The market for health system analysis – the most broken market of them all

You’d think I’d be accustomed by now to famous pundits selling their bad health systems analysis from their large soapboxes. The truth is, I still get annoyed. Atul Gawande’s 2009 New Yorker piece – “The Cost Conundrum” was a memorable instance. It was a beautifully written and highly influential piece of policy advocacy. I’m not exaggerating when I say “highly influential”; President Obama was clearly taken with Gawande’s findings (see this 2009 speech). And, now we know (from this StatNews piece) the genesis of Gawande’s recent selection by Amazon, Berkshire Hathaway and JPMorgan Chase to lead their new cost-cutting disruptive healthcare venture was the same 2009 article. Gawande revealed the backstory in an interview at the Aspen Ideas Festival. Evidently the article so impressed Charlie Munger, Warren Buffett’s right-hand man, that Munger sent an unsolicited check in the mail to support Gawande’s work. One thing led to another and Atul Gawande got the job. Thus, I feel it is not inappropriate to point out that Gawande’s piece was WRONG WRONG WRONG in its analytics, findings and recommendations. Atul Gawande is probably a great surgeon and he’s surely a brilliant writer. One thing he is not is a health system expert.


In the New Yorker piece Gawande laid out what was driving US health care cost growth, and what US policymakers should do to contain it. In the piece he compares how much it cost to treat Medicare patients across “local health systems”. By scrutinizing the practices of “low cost” versus “high-cost” providers, he determined that policymakers can reduce costs in the US healthcare system by spreading the practices of the “low-cost” group. Here’s the rub. Gawande was looking only at costs for Medicare patients; that is, he was looking only at the healthcare services market segment within which prices are regulated by Medicare. This leaves out what is going on with the (larger) private insurance market. There is no reason to think that insights from the Medicare segment would apply to the whole set of delivery activities at the provider or provider network level. And, in fact, once someone checked, it turned out that the Medicare patterns look very different from those of private insurance.

MedCare vs priv costs us health

If he submitted his piece in my (admittedly, not-yet-existent) course on comparative health systems, I’d make him review the readings on segmented healthcare delivery systems and do it over. Unfortunately, he submitted it to a New Yorker editor – and thousands upon thousands of smart people learned his erroneous insights. Including, evidently, the US president and Berkshire Hathaway’s Charlie Munger.


An excellent piece in the NYTimes in 2015 – “The Experts Were Wrong” [also the source of the map graphic] drew on the work of Zack Cooper and others and explained the error in Gawande’s logic. NB: The link to Cooper’s work on the NYTimes site does not work – here is a working link. The insights from this analysis suggest that, to constrain health care costs, the  US should strengthen anti-monopoly regulation and pursue (much) broader price regulation. This work merits the attention that Gawande’s piece does not.

2 thoughts on “The market for health system analysis – the most broken market of them all

  1. Really fascinating, April. But what do you think are the lessons for policymakers? Does this suggest that in the public ‘segment’, where prices are regulated/ capped, consolidation of supply makes sense, whereas in the private ‘segment’, where prices are variable, it doesn’t? This would b relevant for the current reform trajectory in the NHS in England, where the internal market is being abandoned in favour of integration. See latest speech our PM if you’re interested:

  2. It’s interesting to learn that UK policymakers are committed to moving towards more integration among providers – presumably across service lines. I look forward to seeing how they approach implementation. TM suggests they aspire to a bottom-up strategy. That sounds like a great idea – but is not, to my knowledge, the natural health-policy/ health-reform implementation style over there 😉

    In the US where the payers are segmented (operating under different regulatory regimes) but buying from the same providers, I think you have to move toward both rate setting (all-payer, state-level, price regulation regimes) and toward more proactive anti-monopoly regulation.

    On pro-active anti-monopoly regulation – in a provider-boundary shifting environment. All the movement toward wider use of bundled payments that pay providers for whole pathways of care (from referral through to rehabilitation, which would shift some financial risk to providers) is driving mergers across service lines – so that monitoring, measuring and restraining the emergence and use of monopoly power is getting ever trickier. I think in the immediate future, we can’t rely much on anti-monopoly regulation to ensure adequate levels of competitive forces; hopefully in the medium term, it can play more of a role. [In any event, there might be some useful insights from the US to inform the integration efforts in the UK; make new mistakes(!) – that’s my motto.]

    On rate-setting. State-level price regulation strikes me as the most critical element of any regime that can make the changes occurring at the provider level work in the public interest in the US.

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