McAllen vs Mayo

Repost from The Captured Perspective:

For the newest issue of the New Yorker, Atul Gawande travels to McAllen, Texas to try to understand why that county has higher health care costs than anywhere else in the United States. He pins the blame on perverse economic inscentives that pay doctors more for more procedures. The doctors, as gatekeepers to the system, exercise great latitude in how care that is meted out. He points to one example of a physician-owned hospital that

has a reputation (which it disclaims) for aggressively recruiting high-volume physicians to become investors and send patients there. Physicians who do so receive not only their fee for whatever service they provide but also a percentage of the hospital’s profits from the tests, surgery, or other care patients are given. (In 2007, its profits totalled thirty-four million dollars.) Romero and others argued that this gives physicians an unholy temptation to overorder.

This is a strange market in which neither of the parties who will make a decision as to how much care is to be rendered have any incentive to opt for a lower number. The patient feels like more is better, because better-safe-than-sorry. The doctor knows that more is better, because his pocketbook says so. And for him, the specter of future malpractice litigation for unprovided care is just one more reason. The big loser in this process is everybody who isn't there. We pay higher insurance premiums or higher taxes.

The author provides another model however. He points to the Mayo Clinic in Rochester, Minnesota. The key difference between Mayo and other health care providers is that Mayo doctors, like all the other employees there, are paid a salary. Their inscentives are not to treat as many patients as possible, but to treat those patients they do see well. When the numbers are tallied, the Mayo Clinic produces above-average outcomes at below-average costs.

If there is an organizational structure for providing a better product at a lower cost, why has this method not come to dominate the industry? If anything, there is money to be made by opening up a place like Mayo Clinic, advertising great care, charging a penny less than they guy next-door, and keeping the cost margin as profit. But who loses here? Not the patients, who get better care. Not the insurers (or taxpayers), who get lower costs. Only the doctors, who don't have the opportunity to make big money ordering all sorts of extra procedures. But if doctors want to perpetuate the existing order by clinging to sub-standard products at higher costs, there are a few GM employees who can tell the rest of that story.

Of course all the standard charter school selection biases apply. The patients could be more motivated and disciplined at Mayo Clinic. Or maybe the health care providers could be special in a way that doesn't generalize to most settings. Why don't we have better care?