Let Go of the Medical Monkey Trap

It is said you can trap a monkey by putting a nut through a small hole in a gourd. The monkey reaches in and grabs the nut, but then his fist won’t fit back through the hole. Greedy monkeys will literally let themselves be caught rather than let go of the nut. So far, no commenter on my essay seems willing to let go of the nut of effective medicine, held in the gourd of the second half of medical spending.

As an analogy, imagine you ran a software company, whose many offices had different wage levels and work cultures, with average work hours ranging from seven to fourteen per day. Surprised to see these offices were equally productive, you randomly changed wages, inducing changes in work hours. You again found offices that worked more did not produce more; after seven hours people got tired and added as many bugs as they fixed. If instead of just cutting wages to get only seven hours of work, you just told everyone “watch out for bugs,” you would be in a monkey trap, refusing to let go of the nut of productive work in the gourd of extra work hours.

I challenged health policy experts to “publicly agree or disagree” that “it has long been nearly a consensus” that since “variations in local medical culture … [and] prices” produce spending variations with little apparent relation to aggregate health, “if we were to reduce medical spending via a [similar large] disturbance … [this would] reduce helpful and harmful medicine in roughly equal amounts.”

Cutler seems at first to agree, saying “if the high spending areas were brought to the level of the lower spending areas … we could save 25 to 30 percent of Medicare spending.” But then he says higher prices are “wrong” because they do not “separate the good from the bad” as “consumers appear to cut back indiscriminately,” such as stopping drugs. Instead Cutler wants “carefully targeted evaluations” of better “supply side policies.”

Goldman agrees “the role of medicine has been overstated,” but also rejects higher prices because it “isn’t enough” to eliminate waste, as patients are “as likely to reduce appropriate as inappropriate care.” Instead, “we should be spending a lot less in some areas, but also spending a lot more elsewhere.”

Garber says my “diagnosis … is not particularly controversial” but rejects “policies that would heedlessly cut high-value benefits along with the low-value marginal benefits.” He instead wants “changes … to promote high-value care” though these “are inevitably more complex, and we are still learning which approaches will work best.”

Shannon Browlee’s Overtreated, published today, argues “between 20 and 30 cents on every health care dollar we spend goes towards useless treatments and hospitalizations.” Yet even she will not support crude price increases or spending caps (personal email).

Bloggers Matt Yglesias and Ezra Klein reject higher prices because “patients … will just cut care indiscriminately.” Tyler Cowen similarly shrugs “I’m not sure what mechanism will get rid of the bad half” of spending. (Arnold Kling, Bryan Caplan, and Seth Roberts seem more sympathetic, but take no explicit position.)

I’m all for finding better ways to favor helpful over harmful medicine, but since we have no consensus on how to do this, why must this distant possibility stop us from publicizing and acting now on our consensus that we expect little net health harm from crude cuts?

Critics seem to me to suffer a “leave no man behind” obsession that makes the best the enemy of the good. No one seems to have denied that there would be little or no average health cost from simple crude cuts, like price increases and spending caps, which could, for example, give us all a 4% raise by cutting one quarter of medical spending. “Indiscriminately” cutting helpful and harmful medicine in equal measure can save big on spending. Yet no one seems willing to endorse such gains. It looks like a medical monkey trap; the option to run free of the extra spending gourd seems intolerable compared to the hope of extracting the nut of effective medicine from that gourd.

But apparently I stand alone; what am I missing? Help me see your reasoning. Please, pick one or add another:

  • Do you claim aggregate studies on balance do show spending increases from observed disturbances, e.g., price variations and local practice variations, give substantial health gains, relative to other possible spending options?
  • Do you claim the existence of identifiable treatments with positive benefits, which are cut when spending is cut, shows that aggregate spending variations do give substantial aggregate health gains?
  • Do you claim disturbances from simple crude cuts like price increases or spending caps are not in fact similar to disturbances seen in aggregate studies, in the sense of similarly changing the mix of helpful versus harmful medicine?
  • Do you argue that savings from medicine cuts would in fact be spent on general utility gains, instead of health gains, which matter little relative to health gains?
  • Do you claim that implementing simple crude policies like price increases or spending caps today would make it much harder to implement other policies later, policies likely to be implemented soon and which offer larger gains?
  • Do you argue that it is immoral to ever “leave a man behind” to disease, even if this tends to hurt as many in the attempt as it helps?

One last comment: In the RAND experiment all patients got common medicine while only patients who faced lower prices got extra medicine. Since extra medicine had little health value, if medicine has a big average value, then common medicine must be more valuable than extra medicine. Since patient choices determined common versus extra medicine, patients were by definition able to distinguish them. Doctors, however, could not distinguish them. For example, doctors rated both types of medicine as the same appropriateness of care and severity of diagnosis. Thus patients were actually better quality discriminators than doctors.

Also from This Issue

Lead Essay

  • Cut Medicine in Half by Robin Hanson

    In this month’s lead essay, the iconoclastic George Mason economist Robin Hanson argues that “our main problem in health policy is a huge overemphasis on medicine.” Hanson points to a spate of studies – especially the huge RAND health insurance experiment – to show that “in the aggregate, variations in medical spending usually show no statistically significant medical effect on health.” Hanson lays down the gauntlet and “dares” other health policy experts to publicly agree or disagree with this seemingly well-confirmed claim and its implications for policy. For Hanson, those implications are clear: “Cutting half of medical spending would seem to cost little in health, and yet would free up vast resources for other health and utility gains.”

Response Essays

  • Use a Scalpel, Not a Meat Cleaver by David M. Cutler

    Harvard’s David M. Cutler agrees with Robin Hanson’s claim that “a lot of medical spending doesn’t add much value.” However, he is “surprised by Hanson’s argument that this hasn’t been much noted,” pointing to major media coverage of this point and to his own work. According to Cutler, Hanson’s argument is “too simplistic,” suggesting that people in 1975 were better off with half today’s average medical spending. New technologies are both very successful and very expensive, and Cutler argues this extra cost is worth it. Citing research that demand-side approaches to cutting wasteful spending, such as raising consumer prices, are ineffective, Cutler plumps for a supply-side approach: “invest in information technology, monitor what physicians do, and pay providers more for better care than for less good care.”

  • Half Right by Dana Goldman

    Robin Hanson is half right, says Dana Goldman, the RAND Chair of Health Economics and Founding Director of RAND’s Bing Center for Health Economics. Medicine can only do so much, and most recent increases in longevity are the effect of healthier habits and living conditions, Goldman says. However, Goldman notes, the RAND Health Insurance Experiment, which Hanson leans on, is more than thirty years old, and many new therapies have emerged since then. In particular, new drugs have been shown to have a large impact on health. Patients required to pay for more of their care often cut out what they neeed, not what they don’t. Improved living conditions may do more for future health than more medicine, Goldman suspects. “But it may also turn out society should be spending more, not less, on medical care – just doing so in a more prudent manner.”

  • Watch Where You Cut by Alan Garber

    According to Alan Garber, the Henry J. Kaiser, Jr. Professor at Stanford, “Hanson’s diagnosis … is not particularly controversial. His solution is.” Efforts to trim excess medical spending must confront the highly variable benefits of certain medical treatments. Garber argues that Hanson’s eagerness to implement cuts, largely regardless of the details, risks cutting high-value treatments along with lower-value ones. According to Garber, what we need, first, is more and better information about the value of particular interventions. Second, we need incentives not to guide people away from overconsumption generally, but to guide them away from low-value care. Third, we need to increase the sensitivity of consumers to the costs of their health care by exposing them more to prices. Improved information and education, Garber says, will help consumers choose wisely.