Do you know what is defensive medicine? Well it is more an American concept, it is a concept where a doctor does some procedures which are unnecessary, just to protect himself from prosecution in the future. Sounds difficult to believe? One famous Indian doctor said “when a doctor is extremely successful as a surgeon..remember he may have done many operations which are unnecessary, but done just in self defense”. I was not shocked, but was worried about the costs – financial and physical inconvenience. Overtreatment adds billions of dollars of extra costs to the healthcare system. One estimate puts the number at $45.6 billion dollars in the United States alone. Ironically, this figure is 80 per cent of the $55.6 billion annual cost of the medical liability system. Sadly there is no such research in Indian conditions, but could we be really far away from such percentage? Maybe we are at 50%, but even that is driving our insurance costs higher. Much higher.
Is it possible to blame the doctor? the answer is no. Every industry does this – the insurance industry does by over insuring, the fund management industry does by giving you a rosy picture – so that you invest more, the banking industry has such huge margins by scaring you about why you should have an emergency fund,…etc. YOU have to be careful about this excess information, and this insatiable appetite for action. YOU cannot sit calmly and that is the reason for this defensive medicine, defensive insurance, ….etc.
So why do doctors do it? Rather than say doctors, why do HOSPITALS do this? Because they routinely think that the cost of one extra test is not so high, so let me play defensive. When I meet 70 year old doctors, they trust their own diagnostic skills more than some piece of paper from a pathology lab. The medical system does not UNDERSTAND the impact of an additional test – the cash cost, the inconvenience, the infection risk, the increased cost of insurance FOR ALL US outside the system. Sometimes the doctor is trying to hide his poor decision making skills – only a robust internal audit system by the hospital will be able to tell you how much of the tests are necessary and how many are defensive. Obviously the more competent the doctor, the less chances of unnecessary tests. Now come to the reward mechanism. Even for a honest doctor, he feels less guilty about increasing the hospital’s revenue with a test than with an unnecessary procedure. Hence defensive medicine in India in a big hospital is far more likely than in a smaller doctor run hospital. Ha, the incentive system again.
Can you please use your OWN brain and apply all this to the financial service industry?
if you are wondering why this post in a finance blog let met tell you – we suffer similar biases – a) The curse of knowledge b) Too much data and information and noise c) Hindsight bias d) worry of Performance Evaluation e) Information projection f) Illusion of control – and all this impacts our financial decision making. I only hope that somebody is doing a lot of research on how the medical system behaves in a particular way.
More? you will have to wait…
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