Evanston Photographic Studios
Research: David Dranove, M&S
gets a check-up
professor David Dranove's new book examines the diseased economics
of U.S. healthcare
America, consumers often find ways of tightening their belts
when they're running low on cash. They might opt for low-cost,
no-frills shampoo instead of a salon favorite. Or bake a few
frozen dinners instead of cooking gourmet, all to make do with
less to stretch the elusive dollar.
while settling for average in household shopping is typically
good enough, with medical care it's not, says David
Dranove, the Walter J. McNerney Distinguished Professor of Health Industry Management,
who is writing Code Red: Reviving the American Healthcare
System, the sequel to his 2000 book, The Economic Evolution of Health
Care: From Marcus Welby to Managed Care.
issue is the reality that today's Americans are part of a
healthcare system ridden with maladies, says Dranove, whose
upcoming book takes readers on a journey through the barriers
that prevent many from accessing quality care at reasonable
cost. Employing an economic framework, Dranove chronicles
the rise and fall of managed care, discusses ongoing changes
(for better or worse, as he puts it) and concludes with his
its early chapters, Code Red provides an assessment
of patients' needs, expectations and values when shopping
for healthcare. It details the comparative benefits of patients
pursuing care through the traditional healthcare system (the
"Marcus Welby" ideal) and the system of managed
care that emerged in the 1990s. Examining government regulation,
the performance of managed care and its cost-containing challenges,
Dranove considers the backlash against this healthcare option
and how it ultimately affects patients' pocketbooks and health
outcomes. The book's second half chronicles how government
and the private sector are coping with access, cost and quality
after the demise of HMOs.
popular strategy today is to move individuals into Consumer-Driven
Health Plans that force patients to pay more out of pocket
to contain costs. The consumerism movement is only a partial
solution, Dranove believes, because most healthcare expenses
are borne by chronically ill patients whose costs will still
be completely covered by insurance. He also worries that those who do share
in the costs may skimp on necessary medications, therapy or
preventive care, leading to dire diagnoses and skyrocketing
medical costs down the road.
will force many individuals to worry about costs, but if patients
are going to be focused on cost of healthcare, then they also
need to be focused on quality. With that in mind, they need
tools to evaluate quality," Dranove says. He explains
that provider report cards were designed to achieve that goal,
but thus far lack effectiveness.
success of report cards is a necessary condition for the success
of free market healthcare. Otherwise, cost will become the
dominant [consideration] over quality, and markets are supposed
to do better than that," says Dranove.
grading system evaluates providers based on survey questions
and limited patient outcome data by third parties. This is
helpful in theory, but applying the data poses challenges.
Dranove, who also is professor of management and strategy,
"Providing valid information about which providers are
bad and good is just not that easy."
are important details that never make it into the data he
notes. For instance, patients' actions play a role in their
own health outcomes in the form of attitude, family support,
adherence to diets, exercise or medication recommendations.
And luck is also a factor. But as Dranove points out, "Those
[considerations] cannot be captured in the current data reports."
other instances, report cards fail to paint an accurate portrait
of the provider's abilities due to circumstances beyond the
pediatrician report cards that emphasize immunization rates.
A pediatrician might be committed to educating patients
on the importance of childhood immunizations, yet might still
receive a low grade for those criteria because not all of
these patients under age two have been immunized. Perhaps
the patients' circumstances, not the physician's negligence,
affected access to care," explains Dranove. Transportation
challenges, a lack of child care for an ill sibling who needs
to stay home, or not enough money to pay for the vaccinations
may all affect the grade, though these data remain unseen
by those evaluating the physician.
report cards have the potential to do some good if they are
modified to include more useful data," says Dranove.
"As I often tell people who want to dismiss report cards
out of hand, imagine what the auto industry would be like
if Consumer Reports had not identified that [foreign]
cars were better than American cars."
for a healthier system
also offers readers insights into current programs designed
to improve healthcare access. Some states, like Hawaii, Maine
and Massachusetts, offer intriguing alternatives to the status
quo, Dranove says. In these states, most employers are required
to fund health insurance for their employees.
United States federal government should require every state
to find a way to cut the number of uninsured in half, according
to Dranove, who adds that in California, a similar plan is
a ballot initiative. He is less optimistic about risk pools
for small employers, a strategy that has failed in most states
that have tried it.
in the world, healthcare barriers have been removed altogether.
"In Germany, everyone is covered and the federal government
sets the ground rules," Dranove says. "There is
a public and private partnership and everyone is covered with
about half the expense of what we spend here." However,
there are limitations on access to technology and providers
spend less time with their patients to make up for lower fees.
Americans might prefer such tradeoffs, but without reform,
they may never get a chance to find out.
from federally mandated coverage, improvements in keeping
and sharing medical records for evaluation of physicians and
practices should be improved.
providers have electronic systems for billing, but electronic
medical records are rarer and are not all unified," says
the Kellogg professor. "A link between administrative
data and clinical data would be invaluable to assess health
outcomes and improve report cards." Dranove proposes
that the federal government allow for the creation of a single
medical record standard through a consortium. From his perspective,
improved medical records with disease-specific instrument
surveys are key to measure outcomes accurately, in turn giving
patients a more accurate view of the market. A federal subsidy
might also be necessary to get physicians up and running with
a standardized system.
federal subsidy for physicians would be about $2 billion,
and considering that the nation spends $20 billion per year
on healthcare technology, that figure is not really that significant,"
also believes that consumer-driven healthcare plans should
be part of the future. A key feature of these plans is the
"medical savings account" which allows patients
who spend below preset amounts on healthcare to invest the
balance in a manner similar to retirement financial planning.
Rather than create yet another investment vehicle, Dranove
recommends allowing consumers to use their existing retirement
plans to pay for healthcare costs and increasing the amount
individuals can contribute to those funds. In addition, a
cap would be applied for the tax deductibility of contributions
author is working to have Code Red circulating by fall
2007, as the 2008 presidential campaign heats up.