Until recently, there was little discussion of quality, especially in routine care; and even today there is no teaching about value (quality at a reasonable dollar cost) in medical school, residency, or CME.

Finally, don’t be fooled into thinking that doctors don’t do things for higher reimbursement. The difference is that most doctors aren’t businessmen, in the sense that they aren’t looking for maximal profits. But we do have a general sense of how much we think we should be paid, and will induce consumption until that payment level is reached.

This issue of value needs to be explored further. If patients and doctors had a better sense of value and concordance on what value means, then the issues of regional variation in costs (and quality) would improve. This is the part about market economics that seems to get lost. Without transparency over value and its metric (price), there really is no market economics. Your archetypal example of markets for Lasik surgery is right on par. We need better methods of communicating quality, value, and price at the doctor-patient interaction level. But none of the stakeholders (insurers, governments, employers, etc.) seem very interested in empowering that process.

Aanand Naik, MD

I asked the question: “what determines the cost of health care in any demographic hospital community?” I researched the country and looked at hundreds of variables. The answer….

The number of doctors on staff at the hospitals was the sole variable involved in determining the cost of care in that hospital community.

I went on to suggest the following: 1) the doctor (at that time) was both the demander and supplier of care (therefore Keynesian principles did not apply); 2) the hospital was the “capital playground” for doctors. They had no personal investment on the line, but they got to “play” and charge for it; 3) in order to contain cost we needed to better define the product “health care” and in order to do that we needed a relationship clinical data base.

So in 1975, I proposed the computerization of the medical record (the clinical record) as the means to controlling cost of care.

Prophetic??? I am not so sure, but now you know why I am so involved in these economic and political issues. I wrote the initial study when I was young and naive.

Since then and since I have earned my medical degree, I have the same modified conclusion. When you look at the Dartmouth study and all the studies asking why demographic communities are SO different I would add the following: 1) the communities are different. There are states in the north where LOS in a hospital are different in the winter because of transportation problems. Communities are different because they are genetically different. California rates of diabetes are bound to be greater than Maine because we have a Mexican population (you know that data). Communities are culturally different and there are different expectations. 2) Physician training is different. Doctors tend to stay put or to live where they are trained and the fact is that some communities have stronger cardiac programs and that changes treatment standards.

So this is my 2 cents.

PS: I was not at Wellesley when Hillary was there but my Economics professor says the following with respect to Hillary: “History has never been so beautifully re-written.”

Please clue in our wonderful Presidential candidates!

Keep up the inspiring and informative messages. It is a blessing to have your talent and experience working on all of these important issues!

“I believe theories 2, 3, 4 and 5 explain 80% to 90% of everything we observe, while the conventional explanation (theory 1) explains a small part of the remainder.” (Underlining added.)

You dismiss the venal doctor theory (1) out of hand, without citing any evidence on why we should dismiss it out of hand. I find that sycophantic to the medical profession.

Next, you subscribe to the “Doctor-as-Altruistic-Agent-of-the-Patient Theory.” It could explain, of course, why doctors would recommend treatments that are free at point of service to patients up to the point at which the expected marginal benefit from added resource use approaches zero. That much my own belief (and a belief it is) in economic theory finds intuitively appealing. But how can that theory explain the Wennberg variations with which you open your epistle? Since presumably health care is free at point of service in all regions under Medicare (although actually there is a fair amount of cost sharing in Medicare, even for hospital episodes), why do altruistic doctor-agents prescribe so many fewer hospital admissions and days in Utah than in, say, heavy resource-using Texas or New Jersey? Even within New Jersey the use of hospital care during the last two years of a Medicare patient’s life varies by a factor of up to 3 across NJ hospital market areas. (As the Chair of the recently concluded New Jersey Commission on Rationalizing Health Care Resources, I was told by numerous hospital executives and by the Commissioner of Health, himself a doctor who has practiced in NJ for decades, that Theory 1 actually furnishes a major explanation for these variations. They even informally identified types of doctors more likely to be driven by economic motives in their treatment decisions. I am not sure whether you are prepared to have your insight as an economist override those of actual practitioners in the field; perhaps you are.)

As to the “Patients-Acting-as-their-own-Doctors Theory,” I am not sure what to make of your views on it. Isn’t that what the CDHC people want patients to do? Is the problem, then, that these patients don’t pay enough out of pocket? I recall your telling me and the audience in DC a few years ago that you were NOT a champion of high deductibles, but merely a champion of better information for consumers. (I had asserted that you were a champion of high deductibles). Are you now in favor of high deductibles, but were not then? And do you really think many Americans will have themselves admitted to a hospital for painful surgery just because it is free—because it tingles so nicely? Finally, the impact of cost sharing on patients’ decision surely must vary by income class. We learned that much in graduate school. Do you sincerely think that people in your and my income class would be deterred from using whatever health care we fancy just because we face, say, a $5,000 deductible—peanuts to you and me?

Next, your “Misguided-Donor/Misguided-Legislator Theory.” You open up that section with “Why do resources differ from place to place? [sic].” Are donors in Utah genetically different from donors in Texas and NJ, which can explain regional differences in resource use? Do federal legislators have different Medicare rules for Utah than they do for Texas and NJ, and that can explain differences in regional resource use? Am I missing something here, or might I be staring at a classic non-sequitur?

Finally, in connection with 5. The Medicine-As-Art-Rather-Than-Science Theory, does it explain regional differences in resource use?

My own reaction to the Wennberg variations is that they most likely represent the confluence of all of the theories you list, in different regional mixtures whose nature we do not yet understand because we have never devoted research to it. I find it odd that, as an economist, you would axiomatically, as an act of pure faith, rule out Theory 1. Doing more operations and MRI scans is highly profitable to the providers of these services. And yet, as an economist, you believe that these profits play only a minor role in treatment decisions?

Have you seen the Doyle paper “Returns to Local Area Health Spending”? I’ve attached a copy. He presents evidence that higher local spending does lead to better outcomes. Which I find interesting as I’ve always been somewhat skeptical of using highly aggregated results to pronounce on the intensity or adequacy of care given the issues of measurement error and self-selection bias.