,’ or ‘You did this thing.’” – Chris Wallace, discussing the Obama White House during an interview with Bill O’Reilly, 19 September 2009.

Fox News reporter Chris Wallace recently spent several minutes on the “O’Reilly Factor” complaining that the White House snubbed the Fair and Balanced network. During a weekend media blitz on health care, the President gave interviews to CBS, ABC, NBC, CNN, and Univision – but not Fox. Mr. Wallace went so far as calling Mr. Obama’s staff a “bunch of crybabies”. Sounds like Mr. Wallace is a crybaby.

Nevertheless, in the course of his whining, he revealed something far more sinister than being overlooked for an interview. It seems the White House routinely calls journalists to rebuke them about their reporting.

The government of the United States wields enormous power over individuals - and the companies that employ them. It can tax them, buy from them, regulate them, subsidize them, and investigate them – and do the same to their competitors. Any complaint from officials who wield that kind of power must therefore be taken extremely seriously because it carries the threat the power might be used.

To provide a check on that power, the Founding Fathers had the wisdom to make freedom of the press the law of the land. They saw newspapers as essential to our freedom and worried about the tendency of governments to co-opt them for their own ends. Jefferson called a free press the “tocsin of a nation” and our “only security”. He warned “that government always kept a kind of standing army of news writers who without any regard to truth, or to what should be like truth, invented & put into the papers whatever might serve the minister.”

If we take Mr. Jefferson’s warning seriously, then we must be concerned when high-ranking officials tell reporters what to broadcast. Journalists that don’t want to enlist in the Administration’s standing army of news writers should shed as much light as possible on this toxic practice – before they find themselves drafted.

Principled Opposition

“So all this is a diversion by the people who want to, frankly, hurt President Obama.” – Sen. Barbara Boxer

Interviewer: Do you think there’s legitimate grassroot opposition going on here?
House Speaker Nancy Pelosi: I think they are Astroturf...you be the judge.

“"These are nothing more than destructive efforts to interrupt a debate that we should have, and are having. They are doing this because they don't have any better ideas. They have no interest in letting the negotiators, even though few in number, negotiate. It's really simple: they're taking their cues from talk show hosts, Internet rumor-mongerers ... and insurance rackets." – Senate Majority Leader Harry Reid

“I think an overwhelming portion of the intensely demonstrated animosity toward President Barack Obama is based on the fact that he is a black man, that he's African American," – Former President Jimmy Carter

"Are there people out there who don't like me because of race? I'm sure there are. That's not the overriding issue here. I think there are people who are anti-government. I think there's been a long-standing debate in this country that is usually that much more fierce during times of transition, or when presidents are trying to bring about big changes. "I mean, things that were said about FDR (Franklin Delano Roosevelt) were pretty similar to things that were said about me. 'He's a communist, he's a socialist.' Things that were said about Ronald Reagan when he was trying to reverse some of the New Deal programs, you know, were pretty vicious as well." – President Barack Obama

Practically alone among the Democratic leadership, President Obama gives opponents of big government credit for acting out of conviction. For attempting to refocus the debate on actual issues, the Logic Critic gives him…

4 Blades - Flawless.

The Myth of the One True Treatment

Health Boards vs. Free Markets

“The third class of health-cost proposals, I explained, would push people to use medical savings accounts and hold high-deductible insurance policies: ‘They’d have more of their own money on the line, and that’d drive them to bargain with you and other surgeons, right?’

“He gave me a quizzical look. We tried to imagine the scenario. A cardiologist tells an elderly woman that she needs bypass surgery and has Dr. Dyke see her. They discuss the blockages in her heart, the operation, the risks. And now they’re supposed to haggle over the price as if he were selling a rug in a souk? ‘I’ll do three vessels for thirty thousand, but if you take four I’ll throw in an extra night in the I.C.U.’
- Atul Gawande, “The Cost Conundrum”, The New Yorker, June 1, 2009

In previous entries I argued that, at one-sixth of GDP, health care costs really are a problem, but that Obamacare is the wrong solution. It is the wrong solution because it insulates patients from the costs even more than they are today. To bring costs down, a solution must give patients a stake in cutting them.

This idea is often ridiculed on the grounds that health care is different from other commodities. To paraphrase Atul Gawande’s New Yorker article, it’s not like haggling for rugs in a souk. Markets work because consumers have options. According to this argument, when it comes to health care, they don’t. One doesn’t get to choose, for example, whether to get bypass surgery. Health care, therefore, is immune from the laws of economics that govern the rug trade.

The premise underlying this argument is that there is some “right” treatment for any particular ailment. If only some enlightened person would guide the patient away from the overpriced, self-serving recommendations of doctors and insurance companies, health care would become cheaper and more effective. The Democrats’ health care bill even contains provisions for a Federal Health Board, made up of enlightened experts who will identify these treatments.

Certainly there are many diseases where the treatment is clear – appendicitis, for example. But many situations are less clear-cut, especially where diagnostic testing is involved. And diagnostic testing is what’s been driving the growth in health care costs during the last quarter century.

Arnold Kling’s 2006 book, Crisis of Abundance provides an excellent example of a gray area:

“When I was 45 years old,” he writes, “I had an experience that illustrates the uncertainty involved in whether or not to undertake further diagnostic procedures. During a routine physical examination, the lab that examined my urine sample found microscopic amounts of blood. This condition, known as microhematuria, can be a symptom of a number of serious illnesses, including bladder cancer.

“However, the incidence of bladder cancer is very low among nonsmoking men under the age of 50. Moreover, microhematuria is present in between 10 and 15 percent of the healthy population…Nonetheless, after much argument back and forth, my doctor insisted that I undergo a cystoscopy procedure. The results were negative.”

What is the right decision in cases like Dr. Kling’s?

A health board would approach it by considering the cost of the procedure and the probability of detecting cancer, and weigh those against some calculation of the value of the life that would be saved. Perhaps the board would measure the value of a human being in “Quality-adjusted Life-Years”; that’s how the National Institute for Health and Clinical Excellence in Great Britain does it. In the case of urinary blood, it is likely the board would not to recommend a cystoscopy. Which is fine – provided you’re not the rare patient who dies because his bladder cancer went undetected.

A market approach, in contrast, does not assume there is a “right” answer. With their own dollars on the line, many patients would choose an inexpensive health insurance policy that does not cover pricey tests that rarely find anything. They are willing to take on a small amount of risk in exchange for keeping some cash in their pockets. But other patients are more risk-averse. They would always want the test in order to be absolutely sure they don’t have something serious. In a free market these patients would have the option to buy a policy that covers this type of procedure. They would have to pay more for it, though.

As the hematuria example shows, it is not always obvious what the optimal treatment is. A great deal depends on the preferences of the patient. The notion of a patient discussing treatment options with his doctor and weighing the risks and benefits against the costs is not the absurdity Gawande and other would lead us to believe. But the notion of a government board putting a value on a human life is.

One final comment on the Gawande article: Yes, it is unlikely that an elderly patient in need of a coronary bypass would negotiate price with her doctor. But in a market-based system she doesn’t need to, because her insurance company already did. Since the outcome of those negotiations is reflected in her premium, she already took the doctor’s fee into consideration when she shopped for a policy.