Lost in the Signal...Is Most Healthcare Spending Being Wasted?

Kim Bellard

I finally got around to reading Bryan Caplan's The Case Against Education: Why the Education System Is a Waste of Time and Money. In it, Dr. Caplan, an economics professor at George Mason University and self-avowed libertarian, argues that, aside from basic literacy and numeracy, our educational system serves less to educate and more as a way to signal to employers who might make good employees.

Oh, boy did this book make me think about our healthcare system.Dr. Caplan's views on economic signaling are by no means out of the mainstream, although his application of it to education may be. Think of it this way:

• how many of the courses you took in high school and college have actually proved useful to you in your career?
• Indeed, how much of what you learned in those courses do you still remember?

Dr. Caplan cites a raft of statistics to support his point-of-view, including ones about adults' dismal knowledge of most subjects after they graduate, how few college majors actually train many people for jobs in those fields, and even how the "learning to think/learning to learn" arguments are not well supported by data.

He believes that employers prefer people who get a college degree (or at least a high school diploma) because the degrees signal that graduates are "intelligent, conscientious, and conformist." That is, if you are willing to endure the boredom of all those years of classrooms to the end, you're not only at least moderately smart but also are more likely to be willing to endure the tedium that their jobs will probably have.

E.g., if you are hiring and have two candidates with similar grades and courses, but one of them didn't finish a class in their senior year (and thus could not graduate) versus one who stuck it out for the diploma, how likely are you to risk hiring the dropout -- even though, in terms of what they supposedly learned in college, they were almost exactly the same? Dr. Caplan notes from his own experience how many students search for easy courses and easy professors and often fail to even show up for classes -- not behaviors one would do if trying to maximize their learning. He argues that it has never been easier to find great education: you can audit classes for free at many universities, and take online classes from some of the world's best teachers. But neither will be recognized by employers in their hiring.

Credit- Lown InstituteDr. Caplan offers drastic remedies, such as cutting all government funding to education, making college more expensive, cutting most majors (he does like practical majors such as statistics or engineering), and more vocational training. He also supports child labor, as he thinks it is better for kids to at least learn how to work instead of wasting time in school.

I suspect Dr. Caplan staked out an extreme position to make a point, but that does not mean that his point doesn't have validity. Most people would tend to support ever more spending on education -- free college for everyone! -- but, at some point, there have to be diminishing returns, and it is certainly possible that we have passed that point. It's not like we're doing better on most measures of knowledge or skills.

We spend over a trillion dollars annually in government (federal, state, and local) support for education, which is more than we spend on defense but way less than we spend on healthcare. As with education, most of us would probably acknowledge that healthcare is full of waste -- not just excess administration but also unnecessary/inappropriate care.

Even worse, all that healthcare spending seems to buy us declining mortality increasing morbidity, and an array of quality outcomes that rival some third world countries. Perhaps over-reliance on signaling is one of the reasons for this.

For example:

Degrees: The gold standard in healthcare is the M.D. (or D.O.). We look for it, we rely on it, we have faith in it. And we expect physicians to spend more time in training than other countries and spend more money on it.

But we don't really know which medical schools (or residency programs) are better than others. We don't know how individual physicians did in those programs. We don't know the relationship between excellence in training and excellence in practice.

Even worse, we don't know which physicians are good at what they do, much less who the best are. Having a license or even board certification not only does not guarantee basic competence, it doesn't necessarily mean a physician isn't impaired, has lost their license elsewhere, or even has sexual assault charges.

We like the degree signal so much that we're increasingly expecting nurses to have B.S.N.s (or Master's), and Ph.D.s for nurse practitioners, pharmacists, and physical therapists.

Does any of this necessarily make healthcare professionals better? How would we know? Or are they just signals to reassure us?

Reputation: You know the Cleveland Clinic. You know the Mayo Clinic. You know the most prestigious medical institution in your region. But you probably can't say why they are more prestigious, and they probably can't really prove that they should be.

We base these views a lot on faith, on word of mouth, on anecdotes, on which have newer/fancier buildings, and, increasingly, on advertising. On signals, in other words.

Latest: We like the newest drug, even though it usually is (much) more expensive and may only offer slightly, if any, improved efficacy. We like new tools like gamma knives or robotic surgery because, well, they are newer and must be better, expensive be damned. We get MRIs even when CT scans or a simple X-ray might suffice.

Given a choice between older treatments/technology or newer ones, who among us wouldn't prefer the latter, even when the latter has not demonstrated its superiority, especially in cost/benefit? The fact that it is the latest is our signal that it must be better.

I don't go as far as Professor Caplan and say that most of our healthcare spending is wasted and should be cut, but I do think we spend more than we should, and too much on the wrong things. We'd get a bigger bang for our buck by investing more in public health and less in direct medical care.

We've gotten lost in healthcare's signals, and aren't focusing enough on what they're actually supposed to be telling us.