By MIKE MAGEE

In his book, “The Age of Diminished Expectations” (MIT Press/1994), Nobel Prize winner, Paul Krugman, famously wrote, “Productivity isn’t everything, but in the long run it is almost everything.”

A year earlier, psychologist Karl E. Weich from the University of Michigan penned the term “sensemaking” based on his belief that the human mind was in fact the engine of productivity, and functioned like a biological computer which “receives input, processes the information, and delivers an output.”

But comparing the human brain to a computer was not exactly a complement back then. For example, 1n 1994, Krugman’s MIT colleague, economist Erik Brynjolfsson coined the term “Productivity Paradox” stating “An important question that has been debated for almost a decade is whether computers contribute to productivity growth.”

Now three decades later, both Krugman (via MIT to Princeton to CCNY) and Brynjolfsson (via Harvard to MIT to Stanford Institute for Human-Centered AI) remain in the center of the generative AI debate, as they serve together as research associates at the National Bureau of Economic Research (NBER) and attempt to “make sense” of our most recent scientific and technologic breakthroughs.

Not surprisingly, Medical AI (mAI), has been front and center. In November, 2023, Brynjolfsson teamed up with fellow West Coaster, Robert M. Wachter, on a JAMA Opinion piece titled “Will Generative Artificial Intelligence Deliver on Its Promise in Health Care?”

Dr. Wachter, the Chair of Medicine at UC San Francisco, coined his own ground-breaking term in 1996 – “hospitalist.” Considered the father of the field, he has long had an interest in the interface between computers and institutions of health care. 

In his 2014 New York Times bestseller, “The Digital Doctor: Hope, Hype, and Harm at the Dawn of Medicine’s Computer Age” he wrote, “We need to recognize that computers in healthcare don’t simply replace my doctor’s scrawl with Helvetica 12. Instead, they transform the work, the people who do it, and their relationships with each other and with patients.”

What Brynjolfsson and Wachter share in common is a sense of humility and realism when it comes to the history of systemic underperformance at the intersection of technology and health care.

They begin their 2023 JAMA commentary this way, “History has shown that general purpose technologies often fail to deliver their promised benefits for many years (‘the productivity paradox of information technology’). Health care has several attributes that make the successful deployment of new technologies even more difficult than in other industries; these have challenged prior efforts to implement AI and electronic health records.”

And yet, they are optimistic this time around.

Why? Primarily because of the speed and self-corrective capabilities of generative AI. As they conclude, “genAI is capable of delivering meaningful improvements in health care more rapidly than was the case with previous technologies.”

Still the “productivity paradox” is a steep hill to climb. Historically it is a byproduct of flaws in early version new technology, and status quo resistance embedded in “processes, structure, and culture” of corporate hierarchy. When it comes to preserving both power and profit, change is a threat.

As Brynjolfsson and Wachter put it diplomatically, “Humans, unfortunately, are generally unable to appreciate or implement the profound changes in organizational structure, leadership, workforce, and workflow needed to take full advantage of new technologies…overcoming the productivity paradox requires complementary innovations in the way work is performed, sometimes referred to as ‘reimagining the work.’”

How far and how fast could mAI push health care transformation in America? Three factors that favor rapid transformation this time around are improved readiness, ease of use, and opportunity for out-performance.

Readiness comes in the form of knowledge gained from the mistakes and corrective steps associated with EHR over the past two decades. A scaffolding infrastructure already exists, along with a level of adoption by physicians and nurses and patients, and the institutions where they congregate.

Ease of use is primarily a function of mAI being localized to software rather than requiring expensive, regulatory laden hardware devices. The new tools are “remarkably easy to use,” “require relatively little expertise,” and are “dispassionate and self-correcting” in near real-time when they err.

Opportunity to out-perform in a system that is remarkably inefficient, inequitable, often inaccessible and ineffective, has been obvious for some time. Minorities, women, infants, rural populations, the uninsured and under-insured, and the poor and disabled are all glaringly under-served.

Unlike the power elite of America’s Medical Industrial Complex, mAI is open-minded and not inherently resistant to change.

Multimodal, large language, self learning mAI is limited by only one thing – data. And we are literally the source of that data. Access to us – each of us and all of us – is what is missing.

What would you, as one of the 333 million U.S. citizens in the U.S., expect to offer in return for universal health insurance and reliable access to high quality basic health care services?

Would you be willing to provide full and complete de-identified access to all of your vital signs, lab results, diagnoses, external and internal images, treatment schedules, follow-up exams, clinical notes, and genomics?

Here’s what mAI might conclude in response to our collective data:

1. It is far less expensive to pay for universal coverage than pay for the emergent care of the uninsured.
2. Prior algorithms have been riddled with bias and inequity.
3. Unacceptable variance in outcomes, especially for women and infants, plague some geographic regions of the nation.
4. The manning table for non-clinical healthcare workers is unnecessarily large, and could easily be cut in half by simplifying and automating customer service interfaces and billing standards.
5. Direct to Consumer marketing of pharmaceuticals and medical devices is wasteful, confusing, and no longer necessary or beneficial.
6. Most health prevention and maintenance may now be personalized, community-based, and home-centered.
7. Abundant new discoveries, and their value to society, will largely be able to be validated as worthy of investment (or not) in real time.
8. Fraudulent and ineffective practices and therapies, and opaque profit sharing and kickbacks, are now able to be exposed and addressed.
9. Medical education will now be continuous and require increasingly curious and nimble leaders comfortable with machine learning techniques.
10. U.S. performance by multiple measures, against other developed nations, will be visible in real time to all.

The collective impact on the nation’s economy will be positive and measurable. As Paul Krugman wrote thirty years ago, “A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”

As it turns out, health data for health coverage makes “good sense” and would be a pretty good bargain for all Americans.

Mike Magee MD is a Medical Historian and regular contributor to THCB. He is the author of CODE BLUE: Inside America’s Medical Industrial Complex (Grove/2020).

Suppose I throw a rock through a store owner’s window. You admonish me for this act of vandalism. But I reply that I have actually done a good deed.

The store owner will now have to employ someone to haul the broken glass away and someone else, perhaps, to clean up afterward. Then, the order of a new glass pane will create work and wages for the glassmaker. Plus, someone will have to install it. In short, my act of vandalism created jobs and income for others.

The French economist, Frédéric Bastiat called this type of reasoning the “fallacy of the broken window.” All the resources employed to remove the broken glass and install a new pane, he said, could have been employed to produce something else. Now they will not be. So society is not better off from my act of vandalism. It is worse off — by one pane of glass.

But there is a new type of Keynesian (to be distinguished from Keynes himself) that rejects the economist’s answer. Wasteful spending can actually be good, they argue. If so, they will love what happens in health care.

By some estimates one of every three dollars spent on health care is unnecessary and therefore wasteful. ObamaCare’s “wellness exams” for Medicare enrollees — so touted during the last election — is an example. Millions of taxpayer dollars will be spent on this service, yet there is no known medical benefit. Similarly, ObamaCare is encouraging all manner of preventive care — by requiring no deductibles or copayments — which is not cost effective.

Yet all this wasteful spending could actually help the economic recovery according to the resurrection of an old Keynesian idea called the “liquidity trap.” Here is New York Times columnist, Paul Krugman:

As some of us keep trying to point out, the United States is in a liquidity trap: […] This puts us in a world of topsy-turvy, in which many of the usual rules of economics cease to hold. Thrift leads to lower investment; wage cuts reduce employment; even higher productivity can be a bad thing. And the broken window fallacy ceases to be a fallacy: something that forces firms to replace capital, even if that something seemingly makes them poorer, can stimulate spending and raise employment.

John Cochrane provides further explanation:

“Fiscal stimulus” is the prediction that even completely wasted government spending is good for the economy. Paul Krugman recommended, with refreshing clarity, that the U.S. government fake an alien invasion so we could spend trillions of dollars building useless defenses. (I’m not exactly sure why he does not call for real defense spending. After all, if building aircraft carriers saved the economy in 1941, and defenses against imaginary aliens would save the economy in 2013, it’s not clear why real aircraft carriers have the opposite effect. But I’m still working on the nuances of new-Keynesianism, so I’ll let him explain the difference. I’m not a big fan of huge defense spending anyway.)

According to new Keynesianism, we are in a liquidity trap when nominal interest rates hit zero. At that point, according to the theory, hurricanes and earthquakes are good for the economy. So are sudden increases in the price of oil.

A new paper by Johnnes Wieland, tests some of these predictions. As summarized by Cochrane:

Johannes looks at the earthquake in Japan, and oil price shocks. Surprise, surprise, earthquakes are bad for output…[and] he finds that oil shocks have worse negative effects on employment at the zero bound than in normal times!

John C. Goodman, PhD, is president and CEO of the National Center for Policy Analysis. He is also the Kellye Wright Fellow in health care. His Health Policy Blog is considered among the top conservative health care blogs where health care problems are discussed by top health policy experts from all sides of the political spectrum.

In a recent Health Alert I evaluated Paul Krugman’s claim that ObamaCare is going to save “tens of thousands of lives” and the repeal of ObamaCare will lead to the death of “tens of thousands” of uninsured people.

Krugman’s bottom line: Mitt Romney wants to let people die. The economics profession on this same subject: Krugman’s claims are hogwash.

But there is something that does cause people to die: socialism. More precisely, the suppression of free markets (the kinds of interventions Krugman routinely apologizes for) lowers life expectancy and does so substantially.

Economists associated with the Fraser Institute and the Cato Institute have found a way to measure “economic freedom” and they have investigated what difference it makes in 141 countries around the world. This work has been in progress for several decades now and the evidence is stark. Economies that rely on private property, free markets and free trade, and avoid high taxes, regulation and inflation, grow more rapidly than those with less economic freedom. Higher growth leads to higher incomes. Among the nations in the top fifth of the economic freedom index in 2011, average income was almost 7 times as great as for those countries in the bottom 20 percent (per capita gross domestic product of $31,501versus $4,545).

What difference does this make for health? Virtually, every study of the subject finds that wealthier is healthier. People with higher incomes live longer. The Fraser/Cato economists arrive at the same conclusion. Comparing the bottom fifth to the top fifth, more economic freedom adds about 20 years to life expectancy and lowers infant mortality to just over one-tenth of its level in the least free countries.

What about the effects of economic freedom on the poorest citizens? In the 2011 report, the average income of the poorest tenth of the population in the least free countries was around $1,061. By contrast, the poorest tenth of the freest countries’ populations earned about $8,735. If you are poor, it pays to live where capitalism is less hobbled.

What about equality of incomes? As it turns out there is almost no global relationship between the distribution of income and the degree of economic freedom. But in a way, that’s good news. It means that the rich don’t get richer and the poor poorer under capitalism. Everybody becomes better off.

What about within the United States? Some years back the Council of Economic Advisers (CEA) calculated a “predicted poverty rate” based on economic growth alone. In other words, economic growth by itself lifts people out of poverty, even if nothing else is happening. The CEA results suggest that if there had never been a welfare state (no Aid to Families with Dependent Children, no food stamps, no Medicaid, etc.) the poverty rate would be lower today than it actually is! This adds to a wealth of evidence that the welfare state is subsidizing poverty, not eliminating it.

I don’t like to get into partisan politics, because, like Milton Friedman, I believe in ideas and not politicians. But The New York Times editorial page is becoming increasingly partisan. The unsigned editorials these days are almost indistinguishable from the Obama campaign’s talking points. Far from being thoughtful, they are vehicles for White House propaganda. Many of Paul Krugman’s editorials read pretty much the same way.

So let’s consider the two political parties. Think of Democrats as being primarily responsible for the structure of the welfare state (social insurance programs) and Republicans as being primarily responsible for tax policy (including the Earned Income Tax Credit [EITC] — the embodiment of Milton Friedman’s negative income tax). Which policies have been better for poor people? If you buy the CEA analysis and the work of Charles Murray, George Gilder and a host of other scholars, the welfare state has led to more poverty, not less of it. On the other hand, almost every Republican tax change has made the tax code more progressive. That is, almost every time the Republicans change the tax law, the burden of the federal income tax is shifted from low-income people to high-income people! That’s why almost half the population doesn’t pay any income tax at all.

Although to be fair, Republicans have been as guilty as Democrats in creating high implicit marginal tax rates. When low-income people calculate how much extra cash they get to keep from an extra dollar earned, their return is lower than even that of the very rich!

[As an aside, Democrats have been very reluctant to give money to poor people through means-tested social insurance programs. Whether it’s food, housing, education or medical care, almost all the cash goes to a constituency that is definitely not poor. That’s why it’s hard to know how much anyone benefits from these programs. On the other hand, when the Republican-designed EITC delivers $1 to a poor family, the family gets $1 worth of benefit. Of course, the EITC may do other harm through its implicit high marginal tax rate, however.]

I’m not endorsing everything the Republicans have done. Rather, I simply note that under Republican policies we are likely to have less poverty.

All in all, the welfare state probably isn’t the primary reason poor people are poor. The main obstacles to success are (1) bad schools and (2) barriers to good jobs in the labor market.

What is the biggest challenge in making bad schools better? The teachers’ unions. They are dedicated to the idea that the school system is foremost a jobs program and only secondarily a place for children to learn. Teachers’ unions have steadfastly opposed almost every reform idea that has any promise whatsoever in every city and town throughout the country. As for barriers to entry into the labor market, who is the foremost backer of minimum wage laws, Davis Bacon Act restrictions, medieval-guild-type occupational licensing laws and labor union monopolies everywhere? You guessed it: the labor unions themselves.

Yet who forms the backbone of the Democratic Party? The very same organizations that are most responsible for keeping poor people poor and closing off their opportunities to succeed in life. Further, their perverse political influence disproportionately affects minorities. That is one reason why the black teenage unemployment rate is almost 40% — double that of white teenagers! It is one of the reasons for the very large student achievement gap: black student test scores are 70% to 80% of the scores of white students.

John C. Goodman, PhD, is president and CEO of the National Center for Policy Analysis. He is also the Kellye Wright Fellow in health care. His Health Policy Blog is considered among the top conservative health care blogs where health care problems are discussed by top health policy experts from all sides of the political spectrum.

In last Sunday’s New York Times, Paul Krugman extolled the virtues of Medicaid. Here are some excerpts from this astonishing column:

“Medicaid has been more successful at controlling costs than any other major part of the nation’s health care system.”

“How does Medicaid achieve these lower costs? Partly by having much lower administrative costs than private insurers.”

“Medicaid is much more effective at bargaining with the medical-industrial complex.”

“Consider, for example, drug prices. Last year a government study compared the prices that Medicaid paid for brand-name drugs with those paid by Medicare Part D — also a government program, but one run through private insurance companies, and explicitly forbidden from using its power in the market to bargain for lower prices. The conclusion: Medicaid pays almost a third less on average?”

In the days since this column was published, I have spoken with many experts on Medicaid who are uniformly appalled by it. While I may not reach the same audience as the New York Times (at least not yet!), I feel compelled to set the record straight on Medicaid’s “successes.”

Let’s start by considering Medicaid’s exemplary administrative costs. When a program does little monitoring for fraud and abuse, nor attempt to limit unnecessary care, and when a program monopolizes the customer segment is serves, it is going to have lower administrative costs. I am not sure why this is a virtue.

As for drug prices, Congress has given Medicaid effective most-favored nation status for prescription drugs. This all but guarantees that Medicaid will have the lowest drug costs. This accomplishment is no credit to Medicaid; it is the natural result of legislative fiat. The irony is that by granting MFN status to Medicaid, Congress gave drug makers incentives to raise prices to everyone else (in order to simultaneously raise the MFN price given to Medicaid.) Widely cited research by Fiona Scott Morton and Mark Duggan has shown that Medicaid’s MFNs raise all of our drug costs by 5-10 percent or more (depending on the drug.) So the overall impact of the law granting MFN status to Medicaid is to drive up total U.S. drug spending. This is nothing to brag about.

The situation with drug pricing helps us better understand the secret of Medicaid’s “success.” Unlike private insurers, which do have to “bargain with the medical-industrial complex,” Medicaid can dictate prices through legislative fiat. So does Medicare. Both Medicaid and Medicare routinely set prices below those “bargained” by the private sector, but Medicaid is especially “effective” because states know that they can abuse their power without serious repercussions. States do not care that “quite a few doctors are reluctant to see Medicaid patients,” as Krugman modestly states. (It might be more accurate to say that “most doctors, hospitals, and other medical providers treat Medicaid patients as second class citizens” or even “low Medicaid payments have created a two-tiered system in which Medicaid patients have inferior access to the best providers and the latest technologies.”)

Congress could not get away with this for Medicare without incurring the wrath of millions of seniors. When states slash Medicaid payments, the most vocal opponents are providers, not patients, and the voices of providers are usually drowned out by the voices of taxpayers. Private insurers could not get away with this either. Thanks to the HMO backlash of the 1990s (led by liberal Democrats), insurers seem to have given up on offering narrow network health plans.

Any monopolist – and Medicaid is a monopolist — can reduce its costs by choosing to pay low prices to its suppliers. Not only does this keep down the price of supplies, it also limits the monopolist’s production, as few suppliers will want to do business with it. This further holds down the monopolist’s total spending. These basic concepts, understood by any first year economics student, help explain the great “successes” of Medicaid, as well as most nationalized healthcare systems, which contain costs largely by limiting the prices they pay for medical services.

Surely there is more to judging a healthcare system than looking at how much it spends. What about access and quality? Does the system pay providers enough to attract new entrants? (I am especially concerned about doctors and nurses who may find more lucrative options in other sectors.) Are prices high enough to stimulate technological change? Are regulations so rigid as to hinder process innovation? I don’t mean to give carte blanche to higher medical spending, but only to suggest that it is shortsighted to heap praise on Medicaid because Congress and the states have chosen to abuse their monopoly powers.

David Dranove, PhD, is the Walter McNerney Distinguished Professor of Health Industry Management at Northwestern University’s Kellogg Graduate School of Management, where he is also Professor of Management and Strategy and Director of the Health Enterprise Management Program. He has published over 80 research articles and book chapters and written five books, including “The Economic Evolution of American Healthcare and Code Red.” This post first appeared at Code Red.

After a seemingly endless presidential campaign, we’re just days away from the Nov. 6 election. And to be sure, health care issues remain at the forefront.

Both Barack Obama and Mitt Romney have tried to claim the high ground as Medicare’s number one defender. In his latest column, the New York Times’ Paul Krugman argues that next week’s vote “is, to an important degree, really about Medicaid.” And writing on Bloomberg View, columnist Ezra Klein takes an even broader stance, concluding that “this election is all about health care.”

But health care isn’t all about the election, despite politics’ seeming ability to draw every sector into its gravitational pull.

In fact, many of the most significant stories in health care from the past two months haven’t come from the campaign trail — where candidates have mostly rehashed their existing policies — but from the private sector, as employers and providers have made aggressive, and sometimes unexpected, deals and changes. Reforms that will continue regardless of who’s sitting in the Oval Office next year.

Here are some of those stories.

Top Employers Move to Defined Contribution

As previously discussed in “Road to Reform,” Sears Holdings and Darden Restaurants have made plans to shift away from their current “defined benefits” — where they choose a set of health insurance benefits on behalf of their workers — and roll out “defined contribution” instead.

Under that model, firms pay a fixed amount for employees’ health benefits and allow workers to choose their coverage from an online marketplace, such as the Affordable Care Act’s health insurance exchanges or the emerging number of privately run exchanges.

In theory, the model would slow employers’ health costs while allowing employees to have more control over their own health care spending. And Sears and Darden’s announcements aren’t wholly unexpected, given that many employers have signaled their interest in making a similar shift.

But given the long-entrenched employer-sponsored health coverage model, some employers needed to be the first movers before the rest would be ready to follow.

Will they? That will be a major industry issue to watch across the next months.

Wal-Mart, More Providers Ramp Up Direct Contracting

As also noted in “Road to Reform,” Wal-Mart has continued to pioneer health care changes that could trickle down to the rest of the nation’s employers.

The company — the largest private employer in the United States — earlier this month announced new bundled payment agreements with six prominent providers. Given Wal-Mart’s size, the deals have major ramifications; the agreements could cover the company’s 1.1 million U.S. employees and dependents.

But Wal-Mart’s hardly alone. More employers are looking to limit their health spending by directly contracting with a selection of hospitals and physician groups that they think deliver the most efficient care — regardless if they’re located miles away from their workers — even as top providers are aggressively seeking such deals.

For example, Seattle-based Boeing on Oct. 1 started covering specialized cardiovascular care for nearly 83,000 employees, retirees and dependents through a new bundled-payment agreement with the Cleveland Clinic. Under the agreement, Boeing will cover the cost of travel and lodging for both the patient and a companion.

It was the seventh such agreement that the Cleveland Clinic has struck with a self-insured employer, with most of the affected employees located outside of Ohio. And if more companies are willing to send their workers across the nation to be treated, what does that bode for the traditional belief that all health care is local?

Mass. Hospitals Make Shift Toward Global Payment

Massachusetts continues to be the testing ground for national reform, given how its state reforms served as a forerunner to the Affordable Care Act. Some experts have argued that what’s happening in the Bay State is a preview of what will unfold across the nation’s health care system in the coming years.

That’s why it was so telling when Partners HealthCare, one of the state’s most prominent hospital systems, this fall chose to rip up its existing contracts with several major insurers and instead accept new deals that limit rate increases and put its providers on a budget.
In many ways, Partners’ deal-making reflects the broader climate in the state. Having already expanded health coverage — through a mix of mandates and a state health exchange that resemble ACA reforms going online in 2014 — Massachusetts is now pushing its providers and insurers to rein in health spending.

Partners also is following the path laid by the Alternative Quality Contract, a payment pilot by Blue Cross Blue Shield of Massachusetts that appeared to slow health spending and possibly reduce inappropriate utilization.

More Changes Ahead

But the emerging push for defined contribution, direct contracts, and global payments is only part of the story in the private sector. More changes — ranging from new market entrants to more adoption of risk-based payments– are sure to come.

“I would characterize employers as increasingly impatient and sophisticated,” said Chas Roades, chief research officer at the Advisory Board Company. (The Advisory Board Company publishes California Healthline for the California HealthCare Foundation.)

Employers “are not just shifting more cost onto employees,” adds Roades, “but getting more aggressive about putting dollars at risk for wellness, health maintenance, and disease management.”

Looking Forward

The changes in the private sector don’t diminish the importance of next week’s vote to the health care industry. An Obama victory would likely preserve the ACA for years to come; a Romney win could lead to partial or full repeal of the law and scaling back of the nation’s Medicaid program, among other possible reforms.

And according to a Kaiser Family Foundation poll released on Wednesday, about one-third of likely voters do rank health care issues as “extremely important” to their vote.

But as recent events bear out, many top employers, providers and payers aren’t waiting on Washington to make big changes. With rhetoric sure to mount until Tuesday, keep in mind that while the election’s the thing — it’s not the only thing.

Dan Diamond (@ddiamond) is Managing Editor of the Daily Briefing, a CaliforniaHealthline columnist, and a Forbes contributor. This post originally appeared at CaliforniaHealthline.org.