Not a Scandal, Just Incentives --- VA Hospitals

|Peter Boettke|

In the DC area, the McLean Bible Church broadcasts messages --- Not a Sermon, Just a Thought --- which takes everyday life issues and relates them to bible passages or the basic teachings of Christ in 60 second bits.  In listening to these periodic messages over the last few years, I often thought that wouldn't it be a good thing if economists did something similar to erase public ignorance concerning policy issues.  

The public (and politicians) often talk about public policy as if all that matters is intentions, but to the economists the question is never really one of intentions, but of incentives.  When policies achieve their intended outcome it is because incentives were aligned correctly, when they fail to achieve those intended outcomes it is because incentives were not aligned appropriately for that purpose.  There is also the matter of the use of knowledge, but for our present purpose we will just stay focused on intentions and incentives.

Consider the current case of the VA hospitals and the waiting line that veterans face.  It is viewed as a scandal that someone must be held accountable for and that is the news story you read, hear and watch.  But an economic analysis of the VA hospital system will reveal that it is the system that produces systemic incentives that make such waiting lines very predictable.  In fact, you can read a wonderfully straightforward economic analysis of the VA system by Cotton Lindsay published in 1975 that clearly predicts the outcomes we are witnessing.

Its not a scandal, it is just incentives at work.

Comments

[Banaianshow]

Perhaps you are familiar with William Allen, who did 3-minute radio bits as the Midnight Economist? http://www.fee.org/the_freeman/detail/book-review-the-midnight-economist-choices-prices-and-public-policy-by-william-r-allen

[Jerry O'Driscoll]

Pete is right about this being an issue of incentives. Charles Krauthammer, himself an MD by training, offered the following statistic. In the U.S., the average cardiologist in the private sector sees as many patients in a week as does the 8-person cardiologist unit at the Albuquerque VA hospital.

The issue is that in the VA system,doctors are paid a salary and their income is independent of how many patients they see. A private cardiologist's income is directly correlated with the number of patients he sees.

There is a scandal in this. That is the secret wait list. That is apparently a relatively new element in an old story. It was reportedly done so that managers could earn bonuses for good performance. The VAs bonus system is actually perverse.

In the medium-term, John McCain is right. Give vets a choice and allow them to use whatever medical service they want.

[Daniel Klein]

Cotton Lindsay also published this great JPE piece in 1976:

http://www.jstor.org/discover/10.2307/1830442?uid=3738984&uid=2129&uid=2&uid=70&uid=4&sid=21104316816433

[Mario Rizzo]

I don't understand why there are VA hospitals in the first place. Specialization in the kinds of injuries veterans have can take place under any funding scheme. Secondly, don't these veterans have jobs and hence regular health insurance? How urgent, typically, was the need for appointments?

None of this is to suggest that I think veterans deserve to be treated badly.But I do think it should be a warning to those who think going into the military is a good idea. The government will not treat you well.