Thursday, March 08, 2007

Health care financing: the 80/20 questions are the only questions

I still remember the burnout from studying health care (healthcare? health-care?) financing in the first year of the blessed rule of Clinton. The papers were full of dense analytic essays, until even the specialists were exhausted.

I fear to return to those days, but it's hard to dodge the topic. Like many I've been expecting the train to wreck for years, but it still chugs on, albeit with more and more bits falling off the side. Gradually the topic is returning, so I'll write a bit about it. On occasion.

This post was triggered by a long essay I only scanned: Why does Health Care in the USA cost so much? Over-utilization is an important factor by Walter Bradley.

Well, yes. Except one person's over-utilization is another's "excellence". So here are two examples of the "80/20" question -- the only question that matters. I will tell you how the question(s) will be answered -- but not when.
Suppose I offered you a choice between a test that cost $1,000 but caught 90% of colon cancer, or a test that cost $100 but caught only 70% of colon cancer. Which would you choose - the first or the second?


I have two treatments for your heart disease. One costs $200,000 and will completely restore your cardiac output. The other costs $20,000 and will restore 60% of your cardiac output. Which would you choose - the first or the second?
These are the only questions that matter. I will tell you how they will be resolved:
  1. Everyone residing in American will have the second option. Always. I call this the "HMO from Heck Solution".

  2. The first (class) option will be available in a number of ways. Some will get it via risk sharing plans. Some will pay cash. Some will buy it on the gray market ... or the black market. I call this the "Libertarian Solution".

  3. Five years after this choice is available, after development costs have been recovered and competition has arisen, the specifics of the choices will change. The "first class" choice will now become the guaranteed "second class" choice and it will be "cheap". There will, however, be a new, better, very expensive, "first class" choice.

  4. There will be a huge amount of spending on luxury experiences associated with health care and on "alternative" therapies -- none of which will have any impact on outcome.

  5. Innovation, invention, chaos and harm will be far greater in the Libertarian world than in the HMO from Heck world. It is the Libertarian world that will crush costs and convert the "First Class" option into the cheap and universal "Second Class" option.

  6. NIH research funding will shift to favor development of solutions that provide 80% of value for 20% of the cost -- rather than the current disposition to the "best possible" solution.

  7. Once people wrap their heads around this, and that will take a while, they'll decide having the "HMO from Heck" isn't the worst thing in the world.
Of course I can't tell you when this will happen. I'm sure the road will be exciting, highly profitable for some, and very painful for many.

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