Computers Won't Save Healthcare (RTE Assumptions in Action)

There’s one thing Democrats and Republican politicians agree on when it comes to healthcare reform: digitizing healthcare records could be a godsend. When it works, it can improve patient care, reduce medical errors, and save billions of dollars a year — a crucial consideration given the threat that skyrocketing healthcare costs pose to our economic future.

But in an article entitled “The Dubious Promise of Digital Medicine,” Business Week pours a big bucket of cold water on this enthusiasm. To understand why computerizing healthcare records is running into trouble, we’ll take a look at the problem using the three assumptions about the economy I explored in the last few posts.

People Aren’t Calculators

In theory, Healthcare IT should be able to radically reduce the number of medical errors. For example, with computerized records nobody has to decipher a doctor’s handwriting. In practice, the track record is mixed.

The Joint Commission, a nonprofit group that inspects and accredits 15,000 health-care organizations, … issued a warning in December about problems with complex health-tech systems. It cited one U.S. pharmaceutical database that found 43,372 medication mistakes, or about 25% of the total reported in 2006, involved computer technology. The problems included flaws in data entry, inadequate software, and confusing screens.

As I’m sure you know from painful personal experience, a lot of software is built by geeks who don’t pay attention to how people actually think, let alone what it’s like to use the software in a hectic place like a hospital. And if software doesn’t work the way people think, it can actually increase errors.

Take the experience of Dr. Mark Del Beccaro, chief medical information officer Seattle Children’s Hospital.

Del Beccaro soon became troubled by incidents of children suffering medication overdoses despite alerts from the Cerner software. He asked the doctors involved whether they had seen the alerts onscreen. “They told me, ‘I get so many alerts, I click through [them],’ ” Del Beccaro says. “They do become mind-numbing.”

In principle, alerts are a very good idea. If someone’s tired or distracted, an alert could save someone from, say, ordering a very dangerous drug combination. But people only have so much room in their brains to handle alerts. If the people designing the software don’t take this into account, constant reminders could actually increase errors.

Organizations Aren’t Calculators

Why doesn’t the market take care of this? Healthcare IT vendors who do a better job of adapting to users’ real needs should beat the ones that don’t. In the real world this isn’t happening. Why? Organizations aren’t calculators — or at least not simple ones. Continue reading

Assumption: Organizations Aren't Calculators

Most economists start from the same assumption about organizations that they make about people: they are rational and make well-informed, calculated decisions based on their self-interest.

You might ask, did these economists ever have a real job? If so, were they taking Acid or Ecstasy most of the time? How did they get the idea that what was going on was even remotely rational?

Now many economists will freely admit that sometimes organizations make decisions that aren’t entirely rational. But over time the competitive pressures of the market will smooth out the effect of these irrational blips — the more rational companies will outcompete the less rational ones. So, it’s safe for your model to assume that organizations act like calculators.

If only it were true. Sometimes in the world of IT, where I work, it feels like life inside corporations is a reality show called Survival of the Least Stupid. Sure, if a company keeps making crazy decisions it can wipe them out (or, in the case of GM, get them bailed out by the Feds). But for any decent sized company, there’s plenty of give to recover from astonishingly irrational decisions.

Also, managers in organizations make a lot of their decisions based on what their peers in their industry are doing. If all your competitors are making the same mistakes, you can do some pretty stupid stuff and still compete quite nicely.

It’s also not uncommon for organizations to be extremely rational and efficient in one part of the business while throwing their brains out the window in another. I once worked as a contractor for a company that calculated to the penny how much money they could squeeze out of their janitors while on the IT side listened attentively to their inner child, who was screaming, “I want that shiny new red bike NOW!!!!”

Even when organizations have made rational decisions, implementing those decisions can be really hard. Organizations are their own mini ecosystems, with different units having different types of resources that shape their behavior in different ways, making them more or less resistant to certain changes.

Then there’s backbiting, turf wars, and all the other festivities known as office politics that can easily kill a rational decision before it ever leaves the crib.

Sometimes even knowing whether our rational decision has been implemented can be challenging. Take what the HBO series The Wire called “juking the stats.” From police precints to schools, The Wire showed how decent people were forced to distort reality to get the optimistic statistics the Top Brass demanded.

The difficulty of actually implementing rational decisions once they’re made is why we have the industry known as Organizational Development. It’s devoted to churning out scads of books, seminars, and consultants that try to explain how to go about changing your organization — or, to put it another way, getting your organization to act the way economists say organizations act.

Pretending that organizations or people are calculators doesn’t make sense. If we start from assumptions that are based in the real world, I think we’re going to end up with a much more useful model of economy.

Next up: a concrete example.

Assumption: People Aren't Calculators

When most economists talk about the economy, they start from the assumption that people are calculators. If you want to understand how the economy works, they say, pretend that people are rational and that they have all the info they need to make a decision. Take a gazillion people making decisions in their rational self-interest, and you can put together a pretty decent picture of how the economy operates.

All models have to make assumptions to simplify the world. But when you start from an assumption that is obviously flat-out wrong, that’s a problem.

For example, how do you explain the multibillion-dollar industry of advertising? Does Budweiser spend millions on advertising filled with hot models and/or silly men because they think it’s a rational argument for buying their beer? Or maybe people buy Bud because they enjoy the commercials and are drinking Bud to subsidize making more commercials — sort of like supporting the arts.

And then there’s the financial world. After last year, does anyone really need convincing that what goes on in Wall Street isn’t entirely rational?

In the last few years, a small but growing band of researchers have argued we should stop pretending people are always rational and study how they actually make economic decisions. Go to a bookstore these days and you can find plenty of titles in the burgeoning field of “behavioral economics” — Predictably Irrational, How We Decide, and Nudge to name a few. These books are filled with real-world examples of how people make decisions using a mix of of rational calculations, unconscious cognitive biases, habit, and emotion. It seems like a hell of a better assumption on which to build a useful model of the economy.

Next up: Rethinking Assumptions about the Economy

Now that I’ve laid out some basic principles about how we can — and can’t — shape the economy, it’s time to take a closer look at some of the bizarre assumptions economists make when they talk about the economy

We’ve already seen one bizarre assumption: as much as they can, economists ignore how deeply intertwined the economy and politics are. Put it another way; talking about the economy without talking about politics is like talking about a Reese’s peanut butter cup without talking about the chocolate.

There are a few other assumptions economists make that are equally off base. So, I’m going to take apart these assumptions and then show you what happens when we make different assumptions. Then I’m going to mix together my assumptions, principles, and a few other bits and pieces to create my first draft of a new model of economy. Stay tuned…

Why Don't Buffett's Folks Ask for Checks and Balances?

We need to remove from the investment banking and the commercial banking industries a lot of the practices and prerogatives that they have so lovingly possessed. If they are too big to fail, they are too big to be allowed to be as gamey and venal as they’ve been — and as stupid as they’ve been.

This quote’s been getting a lot of traction in the blogosphere and the media. That’s because it’s from Charles Munger, Vice Chairman of Warren Buffett’s Berkshire Hathaway investment firm — a company that according to Bloomberg News “is the largest private shareholder in Goldman Sachs Group Inc. and Wells Fargo & Co.”

Munger says it’s going to be really hard to change the rules to bar these grotesque practices.

This is an enormously influential group of people, and 90 percent of that influence is being spent to gain powers and practices that the world would be better off without. It will be very hard to accomplish the kind of surgery that would be desirable for the wider civilization.

But if Munger’s firm is the biggest private shareholder in some of the biggest financial players, why’s he only talking about having Uncle Sam reigning in these players? Why isn’t he also fighting so shareholders like Berkshire Hathaway could nix this influence? For example,

Munger said the financial companies spent $500 million on political contributions and lobbying efforts over the last decade. They have a “vested interest” in protecting the system as it exists because of the high levels of pay they were earning, he said. The five biggest U.S. securities firms, only two of which still exist as independent companies, paid their employees about $39 billion in bonuses in 2007.

Even if we can somehow manage to change the rules, millions more will be spent to gut the rules. That’s how we got into this crisis in the first place. Shareholders can’t do anything about it today because although they “own” the company via shares, they don’t have the power that real owners do. Why not fight so shareholders can keep financial companies from spending millions to change the rules in ways that screw everybody else over? And fight so that folks like the rest of us, whose money is in 401(k)s and pension funds, can vote as to how 401(k) and pension managers use the “ownership” we have in financial companies to make sure they advocate for what we think is good for us. In short, create some checks and balances.

I can guess why somebody running an investment firm might not wanna go there. But the next time someone does another lovefest interview with somebody from Hathaway, maybe they ought to ask.

Greenpeace Stacks the Deck (Checks and Balances in Action)

An interesting article by Newsweek’s Sharon Begley about how Greenpeace acts as a check on corporations by helping companies interested in protecting the environment and smacking upside the head companies that aren’t — in short, by Stacking the Deck in Favor of the Good Guys:

As [Kimberly-Clark] CEO Thomas Falk began a speech to an executive-education program at his alma mater, the Wisconsin School of Business, two Greenpeace activists switched his PowerPoint for theirs. Instead of a primer on Kimberly-Clark’s success, the audience saw photos of the Canadian boreal forests that supply the company’s wood, with before (lush trees) and after (a clear-cut moonscape) shots followed by a smiling Falk declaring, “It’s all business as usual.” After panicked organizers ordered everyone out (“There are activists in the building!”), the attendees trooped into a cafeteria where Greenpeace had placed menus for such delicacies as “songbird stir-fry,” noting that half the songbird species in North America migrate to the boreal forests that supply Kimberly-Clark.

The Greenpeace the public doesn’t know operates somewhat differently. A decade ago it formed a partnership with a German company to manufacture refrigerators that don’t use chemicals called HFCs as their coolant (HFCs are greenhouse gases, now responsible for 17 percent of man-made global warming but on track to contribute as much as carbon dioxide). Greenpeace first got China’s largest refrigerator-maker to produce Greenfreeze fridges, then one in Japan, then major Western manufacturers such as Whirlpool and Miele, with the result that 300 million Greenfreeze fridges are in homes worldwide. No sit-ins, no banners, no PowerPoint sabotage was required; just business deals. “If Greenpeace is going to ring the siren saying there is an [environmental] emergency,” says Amy Larkin, who directs the group’s Solutions campaign of working with businesses, “we better bring the ambulance. I’m proud of my colleagues who are climbing companies’ smokestacks to unfurl banners, but we need every kind of action.”

Greenpeace can’t say for sure that the possibility of smokestack climbing (and worse) makes companies more willing to cave to the group’s demands, but “what we hear over and over again, especially after a few drinks, is company people telling us, ‘We wouldn’t be talking to you if we weren’t scared of you’,” says Greenpeace research director Kert Davies. Even if the threat is merely implicit, pairing hard-core activism with opportunistic cooperation may be exactly what the environmental community needs right now. The world has been backsliding on climate change for decades, and even a global recession has made hardly a dent in emissions: atmospheric concentrations of carbon dioxide, the chief man-made greenhouse gas, rose 2.1 parts per million in 2008, the National Oceanic and Atmospheric Administration reported last week, essentially unchanged from the 2.2ppm in booming 2007. And, yes, the Environmental Protection Agency just took the first steps toward regulating carbon dioxide, but if you believe that’s going to cut emissions in time and be enough to avert expensive climate change, I have a nice bridge you might be interested in.

Continue reading

Principle #4: Use Checks and Balances

If a lioness wants to catch more gazelles, she could practice sneaking up on them. She could work on her sprinting skills. In short, she could increase her odds of succeeding according to the current rules.

But if a lioness was a business, she’d have another option. She could try to get a law passed discouraging gazelles from running so much — say, grass credits for sedentary gazelles. She could fund the Don’t Break a Leg Coalition, dedicating to promoting lioness-funded research that shows running is dangerous for gazelles — especially running very fast. She could meet with the editorial board of the Gazelle Gazette and convince its editors to write an op-ed, “Change Gazelles Can Believe in,” arguing that lionesses have become less violent — and that the differences between gazelles and lionesses was exaggerated to begin with. In short, she could increase her odds of succeeding by changing the rules.

Most economists try their best to ignore this reality. Sure, they’ll denounce tariffs pushed by the sugar industry. But they act as if the rules of the game “distort” the market. In doing so, they willfully avert their eyes from what we can see on the front page every day: politics are an integral part of markets, because politics set a large portion of the market’s rules.

And as soon as we say we want the market to be governed by real rules — we want courts and cops to enforce legal contracts, we don’t want our kids drinking toxic-laced milk, we don’t want our banking system to meltdown — it’s a whole new game. Because now every business has two moves they can make: play by the rules, or try to change the rules.

When we pretend that isn’t so, we get the “deregulation” that drove our financial meltdown. The financial “deregulation” movement was Wall Street’s version of the Don’t Break a Leg Coalition. Republican and Democratic politicians and Wall Street players like Robert Rubin said, let’s unleash the power of the market by getting rid of those pesky regulations. But getting rid of the regulations that create an implicit safety net for banks that are too big to fail? No way. The result: the same thing you get if you told a teenager they can do whatever they want and you’ll bail them out if they get into trouble.

If politics are intimately intertwined with the market, what can we do to stop the lionesses from changing the rules so they win and everybody else loses? Take a page from the Founding Fathers — use checks and balances. Shape the economy so there are economic actors with the power needed to keep the lionesses in check.

In future posts I’ll give some examples of how checks and balances might work in the economy, particularly in Finance. For now, I’m going to answer two questions this Principle might raise for you.

First, instead of using checks and balances, can’t we count on good rules and smart regulators to protect us? No, because the politicians who write the rules and the regulators who enforce them aren’t independent economic actors. They are completely dependent on others for the resources they need to survive, and that means they can be easily threatened or blackmailed. If you don’t believe me, just look at the supposedly “independent” Federal Reserve. As the meltdown demonstrated, Wall Street’s had their ear; the Fed sees Wall Street as customers to take care of, not potentially dangerous creatures to keep in check. The only way to keep the lionesses in check is to have actors who have their own resources that the lionesses can’t easily take away.

Second, am I saying we need checks and balances because corporations are evil? I don’t think that’s a useful way of looking at the economy. Sure, there are CEOs who are sociopaths. But that’s not the real problem we are facing. The problem isn’t that Wall Street is run by evil, greedy bastards, it’s that given the way the economy inherently works, it’s in their self-interest to try to bend the rules in their favor. Wall Street players are no more evil than lionesses; both are just creatures of an ecosystem. And believe me, if lionesses could influence the rules of their ecosystem like Wall Street can, they would (I’ve asked).

It isn’t just bankers whose power we need to keep in check. Would you really want to live in an economy where Live-Simply, Tread-Lightly-on-the-Earth middle-class Greens were the only ones with the power to shape which products are produced and the lives we live? Not me (although at least the reeducation camp I’d be sent to would be LEED-certified).

Political power is an inherent, inextricable part of an economy. We can hide from this truth and suffer the consequences. Or we can acknowledge this truth and strive to ensure, as Montesquieu said, that “power ought to serve as a check to power.”