EHRs and Unintended Consequences

From yesterday's New York Times:

The conversion to electronic health records has failed so far to produce the hoped-for savings in health care costs and has had mixed results, at best, in improving efficiency and patient care, according to a new analysis by the influential RAND Corporation.

Optimistic predictions by RAND in 2005 helped drive explosive growth in the electronic records industry and encouraged the federal government to give billions of dollars in financial incentives to hospitals and doctors that put the systems in place. ...

RAND's 2005 report was paid for by a group of companies, including General Electric and Cerner Corporation, that have profited by developing and selling electronic records systems to hospitals and physician practices. Cerner's revenue has nearly tripled since the report was released, to a projected $3 billion in 2013, from $1 billion in 2005. ...

The study was widely praised within the technology industry and helped persuade Congress and the Obama administration to authorize billions of dollars in federal stimulus money in 2009 to help hospitals and doctors pay for the installation of electronic records systems.

Kudos to RAND for doing a follow up study to see whether or not their predictions were coming true. But are the latest headlines really all that surprising?

Call it the fallacy of the Next Really Big Thing (NRBT). Industry lobbyists seize on one promising study or report and tell Congress that if they just spent more money to subsidize the NRBT (wind energy, electronic health records, solar panels, biofuels, etc.) massive savings accrue and jobs will blossom.

For the most part, this doesn't ever really happen. In complex economic systems (like health care) pulling switch A often results in unintended result B (along with C, D, F and Q). Data from pilot projects, or existing health systems (like the Mayo Clinic or Geisinger) are often extrapolated far beyond the soil in which they originally flourished.

Subsidies for solar energy have turned into a massive boondoggle because the technology isn't competitive without massive subsidies, and the Chinese are subsidizing them even more heavily than we are. Biofuels are leading farmers to shift from food crops to fuel crops, hurting the poor by raising prices for dual-purpose crops (like corn). (And, from an environmental perspective, they're actually worse for the planet than the much maligned fossil fuels.)

And electronic health records mandated by Congress appear to induce more, not less, health care spending without driving the hoped for efficiency gains.

Last month, Megan McArdle, at the Daily Beast, wrote an excellent blog post explaining why the road to Hell is paved with pilot projects:

This is one more installment in a continuing series, brought to you by the universe, entitled "promising pilot projects often don't scale". They don't scale for corporations, and they don't scale for government agencies. They don't scale even when you put super smart people with expert credentials in charge of them. They don't scale even when you make sure to provide ample budget resources. Rolling something out across an existing system is substantially different from even a well-run test, and often, it simply doesn't translate. ...

Sometimes the success was due to the high quality, fully committed staff. Early childhood interventions show very solid success rates at doing things like reducing high school dropout and incarceration rates, and boosting employment in later life. Head Start does not show those same results--not unless you squint hard and kind of cock your head to the side so you can't see the whole study. Those pilot programs were staffed with highly trained specialists in early childhood education who had been recruited specially to do research. But when they went to roll out Head Start, it turned out the nation didn't have all these highly trained experts in early childhood education that you could recruit....

Megan cites a number of other excellent examples for why early results turn out to be much less promising then they first appeared (my favorite being the failure of New Coke).

But I'd add one other factor to Megan's many good observations.

In the private market, failure is the rule, success the very rare exception. Most new restaurants fail. Most new drug trials fail (at enormous cost). Most new small businesses fail.

And that failure is a good thing. It's one of the best features of market-driven economies. It means that investors, consumers, and taxpayers don't spend money on the NRBT that turns out to be a colossal billion-dollar bust.

Failure is what drives market efficiency, and what makes markets so incredibly adaptive. Markets represent the evolution of ideas and technologies in real time - rife with unintended and emergent consequences.

Ironically, liberals and conservatives often switch ideological roles when it comes to markets. Skeptics of intelligent design in nature, liberals often turn into proponents of intelligent design when it comes to public policy. If we have enough smart minds at the top, or so the theory goes, we can predict the consequences at the bottom, millions of minds and miles away. Alas, it doesn't work like that.

The temptation to assume that the NRBT will work as planned is perennial (that Mind triumphs over Markets), and so should be relentlessly questioned.

It's much more prudent to assume that unintended effects will largely swamp intended effects, and that people and institutions will continue to do what they were doing before the NRBT came along - maximizing their profits (or, if they're not for profit, like the vast majority of hospitals, maximizing their revenues).

A less hubristic approach is to just assume we can only marginally control incentives. And that means tweaking the health care reimbursement system so that it rewards efficiency and innovation and then get out of the way and let the market do what it does best - hatch many small scale experiments and kill all but a handful.

EHRs may yet succeed, and deliver their promised benefits, especially in a more competititve health care system where providers have to answer to consumers, rather than regulators or insurers.

Until then, expect lots more stories like this one. And expect people to keep wondering why the NRBT never seems to become the NRBT.

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