Next: Medical Records Up: Medical Information Previous: Introduction
Next: Medical Records
Up: Medical Information
Previous: Introduction
In this section we will consider how the rising cost of medicine and the creation of medical insurance have created numerous information problems. We shall consider the flow or medical information prior to the institution of medical insurance. How medical insurance creates an information problem. With the rapidly escalating medical costs the medical provisioning has been transformed creating new information problems concerning medical rationing. Self-insured firms can not separate employment decisions from medical decisions.
Let us consider medical practice prior to the creation of medical insurance which was based on the concept of fee for service. The patient paid for his medical service on a fee for service basis. Medical information flowed only between the patient and his or her medical practitioner. Medical practitioners rationed medical care on the basis of what the patient could afford.
With the advent of medical insurance the flow of medical information was expanded to include the insurance firm that paid the bills. Insurance firms trade association also created a depository of medical information that insurance firms use to evaluating potential customers. This creates two information policy problems. First because medical information flows in a much broader loop the security of such information becomes increasingly important. Second the accuracy of medical files in the medical insurance depository becomes much more important because of the possibility of individuals being denied insurance because of errors.
Now let us consider how the delivery of medical service is being transformed by the rising costs of medicine. First we shall examine the factors which have lead to medical costs increasing faster than inflation for several decades. One important factor in the rising cost of medicine is the success in medical research and development. In the 20th century increasing knowledge of chemistry and physics was applied to studying processes of the cell. This lead to a deeper understanding of diseases and the development of better cures. Until very recently medical research did not consider the costs of the medical procedures they developed. At first third party medical insurance paid the medical bills without question and simply raised the insurance rates in line with the rising costs of medicine.
Hospitals paid for indigent care and new medical equipment by passing the costs through to patients with insurance. For patients with insurance medical practitioners did not ration medicine but gave the best that medicine could provide. Because of the threat of malpractice lawsuits medical doctors practiced defensive medicine. They prescribed unnecessary tests and kept chronically ill old patients alive as long as possible. With the advance of medical research live could be extended six months with great cost.
In addition, the distribution of health care in the US has important weaknesses. Families with medical coverage from a large firm or public institution generally have excellent medical care. The poor on Medicaid have reasonable care. The old on Medicare have good care. But approximately 30 million individuals who work for small firms have no medical insurance at all. These individual can receive care at emergency wards of public hospitals. Providing general medical care at emergency wards is very expensive. Not only than women without medical insurance do not receive proper prenatal care which increases the number of premature babies. The expense of caring for premature babies is greater than the cost of prenatal care which would greatly reduce the number of premature babies.
With the rising cost of medical care, payers of medical service have become increasing concerned about the economic efficiency of the delivery of medical service. One change has been the shift from insurance based on paying a fee for each service to prepaid medicine as provided by hospital maintenance organizations, HMOs. In prepaid medicine the economic incentives are reversed from fee for service. The economic incentives for an HMO are to keep their patients healthy to reduce the need for expensive procedures. Ideally HMOs would practice preventative medicine and focus on early detection.
The medical insurance industry reacted to the growth of HMOs by creating preferred provided organizations where a general practitioner acts as a gatekeeper for access to more expensive specialists. Patients have economic incentives to use the providers contracted by the insurance firm.
Under pressure for large firms who have the resources to gain an understanding of medical economics, medical efficiency is beginning to improve. Hospital firms are consolidating hospitals and making them more efficient by having hospitals specialize rather than offer all medical procedures. Consulting firms are working with hospitals to make innovations in medical procedures.
But the current urgency to control medical costs has created a new information problem. To control costs HMOs and PPO organizations are rationing medicine. Medical practitioners are given incentives to reduce costs which can lead to lower quality of medicine than would be considered good practice. Furthermore medical practitioners are under gag orders not to reveal such arrangements.
This raises an important information problem. As will be discussed in the Chapter on market services the buyer should be entitled to all information which makes a difference outside of information restricted for overriding social concerns in the purchase of a service. There is no reason for buyers of medical service not to know exactly how the medical service will be rationed. This knowledge will make consumers more intelligent shoppers in selecting between alternatives plans. Rationing of medical service such as choosing which tests to perform on the basis of the cost efficiency creates a fundamental conflict between patient and medical provider. For a person who might get cancer and for whom early detection would mean much greater probability of survival, the use of an expensive test would seem much more justified than to the HMO who might consider this a needless expensive if the probability of the patient having a cancer is low.
Self-insured firms raise even more troubling information issues. The ERISA provisions place self-insuring firms above state law. For example, while states can specify what services medical insurance must provide in their states, they can not specify what services self-insuring firms must provide. This has created great incentives for firms to self-insure their medical expenses.
For the perspective of economics a self-insuring firm can not separate employee work decisions from employee medical decisions. For example, a workers economic wage is his or her money wage plus all fringe benefits. When an employees medical expense is covered by an outside insurance program the cost is fixed and the medical risk of employees is pooled. If the medical costs of the pool rise, the medical insurance costs will rise accordingly but the total medical expenses of the firm are fixed and predictable. When the firm has outside insurance, the firm has some incentives to have a healthy workforce to keep the insurance rates from growing. When the firm pays the medical expenses itself, a firms potential medical expenses are not predictable and directly impact profits. If a firm has an above average number of medical risks then its profits will be depressed.
Now let us consider the problem from the perspective of economic efficiency. For true believers in market efficiency, an efficient market is social justice. With such a perception of social justice, firms total wages should equal the value of the individuals marginal product. Ignoring the measurement problem, this means that if an employees expected medical expenses were higher than average, then the firm should pay him or her a lower money wage to compensate. By social customs this is not done. The money wage is the same for workers with the same skills and experience.
This means that as medical expenses continue to climb, self-insuring firms have powerful incentives to reduce their medical expenses by finding and retaining employees who are healthier than average. To reduce their expenses manufacturing firms are outsourcing the production of parts. This lowers the costs of production because small firms usually do not offer medical insurance and are not unionized. This means that the total wage bill for these small firms is much less than would be if the same employees were working for the larger firm. With the rising medical costs it pays larger firms to outsource just to eliminate fringe benefits.
It is important to realize that if inexpensive tests are developed which will predict propensities to acquire various diseases, self-insuring firms will have powerful economic incentives to use them in order to reduce their medical expenses. From the perspective of economic efficiency this is social justice.
Now let us consider how advances in information technology and DNA research will create new information problems for medical information.
Currently medical records are slowly shifting from paper to electronics. Old paper medical records are being imaged to conserve space. These imaged records are left as page documents and are not scanned for individual entries. With adequate indexing medical practitioners like scanned records because of the instant retrieval. At the same time subsystems of medical practice are being automated. One example is admissions, discharge and transfer of patients. Others are radiology, laboratory, and pharmacy information systems.
The move to complete electronic records will require much effort to develop standards and excellent character recognition systems, or better yet voice recognition systems to ease the recording of medical information. The focus of medical records will not be the individual practitioner, but the HMO, PPO or other type of overall medical provider. Medical records of a patient will be available at workstations to all medical practitioners providing care in a medical procedure. This will obviously require security provisions for restricting access to care givers who have a need to access the records. Entries will be individual entries to facilitate processing by software programs. A patients medical records will be integrated with the financial side of medicine to ease the problems of determining eligibility, and payment through third parties.
Having individual entries allows expert system software to assist medical practitioners. Software will provide doctors with reminders and provide diagnostic tools. Drug selection and management will be assisted by software. Programs will analyze potential side affects of medicine based on the patient's medical history. Programs will provide suggested guidelines for procedures and provide patients with educational materials.
The new aspect of medical research which will cause major medical information problems is the impact of DNA discoveries on medicine. The determination of the 100,000 or so human genes is proceeding at a much faster pace than originally though possible by Venter's success in starting with RNA rather than the original DNA which contains long sections of bases which do not code into genes which result in proteins. The currently technology determines the sequences of bases in small overlapping pieces. The entire gene must be assembled by connecting the pieces by their common overlapping regions. The second task is much more laborious than the first. Once a gene has been determined, the function of the protein it creates must be determined. As the code for the 100,000 or so human genes comprises only about five percent of the total human genome, DNA researchers must also determine the functions of the gene noncoding sections of the human genome.
Genetic research will transform medicine. In the 20th century medical researchers used chemistry and physical to gain a deeper understanding of processes of cells and the mechanisms of diseases from the perspective of cell processes. In the 21th century this knowledge will be greatly expanded by the understanding of the relationship between genes, cell processes and disease. Medical practitioners will use genetic information to determine propensities of patients to acquire various types of diseases and map out preventative medical programs of diet, exercise and specific tests.
The impact of DNA research should be positive. At first gene based medicine such as removing cells, altering them and then reinserting them into the patients body at repeated intervals will be very expensive. With economies of scale the cost of such procedures such drop. The real reduction in the cost of DNA medicine will be in devising strategies to prevent propensities to acquire diseases. Also in time DNA researchers will attempt to modify genes at conception to prevent genetic catastrophes from happening.
On the negative side the possibility of his or her genetic information becoming common knowledge will cause most individuals great anxiety. Suppose for the sake of discussion that all genetic information was in the public domain. Almost everyone has some defect or other. It might not be expressed but only a recessive characteristic. While individuals with serious defects such as Huntington's disease would have great trouble finding marriage partners, most individuals might well come to accept that everyone has some defect or other. Individuals with serious defects in marriage contracts could make a contract to ensure that the offspring did not get this defect.
In an open system based on a market system of justice, discrimination occurs only when people overreact to a specific risk. That is rather that offer the individual insurance based on the expected cost of the risk, insurance companies refuse to offer insurance at any price. This could, of course, happen before the expected risk for a particular genetic problem was established. The same is true in employment decisions.
In the next sections there is a presentation of a method to finance medical insurance that combines aspects of both liberals and conservations and at the same time greatly increases the privacy of medical records.
To create private medical records, the first task is a careful analysis of the demands for medical information for medical care and medical finance. In the current US medical system, the demand for patient medical information extends far beyond the medical care givers. Third party bill payers, such as insurance firms and self-insuring firms have demands for patient information in order to authorize procedures. One approach to private medical records is to take the current medical record information flows as desirable and try to regulate the flow of medical patient information through cryptography and authorized access.
The objective of this paper is to propose an alternative approach to privacy of medical records. We propose a redesign of the US medical system that promotes economic efficient delivery of medical services with no labeled patient information flows beyond the immediate care givers. However, to achieve economic efficiency, the proposed design would require flows of unlabeled patient information to medical researchers in order to carefully analyze medical performance. We assume that liberals and conservatives would accept the proposed compromise between individual risk and pooling.
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