How Policymakers Can Act Smarter: Simple Lessons about Complex Systems

In my previous post I argued that low-income populations suffer disproportionately when lawmakers and bureaucrats fail to grasp that healthcare and other complex systems present special challenges. Now I would like to step back from particular examples and draw general lessons for policymakers trying to deal with complex systems. (I offer additional guidelines in my Independent Institute book, Priceless: Curing the Healthcare Crisis.)

When dealing with a complex system for which there is no reliable predictive model, the first lesson is to show humility. Restrictions on behavior limit people’s ability to meet their own needs and the needs of others. In the absence of better information, we should want people to freely exercise their intelligence, their creativity, and their entrepreneurial abilities to solve problems.

A second lesson is that we should eliminate restrictions on behavior unless there is overwhelming evidence that the limits do more good than harm. This means, for example, allowing low-income families on Medicaid greater access to services whose prices are determined in the marketplace.[1] Also, we should make it easier for nurses, physicians’ assistants, and other non-doctor providers to deliver care to low-income patients by relaxing occupational licensing restrictions.[2]

A third lesson is to avoid trying to administer and regulate the system from the top. If we are dealing with a complex system and we don’t have a reliable model to predict how it will respond to simple parameter changes, it is more important than ever to avoid trying to solve problems with top-down commands. Instead, we need to begin the process of liberation by working from the bottom up.

Consider a notorious violation of this principle. At one point, leaders in the Soviet Union thought they understood enough about their country’s entire economy to manage the whole thing from a central command post. Today, even the Russians admit they were wrong.

A fourth lesson is that complex systems can’t be copied. Suppose I said to you: “Let’s look around the world, find the economy that seems to work the best, and then replace our own system by copying the one we like better.” If you have any sense, you would respond by saying, “Goodman, that is a really dumb idea; don’t you know that complex systems by definition can’t be copied?”

You would be right. It is a dumb idea. But did you know that is exactly how President Obama talks about healthcare? Time and again he has said, “Let’s find out what works and then go do it.” This is an approach that is destined to fail before it even begins.

On the supply side, we have the islands of excellence (Mayo, Intermountain Healthcare, Cleveland Clinic, etc.). On the demand side, we have a whole slew of experiments with pay-for-performance and other pilot programs designed to see whether demand-side reforms can provoke supply-side behavioral improvements. And never the twain shall meet.

We cannot find a single institution providing high-quality, low-cost care that was created by any demand-side buyer of care. Not the Centers for Medicare and Medicaid Services (CMS), which runs Medicare and Medicaid. Not BlueCross. Not any employer. Not any payer, anytime, anywhere. As for the pilot programs, their performance has been lackluster and disappointing.[3]

What about other demand-side reforms: forcing/inducing/coaxing providers to adopt electronic medical records, to coordinate care, to integrate care, to manage care, to emphasize preventive care, to adopt evidence-based medicine, and so on? The Congressional Budget Office (CBO) has reviewed the evidence on all these reforms and concluded that the savings will be meager, if they materialize at all.[4]

Notes:

1. John C. Goodman, “Why the Poor Need the Marketplace,” John­ Goodman’s ­Health­ Policy ­Blog, August 24, 2011, http://healthblog.ncpa.org/poor-need-the-marketplace/.

2. Devon M. Herrick and Pamela Villarreal, “Healthcare for Hurricane Victims,” National Center for Policy Analysis, Brief Analysis No. 532, October 6, 2005.

3. Megan McArdle, “Why Pilot Projects Fail,” The Atlantic, December 21, 2011, http://www.theatlantic.com/business/archive/2011/12/why-pilot-projects-fail/250364/; and Megan McArdle, “The Value of Healthcare Experiments,” The Atlantic, December 24, 2011, http://www.theatlantic.com/business/archive/2011/01/the-value-of-health-care-experiments/70106/; and John C. Goodman, “Pilot Programs,” John ­Goodman’s­ Health­ Policy ­Blog, September 8, 2010, http://healthblog.ncpa.org/pilot-programs/.

4. Douglas W. Elmendorf, “Letter to the Honorable Nancy Pelosi,” Congressional Budget Office, March 18, 2010, Table 3, p. 4, http://www.cbo.gov/ftpdocs/113xx/doc11355/hr4872.pdf; and “Budget Options, Volume I: Healthcare,” Congressional Budget Office, December 2008, http://www.cbo.gov/ftpdocs/99xx/doc9925/12-18-HealthOptions.pdf.

[Cross-posted at Psychology Today]