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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.





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