by Paul Levy

First posted on (Not) Running a Hospital on 02/20/2013

Paul Levy, Host of (Not) Running a Hospital

It was a pleasure to join MIT Professor Ernst Berndt for his class “Economics of the Health Care Industries” at the Sloan School of Management.  Tonight’s topic was “Managing Health Care Costs and Quality.” This class has an unusually diverse group of students–undergraduates from MIT, Wellesley, and Tufts; MBA students; executive MBA students; and several people with MD and Ph.D. degrees.  Students who offered particularly thoughtful comments are pictured here.  Please hire them.  (The fellow in the bottom picture wanted to make it clear how to find him!)


Ernie started off with a marvelous exposition of many factors relating to health care costs.  This chart above on the concentration of health care expenses in the US was striking, showing that 5% of the population accounts for about 48% of the nation’s costs.

My job was to provoke a bit of discomfort and debate, and I explored several topics with the students.  I started with the question of whether the fact that health care accounts for 17.9% of GDP was a problem.  If so, why?  Was it too high or too low?  If one looks at some of the OECD countries with lower percentages, is it an indication that they are more efficient or that they are spending too little?  If the US number was too high, which participants in the health care system should receive less?  How much less?

We then entered discussions about using payment rates as incentives for efficiency improvements.  Is the failure of many pay-for-performance programs to produce meaningful results a function of poor design or a disconnect with what motivates doctors and nurses and how they make decisions?

We discussed further whether accountable care organizations would be likely to succeed, a variant on Elliot Fisher’s joking comment of whether they would be accountable, caring, and organized.

I left the group with descriptions of two approaches that have been demonstrated to be successful in offering higher quality, lower cost care:  Managed care programs for dual-eligible (Medicare and Medicaid) patients; and front-line driven process improvement in hospitals.