The illogical economics of health care

Atul Gawande writes of one medical innovation that threatens to bankrupt the innovators:

Recently, clinicians at Children’s Hospital Boston adopted a more systematic approach for managing inner-city children who suffer severe asthma attacks, by introducing a bundle of preventive measures. Insurance would cover just one: prescribing an inhaler. The hospital agreed to pay for the rest, which included nurses who would visit parents after discharge and make sure that they had their child’s medicine, knew how to administer it, and had a follow-up appointment with a pediatrician; home inspections for mold and pests; and vacuum cleaners for families without one (which is cheaper than medication). After a year, the hospital readmission rate for these patients dropped by more than eighty per cent, and costs plunged. But an empty hospital bed is a revenue loss, and asthma is Children’s Hospital’s leading source of admissions. Under the current system, this sensible program could threaten to bankrupt it. So far, neither the government nor the insurance companies have figured out a solution.

The health care reform law tries to encourage such innovations through a new "Center for Medicare and Medicaid Innovation" where communities can experiment with different payment rules. For example, hospitals could be paid a set amount for asthmatic children regardless of how much treatment the children are provided. But there is no guarantee, of course, that any of this will work mainly because it goes dramatically against the incentives of physicians now to reduce the amount of care. My daughter's eye doctor wanted to check her for glasses three times in a period of six months! When I gently pushed back, I was told that it would be okay to come back in a year. As Gawande notes:

That’s the one truly scary thing about health reform: far from being a government takeover, it counts on local communities and clinicians for success.

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