Monday, July 27, 2009

The Liberal Conscience is Wrong on Theory and Evidence

When Nobel Prize winners blog, the Disease Management Care Blog, reads. And read is exactly what it did for Paul Krugman’s piece on ‘why markets can’t cure healthcare.’ According to Professor Krugman, emergency healthcare (like treatment for a heart attack or a broken hip) can’t be bought and sold like flat screen monitors or hotdogs. Accordingly, the financial platform we’ve invented to barter the risk of a heart attack is insurance. However, Dr. Krugman says all insurers are out to reduce the costs of those heart attacks and broken hips by denying payment of claims. That means they need to spend considerable money on infrastructure that specifically exists to concoct rationales for denials. What’s more, comparison shopping for the best heart attack care is hobbled by imperfect information.

He concludes as follows:

‘There are….no examples of successful health care based on the principles of the free market, for one simple reason: in health care, the free market just doesn’t work. And people who say that the market is the answer are flying in the face of both theory and overwhelming evidence.’

Of course, blogging doesn’t lend itself to the kind of thoughtful analysis the topic deserves, but the DMCB respectfully disagrees with the Liberal Conscience using both theory and evidence. It turns out insurers, thanks to their claims data, are very able to discern which hospitals are offering the best value for heart attack care as well as many other big ticket emergency health care items. It’s worked so well that Medicare is adopting the practice That is the basis for many insurers recognizing Centers of Excellence, how Medicare is able to deny payment for conditions acquired in the hospital and how the researchers at Dartmouth can compare the value of services provided in Florida versus Minnesota.

As for the reputation for denying claims, the DMCB notes there are many heart breaking anecdotes of persons being really screwed by their insurer. This has given the industry a huge public relations problem. However, Professor Krugman is using an unnecessarily broad brush that uses multiple anecdotes to paint a trend. The truth is that State insurance departments are closely involved in the day-to-day monitoring of health plans, that consumers generally have access to expedited appeal mechanisms if they feel coverage is being unjustly denied and that without a credible administrative infrastructure, fraud and abuse will go to Medicare levels.

The folks at Safeway would argue markets do work if only Dr. Krugman and his allies and their would look at the real evidence and get out of their way.


John said...

I don't really think this gets to the heart of the issue. There are no successful examples because there are no truly free market examples to begin with, good or bad. Everything involved in the private market, from reimbursement rates to premium rates, are influenced heavily by the negative effects of government programs. Heavy regulations and below market reimbursement do not really indicate a free market at work here.

Jaan Sidorov said...

Well said John. I'm not sure how to undo the current system with even more serious translocations.

These are certainly most interesting times.