Doctors and Health Care

Interesting column in the SLTrib today about health care:

Doctors No Longer Control Quality of Health Care in the United States

It's especially timely given that Gov Huntsman easily won re-election last night, and one of his second-term priorities is health care.

Anyway, the central theme of the column is captured pretty well in the title (but you should still read it).

My thought is this: Do we want doctors to control the quality of health care?

And before you answer "of course", consider this: As with all products and services, higher quality health care costs more than lower quality health care. And as with all products, it's important that somebody weigh the benefit of higher quality (in terms of consumer willingness-to-pay) against that cost.

We'd all like to drive fancy cars or live in bigger houses, but most of us choose not to --- because the cost to us is bigger than the benefit we derive.

Things are a bit different in health care, though, because the patient typically does not pay the full cost of the health care he or she consumes. If you're insured, then your insurer pays most of the cost, and this means incentive conflicts. The patient gets the benefit of health care, but doesn't pay the full cost. The insurer doesn't get the benefit, but pays most of the cost. Importantly, there's nobody who's directly weighing costs and benefits to try to come to the right balance.

What's the role of doctors in all this? Well, doctors advise patients on the likely benefits of various courses of treatment. But the doctors aren't motivated to think about the cost side of things any more than the patient is. So, letting doctors (in consultation with patients) make decisions about health care quality means we're likely to get quality that's too high, in the sense that the benefit is smaller than the cost.

Many people have valid complaints with managed care, and it is not my intention to suggest that managed care or the current health care system is the best we can do. But health economists have found that managed care succeeds at reducing costs. (Whether it succeeds at striking the right balance between quality and cost remains unclear.)

But the big point is this: It is essential that as a society we carefully weigh costs and benefits. Giving decision-making rights over quality to people who see only the benefit side --- that's not the way to do it.

(More on weighing costs and benefits within organizations when information is widely distributed in Fin 6250. Everyone should take it.)