Perhaps the Most Egregious Statement of the Healthcare Debate

No, not the one that said everyone who likes their current health plan can keep it, though that clearly is a whopper.  This is the one that fascinates me:

[Obama said] if doctors have incentives to provide the best care, instead of more care, we can help Americans avoid unnecessary hospital stays, treatments and tests that drive up costs.

What he is referring to is the fact that if doctors prescribe more procedures, they make more money.

I spent years as a consultant  working with incentive programs in corporations.  They are very tricky things.  It is much harder to create incentives for the wrong behavior than the right behavior.  But I don't think you need similar experience to dissect this plan.  Because there is absolutely nothing of real substance in this plan, or any HMO has discovered, that will truly create incentives for "the best care."  It just doesn't work with doctors.  I know doctors, and when Obama says "best care" he means saying no to a lot of things.  That is not how doctors would understand the phrase.  I worked with Kaiser-Permanente for about a year as a consultant, and this was a constant source of friction between the Kaiser business people and the Permanente medical staff.

Really, all Congress and Obama are doing is twiddling one knob called "payment model" and the knob only has two settings - either create incentives for the doctor to do a lot for the patient by paying for individual services, or create incentives for the doctor to do as little as possible for the patient and resist every plea for a test or specialist referral.  Basically, Obama's intention is to flip the switch from the former to the latter position, similar to what is being done currently in the Massachusetts health plan with switching to capitated payments from fee for service for doctors, and similar to the strong HMO model that pissed so many people off years ago that many states banned practices Obama is implementing nationally.

Yeah, I know the response, that somehow "preventative medicine" will reach the golden mean.  Forget it.  Preventative medicine is great as a spur to individual well-being, but does little to reduce total system costs**.  Waving around the flag of "preventative medicine" is about as believable as when politicians say they will make up budget gaps with savings and efficiency.  Basically, the next time we see either will be the first time.

** This kind of thing always sounds heartless, but for example it is actually cheaper not to find a cancer until its almost too late.  An expensive operation may be called for, but a quick death is actually cheap for the system.  Finding a cancer early means expensive treatments now, and probably expensive treatements later in a longer life.  I much prefer the latter, but it is more expensive.  You can't get around that.  The big wins in reducing health costs rom preventative medicine are in public health and nutrition, and most of those battles are won.  There may still be some savings in pre-natal care, but even that is iffy.


  1. Mesa Econoguy:

    [Obama said] if doctors have incentives to provide the best care…


    This idiot has never held a private sector job, has limited experience in an “organizing” setting completely divorced from reality, worked in academia (ditto), and not much else.

    Incentives? Obama has never seen an incentive in his pathetically unproductive life.


  2. Not Sure:

    "Obama has never seen an incentive in his pathetically unproductive life." - Mesa Econoguy

    I don't know... "Get yourself elected and you get to keep telling other people what to do instead of having them tell you" seems to be working for him so far.

  3. Mike:

    "** This kind of thing always sounds heartless, but for example it is actually cheaper not to find a cancer until its almost too late."

    You know, I've never had a physical. I'm 31, and have never had to do it. In addition to your statement about the cost of preventative health care, one has to consider the reality that when you feel fine, statistically, you care fine, health wise. Going to the doctor when you don't need to WILL COST MORE MONEY... I've been sick before, for two days, then I got better. No doctor.

  4. Allen:

    As an engineer I'm bit confused as to how more care isn't better care. Before releasing new code, we do some pretty crazy tests for some pretty unlikely things. Yet we do it because it's far cheaper to do that than release bad code, especially with an obscure problem. Some wet behind the ears manager might jump in one day and cut way back on the testing..... until 6 months later he finds himself with a crazy obscure big issue and realizes his businesses' reputation could be ruined because of one bug that could've been caught had he not decided to "save" $200k / year by cutting testings.

    So when I hear politicians talking about doctor performing too many unnecessary procedures I wonder two things :
    a) Unnecessary to whom? Isn't the doctor worried about their reputation? And as a patient, wouldn't I rather spend another $50 for some colon screening when I'm 35 for the piece of mind of knowing that in the off rare chance I have colon cancer at such an early age I have a great chance of curing it?

    b) Let's look at a shoulder injury I had a couple years ago. I played the let's just assume that it's what we think it and have the GP send you to therapy game. Only therapy wasn't helping. A 4 months later, I finally got an MRI and it turns out it was something else. So why was that MRI unnecessary at the beginning? Maybe for the health insurance company a few months of incorrect therapy was still cheaper than doing an MRI right away. That is an MRI was unnecessary. But for me it was 4 months of unnecessary pain and duress.

  5. Link:

    After hearing tonight's press conference, I gave Obama too much credit. He's at least 50% the Peter Sellers' Chauncey Gardener character in Being There.

    The other 50% is calculating and devious,etc

    I'm writing before any press reaction, It'll be interesting to see how honestly they call it.

  6. James H:

    I dunno, it sounds like he has figured out how to save a bunch of money. I keep hearing about how maybe once you reach a certain age, maybe it would be better for society if you just took pain pills instead of having surgery for hip replacements, knee replacements, coronary bypass, etc. I guess if we just tell the baby boomers to suck it up, take 2 of these, and don't call me in the morning, we can save enough to keep it deficit neutral.

    OR, we can just skip the whole thing and move on to something important. Actually, the best course might be to have this bill take all year, get defeated or abandoned, and then get back to defeating/abandoning the Waxman-Markey while the Dems will hopefully have a bit of fear about the mid-terms. I hear that could effectively render O a lame duck and we could then also skip all of the other crappy initiatives. He campaigned on taking over what we drive, what we eat, and what temperature we set the thermostat at (this was from one of his campaign speeches). I'd like to see all 3 fail.

  7. Not Sure:

    "He campaigned on taking over what we drive, what we eat, and what temperature we set the thermostat at (this was from one of his campaign speeches)."

    Ahhh- yes... the thermostat.

    From the New York Times:

    "The capital flew into a bit of a tizzy when, on his first full day in the White House, President Obama was photographed in the Oval Office without his suit jacket. There was, however, a logical explanation: Mr. Obama, who hates the cold, had cranked up the thermostat.

    “He’s from Hawaii, O.K.?” said Mr. Obama’s senior adviser, David Axelrod, who occupies the small but strategically located office next door to his boss. “He likes it warm. You could grow orchids in there.”


    It's good to be the king.

  8. Michael:

    Doctors admit that they do unnecessary tests to avoid lawsuits. Around 1/3rd of tests ordered. If an x-ray shows the problem, it's cheaper for the doctor's business to do a CT and MRI than risk the higher insurance costs from a lawsuit. The medical community wins about 95% of the malpractice cases that go to court. Would you rather go to court with an x-ray or an x-ray, CT and MRI? By simply going to loser pays, costs and unnecessary test will go down.

  9. Foxfier:

    Death is always cheaper than keeping someone alive.

    Didn't China show that way back when? They had everyone come in for "STD testing"-- and killed off the folks that would be expensive.

    Heaven knows it would've been a LOT cheaper to abort my sister's boy, instead of correcting his club feet. Ditto for cleft palets, or a higher risk of any disease....

    Death: At Least You're Not Sick!


  10. Anonymous:

    Economy of scales, people. Fascism is a cost-saving measure. When the government subsumes the private sector in totality, the cost savings of this synergy will be obvious. No one disputes this but lunatics.

    The debate is rightly, and solely, over technical matters, like Allen mentioned. The system must be debugged. Current levels of central planning are leading to a depression -- control must be maintained and tightened, or the power will crumble and be bought and sold like a common svine.

    In addition, Foxfier is entirely correct. The eugenics plan must continue. The improved federal health care will ensure society's collective resources are not wasted for members that do not benefit it.

    Be seeing you; jawohl.

  11. Craig:

    "preventive medicine" like in Japan where you must get your waistline measured every year and if too fat must reduce it or get fined. Like a few companies that ban all smoking, in or out of work, or the guy at Savannah River Plant I saw try to fire a subcontractor who just had a terrible auto accident because the guy was not wearing his seatbelt. Or cities that ban all transfats in restaurants or LA that banned new fast food establishments in a part of town with lots of them because they are "bad for you"--this of course was a poor part of town where that is what people can afford.

  12. Raven:

    If Obama really wants to do something about uncessary tests he must change the medical tort system. Fiddling with compensation mechanisms won't change the fact that it is easier to defend yourself in court if you did every possible test.

  13. joshv:

    "As an engineer I’m bit confused as to how more care isn’t better care. Before releasing new code, we do some pretty crazy tests for some pretty unlikely things. Yet we do it because it’s far cheaper to do that than release bad code, especially with an obscure problem. Some wet behind the ears manager might jump in one day and cut way back on the testing….. until 6 months later he finds himself with a crazy obscure big issue and realizes his businesses’ reputation could be ruined because of one bug that could’ve been caught had he not decided to “save” $200k / year by cutting testings."

    You are incorrect. The most cost effective route is reasonable testing levels, with a fast bug fix cycle. Obviously there are some domains where this is not allowable, so you test more, but in the vast majority of cases it's simply faster and cheaper to let users find your obscure bugs, and then fix them fast. And there are many bugs that go unnoticed or un-exercised. Why waste time or money discovering and fixing them.

    The analogy to healthcare here is strong. For example, a large percentage of men die with prostate cancer. A much smaller percentage of men die *of* prostate cancer. Statistically, treatment for prostate cancer hasn't been proven to save a month of anyone's life, it costs a shitload of money, and causes all sorts of debilitating side effects, which themselves become the subject of additional medical treatment.

    So, you can forage around in your system hunting down obscure bugs, in the never ending pursuit of perfection. But each time you correct one of these bugs, you risk introducing more bugs with your changes.

  14. tomw:

    I thought the most egregious comment was the one claiming that Doctors removing tonsils that were only inflamed due to allergies.
    From which medical school did Obama matriculate? I don't seem to be able to remember.
    It is a surprise that his suitcoat does not flap in the breeze or fall to the ground, it is so empty.

  15. John cassidy:

    I'm a practicing neurosurgeon. As to the matter of government saving money in health care, the medicare system has captured all citizens >65 years old and set fees without negotiation for nearly 20 years. It is a single payer socialized system and has not controlled costs any better than the private sector. How is expanding their patient population going to help?

    The physician's fee schedule for medicare was based on the Hsiao study with the expressed intent of rewarding cognitive services at the expense of procedures, in an effort to correct this misimpression that incentives had previously been skewed toward procedures. The President's tonsillectomy comment is ill informed and, frankly, insulting.

  16. Jess:

    Not to put too fine a point on your comments, but WT*?
    Where does one find a $50 "Colon Screening"?
    At my (advanced) age, I'm supposed to be "regularly" checked. Since I pay out of pocket, I can tell you the "preventative" costs - and they're a bit more than $50.00 - by about two zeroes.
    Preventative medicine as some sort of magical cost reducer is just that - "magic".

    As to your shoulder - who decided "therapy"?? No offense, but an MRI for a shoulder (which I had for a rotator cuff problem) at a large Metro hospital ran me just under $1100 total (procedure & info sent to my GP).
    I'm seriously doubtful that any decent therapy for 4 months would be much less than that...

  17. Anon:

    Faster, better, and cheaper.

    At best, you can only have two of the above.

  18. NormD:

    Sorry, but


    Why cannot a single blood sample be run through an automated tester and have multiple tests run for a few dollars per sample?

    Why cannot an MRI be built for $100K and operated for $50 per test?

    Why does a "office visit", which is really a couple quick checks and a quick talk with an expert be completed for $50.

    I am not trying to take money away from anybody. A back-of-the-envelope calculation would show that participants can still make very good money while at the same time charging far below current rates.

  19. Ed Fargler:

    I'd like to see your calculations NormD. You must have a very large envelope to cover every cost associated with medical procedures. Who needs a 1300 page bill when you can just use the back of an envelope?

  20. Methinks:


    The answer to most of your questions is that government has regulated health care to a standstill. There is no competition to the cartel, so why should they lower prices? Government doesn't want to introduce competition because that obviates the need for politicians to become our saviours and they simply lose power.

    The other reason some healthcare is expensive is because it is new and very complicated and naturally expensive. But don't expect the health care technology costs to go down in price like other technology because the AMA and the government won't let that happen.

  21. Methinks:

    Reading the posts here, I think most people will notice a very simple thing: in a socialist system, individual life has no meaning. You are not a person but a cog in wheel. A brick in the wall. You are replaceable and your only value is your ability to serve the State and the value of your life is decided by the state. Why not forced labour? Your individual wants and needs are irrelevant. That's the slippery slope America is on.

    And people wonder why I and every other Soviet immigrant of long extraction in this country is warning that you are turning into us. They will keep telling us that until they die on waiting lists or are drafted against their will into Obama's "youth community service" as slave "volunteers". It'll be too late.

  22. Dr. T:

    Allen: Here's an engineering-type answer to your question about doing too much medically. The problem is signal-to-noise ratio. Doctors need to see clear signals. But, with every exam, every lab test, every imaging procedure, the potential for noise increases. Reference ranges for tests are typically established by testing healthy people and using the middle 95% of results. That means, by definition, 2.5% of healthy people will have 'abnormal' high results and 2.5% will have 'abnormal' low results. If a doctor orders dozens of tests and imaging procedures on a fully healthy person, numerous tests will be abnormal. None of those abnormal results will be significant. When you do the same thing on a sick patient, you get true abnormals from the illness (signal) and false abnormals from the statistical odds of being just outside the reference range (noise). Not all doctors are great at separating signal from noise, and they often rely on more tests related to each abnormal finding. This generates more signal but also generates more noise.

    Overutilization also is a problem when resources are scarce. Pathologists keep tight rein on blood product usage because there are barely enough platelets and red blood cell units. Overutilization of drugs is a problem because every drug has side-effects and because drugs can interfere with each other (and with lab tests).

  23. davidcobb:

    methinks and ed fargler
    Explain to me why a five cent squeeze bottle filled with water(saline nasal spray) cost four dollars a bottle. Why use plavix instead of aspirin when plavix has more side effects and cost much more. A minor eye infection just cost me a months worth of food. we need to look at why it cost so much because if it were cheap we wouldn't need insurance.

  24. Methinks:


    I think my response to NormD should provide as much of an answer as I can give you.

  25. Mike Walsh:

    I found an interesting article by Leonard Peikoff. If anybody remembers him, he was Ayn Rand"s close friend. The article is called "Is Health Care A Right?" He wrote it back when the Clinton administration was trying to mess with health care. It holds more true today than it did then. I have it posted on my blog in my sig. Anybody can repost it anywhere as long as it stays intact at the author's request. I would urge everybody to copy and paste it and send it along to everyone you know.

  26. Bob Smith:

    Part of the reason things cost so much is that government subsidizes it, and also sets reimbursement rates. If the government is only reimbursing you 50% of your "usual and customary" fee, then you set your fee to be 2x what you would have set it at in the absence of the government rule. If you didn't do this you couldn't break even much less profit. Then, since it's illegal to charge a private party less than what you charge the government, private insurers and the self-insured get screwed big time.

    It isn't strictly true to say that technology has made things more expensive. Anybody remember the term "exploratory surgery"? With imaging equipment on hand they don't have to do that much anymore. When I was a kid, I got into a serious accident. I had to have my spleen removed. The scar is about 10 inches where they gutted my like a fish to do the exploratory plus splenectomy. I spent a week in the hospital recovering, and another couple of weeks before I could do much of anything without it hurting like heck. Total time out of school was more than a month. Nowadays that would probably be done laparoscopically. Only a couple of 2 cm scars and I would have been out of the hospital in 2 days with a lot less pain to boot. Much, much cheaper overall.

    A previous poster mentioned prostate cancer. One of the things that pisses me off is that hardly any research is being done on nerve-preserving surgical techniques. A lot of doctors really don't seem to give a damn that it's 50/50 whether you'll be both incontinent and impotent after prostectomy. I don't see that kind of casual attitude towards the side effects of treatment for female-specific cancers.

  27. Scott:

    Bob, you make a very interesting point their at the beginning. Modify a couple words and you could also use it to damn our current HMO/health insurance plans as well.

    It all leads back to the fact the reason behind rising costs are many and that just replacing the current insurers with the government would realistically change nothing. The offenses would still be the same, they'd just all be coming from one place.

  28. Scott:

    Ok, well, I qouted and modified your first paragraph, but it decided not to post it. Here it is

    If the HMO is only reimbursing you 50% of your “usual and customary” fee, then you set your fee to be 2x what you would have set it at in the absence of the HMO contract. If you didn’t do this you couldn’t break even much less profit. Then, since it’s against your contract to charge another party less than what you charge the HMO, private individuals with another health care/insurance plan (or are "self insured") get screwed big time.


    There are two particularly big fat lies being told in this debate . . .

    One relates to the 46,000,000 uninsured number that keeps being floated. (it's closer to 18million)

    The other relates to the claim that "the free market has failed." The market for healthcare in America is free?

    We've written more about it here:

  30. TJ:

    Carrots and sticks work. Eat the carrot. Stick-clobber those who have preventable conditions, like Safeway does, with the incentives built into their self-insurance system. Safeway has kept costs flat for 4 years and counting. (Lots of news on this item.) Safeway tests for 4 conditions which they claim cause 75% of their health care costs - obesity, cholesterol, diabetes, and tobacco. Stupid government rules limit how much they can coerce/reward those who have adverse test results, but Safeway's system is working very well. The liberal goal is not better health, it is the Nanny State - large, porky government.