Patients and Doctors Respond to Economic Incentives. Right?

I ran across the John Goodman Health Blog published on Monday of this week where he laments that health policy learning that he gleaned from the RAND Health Insurance Experiment conducted 25 years ago has been lost in the recently published study.

Specifically, Goodman says that he took away from the study two very important policy implication:

  • First, the study put the final nail in the coffin (at least for several decades) of naive national health insurance (NHI). If health care were completely free, spending would soar, with no improvement in health status (NHI, by the way, was a principal motivation behind the entire experiment.)
  • Second, the study opened the door to a myriad of market-based solutions to health policy problems. For instance, we could have full-service diabetes centers vigorously competing for diabetic patients, each managing his own risk-adjusted Health Savings Account.

I commented on that blog that what I have found interesting from an experience working in a staff model HMO setting is that costs, as well as quality of patient care — as measured by the Healthcare Effectiveness Data and Information Set (HEDIS) — can certainly be positively impacted through proper economic incentives applied to providers.

The problem with this model is that it is so unpopular with most of the public who have gotten used to the co-pay mentality and do not react well to the “insurance company control” that they say they experience in an HMO setting.

The good news is that consumer-directed plans seem to be showing that consumers who have a financial stake in their health care will also make rational decisions. Now all we need to make it happen on a wide-spread basis are more provider models like the full-service diabetes centers envisioned in the blog piece that will vigorously compete for patients.

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