Sunday, April 20, 2008

Marginal Utility Becomes Mainstream (The Right and the Wrong Way to Do It)

First of all, I aplogize for being absent for so long. Life has a way of keeping you busy, and I've learned first hand how busy a person can be. Anyway, enough about me.

It is absolutely clear that in modern medicine, a great deal of what we do is of marginal utility. We can look at this both in the sense of the utility of the treatment as to how it impacts whatever its endpoint may be AND the expense of a treatment versus how much value that endpoint actually provides. An example of the first might be the use of expensive MRI imaging on every nebulous back, knee, shoulder, neck, etc... pain. An example of the second might be $5000/day ICU care on a demented 90 year old with metastatic pancreatic cancer. In the first case, the cost is high, the yield is mostly low, and the data is often hard to interperet. In the second case, we can only hope to provide a limited number of days or weeks to the patient, with very little in the way of benefit in even the best case scenario. Being mainstream doesn't exclude something from being marginal.

History is full of many marginal items becoming mainstream. As they improve, the world adapts to them, and they often cease being marginal. Before Henry Ford, the car was an exclusive oddity for wealthy people. Poor people walked, took horses, etc... as they had for millenia. One day, Mr. Ford had a vision of mass automobile production at a price that the workers building the cars could afford. In comes the assembly line, the Model T Ford, and over the next couple of decades we went from a nation that walked and rode to a nation that drove. Newer cities sprang up around in a world in which people could travel long distances with ease, and all across the sun belt, it is now hard to call a car marginal. It's almost impossible to get ahead without one. A good way to enter the mainstream is to cease being of marginal relative value.

Television, the personal computer, and most recently the cell phone all fit into this category. They all have one thing in common. When they were of marginal utility, they were expensive. They became inexpensive first, and THEN they became the standard. The majority of people can afford these things, and that is why they entered the mainstream. Beforehand, the inaffordability prevented them from becoming common, and the people who sold them HAD to find a way to make them affordable in order to sell them. The incentive is to drive price DOWN.

This is in stark contrast to medical care. In the past, medicine followed this model. Pre-1970s (read medicare age) medicine saw numerous technologies from X-rays to Penicillin go from expensive oddities for the rich and well connected to common and affordable in a few short years, following the same model that ALL OTHER TECHNOLOGY uses to become cheaper. However, since the '70s, we've had an explosion of technologies of progressively more marginal utility at increasing expense. We went from X-rays to CTs to MRIs to PET scans and other nuclear scans. It seems quite clear that there is progression in which each step adds progressively less than the previous step added at an exponential increase in cost. Going from no imaging to having X-rays is far more important than going from CT to MRI.

When Medicare entered the market in the '70s, all incentive to drive down costs began to diminish. As government payment systems took over a progressively larger proportion of payments, incentives were turned on their heads. The incentive is to create MORE expense in order to claim a greater proportion of the pie. As is commonly understood, the incentive of a salesman is to claim he needs the least money for his product while the incentive of a beauracrat is to claim he needs to most.

By allowing access to the rich first for newer technologies, it allows them take hold. The existance of higher stores of wealth creates incentive for people to create marginal technologies. The natural progression is for these technologies to become progressively cheaper as people find a market in progressively poorer classes. Taking higher technology and expensive goods and making them affordable has been the success model for companies such as Walmart. Almost everything starts as the domain of the rich and in a couple of generations becomes a seen necessity for the poor.

We will use the CT and the personal computer as our example. Since the early 80s, CT have added some higher resolution and gotten quicker, but they generally do the same thing. Over that time, their price has gone up significantly. In fact, I cannot pay in inflation adjusted dollars the same amount for a 1980s CT scan than I could in the 1980s. The price is stagnant to significantly increased. The personal computer on the other hand was a dreadful box that required a long time to boot from a series of cards, could do little but word processing and simple calculations, and was hard to access. In the same period, it can now do what most supercomputers could do in earlier times and at a much lower price. The $300 Dell Cheapie is infinitely more powerful than the $5000 home PC of 1980.

Over that time, the government took over the bulk of healthcare costs, and various hospitals, Radiology groups, etc... argued for the need for MORE money for CTs. They lobbied and they won. Meanwhile, the computer was sold in near free market conditions. Newcomers such as Dell and Gateway entered the market and competed against the old time Compaqs and IBMs. Prices went down. Over that same period of time Microsoft and other software giants emerged and provided progressively cheaper options for software that did progressively more.

You see, now most people can get a computer and most people can get a CT scan. The computer is the right way to turn the marginal into the mainstream. A person goes, pays a price they can afford and takes one. There is no red tape, no roadblocks, no obstacles. The same person must beg for a CT from their insurance company or go to the very expensive ER. They must often wait for days. They must pay progressively MORE for insurance to cover the same CT, and the CT costs more than it did 20 years ago. The legal scenario of the modern world makes the CT mainstream, because we ALL have to order it, but it has gotten no more affordable. This is the way to take something mainstream that will simultaneously BANKRUPT the system for the sake of remaining mainstream, as the treatment is often still marginal. This is not an issue with the PC, which entered the mainstream by no longer having a marginal cost-benefit.

In summary, the MRI for nebulous pain symptoms is of marginal utility because of the cost. As costs go down, the cost-benefit improves, and its use becomes less marginal. The ICU stay is marginal because at $5000/day it provides little benefit. It is the same problem. At $100 an MRI would be of much greater relative utility than an MRI at $1000. However, no one will find a way to provide a $100 MRI as long as there is a non market payer providing $1000. There is NO incentive to drive the price down, and the mainstream imaging will have marginal value.

There. It was fast written, rambles a little, but atleast I'm posting again.

15 Comments:

OpenID halfmd said...

Glad to see you're back. One problem with driving down the cost of the CT scan is that the radiologist needs to get paid---and his salary cannot be decreased. Imagine if---every time you purchased a computer---you had to pay a technician to install the software by hand at $200 an hour.

At best, only the cost of the CT machine can go down, but the service is still going to run high.

5:10 PM  
Blogger MiamiMed said...

I think that we could use the same formula to explain a little bit of what the radiologists get paid.

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Blogger ObGynThoughts said...

excellent argument for more market in healthcare! I support that...

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