My $500 Hand Cream

A few months ago I went to the dermatologist because my hands were extremely dry and itchy. This had happened once before so I knew exactly what cream I needed prescribed. Previously I had a friend (who is a doctor) prescribe a cream that cost the insurance company about $40—it worked very well so naturally I hoped to use the same treatment—I was sorely disappointed.

Instead I got a shot in the backside ($50+), and was prescribed a cream that cost over $500! I protested when he told me how much his prescription would cost my insurance company, but he flatly said, “your insurance will cover all of if because of the coupon I gave to you…so it doesn’t matter.” I even called his office while I was standing in line at the pharmacy but he insisted that his recommendation was justified and because I had all ready paid to see him I wasn't going to visit another doctor and be charged twice. Three weeks later my hands still itched and I called my doctor friend again to get the old prescription ($40), and within a week my hands were no longer itching.

Why would this doctor be so insensitive to overall cost? Does the pharmaceutical representative buy him that many lunches? Are these conflicts of interest influencing patient care and overall expense? According to the New England Journal of Medicine these conflicts of interest are incredibly influential. I think coding reimbursement also contributes to wasteful diagnosis. To receive payment from insurance companies’ physicians perform pre-approved procedures at pre-approved rates; these procedures are given a code (sometimes broadly) and billed to the carrier. Because doctors have an incentive to maximize profits, they bill codes that are most profitable by categorizing a visit/procedure accordingly (limited by ethical diagnosis). What most interested me when I thought back to this experience is the contrast of recommendations from each doctor and their incentives. My doctor friend simply wanted to help me get feeling better and was sensitive to price; the other doctor billed and prescribed in a way that maximized his utility at the hefty expense of the insurance company and therefore my expense (remember insurance is pooled risk of policy holders). My doctor friend’s treatment plan cost about 7% of the other doctor’s treatment plan and was more affective.

Our health-care-system is wasteful for many reasons but two of the primary reasons are misaligned incentives (for both physicians and administrators), and conflicts of interests. Managing any large organization requires understanding economic incentives and this is especially true when managing organizations within health-care.


Locke said...

The medical field is complicated to say the least. There is a lot of red tape that doctors have to go through to get medicine approved in order to prescribe it. One tricky part with medicine is the fact that although the active ingredients may be the same, the inactive ingredients can be different which can cause different side effects.

The medical administration also has to deal with lawsuits. Having a set list of medication that can be prescribed helps protect them from lawsuits because there is consistent data concerning the disease and medication.

Another complication is the fact that the business mindset may be taking the place of the Hippocratic Oath. Do no harm to the patient… but take advantage of anyone else.

Joe said...

Your point concerning the Hippocratic Oath is well taken and I agree. I'm not saying that every administrator and physician abides by, "do no harm to the patient...but take advantage of anyone else" but I think many do.

Dr. Tufte said...

Milton Friedman said:

There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get.

In the large, our medical payment system is a combination of the last two methods.

It amazes me the extent to which many people do not recognize that this causes problems.

Thomas said...

A co-production between NPR and "This American Life" offers a few good interviews with MD's and great research on this phenomenon. Ironically enough - it is called: "Someone Else's Money." MD's didn't invent this crappy system and I believe for the majority they are not trying to take unfair advantage, but must find a way to financially work within the system to provide care.

Dr. Tufte said...

Thomas is absolutely right.

The thing is, as a society, how do we get stakeholders in a crappy system opt out of so we can all move forward.