Saturday, August 11, 2012
Creative Destruction
I’m reading Why Nations Fail by Acemoglu and Robinson and
just finished a section on the failure of the Soviet Union . Pages 129 to 132 discuss the various attempts
by the Soviet government to induce people to work harder and more imaginatively
by means of various schemes of rewards and penalties. As a general rule, they failed. Bonuses for increased production led people
to hold production down so as to make increases easier. New and potentially more productive methods
were avoided because they might fail or productivity might diminish during the
transition.
It all caused me to wonder whether we in America might
be doing the same thing in health care.
Government is trying to control cost by implementing schemes like “pay
for performance,” imposing penalties for failing to implement electronic
medical records, and prescribing standards of “meaningful use” as a condition
of grants for implementing information technology. Providers are undoubtedly gaming the system
by devising clever ways to respond to the inducements without making the
changes necessary to achieve cost reduction.
Like the Soviet government, we are afraid of the potential
consequences of competition and of turning people loose to innovate and
experiment. For example, what if it
turned out that with evidence based protocols and an effective system of supervision
by highly trained specialists, bright college graduates with the proper
aptitude and six months of training could do knee replacements with outcomes
better than those now being experienced at two-thirds the cost?
All of that sounds pie-in-the-sky but is it any more radical
than replacing travel agencies with the Internet and personal computers or
replacing local, family-owned stores with Wal-Mart?
What we are talking about here is what Acemoglu and Robinson
call creative destruction, which they argue is essential for enduring economic
progress. Our failure to permit creative
destruction in health care may be important as a reason for high and rising
cost.