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Charlie Munger on the Medical System

Long a fount of wisdom, Charlie Munger provided us fascinating insight on everything from energy policy and mental models to how good gamblers think and making effective decisions.

At the Daily Journal Meeting (held March 25th 2015), Munger answered a question on Obamacare:

Of course the system of medical care, as evolved under the United States, has much wrong with it.

On the other hand, it has much that’s good about it. All the new drugs and devices, and new operations, medicine has taken more territory in my lifetime than it took in the whole previous history of mankind. It’s just amazing what’s been done.

A lot of it is obvious and simple, like inoculating the children against infantile paralysis, scraping the tartar off your teeth so you don’t wear plates when you’re 55 years old, and so on. People now take those benefits for granted, but I lived in a world where a lot of children died. Every city had a tuberculosis sanitarium, and half the people who got tuberculosis died. It’s amazing how well medicine has worked.

On the other hand, compared to the best it can possibly be, the American system is pretty peculiar. It’s very hard to fix. One kind of insanity is to say, “We’ll pay you so much a month for taking care of the people, and everything you save is yours.”

That is the system the government uses in dealing with the convalescent homes. That’s a great name, a convalescent home. You convalesce in heaven. You don’t convalesce them at home. [laughs] It’s attempting to have a euphemistic name.

That creates huge incentives to delay care and keep the money. The government has strict rules, compliance systems, and so forth. If we didn’t have that system, the cost of taking care of the old people in convalescent homes would be 10 times what it is. It was the only feasible solution.

The rest of the world is going in that direction, because the costs just keep rising and rising and rising.

If the government is going to pay A anything he wants for selling services to B, who doesn’t have to pay anything, of course the system is going to create a lot of unnecessary tests, unnecessary costs, unnecessary procedures, unnecessary interventions.
Psychiatrists that keep talking to a patient forever and ever with no improvement, of course that system is going to cause problems. The alternative system also causes problems.

Add the fact you’ve got politicians and add the fact you’ve got existing players who are enormously rich and powerful, who lobby you like crazy. A state legislature, now, is just 19 percent or whatever it is of GDP going to the medical system, imagine what the lobbying is like.

We get these Rube Goldberg systems. We get a lot of abuse of various kinds. There’s hardly an ethical drug company that hasn’t created multiple gross abuses, which are in substance growing through the bribery of doctors, which, of course, is illegal.
You have all these ethical companies. Ethical meaning it’s the designation of a drug company that has patented drugs. They’ve all committed big follies. The device makers of anything have been worse. There’s been a lot of abuse and craziness, and the costs, of course, just keep rising and rising.

That’s in a system that every child has been the greatest achiever in the history of the world. It’s very complicated. I think it will get addressed more because…We probably will end up with systems that are more like we do with the convalescent homes.
If you look at medicine, what’s happening is that more and more they’re going to a system where they pay somebody X dollars and everything they save, they keep. That system has some chance of controlling the cost. If you go into a great medical school hospital today, and you’re within a day of dying of some obvious thing like advanced cancer, the admitting physician is very likely to ask for a test of your cholesterol or any other damn thing. All the bills go to the government. As long as the incentives allow that, people will do it and they’ll rationalize their behavior. Something has to be done along that and more than is now being done.

I think the drift will be more in the direction of the block care. I don’t see any other system that would have controlled cost in the convalescent homes.

By the way, your doctor can’t just walk by every bed in the convalescent home and send the bill to the government. That’s not allowed by the law. But if you transfer the patient into a hospital, he can walk by the bed five times every day and send a $45 bill to the government.

If the incentives are wrong, the behavior will be wrong. I guarantee it. Not by everybody, but by enough of a percentage that you won’t like the system.

I think that’s enough on a subject that’s so difficult. I think we can see where it’s going. We may end up with a whole system that’s…In the Netherlands, they have a system where the same people are giving a free system to everybody and a concierge system to the others. It’s working pretty well.

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