[ExI] Medical Costs

Stathis Papaioannou stathisp at gmail.com
Thu Feb 28 13:27:53 UTC 2008

On 28/02/2008, Rafal Smigrodzki <rafal.smigrodzki at gmail.com> wrote:
> On Sat, Feb 23, 2008 at 8:44 AM, Stathis Papaioannou <stathisp at gmail.com> wrote:
>  >  The bureaucratic rules are "make the hospital function as effectively
>  >  and efficiently as possible".
> ### No, no, no, this is not a rule, just as the preamble to the US
>  constitution is not really a law. This lofty but vague mission
>  statement has almost nothing to do with the daily drudgery of a
>  bureaucrat. The bureaucrat comes to work, drinks his coffee, and goes
>  to the meeting, where they discuss the minutiae of bureaucratic rules
>  that were written by other bureaucrats, with some input from
>  politicians and lobbyists and essentially no direct and truthful input
>  from customers. Obviously, even the customers do not have an incentive
>  to provide a truthful input - they have nothing to lose if they
>  complain and if their complaint is taken into account, others will
>  foot the bill. The inevitable result of this lack of short feedback
>  loops is misallocation of resources, which is obvious from the high
>  cost and poor condition of care in Britain or Canada.

The feedback loops in large organisations are not that different
whether the organisation is public or private. If the cleaner doesn't
do a good job, customers or other staff bring it to the attention of
his supervisor, who either tries to make him work harder or argues to
his superiors that more cleaners need to be employed. If a bad
decision is made - too much or not enough money spent employing
cleaners, or too many incompetent cleaners employed - this comes to
the attention of management further up. By it reaches the board of
directors it will have become very serious, affecting sales, customer
complaint levels, or some other outcome measure. Some work will need
to be done to determine why exactly the customers are leaving or why
the incidence of gastroenteritis has increased. Ultimately, if things
are handled badly enough, the shareholders/electors can vote to sack
the board of directors.

>  >  Private hospitals in Australia are generally smaller, and if they get
>  >  a complicated case they often put them in an ambulance and send them
>  >  to the nearest public hospital. The only real advantage to having
>  >  private health insurance in Australia (apart from tax advantages for
>  >  higher income earners) is that there is a shorter waiting list for
>  >  some elective surgical procedures; but as soon as a deficit in the
>  >  public system like this is identified there is pressure from the
>  >  ministry to improve the situation using available funds, and pressure
>  >  from the community to increase available funds if this doesn't work.
> ### How does the "pressure" work? How many hours of pressure does it
>  take to hire one more nurse in the geriatric ward? You are postulating
>  the existence of feedback loops through political action ("pressure
>  from the ministry") and through collective action ("pressure from the
>  community") but it is well-known that these kinds of feedback loops
>  are inferior to direct, contract-based control with exit option.

Sometimes a lot of pressure is needed; sometimes the nurses have had
to threaten strike action because they are overworked, or they have
left nursing for more lucrative and easier jobs forcing the government
to increase pay and improve conditions. But the same happens in
private hospitals: the most common complaint I hear from private
patients is that the time they get from nurses and doctors is too low,
often lower than in public hospitals. I guess it just isn't profitable
to run a more expensive, but very well staffed hospital.

>  Really. Case in point: Bakeries. You folks here on this list may not
>  have had the experience of waiting in bread lines for bread baked in a
>  state-run bakery and sold in a state-run grocery. I can tell you, it's
>  no fun! One may take bread for granted if it is readily available from
>  dozens of sources from which you can choose at a whim, and then
>  perhaps it's easier to theorize about the superiority of a political
>  monopoly provider of services but such theories don't survive
>  confrontation with reality.
>  There is no difference between the provision of bread and provision of
>  heart surgeries, and both should be controlled using the same
>  pluralist, short feedback-loop mechanism.

Maybe a combination of private (to provide competition) and public (to
guarantee a basic standard) is the ideal. I usually send patients to a
private pathology provider, because they don't have to wait as long,
while I send them to the public hospital for echocardiograms (for
monitoring clozapine treatment), also because they don't have to wait
as long. Next year, the situation may reverse.

> >  Thus, the pool of money is constantly shifted around to where it will
>  >  do the most good, and the size of the pool is adjusted to what the
>  >  community is willing to pay.
> ### That's what used to tell me in school, too. It's good that I am an
>  ornery skeptic, and stopped buying this line by age 11.

Good for you: you should always question propaganda. But your life
would not necessarily have been any better had you lived in one of the
many poor, disorganised countries where the propaganda (and the
prisons, and the death squads) was intended for the evil socialists.

>  >  >  This is dramatically different from the feedback loops between a
>  >  >  patient and a doctor who can be fired on the spot, or an insurance
>  >  >  plan that can be changed with a few phone calls.
>  >
>  >  If you don't like your doctor or your nurse in a public hospital you
>  >  can complain about them in the same way as you can complain about the
>  >  employees in any private corporation, and with the same consequences
>  >  to them.
> ### Complain? So what? What good does it do to *me* if I complain?
>  This is an important question: What benefit do *I* get from
>  complaining about a state employee, if I can't readily go to somebody
>  else?

There are many commercial situations where you can't readily go to
someone else, for example if you live in an apartment building and you
don't agree with the way it is being renovated. You could move, but at
great cost and inconvenience. With a public hospital (the ones I am
familiar with) at least your complaint will be taken seriously, and
the board of management includes community members whose only role is
patient advocacy. If you still disagree with a hospital decision there
is a health ombudsman, the various professional registration bodies
(which can revoke a practitioner's licence to practice), and
ultimately the courts if there is negligence. But yes, if you can't
afford anything else, and you don't like the variety of the food on
offer, there is probably no immediate personal gain from complaining.
It's better not to be poor, if you can help it.

> ### If you get screwed to the tune of 500,000$ over your lifetime in
>  the form of the taxes for state medical care expenses taken out of
>  your income, well, one may be inclined to try to get some of this
>  money back.

Oddly enough, the Australian taxation system penalises high income
earners who don't take out private health insurance: they pay a higher
tax rate, which can work out to many times more than the cost of the
insurance depending on income, so people have an incentive to take out
insurance even if they don't think they need it. This was brought in
as an attempt to curtail public health spending by shifting some of
the burden to the private sector. The result has not been that public
hospitals are left in the dust by their private counterparts. The only
real advantage of private insurance has traditionally been quicker
access to some types of elective surgery, such as joint replacement.
But even this has changed as public patients have been demanding
quicker service, perhaps comparing themselves to their private
counterparts. In terms of research, handling of complicated cases,
innovative techniques and general prestige, the large public hospitals
are still way ahead.

>  >  The US spends more as a proportion of GDP, not just in absolute terms.
>  >  I would have said that the overhead and dead weight losses of multiple
>  >  health insurance funds seeking to avoid paying patients wherever
>  >  possible (with all the duplicated corporate bureaucracy that
>  >  involves),
> ### How do you mean "deadweight loss"? This term has a relatively
>  precise meaning in economic analysis but how are you applying it here
>  to multiple independent businesses? You would need to explain that.
>  BTW, the total cost of health administration and insurance overhead in
>  the US is about 7% of the total, and that includes the cost of
>  Medicare administration. It's peanuts compared to the total spending.

OK, I didn't know that definition of "deadweight loss" and assumed you
meant the cost of administration and the bureaucracy. The following
article suggests that administration costs in the US are much higher
than in Canada, 31% versus 17% in 1999:


>   the better prices drug companies can get for their products
>  >  in a fragmented market,
> ### If you believe that monopsony is a good idea, you should read up
>  on it. Monopsony is bad (i.e. generates deadweight loss), just like
>  monopoly, moreover, it has additional negative long-term consequences
>  beyond the deadweight loss. It leads to long-term attrition and stasis
>  among suppliers, with disastrous consequences on long-term welfare.
>  The whole point of a market is that it is, bah, it *must* be
>  fragmented, or else it is not a market.

The Australian PBS
(http://en.wikipedia.org/wiki/Pharmaceutical_Benefits_Scheme) is not a
monopsony. Australia is a small market by world standards and drug
companies are free not to release drugs in that market if they feel it
isn't profitable, or to release them on a private script only basis.
You may as well accuse pharmacies of being monopsonies on the grounds
that they buy medications in bulk.

The majority of the 200,000 Australians with schizophrenia are
provided with free or almost free second generation antipsychotics at
a monthly cost to the PBS of $200-$300 per person. I don't see any of
the drug companies withdrawing their product on the grounds that this
revenue isn't worth their while.

Stathis Papaioannou

More information about the extropy-chat mailing list