July 2022 – Clear Thinking on Healthcare

The Theory of Money, Part 1

I have many interests. The ones I write about on this blog are generally related to government in one way or another.

One of the government-related topics I am really interested in, but haven’t yet written about, is money. And since I’ve been thinking about it and trying to figure it out lately, I’ll share a few posts on the topic.

Let’s go back to the early days of human civilization. Farmers worked the land and were able to raise a crop and then sell the food. Blacksmiths made things and sold them. How did everyone obtain the things they needed that they couldn’t make themselves? Originally, it was through barter. For example, “I’ll give you one bushel of wheat for that cook pot.”

But simple barter of these self-produced items has a problem. If a blacksmith worked really hard and made more stuff than he could sell immediately, then he had to find space to store piles of nails and cook pots and horse shoes and swords. That’s inconvenient. Or, think of the farmer who has a nice big crop of perishable food but doesn’t need to use it to barter for anything just yet. The need arose for a more convenient way to store wealth.

Enter precious metals. They are easy to divide into smaller units, they are intrinsically valuable, they don’t spoil, they don’t take up a ton of space, their value stays remarkably constant over time. They are a great form of money! They very conveniently achieve that primary purpose of money–which is to act as a means of storing wealth. They also enable someone to conveniently transfer that wealth to others in payment for a good or service, which is another really important characteristic of anything people are going to use as money. For these reasons, many (most?) civilizations eventually landed on precious metals being the preferred commodity to use as money.

I’ll talk about the transition from precious metals money to the paper money we have today, and also how cryptocurrencies fit into all of this, in another post. But there is one more theoretical aspect of money that I want to explain in this post.

If money’s purpose is to store wealth, where does wealth come from anyway?

I’ve already said that the farmer generated his wealth from a combination of two things: the land plus his labor. This land + labor combo is the origin of all wealth. And then after that wealth had been gleaned from the earth through labor, it could then be transferred to other people, including those who didn’t glean their wealth directly from the land, through exchange. For example, the farmer would give food to the blacksmith in exchange for making him that cook pot.

These days, relatively few people are employed in direct wealth-gleaning-from-the-earth occupations, but this is still the true origin of any wealth that is had on this earth. Therefore, any money anyone has today is actually stored wealth that was originally gleaned from the earth (or, sun, in the case of solar)! Part 2 here.

One Reason Insurance Companies Still Reimburse Procedures That Are Considered “Waste”

Have you ever read about the waste in our healthcare system and wondered why insurers cover so many apparently wasteful services in the first place? You’d think they could just refuse to cover those things and save themselves and the entire system a lot of money.

In Wendy K. Mariner’s Rationing Health Care and the Need for Credible Scarcity: Why Americans Can’t Say No, published in Health Law and Ethics in 1995, she discusses this issue. Even though the article is from 1995, I think her insights still apply.

“When the media report that a woman is dying of advanced breast cancer and her insurer will not pay for high dose chemotherapy and autologous bone marrow transplantation because it considers the procedure experimental or unsuitable for her, the insurer is widely viewed as depriving the woman of a chance at life to which she is entitled. Insurers may argue that the insurance policy expressly excludes such procedures and that the woman agreed to its limits. Such arguments, even when correct, do little to assuage feelings that the insurer is depriving people of care to which they should be entitled. This feeling is exacerbated by the suspicion that the insurer could pay for the treatment if it chose, that it has enough money to buy services that are readily available. Thus, what looks to the insurer as sensible budgeting may appear to the patient as unnecessary and unfair rationing.”

If the insurer chooses to refuse coverage, it saves the cost of that service, but it risks losing a whole lot of its good reputation and future enrollees if the woman goes to the media with her story. I’m sure she could find a journalist willing to jump on that story and write it in a way that convincingly makes the insurer seem like the villain.

So, insurers are rationally covering things that could be considered wasteful. This is just one more example of how parties in the healthcare system respond so rationally to incentives. Which means if we can fix the incentives, we can fix the behaviours in the healthcare system.

Using Philosophy to Form Opinions

I’m still going through old half-written posts and deciding which ones are worth completing before I move on to my new project. The thoughts in this one are things I haven’t really shared on here, so here you go.

As a disclaimer, I am not a philosopher. But I do try to be thoughtful, and I’ve done a fair amount of reading about politics and policy and philosophy over the last couple decades, and this is how I currently see philosophy fitting into my interests.

I see philosophy as the deeper thinking about what’s important and what’s good or bad. Without having a personal philosophical understanding of these things, I have no way of evaluating government or society for myself. I will be subject to others’ opinions about those things, allowing them to decide for me. Or maybe I will form my own opinions, but I will have nothing to base it on other than what superficially or intuitively seems best.

So that’s the overview. But getting a little more specific, I believe there are different layers of knowledge we need if we are to have well-founded opinions about governmental and societal issues.

The deepest layer is moral philosophy. This is what helps you define what your overall goals are for human life and society. The absolute Truths you believe in and their priority relative to each other. What is justice? What is liberty? How do you obtain fulfillment? Your answers to these questions shape your core values, which guide your opinions on everything.

I used to think moral philosophy wasn’t very interesting, but when I started to analyze how I was forming my own opinions, I realized moral philosophy is the pre-requisite that informs every other aspect of opinion making, and it has since become very interesting to me.

The next layer up is political philosophy, which I think of as an attempt to figure out an idealized organization of society and government that achieves my core values. It’s the theory of government and society.

So when you are deciding where you would place your ideal government on each of the 5 spectra that I use to categorize governments, you are using your knowledge of political philosophy to do that.

And then the next layer up is policy, which is the attempt to implement those ideal structures. I notice a lot of writers about healthcare skip straight to this level without first stopping to analyze or at least clarify the moral and political philosophy they are applying.

And then the top layer is politics, which comprises the efforts to turn those policies into law and implement them. I know the political process is where the rubber meets the road, but I am content to focus on the three deeper layers and then help advise politicians on them so they can focus on the messy work of getting things enacted in the real world.

In summary, we form our core beliefs through moral philosophy, which then guides our political philosophy efforts to define a preferred ideal structure of government and society, which leads to supporting specific policies, which are then run through the gauntlet of politics to finally be implemented in the real world.

I write primarily for myself–to help synthesize my ideas. But I also write with a desire to be persuasive. I want all countries to implement better policies so their healthcare systems can deliver better value. And I believe the only way to do that is to have a solid foundation at the deeper philosophical levels. They are what inform every opinion I share about specific policies. This is probably why I write so much about what could be considered “theory,” maybe sometimes to my detriment in our data-driven world. And the fact is, we need both. The theory and the data. Optimally, the theories are informed by and tested against the data. I need to write more about that data since I’ve read it but not stored it in an easily accessible and easy-to-cite way, which is why I’ll soon be spending a lot more time doing that.

Bungled Payments

I write regularly about the need for patients to be able to make “value-sensitive decisions.” It means they make decisions about where they receive care (and also which insurance plans they choose) while considering both price and quality. One important step to helping patients do this is enabling them to know beforehand what the total price of the care episode will be.

That’s where bundled payments comes in. Their most important function is to give patients an apples-to-apples comparison of the total price of the care episode because they set a single price that includes all the things that might be needed in the care episode.

But when you start trying to turn bundled payments into pay for performance programs, that’s when they should be called bungled payments.

Which brings me to Medicare’s bundled payment models. There was a great article in JAMA recently by Joynt Maddox, Shashikumar, and Ryan, entitled Medicare’s Payment Models–Progress and Pitfalls.

Here’s an issue they wrote about regarding benchmarks: “Continuing to base benchmarks on historical costs will lead to a feedback loop disadvantaging participants with low spending. Those who reduce spending will have lower historical spending in future years and will receive lower benchmarks. They may find it more difficult to meet progressively lower benchmarks and will thus eventually pay penalties, despite being efficient.”

This sounds like what I wrote a few weeks ago: “Sure, this incentive has gotten us better quality for more money, and yeah eventually we’ll probably have higher quality overall, but it’s going to be at the cost of a lot of consternation of providers as we repeatedly take away their quality bonuses when we raise standards. Overall, this quality bonuses idea is just a frustrating and generally ineffective way to improve value.”

They suggest defining an “efficiency floor” that exempts anyone who meets that threshold from penalties. That’s reasonable for sure, but I suggest getting rid of the bonuses/penalties thing altogether.

Another thing they wrote in the article: “Second, the current benchmark method permits payout of large reward, offsetting any savings that the models achieve for CMS. . . . While the BPCI-A, OCM, and CJR payment models are associated with reductions in clinical spending, the bonuses these programs have paid have far exceeded the spending reductions they have incented.”

This sounds, again, like what I wrote a few weeks ago in the same blog post: “If our goal is to improve value, what we’ve just done is taken the higher-value providers and increased their price, which means their value has dropped back down to everyone else’s.”

They suggest creating a “stop-gain” provision to limit potentially excessive bonus payouts. That’s reasonable for sure, but I suggest getting rid of the bonuses/penalties thing altogether.

But wait! If we get rid of these administratively determined price adjustments (bonuses and penalties), how do we reward providers who deliver higher value?

We need, instead, to do a few things all at the same time. First, providers need the freedom to offer lower prices. Second, prospective patients need to be able to easily find those prices (and, preferably, patient-relevant quality information as well!). Third, patient’s insurance plans need to be designed such that patients end up paying less out of pocket when they choose a lower-priced provider.

If that could all happen, more people would start choosing the providers who offer better value. And what does that mean? It means the better-value providers would get more patients and more profit! And the lower-value providers would get less profit. So what we have is the same general outcome of rewarding the better providers and penalizing the worse ones, but instead of trying to do it administratively with all sorts of inefficiencies and distortions (all while not enabling more people to receive higher-value care), we have instead brought to bear on this challenge the dispersed preference information from the market. It will very effectively reward the ones who are truly worthy of being rewarded, penalize the ones who have lower value, AND more patients will get higher-value care immediately, which I would argue is our overall goal with these programs in the first place (you know, “value-based care“).

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