Published in The Journal Record
June 3, 2015
Economists tell us that as price for a commodity or service approaches zero, the demand approaches infinity. I was reminded of the logic of this statement during a delightful dinner at an all-you-can eat seafood buffet at a local restaurant. I loaded my plate with shrimp and crab, and more food than I could ever consume. As you might expect, I did not come close to finishing. I suspect my experience was not different from many when our inclination is to be wasteful simply because taking more food does not cost us more.
Perhaps this is an apt description of our medical care system. Most of us, either through our employer or government programs, have come to expect that every time we have an interaction with a medical provider someone else will pay the bill in whole or in part. The question is, does this protection against the economic consequences of our own actions induce us to consume more medical care than is absolutely necessary.
It’s clear our insurance payment system has led to the development of a technologically superior health system, but also one that is by design guaranteed to give us the highest cost in the world. Everyone in a medical transaction, both the patient and the caregiver, has one economic incentive and that is to find the highest cost solution to every problem.
With this in mind it will be interesting to see if the new requirements in the Affordable Care Act actually begin to reduce these incentives. The Act calls for the creation of Accountable Care Organizations. The idea is that these entities would receive a fixed sum to care for a population of patients. In this scenario the providers’ incentive is to seek the least expensive way to treat every condition consistent with providing quality care. This is a far different incentive from being rewarded every time we provide a test or treatment to a patient.
If we applied this structure to the food service business analogy, a restaurant’s incentive would be to give the customer only as much food as they think we needed consistent with keeping us happy. The result is we may all become thinner but we would surely doubt their motivation.