FREE recently hosted a conference, “Personal Health Care Choices and Public Policy,” for Federal Judges, State Supreme Court Justices, and Law Professors. This is an area fraught with supply and access problems, competing values, and political opportunism. Economics offers some important insights when considering them.

John Goodman, Ph.D., is one of FREE’s senior fellows. John has a bi-weekly column, “Health Alert,” at http://www.ncpa.org/healthcare/. The following “FREE Insight” is one of his insightful perspectives on a massive problem. You will probably notice that John has an unusual perspective when considering health care problems.

-John Baden

Doctors as Engineers

There are two fundamentally different ways of thinking about complex social systems: the economic approach and the engineering approach.

The social engineer sees society as disorganized, unplanned and inefficient. Wherever he looks, he sees underperforming people in flawed organizations producing imperfect goods and services. The solution? Let experts study the problem, discover what should be produced and how to produce it, and then follow their advice.

Social engineers invariably believe that a plan devised by people at the top can work, even though everyone at the bottom has a self interest in defeating it. Implicitly, they assume that incentives don’t matter. Or, if they do matter, they don’t matter very much.

To the economist, by contrast, incentives are everything. Complex social systems display unpredictable spontaneous order, with all kinds of unintended consequences of purposeful action. To have the best chance of good social outcomes, people at the bottom must find that when they pursue their own interests they are meeting the needs of others. Perverse incentives almost always lead to perverse outcomes.

In the 20th century, country after country and regime after regime tried to impose an engineering model on society as a whole. Most of those experiments have thankfully come to a close. By the century’s end, the vast majority of the world understood that the economic model, not the engineering model, is where our hopes should lie. Yet there are two fields that are still completely dominated by people who steadfastly resist the economic way of thinking. They are health care and education.

Take education first. A quarter of a century after the publication of “A Nation at Risk,” we have made almost no progress toward the engineer’s goal: figure out how to teach, figure out how to train teachers to teach that way and then go tell everybody what to do. In fact, two whole generations of students have passed through schools we were told are awful while the technocrats pursued this impossible pipe dream! Alex Tabarrok summarizes where we are now as follows:

Unfortunately, we have little idea how to train good teachers. The best we may be able to do is to throw a bunch of people into the classroom and measure what happens but for that strategy to work it needs to be followed up with firings. Indeed, one recent study (see here for another explanation) found that the optimal system — given our current knowledge and the importance of teacher effects — is to hire a lot of teachers on probation and then fire 80 percent after two years, yes 80 percent.

As in education, health care is a field that can be described as a sea of mediocrity punctuated by islands of excellence. The islands always spring from the bottom up, never from the top down; they tend to be distributed randomly; they are invariably the result of the enthusiasm, leadership and entrepreneurial skills of a small number of people; and they are almost always penalized by the payment system.

Now if you think like an economist, you will say, “Why don’t we reward, instead of punish, the islands of excellence and maybe we will get more of them?” But if you think like an engineer you will reject that idea as completely unacceptable. Instead you will want to 1) find out how medicine should be practiced, 2) find out what type of organization is needed for doctors to practice that way, so 3) you can then go tell everybody what to do.

Here is Atul Gawande, explaining how medicine should be practiced:

This can no longer be a profession of craftsmen individually brewing plans for whatever patient comes through the door. We have to be more like engineers building a mechanism whose parts actually fit together, whose workings are ever more finely tuned and tweaked for ever better performance in providing aid and comfort to human beings.

Here is Karen Davis, explaining (in the context of health reform) how medical care should be organized:

The legislation also includes physician payment reforms that encourage physicians, hospitals, and other providers to join together to form accountable care organizations [ACOs] to gain efficiencies and improve quality of care. Those that meet quality-of-care targets and reduce costs relative to a spending benchmark can share in the savings they generate for Medicare.

The Affordable Care Act (ObamaCare) was heavily influenced by the engineering model. Who, but a social engineer, would think you can control health care costs by running “pilot programs”? What’s the purpose of a pilot program if not to find something that appears to work so that you can then order everybody else go copy it? Pilot programs are a prime example of the social engineer’s fool’s errand.