DealZone

How the financial crisis affected your cardiologist

May 29, 2009

CUBA-HEALTH/SICKOThe New Yorker’s Atul Gawande has an excellent piece this week about why healthcare costs vary from one city to another. Gawande focuses on the cultural reasons behind geographical differences in healthcare costs. In some cities, influential doctors or institutions have emphasized that medicine is a business so physicians should try to maximize their profits. In others, doctors and institutions have emphasized that medicine is a healing profession, so physicians should try to maximize the quality of the care they provide, even if that translates to lower income.
But there may also be a more economic element to the answer. Gawande notes that there is a correlation between doctors’ expenses and their healthcare decisions:

Brenda Sirovich, another Dartmouth researcher, published a study last year that provided an important clue. She and her team surveyed some eight hundred primary-care physicians from high-cost cities (such as Las Vegas and New York), low-cost cities (such as Sacramento and Boise), and others in between. The researchers asked the physicians specifically how they would handle a variety of patient cases. It turned out that differences in decision-making emerged in only some kinds of cases. In situations in which the right thing to do was well established – for example, whether to recommend a mammogram for a fifty-year-old woman (the answer is yes) – physicians in high- and low-cost cities made the same decisions. But, in cases in which the science was unclear, some physicians pursued the maximum possible amount of testing and procedures; some pursued the minimum. And which kind of doctor they were depended on where they came from….
(P)hysicians from the most expensive cities did the most expensive things.

It’s possible that higher costs force doctors to think more like businesspeople and make them at the margin more likely to try to maximize profits, while doctors facing lower costs can worry less about their income.
If that’s so, then consider the case of New York City. Cheap borrowing costs and lax regulations in this decade allowed the financial sector to become inordinately profitable. That, in turn, lifted wages for support personnel, real estate costs for doctors’ businesses and homes, and so forth, which in turn incentivized doctors to order questionable tests and procedures for their patients.
In other words, distortions in the financial sector may have contributed to inefficient resource allocation in the seemingly unrelated sector of medicine.
It’s the sort of contagion from the housing bubble that few would have predicted.

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