28
Aug
09

Jiffy lube and health care

jiffy lube

I went to get my car serviced the other day, and predictably, it transformed from a simple oil change to a type of critical mechanical surgery where the future of my car hung in the balance. After the technicians got a look under the hood, there was nothing but bad news. Did I want to make it all go away for an exorbitant fee? Did I want synthetic oil for double the cost? Did I want to pay 5,000 dollars for a new engine (the old one apparently had miles on it. Go figure)?

There are two components to this familiar pattern of behavior.

1. The technicians have an information advantage. They know which maintenance is urgent and which is not. Up to a point, I do not.

2. The technicians stand to gain financially from any maintenance they perform. They are diagnosticians and repairers all rolled into one.

So, since I don’t know what needs to be done and they do, they will suggest that the sky is falling. I knew this, and so assumed most of what they were telling me were filthy lies. But it’s hard to tell the lies from the truths. After all, I knew my car needed some stuff done, that’s why I brought it in.

See, in the usual market situation, I know what I want and then go out and find it at a cheap price. I shop and the market delivers. But with such an information disadvantage, jiffy lube becomes the shopper and the provider at the same time. They are shopping for me, but their interests are not perfetly aligned. If I were shopping, I would try to spend as little as possible, but since they’re shopping, more spending is good.

(Notice that one move might be to call jiffy lube ahead of time and promise them that I would not buy any maintenance from them, only diagnostic advice. Knowing that they would not profit from false diagnostics, they might give me straight talk.)

This scenario is very similar to healthcare. The doctor acts as shopper and provider, and has an information advantage. If you’re sick, he can tell you all sorts of things that you need to do, and not all of them may be necessary. Notice though that in some situations, the healthcare scenario is even worse than the jiffy lube scenario. This is because in healthcare, I usually have insurance of some kind.

In the jiffy lube situation, I’m the payer, even if I’m not the shopper or the provider, and so at the outside, I can call bullshit and refuse to have a new engine put in (my engine runs like a dream thank you very much). But if I had maintenance insurance that just paid whatever bill was put before it, then I would pay attention even less. I would ask for the new engine and the nitrous oxide tanks. I wouldn’t be footing the bill after all.

So, could I just use one physician for purely diagnostic services, and then just get the proper care from another physician, just as in the car maintenance scenario? Well, no, because in medicine there is not really such thing as a standard procedure. Even if I went to the second doctor and said “look, I know I have high blood pressure, just treat that,” this second doctor still has huge latitude to perform or suggest extraneous tests and procedures. Also, if a third party is paying, I will go right alone.

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2 Responses to “Jiffy lube and health care”


  1. 1 mengster
    September 1, 2009 at 2:20 pm

    for physicians, isn’t this only the case if they’re engaged in some profit-sharing scheme with the hospital (like that place in mcallen)? if they’re on a straight salary, they don’t really derive a direct financial benefit from ordering more tests/operations. i would say that it’s actually more of a reverse effect, where the patients (being on insurance), is encouraging the doctors to do a more “thorough” job

    • 2 questionbeggar
      September 1, 2009 at 3:49 pm

      Right, there is salary and capitation. In salary, the physician gets a flat amount and so his income won’t change whether he does more or less procedures/tests. It is completely fixed. In capitation, the physician gets an amount per head that is entrusted to his care. So, in capitation, there is an incentive to do less because money for procedures comes out of the amount the doctor receives for the people he cares for. Anything not done is more money the physician gets to keep for that head. In essence, capitation makes physicians into mini insurers (they receiving money for each patient and then decide on how to administer care, hoping that only a few people get sick, so that money in is greater than money spent providing care).

      Evidence I’ve seen shows that capitation (mainly used by HMO’s) reduces services provided and does NOT effect health outcomes. In other words, there is evidence that capitation may just skim off useless procedures, thus reducing health care costs without impacting quality.


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