by Tom Robertson
Executive Director, Vizient Research Institute

 

 

The British have an expression—a “Birmingham screwdriver”—which actually refers to a hammer. Maslow’s hammer, popularized in Abraham Maslow’s 1966 book entitled “The Psychology of Science,” stems from his now commonly cited observation that “if all you have is a hammer, everything looks like a nail.”

More recently, computer programmers use the term “golden hammer” when referring to a familiar concept or approach being applied obsessively to disparate software problems. Whatever we call it—the law of the instrument, the law of the hammer, Maslow’s hammer or the golden hammer—that cognitive bias in favor of a familiar tool may be at the root of 40 years of unsuccessful policy related to health care pricing.

The persistent inability of the market to establish affordable, rational health care prices may be less a failure by the market per se as much as an example of Maslow’s hammer—the wrong tool for the job.

In a decades-long fit of cognitive bias, we have stubbornly clung to the belief that the market would eventually bring the supply and demand for medical services into equilibrium, with prices that made sense for both buyers and sellers. But when it comes to establishing rational health care prices, the market is a Birmingham screwdriver.

For the typical consumer, medical care is not a normal economic good; more is not better than less. To the contrary, if given the choice, no one would ever buy anything that medical providers are selling. Providers can lower prices, but until consumers get sick, they aren’t buyers.

On the flip side, once the consumer does get sick—and especially when they get sick enough to be scared—demand immediately becomes virtually limitless. In classical economic terms, this is called inelastic demand.

Unlike normal economic goods, for which demand rises and falls with price, medical demand is binary…it’s “on” or “off”. Complicating matters is the fact that health care costs more than the average consumer could ever afford on their own. By necessity, society spreads the financial risk of illness across the entire population, via insurance premiums and taxes. The combination of inelastic demand and indirect financing means that the market cannot influence price.

The role of a classic economic seller is an ill-fitting one for medical professionals. Sellers ordinarily want to sell as much of their product as there is demand to absorb, at prices as high as the market will bear. None of us wants to think about health care providers being excited over increased demand. We see medical providers as compassionate healers who hope for a day when there will be less demand for their skills, not more. The traditional organizational model is that of a tax-exempt, charitable not-for-profit. With that comes the social compact that prices should be as low as they can be, not as high as the market will bear.

Neither the demand side nor the supply side of a traditional economic market is well-suited to the delivery of health care. Consumers want little or none of what providers are selling until their lives depend upon it, at which point no price is too high. Ideally, providers would sell as little medical care as was needed, not as much as they could produce, and at prices that were as low as the most efficient and proficient among them could afford, not as high as a dysfunctional market will bear.

If you do an internet search for images related to the term “wrong tool for the job,” you quickly run across all sorts of amusing photographs. From the obvious—a Phillips head screwdriver struggling to fit a flat headed screw—to the comically dangerous, like someone sharpening a pencil on a spinning sawmill blade. A smiling toddler trying to cut a piece of lumber with a plastic set of safety scissors. Or a hammer used to crack an egg. Maslow’s hammer.

Instead of wondering why the market has failed for over 40 years to establish affordable, rational prices in health care, we should be asking ourselves why we ever thought that it would.

About the author: As executive director of the Vizient Research Institute, Tom Robertson and his team have conducted strategic research on clinical enterprise challenges for more than 25 years. The groundbreaking work at the Vizient Research Institute drives exceptional member value using a systematic, integrated approach. The investigations quickly uncover practical, tested results that lead to measurable improvement in clinical and economic performance.

Published: March 15, 2022