So here I am, with a mountain of stupid

Noah has been wheedling me for weeks to start a blog on health-related policy, so here it is.  I'm not a doctor, just a cog in the byzantine American healthcare purchasing machine- think of me as the guy who bought the Wizard his machine and helped install it behind the curtain.

I was preparing my first post on why hospitals never pay their bills on time, but that's going to have to wait. Yesterday, Noah put this mountain of stupid in front of me and said sic' em!

As you can see private US spending easily outstrips every other country in the world... That in-and-of itself establishes the US as the most efficient system. One does not need to look at outcomes to determine Why? (sic)

Well, we know that patients like to spend money on health care. We can see that as they are provided more insurance, they spend more money. We can see that as they become wealthier, they spend more money. We can see that as they are exposed to the market mechanisms – compare private insurance to Medicare – they spend more money. Spending more money on health care seems to be inline with satisfying consumer preferences.

Yet, couldn’t this all be a waste. Don’t outcomes matter for efficiency?  No, they don’t...

....They don’t because patients themselves do not look at outcomes and satisfying consumer preferences is the gold standard of efficiency.

I'm hoping/assuming Karl Smith is being ironic here.  For one thing, you can't just redefine "efficiency" to make it anything you want.  Now, I'm no economist- some political economy classes in college went far enough to make it clear to me that an economics debate is mostly a values argument concealed behind lots of complex statistical math.  But still, arguments over efficiency in economic outcomes stick close to the most familiar definition, as related by eminent statistician Professor Wik I. Pedia:

efficiency corresponds to the ratio r=P/C of the amount P of some valuable resource produced, per amount C of valuable resources consumed.

No one is quibbling over C, which is simply "money spent on healthcare per capita".  Karl Smith defines P as being "satisfying consumer preferences", and then extrapolates to imply that more money spent means more satisfied consumers - as if consumption of health care is the same as adding the movie channels to your cable subscription.  This is, of course, overlooking the fact that healthcare is not different in other countries.  They use the same antibiotics and chemotherapy drugs in France that they do here in the U.S.  Canadian cardiac surgeons perform the same procedures as American cardiac surgeons.  Presumably, the same procedures are effective everywhere regardless of price.  So how can the American system be more "efficient" even using Karl Smith's new definition of efficiency?

I (and, I think, most people) tend to think of P as being "positive patient outcomes" - being cured of illness, living instead of dying, being relieved of chronic pain, improving overall quality of life.  One can argue the cost vs. benefit ratios of these outcomes, especially regarding what physicians refer to as QALY- Quality-Adjusted Life Years.  But the point here is that nobody measures the value of their healthcare solely by the amount of money spent, Jack Donaghys of the world aside. 

Basically, Smith is arguing that American consumers don't pay attention to things like comparative effectiveness of different hospitals and physicians when shopping for healthcare.  His implication is that since patients are not bargain-shopping, the "efficiency" inherent in getting the right outcome for less money is irrelevant.  This is actually right, but not for the reasons (and I still can't tell whether he's being snarky or serious) Smith outlines.

The crux of the matter is that, with healthcare providers, information about effectiveness is difficult to come by, and about pricing, nearly impossible.  Hospitals don't post a "menu" of services with a price tag attached because they literally can't- they don't tell you this at the check-in counter, but what you'll finally end up paying for your procedure is not set in stone.  In fact, in many situations, the final price takes weeks or months of negotiating between your doctor or hospital, your insurance provider, and you.  Different insurance plans negotiate often wildly different prices based on their bargaining clout (something I plan to get into in future posts).  Insurance companies often have the power to dictate how much they will pay, how much their client will pay (the patient's out-of-pocket expenses) and then declare by fiat that any remaining balance is null and void-leaving the hospital to decide whether to try and go around the insurance provider to collect that difference or drop it altogether.  Imagine if buying a car worked like that- ("I'll pay $10k of the cost of this car for my kid, the kid will pay $5k, and the remaining $3700 will not be a part of this purchase price."- after you already have the keys and have driven the car off the lot.  Sounds like a shitty bargain for the dealers, eh?).  Medicare plays a role too, even for patients who are not members, since their near-monopsony bargaining power allows them to dictate prices which become, in effect, the "floor" for a caregiver's pricing schedule.

Why is this important?  Because under the current system there really is no such thing as choosing a doctor based on pricing.  You choose your doctor based on location, on recommendations from others, Google searches, and (most likely) based on which doctor your insurance will let you see, which is often based on referrals from other doctors.  You judge the effectiveness of your doctor by the outcome- are you well?  Free of pain? Not dying?  To judge that outcome more "efficient" because you spent more money rather than less is just plain silly.