Information asymmetry in the healthcare system
by The Bayesian Observer
I suspect one of the problems in the health care system in America is information asymmetry. The moment a customer hands over an insurance ID to a doctor or hospital, the clinic knows a significant amount of information about the patient. The clinic knows the patients health history, financial situation and the type of insurance plan he has. The average patient knows almost nothing about the internal working of the hospital. Try to think about how many bits of information the clinic possess about the patient, and how many bits the patient possess about the clinic. From a purely rational point of view, it may be in the best interest of the clinic to overcharge the patient for services he doesn’t really need, knowing that his insurance will cover it. Even if the clinic gets caught doing this once in a while, the odds of getting caught may be low enough that the clinic may decide to pursue such a policy in the long run.
One simple change that can be made is: do not provide insurance information about individual patients to the healthcare provider. This can be done by placing a government body as a liaison between the health care provide and the insurance companies. In this model, the hospital submit the bill to the government body and this body follows up with the insurance company. The hospital/clinic and the insurance company never interact directly.
Another way to disincentivize misbehavior on the part of clinics might be to create a public, review-supported, ratings service, ala Yelp, for medical clinics and individual doctors. The problem with this is potential for false reviews and sybil attacks, which makes me wonder why apartmentratings.com seems to have so many fake reviews, while yelp seems relatively cleaner.Update: A large amount of medical records data has just been released by the Heritage Health Prize via Kaggle. While the intended purpose of this data is to host a competition to predict which patients are admitted to a hospital within 1 year of the time frame of the data, I wonder whether it could be used for other interesting investigations and verification of theories, such as the one above.