Thursday, August 13, 2009

Omigod! The Cost Curve

Statistics are wonderful things, provided they measure something relevant to the discussion. I try to illustrate that to my classes, particularly in State & Local Government where we regularly encounter comparisons of expenditures on some problem by state. The text book dumps out a ranking by state of spending on public education showing Texas at a considerable disadvantage. Usually we rank down around 45th in per capita spending on K-12.

I ask the students to discuss whether that sort of rating is relevant. Typically they bleat something about large versus small size or population skewing the numbers. I patiently explain to these college students what "per capita" means. They may or may not get it.

But, the issue is really whether amount spent equates with quality of learning. Can you compare California, or New York, or Massachusetts to the wide-open spaces of Texas? Does cost of living skew what you need to spend on staff, facilities, infrastructure, etc.? Can Brownsville TX be compared dollar-for-dollar with Washington DC, San Francisco CA or Detroit MI? Brownsville couldn't spend as much eduating their kids if they paid each teacher four times as much as they do now. And, the kids probably will never be able to be as mis-educated or under-taught as they are in DC or Chicago.

The principles of examining relevance of statistics are very important in the health care debate. Have you been stunned by the oft repeated factoid that more than 80% of healthcare costs are expended in the last year of life? Wow!...So What?

For most of your adult life you don't need to see a doctor. If you do, the costs are minimal. You only wind up requiring major hospitalization, surgeries, high-tech diagnostics, exotic therapies, and the most advanced medical interventions when you are at end-game. Nothing we do will ever change that immutable fact.

So, when they say they will front load expenditures to reduce that last year of life burden, it won't be because regular check-ups are saving a hell of a lot. It will be through cutting end care. When you do that, people will die more effeciently (at lower cost). That, however, won't change the proportion of dollars spent in last year of life. It will simply mean that last year of life, with all of its financial burden will occur earlier.

Examine numbers carefully. If they stun or amaze you don't run screaming to the government to "do something." The fact is that the stunning numbers may be totally irrelevant. And what the government will want to do isn't what you would choose for yourself willingly.

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