Friday, October 31, 2008

Firewalls and separation of powers: banking, government, medicine and pharmacy

When I wrote about firewalls a few weeks ago I focused on contagion ...
Gordon's Notes: Systemic failure and financial firewalls

... even if there are deeper economic and cultural failures, there are also more straightforward firewall failures in our current crisis. These are usually called "regulatory failures" but regulation can come in many forms. I think the most interesting forms are those that are designed to stop the spread of contagions.

Fires, seizures, epidemics, hurricanes and financial crises are all, famously, "chaotic". They have non-linear perturbation sensitivities, and they can roar up and die down in ways that are only loosely predictable.

Excepting hurricanes, we have firewalls for these things. In our brains are systems to dampen seizures should they arise, and, we think, to limit where they spread. In our buildings we have, well, firewalls. In public health we find immunization rings, targeted interventions, quarantine and the like...

... Firewalls don't show up, to my knowledge, in classical economics. I'm sure they show up in modern economic models of regulation and in studies of "complex adaptive systems" [1]. Maybe this latest crisis will bring models of financial system firewalls, like the mourned Glass-Steagall act, to the level of popular economics.
Glass-Steagall separated commercial and investment banking. One effect was to reduce the risk of contagion, but I think the intent was to reduce conflicts of interest.

Managing systemic conflicts of interest is one reason America's political system separates power between Congress, the Executive and the Courts. (One of the reasons Bush was able to fully leverage his incompetence was that the GOP controlled all three, and had near-control of the media as well.)

Conflict of interest is one reason, for example, that it's a very bad idea for orthopedic surgeons to own imaging facilities.

Speaking of which, there's yet another separation of powers that's waned over the past tweny years.

At one time American physicians dispensed medications and pharmacists prescribed. That's still true in many nations. Shockingly, the result was very high use of very inappropriate medications. The cure was separation of powers. Physicians would prescribe and pharmacists would dispense.

Time passed. Lessons were forgotten. Market deism and libertarian ideals joined forces. Now we have minute clinics owned by dispensing organizations, and oncologists who make a large share of their revenue by the margin on dispensed drugs.

I am very confident that we will rediscover that there was a good reason to separate prescribing and dispensing. We'll find, for example, that minute clinics dramatically increase the cost of "treating" self-limited conditions -- not to mention the sale of diet pills, supplements, and candy.

Firewalls to contain epidemic chaos. Separation of powers to manage fundamental conflicts of interest in an imperfect world of imperfect communication and incomplete knowledge. They both reduce efficiency. They are both essential. Sometimes they're the same thing.

I do wish our meta-memory wasn't so short.


Anonymous said...

Logic carried to logical extremes is often illogical. Our statistics regarding physician dispensing show a 50% reduction in unit cost, virtual elimination of the 5% pharmacy error factor, significantly increased compliance and better long term health care. While we compete directly with in-pharmacy clinics and sometimes question their level of healthcare, statistics are trending significantly to support that they are really serving the so called uninsured and otherwise under served.

Taking imaging clinics away from orthopedic docs would not be necessary if the government butted out and let a market economy exist. (We would also not have twice the hospital beds we need.)

A truism is that if an educated buyer and seller are in the room, you will get the best deal for them and the economy. Government interference through health care, mortgage incentives, or anything else serve only to distort and produce weird outcomes. Government ostensibly tries to protect the uneducated but most programs serve only to buy votes from the uneducated with false promises.

... and the thing that calls this whole blog into question is the assertion that George Bush has the press on his side.

Kind regards,

Michael Sedor and Warren Moseley

JGF said...

I said "had", not "has". Bush eventually lost the press, but not until 2005. He had them for a terribly long time.

I think you're saying that a "true market economy" would solve every problem. That's Bush 2000 naivete, I don't think even he believes that any more.

Anonymous said...

Certainly this Fall's financial crisis shows the wisdom of regulation, such as in Fannie and Freddie, which the Republicans fought for, and the Democrats blocked. However, over regulation must be guarded against as well. Allowing the market economy to work within the constraints of reasonable regulation where the public is protected is the key to effective government.

As for physician dispensing, you have an environment where physicians are attacked from all sides: declining reimbursement rates, skyrocketing medical malpractice insurance, steadily increasing costs of salaries and running an office. Physician drug dispensing is one of the few professional opportunities available to a physician that allows them to increase income without seeing more patients, working more hours, or hiring more staff. Physicians have a code of ethics that require them to act in the patients best interest. To suggest that they would only act in their own best interest, and therefore, the practice should be prohibited is an insult to the ethical professionals who practice medicine today.

Michael Bitler

Anonymous said...

I also wish our meta-memory were not so short. My own, vivid memory on this topic dates back to the late 1960's, when physicians could dispense.

I was in grade school, my father was serving in Vietnam, and my mother was a naturalized citizen living in the rural Midwest - a culture foreign to her. She was isolated and depressed, and our family physician dispensed Seconal and amphetamine sulfate to her. This continued for almost two years until she made attempts at suicide, at which point she received more appropriate care from elsewhere.

More than one firewall failed for my mother. But there is no question whatever that the simultaneous dispensing of amphetamines and barbiturates to her was inept and harmful. She walked into that waiting room several times so overmedicated that it should have been unmistakable.

This is one firewall that needs to be preserved. But I suspect that it needs to be augmented by a sensible rollback of deregulation of the pharmaceutical companies.

We need not to be extending patents on drugs just because a buffer has been changed. And regulatory instruments should be applied which de-incentivize these companies from spending insane amounts of money on marketing. Instead of convincing me that some drug which marginally passed a statistical test is a wonder drug, I'd rather see these companies take pharmacology out of the Stone Age.

Government is not the enemy here. Government is us, and we need to keep our house in order. Count me in favor of single-payer healthcare.

SR said...

While almost 4 years transpired since this post, a funny thing has been happening with legislation. "Funny" in that I hadn't heard of efforts to bring back dispensing into the doctors' office until today, but this appears now to be legal. See:

The private equity groups are all over this. Their profit through "repackagers" is predatory.

When did this happen? Where was the public debate?

John Gordon said...

Looks like there was a loophole ...

"Physician prescribing works like this: Middlemen like Automated HealthCare help doctors set up office pharmacies by providing them with billing software and connecting them with suppliers who repackage medications for office sale. Doctors sell the drugs but they do not collect payments from insurers. In the case of Automated HealthCare, the company pays the doctor 70 percent of what the doctor charges, then seeks to collect the full amount from insurers."

I think the trick is that the doctors don't collect payments from insurers?