Ignoring Musgrave’s Law

Gerry Musgrave was the co-author of our book, Patient Power. From him I learned the importance of:

Musgrave’s Law: Economizing must benefit the economizer.

We are reminded of this by perusing a list of suggestions from our friends John Rother, Joel White and David Kendall in Health Affairs. It includes five ways the private sector is supposed to become more efficient so that the government can have more money to spend (in this case to solve the SGR problem). Contrast this with nine suggestions Tom Saving and made (also in Health Affairs) on how to liberate the private sector and allow providers to benefit by doing things that will save taxpayers money in the process.

There is one item that is common to both lists: bundling. That’s paying one fee for a group of services rather than having every service line itemed. But who should do it and for what reason? Rother et al. would apparently have government select the bundles. That’s what is happening in the pilot programs and it isn’t saving any money. Tom and I would let the providers select the bundles. As Michael Porter and Elizabeth Teisberg pointed out some time back, the key to efficiency is allowing providers to repackage and re-price their services.

Comments (15)

Trackback URL | Comments RSS Feed

  1. Matthew says:

    “the key to efficiency is allowing providers to repackage and re-price their services.”

    This seems to be the best option for both providers and consumers.

    • Buddy says:

      “…would apparently have government select the bundles. That’s what is happening in the pilot programs and it isn’t saving any money.”

      Of course not. The government selecting the bundles is won’t save money and isn’t in the best interest of the patient/consumer.

    • Thomas says:

      “Today’s a la carte, fee-for-service payment structure rewards providers for the volume of tests and procedures they order rather than the overall quality of care they provide.”

      This is exactly why bundling the services is the best way to provide the service as low cost as possible.

    • Walter Q. says:

      This is why you cannot ignore Musgrave’s law.

  2. Bill B. says:

    “In a normal market, independent entities come together all the time, jointly produce a good or service, and agree on how to divide the revenue from the exercise.”

    If the bundle is good for the consumer and the provider, then why is it illegal?

  3. Jose says:

    Good post.

  4. Connor says:

    couldn’t this prove farm more expensive than traditional line item plans? If everything was bundled healthcare could become even more expensive

    • Wally says:

      At least that’s what I would think. Individual services could cease to exist. It’s a lot like Costco vs Walmart. Well off people save by being in bulk, but poor people still have to buy small single items. At the end of the day the middle class pays less for groceries than the lower.

  5. Trent says:

    “As Michael Porter and Elizabeth Teisberg pointed out some time back, the key to efficiency is allowing providers to repackage and re-price their services.”

    Why repackage? Just because its B1G1 33% off does not mean you are saving money