U.S. healthcare is wasteful and harmful, and executives in San Diego for a yearly American Hospital Association conference heard a lot about why and how the industry needs to reform.
The why is obvious. Healthcares cost and quality vary wildly depending on where you get care. One recent look at these costly inconsistencies, by the Commonwealth Fund, underscores how a dysfunctional system can jeopardize patients safety and drive up costs.
For example: The chances that an adult who undergoes surgery will get infection-preventing antibiotics when the medication will be most effective can vary by as much as 80% across states, the report said. (Surgical infections are associated with higher mortality rates and hospital readmission, the Agency for Healthcare Research and Quality says.) Meanwhile, Medicare could save an estimated $2 billion to $5 billion each year if states did a better job with prevention that keeps patients out of hospitals, according to the report.
The how is less clear. But of all the speakers in San Diego to propose ways of tackling the problem, University of Chicago economist Steven Levitt was the only one to mention prostitution.
The bit about the call girl came at the end of Levitts engaging talk. Levitt and journalist Stephen Dubner co-authored the best-selling Freakonomics, a book that reviewers have hailed for exploring how incentives play out in business, crime, education and elsewhere. The University of Chicago professors address in San Diego covered much of the same ground.
But it also turns out that incentives are only as good as our ability to recognize them and effectively put them to work, he argued.
In Levitts experience, that happens far less than it should. Too often, businesses operate without challenging assumptions or examining data to understand how employees or consumers respond to incentives, he said. (Levitt works as a consultant, but unpaid. His compensation is access to data, he said.)
Levitts commentsthough rarely specific to healthcarewere strikingly relevant at a conference on how best to push, drag, inspire or pay healthcares often-competing players to make high-stake reforms. All of which made another of Levitts observations stand out: The best thing you can do is not use financial incentives, which quickly go from bonus to entitlement, he said. Theyre good for one-off improvements. So it seems that anyone who thinks that pay-for-performance programs are the key to getting providers to improve quality of care should take notice.
Corporate America isnt alone in making ill-informed decisions, according to Levitt, who made an analogy between the apparent similarities between how airlines and call girls set prices. Levitts academic interest in the worlds oldest profession landed him at brunch one day with a $300-an-hour call girl. He quizzed her as he would any executive and discovered her strategy was simply to go online and match competitors advertised prices. Briefly, the two discussed other factors that might influence how much she charged. (Ultimately, the conversation yielded some unexpected results, as she wound up increasing her price.)
Simple changes can have far-reaching consequences, Levitt noted early in his address. This time to make his point, he used an example from the public sector. In 1987, the Internal Revenue Service adopted a change championed by an alert auditor. The change boosted tax revenue by adding a spot on tax forms for the Social Security numbers of dependents. Seven million U.S. children "disappeared" overnight, he said.
Ideas are everything, Levitt said.
The words sounded something like a challenge. In one of the few comments he directed at healthcare, he made it clear he considers the sector ripe for scrutiny and innovation.
I cant see another industry where incentives are as distorted as in healthcare, he said.