Thursday, October 27, 2005

To test or not to test?

When I consider healthcare now, I see something now that I didn't see before. Doctors are *most concerned* about liability (e.g. negative to the doctor), not incentives to make money (positive to a doctor). Since American society is so litigious, doctors order a battery of tests, needed or not, because they do not want to be sued in the remote possibility that the tests detect an ailment.

It makes so much sense now!

The provision of healthcare is by its very nature an assessment of risk. Doctors and patients have to trade-off the risk and the benefit of expensive tests and treatments.

In a hypothetical situation, let's say a patient goes to a doctor feeling sick. The doctor examines the patient, and based on physical symptoms and descriptions by the patient, the doctor makes the judgment that the patient has a low chance of having a terminal, life-threatening disease. Say a 1% chance. However, the doctor cannot be 100% certain, unless he or she runs a battery of expensive tests.

Since the doctor (1) wants to make sure the patient is healthy and (2) is worried about *not* detecting a potentially serious and being blamed by the patient and subsequently sued, the doctor will order the expensive tests.

The first result (health of the patient) can probably be determined most cost effectively through doctor's own training and experience assessing the potential for disease. But as in most situations in life, nothing is 100% certain, and there is a risk the doctor could have made an error. Since the doctor is afraid, he or she will choose the sure thing, the no-blame course of action, and order the tests. The benefit to the doctor personally far outweighs the costs of the tests, since he or she is *not* going to pay for the expensive (and potentially unnecessary tests).

The patient just wants to make sure he or she is really okay. That there is nothing more serious wrong. As long as the tests are not too arduous or difficult, the patient will likely agree to taking additional tests to *make sure* nothing is wrong. Even though, the doctor might be 99% confident, nothing is wrong.

For the patient, the benefit of taking the test (more certainty around disease status) far outweighs the benefits of not taking the test (saving money and time). The doctor feels the same way.

I don't believe this is the only reason that healthcare costs are skyrocketing, but I do feel it is one reason. As more and more advanced tests become available, able to detect a myriad of rare diseases, don't doctors have a *responsibility* to check their patients in the remote possibility the patient has the disease?

And wouldn't patients prefer to take the tests themselves for peace of mind?

Even if the tests are not really effective or accurate or even better at detecting a disease than simple analysis, the doctor can say, "Hey, I gave the test. Nothing was wrong. I did my duty, so you can't blame me if something was wrong."

There is no incentive for the ones spending the money to reign in these types of costs.

Nothing in life is 100% certain, where do we draw the line at acceptable risk vs. unacceptable risk? At what cost?

Wednesday, October 26, 2005

Feed the Hungry?

In the WSJ today, an article discussing potential plans to shift spending of the food-aid budget to overseas goods to feed starving foreigners. Today, food-aid programs are required to buy produce only from American farmers.

Charities and U.S. farmers (obviously) are opposed.

"Charities fear that slashing funds spent on U.S. commodities would erode the farm sector's interest in food aid. They doubt they could win as much congressional support for their efforts solely on the principle that fighting famines is important."

But it's shocking that they are...
" Andrew S. Natsios, administrator of the U.S. Agency for International Development, which oversees the food-aid program, calls the opposition "morally indefensible." He asks: "If you can get more food for the money, why not do it? Just to protect the cartel?" The opposition from religious-based charities is particularly galling to the administration, which had assumed their support."

Shipping food from the U.S. is expensive!
"75% of food aid must be shipped on vessels owned by U.S. companies -- a sop to that industry, which charges some of the steepest prices on the high seas."

"Most aid organizations acknowledge that buying food locally could help feed more people in times of emergency. But they're only willing to back Mr. Natsios's proposal if it's funded by additional spending, rather than a cut in the funds spent on U.S. commodities. To preserve funding for the food-aid program, the charities believe they must take into account the financial interests of farmers at home."

This is so stupid. Charitable organizations have no incentive to promote efficiency. Any efficiency gains result in budget cuts, and if you are an organization, why would you want free money to disappear? I understand the farmers' and shippers' interests, but it's sort of shocking that charitable organizations won't support the initiative.

"Distributing U.S. wheat, corn and beans is an important operation of their [charity] activities abroad. For Catholic Relief, donations of commodities and transport costs, which come largely from the U.S. government, totaled $281 million, or just over 50% of its fiscal 2004 budget."

So they spend our donations inefficiently to transport expensive food from the U.S. that could be purchased much more cheaply in Africa?

Thursday, October 20, 2005

Cheap Financial Institutions

I'd like to complain about online statements from credit cards, banks, whatever. It is so annoying how institutions typically don't make more than six months worth of statements available to you. What if you were busy and didn't have time to download the statements? Does that mean that you don't deserve a copy and have to now pay a *fee* for this information?? I would imagine that the institutions have to keep these records *anyway*.

For example, American Express only provides six months and they definitely charge a fee for statements prior to that. What irks me even more is that providing these things electronically are so cheap for the banks! They don't have to mail letters anymore! They don't have to pay for the paper! Couldn't they at least make the data available longer?!

Another gripe is that a lot of the "online-only" statements are formatted poorly and only available as html files. So if you want to save them down (which you likely will have to do anyway since otherwise they will - poof - disappear in several months) the only way to get a good copy is to pdf the files. That in and of itself wouldn't be a big deal, but the pdf file looks a lot less professional than a properly formatted statement. Usually, the text gets mangled, line items cut off inbetween pages and sometimes things even get cut off! (BTW for a cool free pdf-printing utility, try Primo Pdf.)

Call me anal - yes, yes I am being anal - but shouldn't the banks, etc. provide a "printable" version in pdf? That is something that American Express does, which I definitely appreciate. Citibank, however, *does not* do this, and it's incredibly annoying!!!

Giving Credit Where It's Due

Giving proper credit... so earlier, I commented on the incredible ability of Google Desktop search to locate scanned image files. I had given credit to Google for creating such an amazing application that could search scanned documents, however, on further investigation, I've discovered that the true reason that I can search my files is that my Canon LiDe 30 scanner creates "searchable" pdf files when I scan! (I still think GDS is quite cool, though. And they *are* partnering with OCR guys who will recognize characters in scanned files.)

But, I should give credit where credit is due. Thank you Canon and thank you Adobe!

Also, let me tell you about one more neat thing I discovered with Adobe Acrobat. If you take any scanned document, you can go to the "Document" menu and select "Recognize Text using OCR" and it creates a searchable pdf file!!

I'm not sure if this feature is available for Acrobat Reader, but it certainly is available in Standard (version 7.0). What an incredible and useful feature!!

I wish I had figured this out earlier!

Okay, sorry for all the exclamation points. I just can't control my enthusiasm!

Here's a link to a Dummies site that discusses creating searchable pdf files.

Giving Credit Where Credit

Giving proper credit... so earlier, I commented on the incredible ability of Google Desktop search to locate scanned image files. I had given credit to Google for creating such an amazing application that could search scanned documents, however, on further investigation, I've discovered that the true reason that I can search my files is that my Canon LiDe 30 scanner creates "searchable" pdf files when I scan! (I still think GDS is quite cool, though. And they *are* partnering with OCR guys who will recognize characters in scanned files.)

But, I should give credit where credit is due. Thank you Canon and thank you Adobe!

Also, let me tell you about one more neat thing I discovered with Adobe Acrobat. If you take any scanned document, you can go to the "Document" menu and select "Recognize Text using OCR" and it creates a searchable pdf file!!

I'm not sure if this feature is available for Acrobat Reader, but it certainly is available in Standard (version 7.0). What an incredible and useful feature!!

I wish I had figured this out earlier!

Okay, sorry for all the exclamation points. I just can't control my enthusiasm!

Wednesday, October 19, 2005

Bagel Dreams

The WSJ profiles a Japanese computer software programmer who pursued her bagel dreams (subscription required). Miho Inagi apprenticed at a NY bagel shop and opened her own place offering the "real thing" in Tokyo:

"The bagel store was an unexpected career change for Ms. Inagi. After studying computer sciences in college, she joined a software subsidiary of electronics giant Hitachi Ltd., where she hoped she'd be able to hone her programming skills...

But then in December 1998, she was visiting New York with college friends and had her first Ess-a-Bagel -- a plain with raisin-and-walnut cream cheese. She was instantly enamored. "I just didn't think anything like a bagel could taste so good," she said.

A year later, she flew back to New York. Unfazed by her limited English language ability, she persuaded Ms. Wilpon to let her spend a week at Ess-a-Bagel to get a taste of the business...

Determined to learn the trade properly, Ms. Inagi talked her way into an apprenticeship at New York's Ess-a-Bagel. From 7 a.m. to 5 p.m., she took orders, cleared trays and swept the floor. On Saturdays and Sundays, the shop's exacting owner, Florence Wilpon, let her make dough. Six months later, when she felt she had the hang of it, Ms. Inagi returned to Japan."

How inspirational! We should follow our dreams!

Saturday, October 15, 2005

A Small Group of Thoughtful People

"Never doubt that a small group of thoughtful committed people can change the world: indeed it's the only thing that ever has!"
-- Margaret Meade, anthropologist

Friday, October 14, 2005

Earnings and Fridays

Interesting NBER paper on Fridays and earnings releases:
"Do firms release news strategically in response to investor inattention? We consider news about earnings and analyze the response of returns to announcements on Friday and other weekdays. Friday announcements have less immediate and more delayed stock return response...
We also document that firms release worse announcements on Friday. Friday announcements are associated with a 45 percent higher probability of a negative earnings surprise and a 50 basis points lower abnormal return."

Thursday, October 13, 2005

Smart Economist!

More interesting insights from the Smart Economist... note that you have to get a login to the site, but I would highly recommend it:
  • Why were there so many corporate scandals in the U.S., but not in Europe?

    "Suppose a CEO held 2 million options on his company’s stock that was trading at a price-to-earnings ratio of 30. If the CEO were to prematurely recognize earnings that led to a $1 increase in earnings per share, they would induce a $30 increase in stock price and a $60 million windfall for the CEO. Even though this price increase was unjustified - and untenable in the long run - the manager would be able to bail out before the stock price reverted to its true value. In fact, previous studies have found that the managers of companies issuing fraudulent earnings statements held options worth 14 times more than the managers of companies not issuing restatements."

    Aah, terrible! Misaligned incentives!! Is there a way to set up power and influence among shareholders so that if you have been a shareholder for a long time, you have more power? As in voting power, some other kind of influence? It seems like dispersed ownership results in some problems...

  • Explaining the rise of fund of funds (e.g. funds that invest in private equity funds

    "In particular, the author finds that investors with weaker governance structures tend to outsource more of their investments to FoF. For example, government institutions - whose governance is likely more influenced by politics than by performance - tend to use FoF more than performance-based institutions such as endowments. Investors with weaker governance may see FoF as more attractive since their use can help “shoulder the blame” in the case of poor performance. "

    Blast those incompetent governmental organizations again!
  • Do family firms outperform non-family firms?
    "In general, family firms exhibit better performance than other firms. However, this result mostly appears to be true because the firms in which the founder is also CEO or Chairman of the Board do particularly well. When subsequent generations enter the firm, their contribution usually appears to be negative. The presence of arrangements that give the family excess control - such as dual class shares or pyramid schemes - has a negative impact on these firms’ stock market valuation. This indicates that such arrangements are a tool used by controlling families to subtract value from minority shareholders."

    Shame on the second generation!
    "When the founder of the firm is directly involved in the management, as CEO or Director of the Board, the firm’s Tobin’s q is actually the highest... The opposite happens in the following generations, particularly the second. When the second generation gets involved in management, the likely effect is a destruction of value. "

Why do Europeans get so much vacay?

Interesting discussion of why Americans work so much more than Europeans. Researchers at Harvard and Dartmouth took a look at the issue and reason that differences in unionization and regulation are drivers of the differences (in addition to taxes)..

So is intervention in a free market a good thing?
"Economics preaches that interfering with competitive markets is welfare reducing; however, it may be beneficial when externalities are involved. This would be the case should the utility of taking a vacation increase when other people, like the vacationer's spouse or friends, also go on vacation - an example of positive externality of leisure. In this case, there would be too many working hours in a competitive economy, since it is difficult for workers to coordinate their actions and go on vacation all at the same time. A union constraining everybody to work less may therefore make everybody better off. It is difficult to empirically assess the merit of this argument, since leisure externalities are difficult to measure, but it may undoubtedly be true."

(BTW, the site Smart Economist is a great site that attempts to take recent research findings and translate them into something comprehensible by ordinary citizens. Check it out!)

Bills Bills Bills

Why is healthcare such a mess in the states?

The NYT has another article on the nightmare that is patient billing. I can heartily agree with most of the things the article describes! Any simple visit to a doctor or hospital results in bil upon bill without indescribable and unclear codes and messages... and scary dollar values.

From the article:
"Walk into any drugstore, and the next few minutes of your life are fairly predictable. After considering the choices, you make your purchases and head for the cashier. Seconds after the transaction, you are handed a receipt that reports to the penny what you paid for each product, along with its brand, its size, and the date, time and location of the purchase. But become a patient, and you enter a world of paperwork so surreal that it belongs in one of Kafka's tales of the triumph of faceless bureaucracies. And although some insurers and hospitals are trying to streamline and simplify bills, the efforts have been piecemeal."

Another analogy:
'"Suppose you walk into a restaurant," he said, "and you don't get a menu, you don't get any choice of what food you'll eat, they don't tell you what it is when they're serving it to you, they don't tell you what it's going to cost."

"Then, weeks or months later, you get a bill that tells you all the food you ate and the drinks you had, some of which you remember and some you don't, and although you get the bill, you still can't figure out what you really owe," Dr. Brailer said.'

I just can't imagine what it would be like to have to deal with all of it if you are sick on top of it. How terrible!!!

Why can't everyone in the U.S. pay a set dollar amount per month for healthcare? And let the rest be free. Yes, yes, I know there is a problem with over-utilization, etc. etc., but most patients really *don't* want to be in the hospital and likely would prefer not to get more and more treatment. Who checks into the hospital for fun?

So I'd say patients incentives are not skewed towards over-utilization. Yes, patients probably want more tests, because they want to be sure they aren't sick. And maybe they just want to see their doctor regularly or see a specialist if they have a problem...

But doctors, while they are incented to make sure their patients get well, they have an incentive to sell more services too. What if doctors were paid fixed dollar amounts, regardless of the number of procedures they performed? I think that would create a dis-incentive to do an excessive number of procedures. But then, I guess you run the risk of a doctor not doing *any* procedures at all. Is this likely? Probably not, if you assume that individuals who choose to become doctors likely were motivated by factors other than compensation. (Wouldn't they have gone into investment banking? Or something?) And it doesn't make sense to compensate doctors based on patient outcomes -- or does it? I mean, it seems like there would be a lot of things influencing the outcome for a patient that outside of a doctor's control. Did the patient take the medicine he or she was supposed to? The list of outside factors goes on and on.

And finally for the payors -- the insurance companies -- they have an incentive to pay as little as they can. They want to make sure they are *not* overbilled, and probably having complex billing reimbursement procedures results in some lost "claims" which would definitely help their bottom line, right?

Is there a way to create an incentive structure which will result in a win-win for everyone?
  • Efficient and reliable care for a patient, at a set price
  • Decent salary for a doctor and less time devoted to admin and more time to seeing patients
  • A reasonable level of profits for managed care companies

Sigh, with so many opinions, it will be hard to come to an answer.

Oh, and I forgot another stakeholder. In the case of U.S. healthcare, a big stakeholder are U.S. corporations. And they are ones who pick the insurance company. What are the things they look for when choosing an insurance provider? Probably good service.. maybe price, although that in itself is confusing. Most likely a good partner to sort through the troubles of gaining access to a healthcare network and managing the billing process itself...

Wednesday, October 12, 2005


One gripe about most online stores or providers of "intangible" services (e.g. software, services) online -- they often don't provide enough information about their product or service before taking you to a shopping cart of checkout form. Why can't shops be more like and provide people with a lot more information for research before forcing them into a credit card entry screen?



Here's an article confirming that, yes indeed, Google Desktop Search can read scanned pdf files!

Monday, October 10, 2005

Social Logic of Admissions to Elite Universities

Another incisive article from Malcolm Gladwell. This time, he tackles the question of admission to elite universities:

Why are elite universities in the U.S. concerned with more than academic ability, while top schools in the rest of the world often consider solely test scores in admissions?

On what Harvard is looking for:
"It is a wonderful thing, of course, for a school to turn out lots of relatively happy and successful graduates. But Harvard didn’t want lots of relatively happy and successful graduates. It wanted superstars, and Bender and his colleagues recognized that if this is your goal a best-students model isn’t enough."

Why are former athletes so highly desired in business?
"One of these characteristics can be thought of as drive—a strong desire to succeed and unswerving determination to reach a goal, whether it be winning the next game or closing a sale. Similarly, athletes tend to be more energetic than the average person, which translates into an ability to work hard over long periods of time—to meet, for example, the workload demands placed on young people by an investment bank in the throes of analyzing a transaction. In addition, athletes are more likely than others to be highly competitive, gregarious and confident of their ability to work well in groups (on teams). "
(Bowen and Shulman)

"It was his job to protect his client from the attentions of the socially undesirable... This is, in no small part, what Ivy League admissions directors do. They are in the luxury-brand-management business, and “The Chosen,” [a new book by Jerome Karabel] in the end, is a testament to just how well the brand managers in Cambridge, New Haven, and Princeton have done their job in the past seventy-five years."

Moreover, universities focus on rewarding customer loyalty:
"In the 1985-92 period, for instance, Harvard admitted children of alumni at a rate more than twice that of non-athlete, non-legacy applicants, despite the fact that, on virtually every one of the school’s magical ratings scales, legacies significantly lagged behind their peers."


Thursday, October 6, 2005

Cars Designed with Pets in Mind

Wednesday, October 5, 2005

Minute Clinic!

I think this is a brilliant development -- convenient walk-in clinics for patients with minor health problems:
"They offer patients fast access to routine medical services such as strep-throat tests, sports physicals and flu shots. The clinics, which typically charge between $25 and $60 per visit, don't require an appointment and are open during pharmacy hours including evenings and weekends."

The WSJ has an article on the development (account required).

I do think it's unfortunate that these clinics are staffed by nurse practitioners instead of doctors -- are real doctors just too expensive?

However, I think it's great that technology is being used to increase efficiency:
"The clinic model relies heavily on technology to increase the efficiency of care. When patients arrive, they check themselves in at a touch-screen computer terminal -- much like an airline self-check-in kiosk -- where they can swipe a credit card and enter basic information about their symptoms and family history... If the nurse practitioner disagrees with a computer-generated diagnosis, he or she can opt to override the system. When a prescription is written, it will be transmitted electronically to the store pharmacy, or another pharmacy. The system will also create an electronic medical record for each patient that can be transferred to a primary-care physician."

This goes along with my rant from a couple of days ago on urgent care clinics.

I'm not sure if the for-profit model is the way to go, but certainly for-profit organizations tend to be more efficient than not-for-profit counterparts. I'm also not sure if Target or Walgreens is the place for these types of clinics, but I do agree there are synergies with the pharmacy counter. Intriguing idea...

A couple links:
I wonder who funded these guys? Looks like Bain Capital Ventures, Axcel Partners and TGap Venture for Minute Clinic and I would guess that Take Care Health is self-funded -- the CEO sold his travel firm to American Express for a big price several years ago.

Articles on Minute Clinic:

A Year of Magical Thinking

The NYT reviews an utterly depressing book from writer Joan Didion on two tragedies that occurred within 5 days of each other:
  • The illness of her daughter, Quintana
  • The sudden heart attack and death of her husband, John, five days later

Per the article:
"Life changes fast," Ms. Didion would write a day or two later. "Life changes in the instant. You sit down to dinner and life as you know it ends."

Aaah, poor lady!

In her devastating new book, "The Year of Magical Thinking," Ms. Didion writes about the year she spent trying to come to terms with what happened that terrible December, a year she says that "cut loose any fixed idea I had ever had about death, about illness, about probability and luck, about good fortune and bad, about marriage and children and memory, about grief, about the ways in which people do and do not deal with the fact that life ends, about the shallowness of sanity, about life itself."

Something to add to my reading list, although it sounds like it will mirror 102 Minutes in its feeling of tragedy...

Monday, October 3, 2005

Was reading the Freakonomics blog today, and I had like fifty entries to go through.

In any case, one entry in particular interested me about waiting hours in the ER:
"Emergency rooms serve as the front lines in the world of medicine. Many (most?) visits to ERs are not emergencies at all, but rather, routine visits by people with limited access to health care. As a consequence, waiting for hours to be seen is not uncommon. Forced to take all patients, the ER raises the "price" by making you wait."

(As a side note, the blog entry highlights a study that showed that ER visits drop when championship baseball games are played.
"An obvious conclusion is that people would rather watch a good baseball game than go to the emergency room. Also obvious is that some people who go to the ER could just as well visit their doctor. "

I have no doubt that emergency room visits are one reason why health care costs are soaring in the U.S. (along with a host of other inefficiencies.)

How many times are there when an unexpected health issue crops up -- unexpected, but maybe not URGENT exactly, but you want to get it taken care of right away, because when you aren't feeling well... who wouldn't want to feel better soon?

Why aren't there more "urgent care" centers for non-emergency care, but where you can drop in for a quick visit to get something looked at? Like if your throat is killing you, and it's obviously not life threatening, but it would be great to have someone look at it.

I do have a primary care doctor, but how many of us have established relationships with our doctors?

It seems that having a mix of real emergency issues and not-so-urgent issues all dealt with in one place causes a lot of inefficiency and results in additional costs for everyone (monetary and not.)