Bureaucrats vs. Entrepreneurs
I used to think the biggest obstacle to getting agreement about health care reform was ideology (socialism vs. capitalism). Then I decided it was sociology (engineers vs. economists). I now am inclined to believe it is psychology (bureaucrats vs. entrepreneurs).
I came to this realization after reading through a long list of comments to a Health Alert I posted the other day about a health care entrepreneur (more on that below).
The entrepreneurial approach is the way we are trying to solve big problems in many other fields. Take the Ansari X Prize, established by citizen-astronaut Anousheh Ansari and her husband, Amir. They awarded $10 million to the first group to build a privately-funded spacecraft capable of carrying three people 100 kilometers above the earth’s surface twice within two weeks. Interestingly, 26 teams from seven nations spent more than $100 million competing to win the prize.
A slew of other prizes soon followed:
- The Google Lunar X Prize offers $30 million to the first privately-funded team to land a robot on the moon.
- The Wendy Schmidt Oil Cleanup X Challenge offers $1 million to the team that is most successful at cleaning up oil spills.
- The Progressive Insurance Automotive X Prize awarded $10 million to three teams that built cars achieving 100 miles per gallon in real world driving.
Currently, all kinds of other prizes are on the drawing board — in education, economic development, energy and environment, exploration, life sciences, etc. In fact, if you have some money and want to get involved, it looks like a fertile field.
To my knowledge, there is no award for any discovery in paying for or delivering health care, however, with one exception noted below. But why not?
I meet entrepreneurs every day who are in the “business” of health care. Many of them are already solving problems the public is not aware of. Others are startups. They are all trying to make money, and the problems they solve are not always social problems. Building a computer system that helps a hospital maximize against reimbursement formulas, for example, may help the hospital. But it may not help society as a whole.
In my experience, health care entrepreneurs all tend to view the world in the same way. They tend to believe that:
- The source of most of our health policy problems is government, and insurance companies and hospitals whose behavior is not much better than the government’s; and
- If you could remove the perverse incentives created by ill-advised government policies, entrepreneurs and competition and free markets could solve almost all the remaining problems.
The bureaucratic mind, by contrast, could not be more different. In all my years of attending health policy conferences in Washington, D.C., I’m not sure I’ve ever heard anyone use the term “entrepreneur.” So I can’t say for certain what bureaucrats think about entrepreneurs. But I’m pretty sure they don’t like them.
Have you ever heard a bureaucrat encourage everyone to “think outside the box”? Probably not. The box is his home. Outside-the-box thinking is inherently threatening to bureaucratic job security.
What caused the shift in my thinking was a post the other day in which I recounted Atul Gwande’s description of Dr. Jeffrey Brenner in The New Yorker. Brenner is a true entrepreneur. He discovered that a small number of patients were generating a very large share of medical costs and he found that he could save society millions of dollars by treating these patients in unconventional ways. By unconventional, I mean doing things that Medicare, Medicaid (and Blue Cross, for that matter) do not pay for. And since he’s not getting paid for most of what he does, Brenner is able to survive only on grants from private foundations.
I suggested, almost as an afterthought, that we could solve a lot of problems if we let Brenner get rich. That is, let him keep some fraction of what he’s saving the government and then encourage every other doctor in the country to seek out entrepreneurial savings in their own ways.
What followed in the comments section was a torrent of objections that surprised me. One critic (a hedge fund manager!) said doctors shouldn’t expect to make a lot of money doing what Brenner does. It’s their professional duty, he said.
I believe I have uncovered a very important psychological divide. But I’m not sure why it exists. What do you think?
Oh and the exception to the rule? Heritage Provider Network is offering a $3 million prize “to anyone who can build the algorithm that best predicts which patients will be hospitalized and for how many days over the course of a year, based on a given data set.” See the description in Slate.
John, as usual, a great post. I want to bring to your attention a commitment WellPoint made about 2-3 years ago in establishing an X Prize for health care system reform. Here’s a link to the details: http://healthblog.xprize.org/2009/03/wellpoint-innovation-team-to-lead.html. Unfortunately, the last update is over two years old, so it’s unclear whether this project is still active.
I am not surprised that a hedge fund manager or any professional in securities is a government regulation champion. Rice bowl politics! Remember that hedge funds exist only because of wrong headed gov policies about stocks and bonds. Get rid of the regulation supported monopoly stock markets in NY and around the world. Let companies and individuals buy and sell stocks and bonds via the Internet 24/7 around the globe and see what happens. Of course, we need to enforce laws against fraud and theft. Perhaps enforce laws against the fraud and theft of the governments of the world.
And then do the same for medicine and health. Profit is nature or God’s way, take your pick, of ordering and rationalizing prices and best use of resources, capital, and labor. Anything that distorts a price or profit is evil, unnatural, and unwise.
When teams compete for the prize, the amount of funds spent solving the problem far exceeds the prize money. On average, the winning team typically spends 60% more money solving the problem than the prize money they receive.
I think that you are highlighting a crucial issue in today’s post. As a immigrant physician/entrepreneur who is particularly focused on medical cost containment I have been seeking to understand genuine health care reform for many years. Alongside some colleagues with extensive experience in the health insurance world, we have been contemplating major insurance platforms that we could implement to help at a macro level, that did not need legislative change. But as expected, neither government contacts, nor health insurance executives have shown much interest in our ideas because our ideas will empower the consumer at the expense of government and major insurers. Even the VC groups that we have approached have been very wary of involvement, because we will have everyone against us because of the existing perverse incentives that make the power players want to keep the existing system. Also VC’s find the political climate as it impacts health care so unpredictable, that they are very hesitant to involve in this area.
A significant prize (say in the $10 Million region) to enable the best IDEA to be put into practice on a trial project basis might provide a foundation for much great thinking. Something along the lines of ABC’s Shark Tank, without the media hype, could be an ideal format to see what ideas emerge, and which groups have the credible management expertise to actually produce a working model. This could be fertile ground for one of the major foundations to bring to the fore the most innovative thinking going on within this space.
For a long time, experts and pundits have asked the question, “If we could put a man on the moon, why can’t we”…. computerize the medical record, or agree which patients should be hospitalized, or know which patients should get bypass surgery vs medical therapy? The answer is that putting a man on the moon or a robot on the moon by a private team is largely a physics question. It invovles math and laws of physics. The difficult issues we face in medicine – like when to pull the plug on grandma and how to get the public to not riot in the streets when we set up the various death panels to do it by “evidence based” guidelines is not physics or hard science. It is political and politicized science or call it sociology. That’s why the Heritage medical group prize is ridiculous. There is no right answer. When to hospitalize patients is a complex decision that cannot be reduced to a simple or complex math equation. Do we need electronic medical records and computers in medicine? Absoltely. But to track outcomes that allow doctors and patients to make decisions together. The issues we are really talking about is who and how to pay for these decisions. It’s all about risk and risk shifting and not about physics.
It’s all three because what is in shockingly low supply, even among economists, is faith in the free market system. A free market economist believes that the best possible future solutions to future problems will be discovered if people have the ability (by this I mean the absence of impediments) and the inclination (by this I mean strong property rights) to do so.
This is not fanciful because free market economists do not claim that a perfect solution will be found (e.g., the end of hunger), they only claim that the best possible solution is most likely to be found in a free market society. As this is an all and some type statement it is inherently a metaphysical one, hence the word “faith.”
Sadly, most economists today do not have such faith in the system because their training is far too focused on policy analysis (which is largely an exercise in learning the tools of central planning with respect to non-market decision making) and not nearly focused enough on the concept of spontaneous order and dynamic efficiency effectuated by scramble competition.
-David C. Rose
Good post. Entrepreneurship is completely missing from every aspect of Obama Care.
Great post,
Historically, bureaucracies were created to solve public problems that were very complex or where the markets failed to produce. The two goals were to maximize efficiency and equity, but ultimately had to produce. In the 70’s and 80’s there was a movement from government to be provision not production (Osborne and Gaebler). However, in doing so government reduces its strongest asset of power and coercion.
The hedge fund manager works in a world of winners and losers. He capitalizes where someone’s losses, but plays a high risk. In society this is acceptable as both parties accept the risk going into the market. The physician and the patient, or the government and the people do not interact in the same way. It is morally reprehensible for a government to engage in risky activities. Also, unlike the hedge fund manager, government cannot select who they deal with.
Could it be a perception of what is fungible? There is a third party in health care, could a physician sell short on the insurance company?
One of the advantages of a single-payer system – paradoxically – is that it frees up the market to work better. That is, if you separate payment from delivery of health care services, patient/consumers are free to shop for doctors & hospitals based on the attributes they should be focusing on – quality, experience, training, proximity to home or work, recommendations from friends or relatives, bedside manner, etc. Our current system does not do this; if you have private insurance through your employer, you are essentially locked in to the network of doctors & hospitals chosen for you by the employer’s insurer, generally on the basis of cost to the insurer, in order to maximize then insurer’s profits. Such a network may or may not meet your needs. Comment?
Good thoughts, John. I agree that it’s basically psychology, particularly the psychological values that one feels personally comfortable with. Once upon a time I tried to characterize similar differences as “privatizers v. publichizers” The psychological gulf between the two is enormous. E.g.,one sees a potential patient as a customer who needs to be satisfied, the other sees someone vulnerable who needs to be protected. One values efficiency, effectiveness, innovation, flexibility; the other values equity, security, predictability, control. One trusts the “invisible hand” as the bests allocator of resources, the other trusts a public board backed by a technically competent planning agency. As managers, one focuses on price and value, on buyers and competitors, and on results. The “bureaucrats” focus on cost and consistency, on constituencies, and on motives and effort. AT the time (mid-90s) I was more confident that the privatizers were going to win the day. [For the whole litany, cf., “Privatizing Medicare: A Battle of Values”, Health Affairs, Vol.16, No.2, 181-86.] Now, though I’m much less confident, I do cheer for what you are trying to do!
Entrepreneurs are not going to enter this market — at least they are not goin to prosper and flourish — unless the bureaucrats get out of the way.
I have seen the same phenomenon myself, especially at conferences. I was participating in one where an entrepreneur had opened some retail clinics to serve Hispanic migrants in California. The public-sector and non-profit foundation people there kept asking: “How does this solve the problem of obesity?”, “How does this solve the problem of chronic disease?” et cetera. He kept answering, “I’m not here to solve every problem in the world. I’ve identified a market with needs and I am addressing them. End of story.” But they were unsatisfied because they like to pretend that they can design and execute a master plan for a “health-care system”. Because no entrepreneur can describe how he would facilitate such a plan, but only disrupt it, they cannot tolerate real entrepreneurship.
Mr. Mitchiner: A single-payer, government-monopoly, health system as you describe cannot have the effects you want because there is no way for the patients and providers to signal each other what services are valued at what prices. If there are no price signals then there are no real signals at all. Or, as Dr. Goodman has put it: “If they’re not competing on price they’re not competing on anything.”
You’re right that it’s insane to have a network chosen by a health plan that’s chosen by your employer: It is impossible that a signal could survive so much interference. But the answer is that the individual should control his health care dollars.
A few comments:
1) The more inefficient the market becomes (which I think is the trend in of health care), the more money there will be for new businesses capable of improving the system.
2) I think what a lot of people don’t understand about health care is that it’s not creating better business models that’s the problem. It’s getting past the institutional and public push-back at the idea of a system that’s different from the current one. Almost all private ideas could improve the system. It’s just that customers are afraid of venturing outside of the traditional set-up.
3) Is the difference perhaps one of “status quo” versus “what could be”? I notice that some people have trouble imagining a future that’s any different than the present. Perhaps it’s a lack of creativity?
4) @ James: I’ve thought the same thing from time to time myself, although in a slightly different manner. I don’t think you get completely free access to whatever physician you want with a single payor. But, having the government take over the health care system might get rid of this giant mess of competing interests and lobbying money and perhaps make it easier to create savings at the margin (although then you’re up against the same problem of convincing a big, governmental agency to adopt changes). I think it might be a wash in the end.
5) The biggest potential for new businesses is the immigrant population. These people are more likely to adopt new models of health care than American insured patients are, and they are such a large demographic that their widespread patronage could create the momentum to make big changes.
6) The other big potential is medical tourism. I don’t see how our system can continue when we can send someone on a 2 week vacation/surgery half way around the globe and still save 30%. Our biggest obstacle is convincing American tourists
John, it is rather ironic that you cite Progressive Insurance as embracing the entrepreneurial spirit in offering a prize for someone creating a 100MPG automobile. Peter Lewis, founder of Progressive Insurance is a close mate of George Soros and about as Left Wing as possible without being in Castro’s cabinet. Perhaps their idea is to lure someone into creating something useful and then to nationalize the company before it make too much money.
Brant Mittler makes a great point. We can’t solve health care financing problems by creating more efficient means of gathering treatment data (other than to make such information available to doctor and patient). Allowing third party payers to design benefits using this type of data more of the same thing that is already not working. We should be talking about the most workable risk shifting processes.
Boy, you sure get one to put on their thinking cap. Ideology, sociology, or psychology??? Maybe there is a touch of theology as well. That, is as Thomas Sowell implies in “Conflict of Visions” we each are wired to think differently about the nature of man. In my interpretation of “wired”: maybe God creates us to think differently about how people in the world he created interact in good faith. In the extreme they either look out for themselves or put others ahead of themselves. Either they need a process (a constitution) to live together in productive harmony or an benevolent dictator to enforce “social justice.”
Thus the comment about doctors shouldn’t do good for money (Ha!). Ask the venture capitalist to do his work without compensation. Maybe people aren’t as misguided as “mis-wired.” Maybe there is a “liberal gene” that we can fix with our expanding knowledge of genomic. Back to earth – your blogs are always great to stir out-of-the-box thinking, but then again maybe God cursed me with an entrepenuerial gene!
@Ron Bachman
The subject of how people’s brains are pre-wired is fascinating. There is all sort of information out there on how larger areas of different parts of the brain impact “liberal” vs. “conservative” thinking. The problem is how does one explain the left leaning propensity to ignore facts when clearly there is enough mental ability to make informed decisions.
IMHO, the terms “liberal” and “conservative” are grossly misused anyway, at least in terms of American politics. For example, if the litmus test for liberals (or progressives) is the presence of a “willingness to try new things” or “empathy for fellow humans”, it seems a better descriptive fit for the “conservative” who wants to reform healthcare in a 180 degree turn from what has been in vogue for 50 plus years. Further, isn’t it “conservatives” who are concerned about “death panels” and loss of freedoms?
Going back to “liberals” and their allergies to “factual” data, it seems to me this indicates a purposeful strategy motivated by (in their minds) a superior ideology. That ideology would be the necessity of top down societal control (Statism). For my money it is the only way to explain the ability of these folks to ignore logic. They don’t really care about efficiency or cost – only that the masses should be controlled by an elite political class.
If this is so, why do we honor the opposition by calling them liberal? Why don’t we call them by the proper description? We shouldn’t be worried about it being demeaning or “uncivil” if it accurately describes their ideas. If they protest, it would lead to interesting exchanges.
I have thought for some time that the difference between the Democrats and Republicans is as easy as lawyers vs businessmen. The Dem’s want to legislate (lawyers read and make laws) to make sure no one single person ever has a bad day. Republicans are more business like and understand that in business you take risks every day and you sometimes lose – you have bad days. You pick yourself up, learn from the mistake, and hopefully do a better job next time. It’s probably a dynamic that will never go away – some are jealous of others ability or fortune and think they should be subsidized by it, those with more ability, committment, and resources don’t want to give away their hard earned (or inherited) assets. You need balance in life – the argument is over where the fulcrum is.
Brilliant post.
I want the Heritage Provider network to offer a $3 million prize to someone who can build an algorithm that best calculates how much money entrepreneurial concierge physicians save Medicare, Medicaid, insured and uninsured patients (ie the Health care system).
Our goal is to keep the 20% of patients who spend 80% of HC dollars OUT OF THE HOSPITAL.
As John Graham’s example of the retail clinics serving Hispanic migrants highlights that all hc is local.
Unfortunately, many physicians suffer from the Mother Theresa syndrome. They lack the vision/skills to exit the “system” as we know it.
Those with simple/local free market solutions are in the drivers’ seat b/c
Expansion brings complexity and complexity brings decay.
Where do I claim my $3 million.
This is too easy…
Take 3 sample groups of patients:
Group one says: “We are self pay patients”
Group two says: “We have HDHPs”
Group three says: “We have a “great” health plan with low deductibles.
My algorithm predicts that all else equal, group three will be hospitalized first.
But on a more serious note, we saved a self funded group $18,000 in medical costs in 2 1/2 months vs. posted cash rates, and that was with only 2% of the population using MediBid.
Have you seen this study? No, it’s not addressing entrepreneurship within the health care industry, but addresses how tying health insurance to the employer stifles entrepreneurship in general. Individual ownership frees up the creator to step out and take a risk
RE: Entrepreneurship and employer-sponsored health insurance.
http://www.rand.org/pubs/research_briefs/RB9579.html
It appears the point is lost on you, sir, and your commenters that unfettered free market dynamics are what brought us to our current economic crisis. Maximizing the return to the provider can only result in minimizing the level of service to the patient. People would literally die on the altar of profit.
@Marian C,
Where did you see “unfettered free market dynamics”? I saw unfettered government spending for the last 3-4 years bringing the economy to its knees
An example of fettered market dynamics: The monopoly that physicians have because they are MD’s was granted by the progressive states. The market did not grade and reward each doc more or less according to the their skill, hard work, and smart business practices. Instead the state flattened the marketplace and paid every doc the same. While for many years this system was flexible enough to see some succeed more, the whole gov push today is to equate one doc with every other totally removing any incentive to do a good or smart job. Some people, like me, will work harder than a coworker even when we are paid the same wage. But most will not. And docs are no different than most of us.
It is always the case the progressive’s intentions of improving things have bad side effects. It makes me crazy mad to hear the side effects blamed on freedom and the cure for the bad stuff be more oppression.
John,
We have had a private enterprise model in USA for many years , funded by government funds or insurance many . Open ended funding essentially to cover all costs with little involvement of citizens or patients.
Your ideology believes that if consumers would be able to more directly involved .. or control payment much like other situations, costs would be controlled. Sounds good, but is very simple model. I have doubts that 75% + of consumers of medical care have the information to know what is quality of care, and how to shop for cheaper care.
I have been involved for 6 months in the care of my mother in a big way. Essentially the physicians have let me to some extent practice medicine. I have very many experts to advise me. It has had many ups and downs , and many potential mistakes in decisions. Complexities are many.
So, I do not see future Medicare — now under 55— patients being able to bring about cost control in our expanding medical care system. I agree that the alternative is not simple or clear cut. Ryan’s plan will shift the burden to citizens for sure- and perhap .. new reforms.. much like the Mass- Romey plan will emerge after costs are not controlled.
But it is hard to forget how well European Societies and Canada do it so well and better than we do. One example from Canada. LTC is done so much better, cheaper, and quality is much better. They pay CNAs in nursing homes twice as much as we do and have little turnover of staff. Mostly low middle class worker provide the care. Spend down issue was eliminated in the 1980s. Who is happier with their system..? Canadian are much more content than the citizens south of their border.
How you can try to explain way their satisfaction. ? As my mother of 98 implied the other day .. who is our system built for.. patients ….or insurance companies, hospitals , nursing home, and providers?
-Stan
@Charles,
You are right, and this unionistic monopoly continues to be perpetuated by the “private-public” partnership between CMS and the AMA. Because of the 5 party system which reimburses based on CPT codes, a PA will get the same as a skilled and experienced doctor for the same procedure. This penalizes the good docs who like to spend more time with a patient and educate them. This is what MediBid has introduce market dynamics to the playing field.
@Stan,
You claim that 75%+ of patients do not have the information to make decisions, and you also assume that patients are looking for “Cheaper care”.
We have proven both of these assumptions ot be wrong. On MediBid.com patients RARELY chose the cheapest doctor, just like people who use Travelocity do not all book a room at Motel 6. MediBid allows patients to see the training and experience of the doctor, and make informed decisions based on quality and value.
You, Hippodamus, would ridicule the founders for knowing little about economics.
@ Stan Ingman
Mr. Ingman, your opening paragraph is correct in defining how our healthcare financing system works and totally incorrect in identifying it as “Private Enterprise”, and that is what this is all about.
The reason that “75% of consumers “don’t know what quality of care” might be is they have never had to (or had real opportunity to) find out. We now have nothing close to a market based system, but if we get it there are almost unlimited resources to help people manage their personal healthcare. Doctors will be explaining treatment alternatives and costs directly to patients instead of engaging in cat and mouse gaming with third party payers who are completely disinterested in the personal welfare of the patient. How can this fact not make sense?
It is a mystery where you got the idea that European and Canadian citizens are “content” with their systems? It seems the only ones content are the ones who have no medical issues, while we hear horror stories from both the UK and Canada about poor service and long waits. Why do Canadians with the wherewithal to do so consistently come to the U.S. for treatment of serious illness?
In answer to your question, our system has been built by politicians and lobbyists over the past 60 years catering to the preferences of special interest groups and yes, insurance companies. But seldom has there been any attempt to apply free market solutions in the process. Enabling HSAs is one exception and that was accomplished only over the kicking and screaming of those seeking rent with the status quo and the political left. We need much more of the same to straighten out this mess.
75% of consumers have no idea what quality software, car repair, or plumbing is, either. Somehow we figure it out.
@stan,
I am Canadian, but had to leave Canada 6 years ago when my wife was crippled by a 2 1/2 year wait for surgery, and my son could not get a CT scan after suffering head trauma.
I had to leave Canada to get this care, so I’m not sure why you believe that Canadians are content.
It is both funny and sad to see a majority of the comments here assume that bureaucrats are inherently liberal when republicans are just as bureaucratic and reaching to attain more of the bureaucracy in the near future. I guess the Tea is always sweater when served cold.
It reminds me of an old saying:
A Liberal is a Conservative who has served jail time; and
A Conservative is a Liberal who has been mugged.
And Ralph,
While I am very sorry for your experience with Canadian medicine; I have to say that an in-law of mine who lives in Nova Scotia, in the last two years has had a knee replacement, Bariatric Surgery (morbid obesity), and nutrition counseling and her life was changed for the better by leaps and bounds. All she had to do is worry about recovery.
Erik,
That’s great that it worked for your inlaws. It doesn’t always fail. It’s actually a pretty good system if you don’t need it, and sometimes even when you do. What I didn’t care for was the 52% tax rate starting at 60k, and 15% sales tax
In the early 1980’s Medicare, concerned about spiralling hospital costs, bypassed state certificate of needs regulations and contracted directly with physician groups to build and operate surgicenters. Today there are over 5000 ambulatory surgicenters (ASCs) which deliver quality, community based care to patients undergoing outpatient surgery for 60% of what Medicare pays hospitals for EXACTLY the same services. Patient copays are also lower because the 20% is based on the actual Medicare payment rather than hospital charges. Today 70% of all surgery is ambulatory – think of the potential savings to the health care system if it was provided in ASCs!