Author: Art Diamond

Perverse Incentives in Medicine

 

   Source of graph:  online version of the NYT article quoted and cited below.

 

(p. A1)  Stark evidence that high medical payments do not necessarily buy high-quality patient care is presented in a hospital study set for release today.

In a Pennsylvania government survey of the state’s 60 hospitals that perform heart bypass surgery, the best-paid hospital received nearly $100,000, on average, for the operation while the least-paid got less than $20,000. At both, patients had comparable lengths of stay and death rates.

And among the 20 hospitals serving metropolitan Philadelphia, two of the highest paid actually had higher-than-expected death rates, the survey found.

Hospitals say there are numerous reasons for some of the high payments, including the fact that a single very expensive case can push up the averages.

Still, the Pennsylvania findings support a growing national consensus that as consumers, insurers and employers pay more for care, they are not necessarily getting better care. Expensive medicine may, in fact, be poor medicine.

“For most consumers, the fact that there is no connection between quality and cost is one of the dirty secrets of medicine,” said Peter V. Lee, the chief executive of the Pacific Business Group on Health, a California group of employers that provide health care coverage for workers.

. . .

(p. C4)  And the survey found that good care can go unrewarded. One Philadelphia area hospital, Main Line Health’s Lankenau center, which performs a large number of bypass surgeries and has a high success rate, according to the survey, was paid an average of $33,549 by private insurers. That was less than half the nearly $80,000 in average payments received by the other hospitals, with poorer track records.

. . .

“The current reimbursement paradigm is fundamentally broken,” said Dr. Ronald Paulus, an executive with Geisinger, who says there is no current financial incentive for a hospital to provide the kind of care that leads to better outcomes and lower payments.

. . .

The problem, according to some health policy experts, is that the hospitals may, in fact, be rewarded for poor care:  keeping patients too long because they caught an infrection or had a complication.  That, they say, could be the main lesson of the Pennsylvania survey.

"What this highlights is the assumption that more money means better care is flat-out wrong," said Mr. Lee, the chief executive of the California employer group.  "It’s easy to pay for bad quality, and we pay for it every day."

 

For the full story, see: 

REED ABELSON.  "In Health Care, Cost Isn’t Proof of High Quality." The New York Times  (Thurs., June 14, 2007):  A1 & C4. 

(Note:  The last three paragraphs, and the last sentence of the fourth from the last paragraph, of the print version of the article, are missing from the online version.)

(Note:  ellipses added.)

 

Hugh Laurie’s Wonderful Protest Song

 

   Source of image:  screen capture from the first link below.

 

Hugh Laurie hosted Saturday Night Live (SNL) on a show re-broadcast on Sat., Aug. 11, 2007.  (I am not sure if the original broadcast was in 2006, or earlier in 2007.)

In one hilarious bit, Laurie announces he is going to sing a "protest song" and proceeds to sing one of those earnest-sounding, pompous, self-righteous save-the-world-with-a-cliché songs that were so common in the late 1960s and the 1970s.

The hilarious bit: whenever Laurie gets to the part of the song where he is going to tell us the "answer"—- he mumbles. 

After showing the clip to my principles students, I told them that to fill in the mumbling with something effective, you need to know some economics.

 

Here is a link to the SNL version:

http://myspacetv.com/index.cfm?fuseaction=vids.individual&videoid=3591518

 

The song was apparently first performed as part of a show called "A Bit of Fry and Laurie" that was broadcast in the early 1990s in Britain. Here is a link to the earlier version of the song:

http://myspacetv.com/index.cfm?fuseaction=vids.individual&videoid=14405597

 

Arctic Species Readily Adjust to Big Climate Swings

 

  "White arctic bell-heather (Cassiope tetragona) in the remote Svalbard archipelago of Norway."  Source of caption and photo:  online version of the NYT article quoted and cited below.

 

(p. A12) Many Arctic plant species have readily adjusted to big climate changes, repeatedly recolonizing the rugged islands of the remote Svalbard archipelago off Norway’s coast through 20,000 years of warm and cool spells since the frigid peak of the last ice age, researchers report in today’s issue of the journal Science.

Their finding implies that, in the Arctic at least, plants may be able to shift long distances to follow the climate conditions for which they are best adapted as those conditions move under the influence of human-caused global warming, the researchers and some independent experts said.

Some experts on climate and biology who were not involved with the study, which was led by scientists from the University of Oslo, said it provided a glimmer of optimism in the face of generally bleak scientific assessments of the vulnerability of ecosystems to the atmospheric buildup of greenhouse gases.

Terry L. Root, a biologist at Stanford who has been involved with many studies concluding that plants and animals are measurably feeling the effects of human-driven warming, described the Svalbard research as “great news.”

. . .

Norwegian and French scientists analyzed the DNA of more than 4,000 samples of nine flowering plant species from Svalbard, a group of islands between the Scandinavian mainland and the North Pole. They said they found genetic patterns that could be explained only by the repeated re-establishment of plant communities after the arrival of seeds or plant fragments from Russia, Greenland or other Arctic regions hundreds of miles away.

 

For the full story, see: 

ANDREW C. REVKIN.  "Many Arctic Plants Have Adjusted to Big Climate Changes, Study Finds."   The New York Times  (Fri., June 15, 2007):  A12. 

(Note:  ellipsis added.)

 

For the original Science article, see: 

Alsos, Inger Greve, Pernille Bronken Eidesen, Dorothee Ehrich, Inger Skrede, Kristine Westergaard, Gro Hilde Jacobsen, Jon Y. Landvik, Pierre Taberlet, and Christian Brochmann.  "Frequent Long-Distance Plant Colonization in the Changing Arctic."  Science 316, no. 5831 (2007):  1606-09.

 

More Live Longer and Better, Due to Ag Biotechnology

 

The author of the commentary excerpted below, 93 year-old Norman Borlaug, received the 1970 Nobel Peace Prize, and was awarded the Congressional Gold Medal on Tues., July 18, 2007. 

 

Agricultural science and technology, including the indispensable tools of biotechnology, will be critical to meeting the growing demands for food, feed, fiber and biofuels. Plant breeders will be challenged to produce seeds that are equipped to better handle saline conditions, resist disease and insects, droughts and waterlogging, and that can protect or increase yields, whether in distressed climates or the breadbaskets of the world. This flourishing new branch of science extends to food crops, fuels, fibers, livestock and even forest products.

. . .

Consider these examples:

• Since 1996, the planting of genetically modified crops developed through biotechnology has spread to about 250 million acres from about five million acres around the world, with half of that area in Latin America and Asia. This has increased global farm income by $27 billion annually.
 
• Ag biotechnology has reduced pesticide applications by nearly 500 million pounds since 1996. In each of the last six years, biotech cotton saved U.S. farmers from using 93 million gallons of water in water-scarce areas, 2.4 million gallons of fuel, and 41,000 person-days to apply the pesticides they formerly used.
 
• Herbicide-tolerant corn and soybeans have enabled greater adoption of minimum-tillage practices. No-till farming has increased 35% in the U.S. since 1996, saving millions of gallons of fuel, perhaps one billion tons of soil each year from running into waterways, and significantly improving moisture conservation as well.
 
• Improvements in crop yields and processing through biotechnology can accelerate the availability of biofuels. While the current emphasis is on using corn and soybeans to produce ethanol, the long-term solution will be cellulosic ethanol made from forest industry by-products and products.

 

For the full commentary, see: 

NORMAN E. BORLAUG.  "Continuing the Green Revolution."  The Wall Street Journal  (Weds., By  July 18, 2007):  A15.

(Note:  ellipses added.)

 

Florence in Its Prime: Ghiberti’s “Gates of Paradise”

In my work on the labor economics of the process of creative destruction, I make use of the competition between Ghiberti and Brunelleschi over who would do the bronze door panels.  Brunelleschi withdrew, after a "tie" decision from the judges.  He then retooled, and bult the marvelous dome that is still one of the world’s architectural marvels.

 

If Michelangelo’s "David" heads the "must see" list of Renaissance masterpieces for most visitors to Florence, then I suspect "The Gates of Paradise," Lorenzo Ghiberti’s monumental doors of the Baptistery of San Giovanni, rank a close second. The 20-foot-tall portal — 10 exquisitely articulated gilt bronze reliefs of Old Testament scenes, framed by standing prophets, foliage and projecting heads — has mesmerized viewers since its completion in 1452. Michelangelo himself is supposed to have given the doors the name by which they are still known.

. . .

Next year, visitors to Florence will again see "The Gates" restored to their full splendor, permanently installed in the Museo dell’Opera del Duomo.  

 

For the full commentary, see: 

KAREN WILKIN.  "Ghiberti’s Doors Are Heavenly Again."   The Wall Street Journal  (Tues., June 5, 2007):  D5.

(Note:  ellipsis added.)

 

The Case for Patent Law Reform

 

The author of the commentary quoted below is the head lawyer for Intel.  I believe that the evidence is strong that patents can provide strong incentives for innovation.  But the devil is in the details.  I have not studied the Patent Reform Act of 2007, so I am not sure whether, overall, it is an improvement over the current rules.  But the case for reform is strong, and the topic is one that highly deserves further research. 

 

(p. A15) The U.S. patent system is beginning to show its age; outpaced by the swift evolution of technology and commerce, it increasingly favors speculators over innovators, impeding innovation and economic growth. Fortunately, the bipartisan "Patent Reform Act of 2007," introduced in both the House and Senate, would improve the process for granting patents, and rebalance court rules and procedures to ensure fair treatment when patents wind up in litigation. The Senate Judiciary Committee will take up S.1145 today.

Congress needs to pass this bill, during this session, as the need for reform is clear. Nationwide, the number of patent lawsuits nearly tripled between 1991 and 2004, and the number of cases between 2001 and 2005 grew nearly 20%. Until 1990, only one patent damages award exceeded $100 million; more than 10 judgments and settlements were entered in the last five years, and at least four topped $500 million. One recent decision topped $1.5 billion.

The number of questionable, loosely defined patents, moreover, is rising. One company holds patents that it claims broadly cover current technologies that allow people to make phone calls over the Internet. Another has staked a claim on streaming video over the Internet generally and has pursued colleges for royalties on their distance-learning programs. In 2002, a five-year-old boy patented a method of swinging on a swing.

Unfortunately, under current law, parties that want to innovate in areas covered by questionable patents have only two options, both of them bad: an ineffective, rarely used re-examination process, or litigation — the average cost of which is, by some estimates, $4.5 million. This impedes innovation, as the FTC noted: "One firm’s questionable patent may lead its competitor to forgo R&D in the areas that the patent improperly covers."

 

For the full commentary, see: 

BRUCE SEWELL.  "Patent Nonsense."  The Wall Street Journal  (Thurs., July 12, 2007):  A15. 

 

Think “Passports” When You Hear a Call to Grow the Government

 

     In an earlier blog entry, I expressed my own personal outrage at the passport debacle. 

 

HOUSTON, June 6 — With government phone lines jammed by record numbers of passport-seekers, Veronica Alvarez and three anxious friends hoping to travel to Cancun next week showed up at the federal building here on Wednesday at 3 a.m.

There were 11 people in line ahead of them.

“We’ve been calling for a week every day,” said Ms. Alvarez, 29, a bank clerk, who joined about 1,200 people who have been besieging the downtown office here daily for word on their passports, some of which were requested in February.

The State Department has acknowledged long delays from “unprecedented demand” after new rules requiring passports for travelers returning from Mexico, Canada and the Caribbean. It expects to announce new measures soon to ease the nationwide crush.

. . .

Much of the spike in applications is attributed to the Western Hemisphere Travel Initiative, which went into effect Jan. 23 and requires passports, merchant mariner documents or frequent-traveler Nexus cards for air travelers returning from Canada, Mexico, Central and South America, the Caribbean and Bermuda. Next January, the requirement is likely to be extended to ship, rail and road travelers.

But somehow, the government seemed caught by surprise when crowds began besieging passport offices this spring.

. . .

“Basically, they’ve taken my money,” said Kevin Owens, 39, an oil industry employee, who sent in an expedited application April 20 and, with a June 14 trip to Jamaica looming, was still passportless. “The whole process is —” he searched for a word — “lacking.”

. . .

 A nervous Brianna Pollinger, 35, of suburban Katy, Tex., arrived at the passport office on Tuesday not knowing whether she would be able to leave Friday on a 10-year anniversary trip to Mexico with her husband. But after waiting nearly eight hours, she emerged with a prized blue-covered booklet. Was she mollified? “Oh, no,” she said. “I definitely minded.”

 

For the full story, see: 

RALPH BLUMENTHAL.  "Travelers Face Frustrations With Passport Rule Changes."  The New York Times   (Thurs., June 7, 2007):  A20.

(Note:  ellipses added.)

 

  Notice how excited those in line seem to be at hearing what passport official Eric Botts ist telling them.  Source of photo:  online version of the NYT article cited above.

 

Pyramids Can Take Many Forms: More on Why Africa is Poor

 

My Wabash economics prof Ben Rogge used to say that rulers have always liked to spend the people’s money to build pyramids intended to proclaim the glory of the ruler.  But in modern times the rulers have to be a tad more subtle than the Egyptians, so, for instance, in Brazil they build Brazilia, instead of actual pyramids. 

And according to the story below, summarized from the May 2007 IEEE Spectrum, in Africa, they build large dams.

 

Small dams could help deliver electricity to much of Africa’s population, but since they lack the prestige of larger-scale projects, few of them get built.

. . .

In Uganda, which has plenty of rivers and streams to supply power, Mr. Zachary describes how a small water-power generator, supplied by a small nearby dam, delivers 60 kilowatts of energy to a nearby hospital. The generator would barely be enough to run a single magnetic-resonance imaging machine, a staple in Western hospitals. But it does provide enough power to light the hospital and keep basic equipment running for the 100 nurses and doctors who work there. The entire generation system cost $15,000 to build.

Still, Africa’s leaders are unlikely to abandon their preference for big public works, says Mr. Zachary, since they create thousands of construction jobs and reinforce the political might of the central government. 

 

For the full summary, see: 

"Informed Reader; ENERGY; Small Dams Might Help to Electrify Africa."  The Wall Street Journal (Tues., May 8, 2007):  B10. 

(Note:  ellipsis added; the original article in IEEE Spectrum is by G. Pascal Zachary.)

 

Doctor and Patient Incentives, and Lack of Competition, Fuel High Health Costs

 

HealthCostsGraphCBO.gif  Source of graphic:  online version of the NYT article quoted and cited below.

 

Why are so many lumbar fusions done, in spite of the absence of evidence for their efficacy?  Well, doctors find the procedure lucrative.  Patients do not pay for it themselves, so they have little incentive to look hard at the effectiveness.  And health care providers, through licensing and government regulations, have largely insulated themselves from competition from low cost providers.

 

(p. C1)  In Idaho Falls, Idaho, anyone suffering from the sort of lower back pain that may conceivably be helped by the fusing of two vertebrae is quite likely to have the surgery.  It’s known as lumbar fusion, and the rate at which it is performed in Idaho Falls is almost five times the national average.  The rate in Idaho Falls is 20 times that in Bangor, Me., where lumbar fusion is less common than anywhere else.

These numbers come from the wonderful Dartmouth Atlas of Health Care.  The Dartmouth researchers adjust the numbers to take into account age, race and sex, which is another way of saying that there is no good explanation for the huge variations they find.  Doctors in the Idaho Falls area are probably just being more aggressive than doctors elsewhere.

But it’s not clear that their patients are any better off.  The evidence for lumbar fusion is incredibly mixed.  It seems to help people with certain kinds of pain, but many others recover just as well without the surgery. Of course, doctors are almost always better off if the surgery is done:  The typical hospital bill for lumbar fusion is roughly $50,000.

This is about as good an example as you can find of the health care mess.  The number of lumbar fusions performed in this country has more than tripled since the early 1990s, and Medicare now spends more than $600 million a year on the procedure.  It’s one reason your health insurance bill has gone up.

 

For the full commentary, see: 

DAVID LEONHARDT.  "ECONOMIX; Health Care As if Costs Didn’t Matter."  The New York Times  (Weds., June 6, 2007):  C1 & C8.

 

How to Protect Against Bad Drugs: “Don’t Take Them”

 

The FDA’s major problem is not laxity, but zealotry.  Its current get-tough view on conflict of interest only aggravates the fundamental flaw in its institutional design. Transfixed on the harms drugs can cause, the FDA remains largely oblivious to the harms they can prevent. Any delay in the use of a successful drug is costly: The delay matters little to the FDA, but a great deal to the thousands who plea for compassionate exemptions to try a drug that has not met with FDA approval.  Nor is the FDA sensitive, as individual physicians surely are, to the simple fact that a drug which cannot be tolerated by one person works wonders in another.

. . .

Right now, we all have a simple expedient to protect ourselves against dangerous drugs that make it to the market: Don’t take them. But we have no protection at all when the FDA denies us that choice in the first place. Right now the pace of drug approval is too slow.  We don’t need the FDA to slow it up still further.

 

For the full commentary, see: 

Richard A. Epstein.  “Drug Crazy.”  The Wall Street Journal  (Mon., March 26, 2007):  A12.

(Note:  ellipsis added.)

 

Congestion Pricing in NYC Will Reduce Traffic and Pollution

 

   Traffic congestion on Ninth Avenue in New York City.  Source of photo:  online version of the NYT article cited below.

 

(p. A1)  ALBANY, June 7 — Mayor Michael R. Bloomberg’s plan to reduce traffic by charging people who drive into the busiest parts of Manhattan received significant support on Thursday as Gov. Eliot Spitzer endorsed the idea and the Bush administration indicated that New York stood to gain hundreds of millions of dollars if the plan were enacted.

If the measure is approved by the Legislature, New York will become the first city in the United States to impose a broad system of congestion pricing, which was introduced in London in 2003 and has been credited with reducing traffic there.

Governor Spitzer said he would work to ensure passage of the plan, which is a major part of the mayor’s blueprint for improving air quality and traffic flow for the next several decades. The Bloomberg administration has estimated that it could put the program into effect within 18 months of legislative approval.

 

For the full story, see:

DANNY HAKIM and RAY RIVERA.  "New York Bid on Traffic Pricing Draws State and U.S. Support." The New York Times  (Fri., June 8, 2007): A1 & A29.

(Note: the online version of the article has the title "City Traffic Pricing Wins U.S. and Spitzer’s Favor.")