Input Up, Output Down – Gammon’s Law in Medicare

Gammon's black holeReading the headlines might remind you of Henny Penny:

Rising costs creating ‘extreme financial constraints’ for funding new drugs in Ontario. (Ottawa Citizen, April 10, 2014)

Luring Medical Tourists for Care is a Trip Down the Slippery Slope. (Globe)

Regardless of Henny Penny’s anxiety, the sky looks awfully close from the tip of the health care spending curve:

Canada spent $211 billion in 2013 on healthcare. Check out the 1975-2013 trend in healthcare spending:

healthspending

Gammon’s Law

The economist, Milton Friedman, in “Gammon’s Black Holes”, quotes Dr. Gammon saying that in

“a bureaucratic system … increase in expenditure will be matched by fall in production. … Such systems will act rather like ‘black holes,’ in the economic universe, simultaneously sucking in resources, and shrinking in terms of ‘emitted’ production.”

Gammon called it the ‘theory of bureaucratic displacement’ in Health and Security, Report on the Provision for Medical Care in Great Britain (London, St. Michael’s Organization, 1976, out of print).

Later, Friedman mentioned public education in Input and Output in Medical Care:

“I have long been impressed by the operation of Gammon’s law in the U.S. school system: input, however measured, has been going up for decades, and output, whether measured by number of students, number of schools, or even more clearly, quality, has been going down.”

He then turned his attention to healthcare:

“Gammon illustrates his theory from the British National Health Service (NHS). He points out that in the eight years “between 1965 and 1973, the total number of staff employed in NHS hospitals in Great Britain increased” by 28 per cent (and administrative and clerical staff by 51 per cent). On the other hand, “the average number of beds occupied daily” declined by just over 11 per cent. He goes on to note that the long waiting lists for beds throughout the period ensure that the number of beds occupied is a valid measure of output. Input up, output down.”

Input up, output down

Despite this, we still hear experts like professor Stephen Birch blame an over-supply of providers for driving up costs.

Usually, progress and volume decrease cost.  Friedman notes elsewhere that only in healthcare do we find improved technology and performance causing an increase in costs.

How do we fix it? For a bureaucratized system:

“The difference is in the bottom line. If a private venture is unsuccessful, its backers must either shut it down or finance its losses out of their own pockets, so it will generally be terminated promptly. If a governmental venture is unsuccessful, its backers have a different bottom line…Little wonder that unsuccessful government ventures are generally expanded rather than terminated.”

Perhaps Friedman was too pessimistic. Maybe Gammon had personal issues with someone in government. Perhaps they were just real life Henny Penny’s. Or, maybe they were right.

(Photocredit: dailymail.co.uk)

4 thoughts on “Input Up, Output Down – Gammon’s Law in Medicare”

  1. I don’t think Friedman is overly pessimistic. I think it misses one point – some bureaucracy is necessary to establish accountability. You need some system of checks and balances to prevent people from abusing public funds and trust.

    However, a bureaucratic mechanism must support a system and not because a system of itself.

    For this reason, I think that there’s probably a J-curve (or perhaps U-curve) relationship between input and output in a public system. Without any bureaucracy, there’s unaccounted abuse of the system. With just the right amount there’s adequate input and adequate output. With too much bureaucracy, there isn’t enough output/unit of input.

    Where that “golden valley” is, what I think, is the really hard question.

    1. Brilliant comment, Artyom!

      We might even expand your comment to say that ANY social system requires some guard rails to prevent criminal activity, keep things safe, etc.

      When the bureaucracy becomes the system and starts to command-and-control all the players, it attempts an impossible task. The world does not have enough managers to micro-manage all decisions; we’d need managers of the managers, and supervisors of the supervisors.

      We need to align incentives so that every motivation points towards patient benefit, not budgets or policies.

      Thanks again for taking the time to read and comment! Feel free to share more!

      Best regards,

      Shawn

  2. That is an unsettling “law”.
    Something I have noticed about government reactions to a problem is that they create an entity (committee, office, consultant, …) with a budget, whose task is to determine what other people should be doing. Rather than getting their hands on the work, they re-direct the hands-on workers from what they were doing to a new objective, which requires a new level of supervision to make sure it is done right. In health care, this must take competent workers away from patients, and put them in a higher pay grade to distract still other caregivers away from what they were trained to do. While this process is intended to improved effectiveness, it has a high potential for increased cost with decreased product.

    1. Very well said!

      Indeed, bureaucracy begets bureaucracy. All of us in leadership risk addiction to committees, meetings, and micr-management instead of letting workers creatively perform their craft.

      Like the ‘super parent’ who thinks parenting means controlling every detail, we ask bureaucracy to perform an impossible function.

      Thanks so much for sharing your thoughts!!

      Shawn

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