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in 2009 there is no bigger issue

Correct Incentives:  what do you think?

Let's look at some basic numbers:  74% of all costs are confined to four chronic conditions (cardiovascular disease, cancer, diabetes and obesity). Furthermore, 80% of cardiovascular disease and diabetes is preventable, 60% of cancers are preventable, and more than 90% of obesity is preventable. 

The incentives are quite out of whack with a market driven industry.  Motivations over time have become quite distorted in each of the different sectors in Healthcare:

  • Pharma / Device “My job is innovation that helps people . . . it's up to the doctors to control use.”
  • Payers   “We want to pay for the right things there’s things, but there s little data…and our customers want us to control costs.”
  • Clinicians  “My job is doing everything I can to help my patient . . . if I say no to studies, I might get sued.” 
  • FDA   “Safety, not cost effectiveness, is my job.”
  • Consumer-Patient   “I want the best of everything. Don’t ask me to pay more.”

Read the article by Goodman and send me your comments:  Email Me

The objective of reform should first be to improve these incentives, measure the results, while also carrying for the ones affected in the worst way. 

  • What about having insurance companies be a risk reducer rather than a treatment decider and cost shifter (due to Medicare, Medicaid)? 
  • How about having doctors with a rising satisfaction in what they do, able to manage outcomes rather than do paper work and concern themselves with law suits and increasing costs of doing business?
  • How about hospitals having a focus on efficiency and outcomes and patient satisfaction rather than cost vs. payment algorithms?
  • What about FDA measured as a function of saving lives rather than reducing risk?  
  • What about pharmaceutical companies seeing a clear manner to change the world and truly sensing a market and not political competition model? 
  • What about the government being focused on the effectiveness of healthcare and not mandates and having to deal with lobbyists? 

This world is possible with resolve on the part of the citizens first to demand it, and the government to get out of the way and enable this environment to be free of centrist favoritism policy making.

As a person wrote:  "Let  me get this straight. Obama's health care plan will be written by a committee whose head says he doesn't understand it, passed by a Congress that hasn't read it and whose members will be exempt from it, signed by a president who smokes, funded by a treasury chief who did not pay his taxes, overseen by a surgeon general who is obese, and financed by a country that is broke.

What could possibly go wrong?"

...and a Nobel Laureate weights in on the lack of proper incentives.

The ABC Dilemma of Health Reform

Third-party payment creates a big incentive problem.


There is widespread agreement with the principle that our health-care system needs to be reformed.  But our representatives and our neighbors have much trouble in reaching agreement on the particulars. There have been many legislative bills offered and hundreds of amendments with no clear path to a resolution.

Health-care systems everywhere encounter cost overruns and rationing devices, like queues, in their diverse attempts to deliver products for which demand has long grown faster than other economic sectors.  Why is it so difficult to find the private and public means, the combination of markets and government assistance, that enables a preferred outcome to emerge?

This question has a simple answer that plagues health care everywhere.

The health-care provider, A, is in the position of recommending to the patient, B, what B should buy from A.  A third party—the insurance company or the government—is paying A for it.

This structure defines an incentive nightmareYou do not have to be an economist to realize that, when phrased in this way, nobody knows how to solve this problem.  Hence the many experiments, all of which have been deemed less than satisfactory.

I don't know whether this problem has a solution.

If it does, I think it requires us to find mechanisms whereby third-party payment is made to the patient, B, who in turn pays A, supplemented with any co-payment from B for services.  Hence, from the moment B seeks services from A, both know who is going to be paying A for what is delivered. 

A and B each has need for what the other brings to the table, and this structure carries the potential for nurturing the relationship between A and B.

B is empowered to become better informed about the services recommended by various A's that he might choose among, and the A's might find it particularly important to build good reputations with B's.

Mr. Smith, the 2002 Nobel Laureate in economics, is a professor at Chapman University.