Monday, December 04, 2006

The Hazards of Reasoning by Analogy

It seems that Governor-elect Eliot Spitzer of New York wants to deal with rising health care costs in his state by closing a bunch of hospitals (NYT, November 26, 2006). One supposes that he is reasoning by analogy from companies like General Motors which, when they need to reduce cost, close assembly plants.

Unfortunately, the analogy doesn’t necessarily hold. One letter to the editor the following week (NYT December 3, 2006) pointed out that the patients in these so-called underutilized hospitals are likely to transfer to other facilities where costs are higher. The same letter suggested that the hospitals receiving those patients would thereby come to enjoy a stronger monopoly position, which they would use to negotiate higher rates with health insurance companies.

Comments in other letters ran the gamut. One writer put blame for the cost problem on the usual suspects like malpractice courts, insurance companies, HMO’s, and drug manufacturers. Another said that what was needed was more money (apparently 15% of our national wealth for health care is not enough for him).

All of this demonstrates the absence of any generally accepted understanding of how the economy of our health system works.

So my advice to the Governor-elect is to get an understanding of the economics of health care and reason from that, rather than by analogy.

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