Market Failure, Part 2 – Deeper Look

Detail on the 3 interrelated “imperfections” that ruin the delivery of health in the United States and abroad.

In the previous post, I promised a more thorough explanation but “ran out of room”.

First is the mismatch between objective medical quality and patients” perception of quality. Second, and closely related to the first, are the incentives that creates for providers. Third is the “imperfect” way most patients choose their providers.

Problem 1 – The Perception of Quality

The first problem with health care is the perception of quality. When folk in academic medicine describe “high quality” health care, they generally mean scientifically proven interventions that lead to good outcomes, often at the least possible cost. When consumers (patients) describe “high quality” health care, they often envision easy access to a friendly, trusted provider in a pleasant setting. The connection between these 2 views of quality is flimsy at best.

Indeed, often the medical and patient perceptions of quality are opposite. The guidelines say that a middle-aged, obese, hypertensive smoker should be told to diet, stop smoking and take a fistful of medications that, while beneficial in the long-term, give him only inconvenience and side effects now. Such a patient may well prefer the doctor down the road who ignores the “quality” guidelines and leaves his patients to their whims.

Here in the developing world, the situation is much the same. If a child has typical diarrhea, the WHO guidelines say the correct treatment is just ORS – a bit of salt and sugar dissolved in water that replenishes the child’s fluids until the diarrhea runs its course. The trouble is that the doctor down the street is giving out prescriptions for (unnecessary) antibiotics and anti-diarrheals. And the medicine man around the corner does this really entertaining chant and doles out mystical concoctions of herbs. What mother, concerned for her child”s life and maybe lacking any decent science education, would go to the well-trained doctor giving out salt water?

Problem 2 – Terrible Incentives

Not surprisingly, patients choose providers who meet their expectations, no matter how academic-evidence-free they may be. This creates the second problem – that providers respond to bad incentives. In the diarrhea example, the poor, well-meaning doctor prescribing ORS gets driven out of business by the quacks and medicine men who seem to be doing more.

Money for Nothing

This massive problem was beautifully described in one of my favorite (and papers ever by Das & Hammer from 2005 – the cutely named Money for Nothing: The Dire Straits of Medical Practice in Delhi, India.

They found that wealthy patients did ok. They went to expensive, fee-for-service private sector providers and ended up paying a lot for adequate care. However, like the child with diarrhea, the wealthy also got a lot of crap they thought they wanted but did not really need. So in effect, they grossly overpaid and so diluted down the quality of their care.

The poor, on the other hand, got screwed all around.

The poor had the option to visit very cheap public hospitals. Das & Hammer quizzed those doctors and found them pretty competent, so this would seem a high quality option. The poor, however, avoided public facilities like the plague. Public sector doctors were overworked and underpaid. To boot, they were underpaid on salary, so they had no extrinsic motivation to be friendly, patient or compassionate. Indeed, they were so overworked that they wanted to see patients as fast as possible. Presumably, this had long ago burned out any intrinsic motivation for compassion that the docs may have had.

Rather than wait ages for moments with an unfriendly doctor, the poor usually paid more for private practitioners. These guys had the service part right – short waits, sensitive attitude, free-flowing medications. The problem was that they had no idea what they were doing.

Quite the mess they found. Expensive private providers knew their medicine but doled out useless (possibly harmful) extras to respond to their patients demands. Cheap public providers knew their medicine but, as public employees, had no incentive to do much of anything. (D & H found they would often not bother to examine the patient.) Cheap private providers worked hard for their business, which would have been great if only they were any good at medicine.

As in any market, both patients and providers in Delhi responded strongly to incentives. The trouble was that those incentives had little to do with health.

As in India, so in the United States. American consumers seem no better. They have been shown to report accurately on their doctor’s manner, attention and office but not on their doctor’s technical competence.

Problem 3 – Provider Selection

The Indian example above showed one problem with provider selection – people chose their providers without regard to objective health outcomes. This might suggest that, if there were some way to show people in advance how “good” their doctors were, they might choose better.

Unfortunately, this seems not to work either.

For example, in the early 90s, my birthplace New York State, published mortality outcome stats for cardiac surgeons. Demand for their services didn’t budge. This was true even though patients were aware of the results.

People overwhelmingly choose providers for understandable but entirely unscientific reasons. Recommendations from family & friends predominate to the point large majorities tell surveys that they would trust such recommendations over objective data. Incredibly, almost 80% report having had enough information to choose their doctor with “confidence”. Unfortunate that, as discussed above, once can guess that their friends and family are probably poor judges of doctor quality, too.

As I explain above, it’d be like always ignoring the specs and just buying a blue car because you and your friends like blue. And so, perhaps a solution lies in figuring a way to make sure all the blue cars are outstanding.

* Note: This was originally posted Dec 2013 from Nairobi and is now reposted after a technical upgrade in Oct 2017.