Behavorial Economics and Fixing Healthcare’s Cultural Problems

Peter Orszag, (the Director of the Congressional Budget Office), delivered a very interesting speech last week to the National Academy of Social Insurance about “Health Care and Behavioral Economics.” He discussed how behavioral economics – which combines insights from psychology and economics – can both help to explain cost and quality problems in the US health care system and be used to begin developing solutions to these problems. This seems – at least to me – to be a very reasonable approach to understanding why individuals and populations don’t respond according to standard economic theory – which assumes both perfect knowledge and benefit maximizing actions.

For example, he uses behavioral economics to account for the significant regional variations observed across the US in the use of many advanced health care services. He notes that this may be because, “the social norms among local physicians seem to drive regional approaches in the use of these innovations.” (He also refers to a recent CBO study that found regional variations in health care costs have not changed in 20-30 years.)

However, his discussion of using behavioral economics to solve health system problems was limited, and focused on the actions of physicians and patients – which may be because he had only a short time for his speech. The three routes he did propose for shifting the norms of behavior are:

  1. The use of evidence-based medicine – the current practical limitations and distortions of which I have previously written about
  2. Better use of default options for both physicians and patients in both clinical and benefit design choices – a tool that is clearly underutilized
  3. Financial incentives – particularly to increase healthier lifestyles and use of preventive services

I find it refreshing that the CBO Director appears to be embracing such qualitative perspectives, since before his tenure as Director, CBO had been criticized for being too conservative in its analyses of policy options. For example, by not embracing so-called dynamic scoring to consider costs and savings from secondary and tertiary behavior changes produced by policy proposals.

His perspectives and approach in this area also intersect with one of the main themes of a book about healthcare reform that I am striving to finish. Since my writing is not primarliy for academic audiences, (and I’m not an academically trained economist), I use the term “culture” to encompass the attitudes and behaviors of stakeholders – versus the term “norms” which Orszag uses – and I look to influence stakeholders beyond physicians and patients. But overall our solutions seek to achieve the same results by altering stakeholders’ attitudes, behaviors and actions to improve the structure and operation of the US healthcare system.

Like Peter Orszag, I do believe that economic incentives are part of the solution’s equation, but I more strongly believe that forces other than economics need to be considered and deployed. Specifically, the concepts developed by Everett Rogers about the adoption of innovation need to be used so that the social forces acting on physicians, other clinicians, large healthcare organizations, patients, payers (public, private and employers), regulators and legislators can work synergistically with economic forces to promote improvements in our healthcare system. Rogers’ principles also highlight the importance of deploying policy options so that they are embraced rather than resisted. Such considerations would certainly be important for turning Peter Orszag’s insights about default choices into specific policy proposals, so that people view the default options as acceptable choices rather than forced mandates.

These are just some of my thoughts on Peter Orszag’s comments and my own thinking about changing the culture of our healthcare system. I look forward to hearing more of his ideas in this area – which I hope will permeate the public debate about healthcare reform in the coming months and years.

What do you think are the best ways to change attitudes and actions of different stakeholder groups – particularly patients, physicians and payers?

Leave a Reply

Your email address will not be published. Required fields are marked *