Why Can’t We Agree on How to Reform Health Care?

Because we’re not talking about the same subject.

What? That’s right. It’s very hard for two people to agree on something if each is talking about a different topic.

Suppose you and I are arguing about American policy in Afghanistan. But every time I say the word “Afghanistan,” what you hear is the word “Pakistan.” Odds are, we’re not going to come to any meeting of the minds.

Now suppose there is a third person listening to our debate, but not very carefully. Since more than half the letters in “Afghanistan” and “Pakistan” are the same, the listener mistakenly thinks there is a lot of common ground. His advice: Keep on communicating with each other; you’re half way there.

I’m not exaggerating. I’ve seen this happen over and over in health care — going back for a period of 30 years. People with totally different concepts of health care not only do not convince each other of anything; they don’t even understand each other. In fact, thinking back over three decades of thousands of conversations, conferences, meetings, briefings, etc., I can’t recall a single instance when someone with one view of health care was persuaded to change his public policy views by someone with a completely different view of health care. And because that reminds me of unrequited love, here is a Celine Dion piece:


My Heart Will Go On

I believe there are quite a few completely mutually exclusive views of health care. But today, I want to focus on two: the economic approach and the engineering approach.

The economic point of view. Economists see health markets (along with other markets) as complex systems. The interaction between 300 million patients, 800,000 doctors, almost 2.5 million registered nurses and thousands of other actors are so complicated that no one person could ever hope to grasp the complete picture. However, the science of economics is basically the science that studies human incentives. As Adam Smith recognized more than 200 years ago, if the incentives are right, voluntary interactions usually lead to good social outcomes, and perverse incentives usually lead to bad outcomes. Smith also discovered that perverse incentives are more often than not the result of unwise government policies.

To the economist, the familiar health care problems of cost, quality and access are all caused (or at least made worse) by perverse incentives. That’s why economists tend to focus on those incentives, on the policies that give rise to them and on policy changes that would create better incentives.

Complex systems are so complicated, they can never be adequately managed from the top down. That’s why economists’ prescriptions for change are often bottom up prescriptions, focused on changing incentives of the individual actors. Health Savings Accounts, creating a better way of subsidizing private health insurance through the tax system, and encouraging price competition among providers are examples of the “economic” approach to health policy.

The engineering point of view. Imagine a system of pipes designed to carry water. To make the system work, you need to sort the pipes, separating those that fit together from those that do not. This system is also complicated, but it’s complicated in a mechanical way. Suppose that after much study, we discover that Pipe A always fits into Pipe B. It follows that all plumbers, everywhere in the country, should always fit Pipe A into Pipe B. It really doesn’t matter what the values and preferences of the consumers are. We already know they need water. Nor does it matter what the plumbers think. If they don’t insert A into B, no water will flow.

This is the way many people view the health care system — including many doctors, many hospital administrators, many insurance executives and almost every health professional who works for the federal government.

If you see health care as primarily an engineering problem, you are likely to view incentives are a nuisance and a distraction. We already know what has to be done. A has to fit into B. Incentives are nothing more than opportunities to derail the desired result. It isn’t that medical engineers want incentives to be perverse. Rather, they don’t want incentives to be important. Certainly they shouldn’t be emphasized or enhanced.

Medical engineers not only reject the economists’ prescriptions, they want to go in the other direction: Ideally (for them) all health institutions would be nonprofit and money would never change hands between patients and providers. In advancing those policies, they are trying (mistakenly) to deemphasize incentives altogether.

What the engineers overlook, of course, is that even if A always fits into B, we still have to make connections C, D, E…etc. And to make all those other connections we need to align a multitude of people with very diverse interests. That’s one reason why the engineering approach is neither scientific nor scholarly. Unlike economics, it produces no testable hypotheses and has led to the discovery of no theorems, lemmas or corollaries. If it worked, we wouldn’t need economics or any other social science. The fact that it doesn’t work is almost irrelevant, however. It describes to a tee the way many (most?) people think.

Health economists who think like medical engineers. As a postscript, I pass along a personal revelation. I never really wanted to get involved in health economics. I still don’t. My background is in using game theory mathematics to understand political systems (if you’re interested, examples are here, here, here and here). But once I got into the field, I discovered it was largely dominated by economists-in-name-only-who-think-like-engineers. Oh, there were a few good souls. But they were completely outnumbered. So I stuck around just to help the good guys out. If we can get enough economists-who-think-like-economists in this field, there are a lot of other things I would like to do.

Word of the Day:

lem⋅ma [lem-uh]: a subsidiary proposition
introduced in proving some other proposition;
a helping theorem.

Comments (32)

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  1. Ken says:

    Fascinating. Are you suggesting that arguing about health policy is almost pointless.

  2. George says:

    Maybe there’s another point of view that should be considered–the Medical one.

  3. David R. Henderson says:

    As always, I enjoyed your post. Three points:
    1. I still get goose bumps when I hear Celine Dion sing that song. But “unrequited love?” Did we see the same movie?
    2. Great distinction between engineering and economics approach. It would have been even more powerful if you had named the economists in name only, EINOs, my term for what you’re talking about. I assume David Cutler, for one? But I’m not sure what you would say.
    3. I looked at a couple of your technical papers that you linked to above. Is this the John Goodman we know and love? I didn’t know you had those math skills. I thought the second paper was a little too long, though. 🙂

  4. Clark says:

    Very good post. This clears up a lot.

  5. John Garen says:

    Great points made here. The former Soviet Union had great “economists” of the engineering type (e.g., Nobel Prize winner Leonid Kantorovich), but terrible economic policy. As noted, it’s a failure to recognize how incentives matter and of the importance of using knowledge dispersed in the populace.

  6. Frank Timmins says:

    This may be your best blog subject ever. You hit the nail on the head regarding people talking about different subjects while thinking they are discussing healthcare.

    In fact, it seems that the same thing could be said about other liberal/conservative discussions. Doesn’t this really stem from the notion on one side that every aspect of a society must be “managed” (or “engineered”)as a primary objective, while the other side takes into consideration that before something (an asset) can be managed it must be created (or its continued dynamism nurtured)?

  7. Jerry says:

    The engineering analogy crystalizes the liberal view. I had never thought of the competing philosophies in the way have you presented them; thanks for sharing your genius! Exposes the concepts as “night vs day” with no gray in between.

    Economics must become a “required” course in both high school and college if “we” are ever to have a literate electorate!


  8. Marti Settle says:

    Economics, civics and the Bill of Rights and Constitution must be taught in grades K-12. We must also check the text books and teachers. I met a professor of early childhood education from UNT the other night. She is a devout Christian. She voted for Obama. When I asked her why she voted for him she started shaking and replied that she thought we needed a change. I asked her if the curriculum she was teaching at college to young wanna be educators included “I have two mommies?” etc. She started shaking even more. She admitted that she could not question her programmes because she was on the verge of getting tenure. Then I asked her how she expected to get into heaven. She gave me a blank stare. These home visitations from church members trying to save my soul are getting on my nerves. I showed her the door. My soul is safe, I didn’t slap her silly.

  9. Bob Geist says:

    Excellent. The best similar thought about real economic complexity in the genereal economy was from a review of Hayek in the New Yorker some years ago: Parapharsing the writer, economist John Cassidy: no central authority, however brilliant the managers, can accomplish the functions of freely determined prices for the allocation of labor, capital, and human ingenuity (Cassidy J. The price prophet. The New Yorker. February 7, 2000:44-51.) Bob Geist

  10. HD Carroll says:

    John – An excellent post – I will just second the comments in praise of your elucidating analogies of the health care system to different forms of complex structures. It might be interesting to also note that the “organic” form that the economic version takes lends some potential incites to how we need to take into account “where we are” when considering where we are likely to go via controls pushed down from “above” using the unintelligent reform being jammed into what the liberals (engineering form) see as a pipe at the top of the system. “Where we are” serves as the “initial conditions” so important to most true complex systems, and it can make for an awfully chaotic mess when the vision of single-payer that dances in the reformers’ heads starts messing with a set of initial conditions that encompasses a far different historical cultural and economic trajectory. It is not hard to imagine what happens when you try to stuff those 1000’s of pages of bill into the toilet bowl that serves as the regulatory pipeline’s beginning – we will all be knee deep in….well, you know.

  11. Harry Cain says:

    I agree there are two very different mindsets at work, and they don’t communicate well with each other, but your two categories imply a relatively “scientific” character to both, a focus on the “facts.” I would distinguish between them more on the basis of personal/social values. One mindset emphasizes freedom, choice, flexibility, efficiency, all of which characterize markets; the other focuses more on equity, security, control, predictability, all of which favor governments. One sees the insurance beneficiary as a customer who needs to be satisfied; the other as someone who is vulnerable, needs to be protected. One sees healthcare as an important commodity/service, akin to housing, education, etc., the other sees it as a “right — too important to be left to the market.”

  12. Don Levit says:

    I agree with everything you said, particularly when comparing macro engineering with macro economics.
    My concern is on the micro level, the individual parties involved in all these transactions, and the macro level, the culture in which we live.
    Is it possible that pretty good individuals are involved in a pretty bad system, our culture?
    Is it possible that our performance-based, what have you done for me lately society has influenced good people to emote their baser instincts?
    Maybe the liberals are saying “If you can’t regulate individually, due to our culture, we’ll do it for you, legislatively!”
    Don Levit

  13. Bart Ingles says:

    As an engineer, I take exception to your engineering analogy. Calling Washington’s latest train wreck a product of engineering is like calling a Tijuana shanty town an example of an architectural style.

    On the other hand, could not a proposal to drastically change the health insurance landscape, e.g. by erasing the tax differential between group and individual coverage, also be called an example of “engineering?” You don’t think the resulting requirement for accurate risk assessment for every single individual would be an example of complexity that would require top-down management?

    Good engineering, in the face of a complex system with an established user base, recognizes the need for a smooth upgrade path. You don’t jerk the rug from under existing users in the name of progress. Both sides of the debate have so far failed in this regard.

  14. Don McCanne, MD says:

    It is true that variations in framing of the problem can result in individuals not talking about the same subject.

    Those of us at Physicians for a National Health Program certainly frame the problem differently from NCPA. But I’m not sure about the analogy of economics versus engineering. We would both use engineering, whether that is private individual health savings accounts with high-deductible health plans, or a single, publicly-funded universal risk pool.

    The disconnect seems to be better explained by the differences in the dismal science of traditional economics on the one hand, and the expanded social science of normative economics on the other. Imposing the parameter of value on the objective science of economics can certainly impair communication between those who have conflicting values.

    Even those differences can sometimes result in mind-boggling blurring of the distinctions. One prime example is in the words of Friedrich A. Hayek from “The Road to Serfdom”:

    “There is no reason why, in a society which has reached the general level of wealth ours has, (the certainty of a given minimum of sustenance) should not be guaranteed to all without endangering general freedom; that is: some minimum of food, shelter and clothing, sufficient to preserve health. Nor is there any reason why the state should not help to organize a comprehensive system of social insurance in providing for those common hazards of life against which few can make adequate provision.”

    Comprehensive system of social insurance? Sounds like single payer to me, though I suppose that NCPA could go digging around and find some HSAs and high-deductible plans in there somewhere.

  15. Uwe E. Reinhardt says:

    Good thing you and I always talk about the same thing, John. If not, you must be straying from the topic.

    I liked your Celine Dion piece. Did not know you were such a romantic – in Texas, even! I would ask you to feature next the lovely attached song:


    It reminds me of Grace-Marie Turner slashing away at Obamacare.

  16. HD Carroll says:

    Dr. McCanne: I remember (mostly fondly) our debate at the 2004 Society of Actuaries meeting in Anaheim. I would note that Hayek doesn’t offer an actual reason “to” implement the guarantee (at least not in your quote), it is worded as a “why not?” type of statement. But having said that, and I would add education and sanitation to the likes of food, shelter and clothing, I challenge you to show where we, as a society, have in fact actually reached such a “general level of wealth.” While I do not disagree that there is undoubtedly enough wealth overall, the distribution of it leaves a lot to be desired, and I do not believe we have achieved the minimum real per person level for each of the desired goals before worrying about health care services. If we had, there would probably be a lot less stress on the health care system. Also, there are certainly alternative approaches to achieve a comprehensive system of social insurance without it being single-payer in nature, even approaches that do not require HSAs and high deductible plans! A “single payer” leads irresistibly to “single provider” (or a proxy for the same), and just as I held in 2004, I really don’t believe that your fellow physicians would appreciate that very much given how they feel about Medicare and Medicaid.

  17. John Goodman says:

    Response to David Henderson: I love the term EINO. Not sure I would apply it to David Cutler. But these days (since he started writing for the New York Times) I would definitely apply it to Paul Krugman.

  18. artk says:

    John: You should be careful about who you decide is and isn’t an economist. Hayek was turned down by the economics department at the University of Chicago because; in the words of no less then Milton Friedman “he really wasn’t doing any economics”. David Cutler is a great writer, but doesn’t claim to be an economist. As for Krugman, disagreeing with his analysis isn’t enough to disqualify him.

  19. artk says:

    Sorry about the type, I meant to say John Cassidy not Cutler

  20. Laurence Brody, M.D. says:

    Good points, John. Health insurance does not mean illness care, access or physicians that care at all if they are being paid 25 cents on the dollar, and still have overheads of staff, rent, insurance etc. You don’t know what you have until you have a major illness requiring high professional interest and attention and your future is in jeopardy.

    When I hear the phrase health insurance, I think “what is the illness coverage” and you won’t find out until you need it. Like fire insurance.

    Thanks for keeping up the thinking on “health care.”

  21. Art says:

    Only an illusionist would believe that the Nation is discussing Healthcare Reform, and taking our “eyes off the prize” is only an illusionist’s trick.

    Any economist that thinks reducing demand will ease strain forgets that “Wellness” programs of the past 30 years increased demand and costs; and enlarging that concept as we greatly enlarge the recipient pool will only increase costs.And anyone in the field knowes that increasing insurance roles increases demand even more.

    And any engineer “piping” our healthcare system would understand that using pipes that are too small for the volume will hold back any fluid or increase its pressure causing additional “repair” projects that will increase costs.

    If one notices the main focus except for Congress is cost and not value that is determined by in terms of Quality, Service and Price; each of which affects the other when changed which discussion refers to as “bending the cost curve”. Lowering quality can expand access and lower price. Lowering service can as well; but only lowering price can maintain the balance between these factors and maintain any value.

    Is price lowered for insurance, physicians, hospitals or drugs in any way other than the deals the President has made with organizations for these groups of industries? If not and with a constant ineffective supply of all of these components access to healthcare of any benefit will simply cannot occur.

    So the real “cost reductions” will be in the value of Medicare and Medicaid which will grow rapidly as the “boomers” have just “hit the Market” and increasing the poor is the simplest way to enlarge coverage. But quality and service will be the two elements that are reduced to obtain lowered costs. Those who actually took the “Wellness Programs” for what they were intended to create will be the only ones who can balance long delays in services and already have their quality issues under control. Unfortunately the majority have not done this and those with coverage will see reductions in care.

  22. Harry Cain says:

    Another comment: you say, “…I can’t recall a single instance when someone with one view of health care was persuaded to change his public policy views by someone with a completely different view of health care.” I’ve had the same experience re persuasion, but a different experience with “experience.” If more of the policy wonks had actual experience in the marketplace, rather than just in gov’t and academia, and more “privatizers” had gov’t/academic career experiences, the communication problem would be significantly less difficult.

  23. Mike Sullivan says:

    There are many view points and proposed solutions being debated in Washington as the health care reform fiasco rambles on. But the most important, INDIVIDUAL ACCOUNTABILITY is never mentioned.It is the initial domino of destruction and at the same time the single most important “solution” to our problem regardless of your view of health care.
    People argue whether health care for all is a right—IT IS NOT. Given all the medical facts, if an individual chooses to smoke and contracts cancer why should “society” pay for their treatment? At the least, their reimbursement should be significantly reduced versus someone whose cancer was not caused by their lifestyle choice. The same principle applies to Diabetes, Kidney Failure and Heart Disease that results from obesity. Per the department of Health & Human Services 50% of all medical costs are attributable to preventable illnesses—do the math! I know there are religious and cultural implications but no god, religion or culture dictates that we choose a lifestyle that makes us sick, ultimately kills us and debases our country. We are a nation of people who want the right to make our own lifestyle choices but the price for that right should be based upon individual accountability not on “entitlement” programs. Until that happens, all the view points and proposed solutions to our Health Care crisis whether dictated by our incompetent Congress or unethical Insurance Companies won’t prevent us from becoming more financially ill and ultimately DOA.

    Michael Sullivan

  24. Ronald Feldman MD says:

    Here are a few thoughts:

    Physicians aren’t needed to provide preventive care, other than a few procedures like colonoscopy.

    Physicians are trained for years in diagnosing and treating diseases, focusing on individuals’ symptoms and test results. People express their ills in myriad ways usually not amenable to an algorithm.

    To have non-physicians determine how to care for patients is like giving an aeronautical engineer an outline for how to design and build an airplane, or have a musician design an economics curriculum.

    Central planners, Medicare as an example, have no good way to determine practice costs, won’t negotiate, and have poor mechanisms for appealing denials.Except for those who are grossly negligent,Medicare physicians don’t lose credentials for poor medical practices. Fee schedules are made based on political priorities, not what is needed to provide care. All of this impedes efficient delivery of services.

    Hospitals, annointed to take gobs of money under “reform”, know little about health care delivery, are inefficient, get most of the dollars, and want to control physicians.

    Single payer and Obamacare are destined to fail.

  25. Mark Head says:

    I have generally agreed with your views on market-based insurance and health savings accounts going back to the early 90’s.

    So when I read the intro to this piece, I thought you were going to highlight what I think is (perhaps) the single biggest semantic flaw in the “health reform” debate: People use the terms “health care” and “health insurance” as if they are the same thing – and they decidedly are not.

    Until and unless we can “uncollapse” that miscognition, true debate CANNOT happen.

    It is even more fundamental than the distinction you make between the economic and engineering approaches.

  26. hoads says:

    The healthcare debate cannot be reconciled because the collectivists operate within their own echo chamber and have been indoctrinated to pursue collectivist ideology over what is rational, practical, efficient or optimal. Ideology is what defines this debate and the left wants top down government control of healthcare by any means necessary. Facts don’t matter in this debate when the goal is to ingratiate government to the people.

  27. Robert Kramer says:

    How about the song that goes…”you gotta give a little, get a little and let the whole world laugh a little; that’s the glory of, that’s the worry of love”.

  28. Frank Timmins says:

    Sayeth Dr. McCanne,

    ““There is no reason why, in a society which has reached the general level of wealth ours has,……..”

    It seems that first we would have to agree that society has indeed reached such general level of wealth. Even then he makes the common liberal error of assuming that “wealth”, as he quotes it, and in reference to a society, is something that is permanent and guaranteed. Doesn’t that seem a wee bit presumptuous when we consider how the country gained all the “wealth”? Hint – It wasn’t by entitling the population. It was just the opposite. Bottom line is the “wealth” can disappear faster than it was accumulated when we take it for granted as the doctor seems to be suggesting.

    Further, it is extremely unnerving to hear the term “society” used as if it has a bank account and a tax ID number, and makes financial decisions.

  29. Don McCanne, MD says:

    To Frank Timmins,

    Those were not my words but a quote from Nobel laureate F.A. Hayek – not exactly a liberal as the label is commonly used today in the United States, but an advocate of classical liberalism and free-market captitalism. Would your response have been the same if you had realized that these were his words instead of mine? It seems that you have confirmed that this quote from “The Road to Serfdom” makes my point that “those differences can sometimes result in mind-boggling blurring of the distinctions.” (my words)

  30. […] a previous Health Alert I noted that health policy is dominated by people who take an engineering approach to health care. Applied to cost control, this approach seeks mechanical, by-the-book routines — while ignoring […]

  31. Frank Timmins says:

    To Don McCanne, MD

    Yes, I understand you were quoting Hayek, but my response (pardon me for not being clear) was to your interpretation of Hayek’s quote. The assumption you make is that Hayek would have supported the kind of government involvement we are now facing, and you would be in error in that regard. Specifically, Hayek was referencing in his quote “..those common hazards of life against which few can make adequate provision..” I hardly think the Democrat healthcare programs are targeting only healthcare expenses which “few can make adequate provision”. They want complete control. In fact Hayek’s preferences are already part of our healthcare system. It’s called Medicaid.

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