New work by Duke and University College London (UCL) researchers suggests that our response to disasters depends partly on the range of death tolls we are usually exposed to.

Millions of lives are lost around the world each year to accidents, terrorist attacks, wars, epidemics and natural disasters. What’s more, the prediction is that climate change will increase the number and intensity of some of these events.

Newly published research from suggests that the way people – whether members of the public or policymakers – react when faced with human fatalities is highly dependent on the distribution of death tolls they are typically exposed to.

The findings could have important implications for multi-lateral donors, national governments, aid agencies and the press in terms of planning for, fundraising for, reporting on and responding to such emergencies. Read the rest of this entry »

Professor Ralph Keeney is helping Freakonimics blog readers learn to make better decisions.  Check out the Freakonomics site for Keeney’s guidance on how to make good decisions and minimize regret.

Professor Paul Zipkin argues “regulation is a necessary element of the infrastructure of free enterprise,” in an op-ed published in the Sept. 24 edition of the Raleigh News & Observer.

Defective financial products can ruin lives just as surely as bad food and faulty electrical wires. Just ask the millions of borrowers who can never hope to pay their debts, the thousands of laid-off financial professionals and factory workers, and all of us taxpayers.

The Obama administration has proposed several initiatives to help our damaged financial system. One is the Consumer Financial Protection Agency. The CFPA aims to avoid some of the ill-conceived products, such as tricky subprime mortgages, that have played central roles in the financial crisis. It’s a good idea, and we should all support it.

Bankers too should support this idea, and some do, privately. Publicly, however, the banking industry has mobilized its considerable forces to oppose the CFPA. They argue that it will hamper financial innovation. Well, that’s sort of true – in a good way. Some innovations are valuable but some are not. Read the rest of this entry »

As manufacturers race to test and deliver the H1N1 influenza vaccine by October, public health officials are working equally feverishly to determine how scarce doses should be allocated, and the U.S. has announced plans to donate 10 percent of its vaccine supply to the WHO.

Research from Duke and the European School of Management and Technology (ESMT) demonstrates why, in some cases, countries would be best served by giving their drug supplies to another country.

Duke Professor Peng Sun, Duke PhD student Liu Yang, and Professor  Francis deVericourt  of ESMT created a model based on game theory  to test how countries with adequate drug supplies should react to an epidemic affecting a neighboring country with little or no supply of vaccine or treatments.  Their findings indicate that countries possessing treatments are sometimes best served by donating their treatments to the first country afflicted by an epidemic, instead of using the drugs on their own citizens.  In game theory, this situation is referred to as a Nash Equilibrium, the combination of actions by different players that results in the best outcome each player can expect, given the other players’ moves.
Read the rest of this entry »

By Kevin Schulman, M.D.

Duke Medicine has just announced a $700 million expansion of its physical plant to add 847,000 square feet, including adding 16 operating rooms and renovating 160 beds (that’s over $800 per square foot if you’re doing the math).

This will add a new cancer hospital facility within the Duke campus, and expand the number of intensive care rooms at Duke Hospital. This is a significant investment in infrastructure for the health system, but how will this investment impact the care delivered to patients by Duke Medicine?

Duke Medicine is a fee-for-service hospital system and physician network. This is one of the oldest forms of a provider organizational structure in existence, and pre-dates the development of health insurance in the US. This model is managed to allow patients access to high-end specialty and hospital services. Within this model, hospitalization is not considered a failure, but rather a core service offering. Competition between Duke and other providers is on the basis of technology and specialty service offerings. This type of competition can lead to improvements in the performance of specialist physicians, but can also lead to a phenomena described as a “medical arms race” where hospitals “must” acquire certain technologies to remain attractive in these specific markets.

Hospitals like to point out that their high-tech facilities and services are better than those of competitors (see Robinson and Luft JAMA 1987). This type of competition has been criticized as driving to higher investment in technology, overcapacity, and higher health care costs. There’s some local evidence of this arms race concept with UNC’s investment in a similar cancer facility only nine miles from the Duke campus.

Read the rest of this entry »

By Kevin Schulman, M.D.

Ted Kennedy passed away this week at age 77 of glioblastoma (he was treated surgically here at Duke for his disease last year; Duke has the best program for this disease in the world, but the prognosis for people diagnosed with glioblastoma remains grim).

Kennedy spent more than 45 years in the US Senate, and during that time he championed both liberal causes and bipartisanship. Orrin Hatch, a conservative Senator from Utah, has said publicly that Senator Kennedy was the only Democrat he could work with in the Senate. That’s quite a statement.

In the politics of health care reform, there are two committees in the Senate with jurisdiction. Senator Kennedy was chairman of the Health Education Labor and Pensions Committee (HELP), which has passed a version of the health reform legislation. Democratic Senator Max Baucus is chairman of the Senate Finance Committee, which has jurisdiction over entitlement programs (including Medicare and Medicaid). The Senate Finance Committee has not passed a bill, as Senator Baucus and his committee appear to have some substantial disagreements with the House and HELP committee versions of the bill — as they work to craft a bipartisan piece of legislation.They have tentatively committed to reporting out a bill by mid-September.

I was on a panel earlier this week with a major health insurance executive. I was asked about the status of health reform. I suggested that there are three issues that need to be addressed as part of reform: 1) access to health insurance, 2) the costs of health care, and 3) the future solvency of Federal health programs.

Currently, the debate seems to be limited to access to insurance. The second and third issues are more problematic and look like they will remain despite health reform (or may even be exacerbated by the reform).

The insurance executive suggested that access was relatively easy to solve. In fact, he suggested that their trade association, AHIP, had agreed publicly with a reform plan that included market reforms including removal of underwriting from small group policies in return for a mandate for coverage (as we teach in health economics and strategy, in the absence of a large group or mandates, insurers would face adverse selection without underwriting since only the sick would be interested in an expensive insurance policy).

The executive suggested the debate was really over the public option. Here, the debate spills over from access to costs. Health insurance costs include medical loss (payments to doctors, hospitals and pharmacies), a sales charge, a “risk” premium, overhead, and margin.

United Healthcare, for example, reports a medical cost ratio of 82% for 2008. This leaves 18% for these other categories. An argument for the public plan is that Medicare’s medical cost ratio is 96-98%. Thus, a public plan would be cheaper. This is an apples-to-oranges comparison, since Medicare doesn’t have huge expenses for marketing, risk and administrative expense that a public plan would obviously have to bear.

There are other hidden costs of a public plan as well. While most seniors support Medicare, Medicare’s low payments for primary care physicians and the overpayment of specialty physicians has been acknowledged for 15 years, yet Medicare has been politically powerless to change its payment system even as physicians leave primary care in droves. A public plan could face the same risk.

Healthcare, however, is a local monopoly in many places. Hospitals or physicians that are required to be included in provider panels have the ability to set their own prices. The ability to use a public plan to set rates for providers with monopolistic market power is an attractive feature that private health insurance plans cannot match (and thus oppose).

So where does this leave us in the reform process (it’s not really a “debate” since all of the shouting means there is almost no discussion of the three core issues I raised)?

Senator’s Kennedy’s death is significant. Will it inspire a sympathy effort to have the “Kennedy reform bill” in his honor, or will his death remove the last hope for compromise in the Senate?
We’ll find out over the next few weeks.

The following post was written by Kevin Schulman, M.D., Director of Duke’s Health Sector Management Program:

As Director of Fuqua’s HSM Program, I hereby nominate the physicians and hospital managers of McAllen, Texas, for a special joint Nobel Prize in Medicine and Economics for their brilliant experiment demonstrating, beyond a shadow of a doubt, that PHYSICIANS DO RESPOND TO ECONOMIC INCENTIVES. In recognition of this work, all physicians and hospitals in McAllen should receive a bonus payment equal to their 2009 Medicare billings, and then should be permanently excluded from the program (the public system responds to few incentives beyond those of special interests, but when you’re the subject of a must-read report at the White House, you’re out of luck).

So if you’re one of the few people who has yet to find time to read Atul Gawande’s piece in the New Yorker (and it is must-read material). Here are the major highlights:

For over 40 years, Jack Wennberg and his group at Dartmouth (now including Elliott Fisher and Jonathan Skinner) have shown there is significant variation in medical practice — more variation in “discretionary” services like imaging vs. essential services like appendectomy. This group has also created a database called the Dartmouth Atlas of Medical Practice, which reports variations in medical care according to hospital referral regions in the United States. From this database, a region that was identified as one of the highest utilizing sites was McAllen, Texas. Gawandi of the New Yorker visited to try to gain a better understanding the case and uncover reasons for the high utilization.

Less developed in Gawande’s article is the idea that the Medicare program has known about this practice for years. Annually $1 billion dollars is spent on a national program of Quality Improvement Organizations. These spends are allocated for the review of medical practices within the Medicare program. State Medicare medical directors, contracted health plan managers, and Office of the Inspector General at HHS are all involved in the review. All seemed powerless to take action in the case. (In terms of the public-private plan debate, it seems the private plans in the market had the same incentives and observed the same results in McAllen, so private plans aren’t the automatic fix to this practice pattern issue).

So what are the implications of this study? Read the rest of this entry »

The following analysis by Fuqua Marketing Professor Andres Musalem and Professor Ricardo Montoya of the University of Chile was recently published in the Chilean newspaper La Tercera.

With annual sales of 324 billion dollars, Wal-Mart is within a select group of companies that has successfully weathered the economic crisis. In Chile, the arrival of the largest retail chain in the world raises alarms among their local rivals and also among the workers of D&S, the Chilean supermarket chain just acquired by Wal-Mart. Nevertheless and beyond any controversy, consumers’ interest in Wal-Mart’s entry is built upon expectations of more competitive prices.

In this regard, the question that many would like to answer is how much prices will drop once Wal-Mart lands on Chilean soil. The arguments of those who argue that prices will actually fall are based on Wal-Mart’s increased efficiency, which might lead to lower operation costs as suggested by Máximo Bosch and Claudio Pizarro from the Retail Center at the University of Chile. Furthermore, its substantial bargaining power would help the retailer obtain lower wholesale prices when purchasing merchandise from its vendors. Part of these savings would be transferred directly to consumers through lower prices. Indeed, a study published in 2005 in the Journal of Applied Econometrics notes that Wal-Mart prices are on average between 5% and 25% cheaper than other supermarkets in the United States.

Another related argument is that Wal-Mart’s low prices might force local competitors to adjust their own prices to remain competitive. However, there are multiple studies showing that the real impact of the arrival of Wal-Mart in various U.S. markets does not generate large changes in the prices charged by its competitors. Therefore, when considering Wal-Mart’s effect on competitors, the results are in fact counterintuitive.

This evidence begs the question of why the local competition does not lower prices after Wal-Mart’s entry. Read the rest of this entry »

Image Courtesy of flickr/Karen Rustad

Apple and the recording industry made the right move in announcing recently that they will suspend digital rights management (DRM) and change pricing for iTunes downloads, say Fuqua Marketing Professors Preyas Desai and Debu Purohit, who recently completed an analysis of DRM and the digital music marketplace with Fuqua PhD student Dinah Vernik.

While the music industry previously stood by DRM in order to protect profits, Desai, Purohit and Vernik predict that online music retailers and consumers will both benefit from the elimination of DRM. Their rationale is straightforward: the music industry had ignored consumer resentment of restrictions  imposed by DRM protection, as well as consumer preference for purchasing DRM-free music.

The disappearance of DRM provides consumers with a product they prefer, as they can now download higher quality music than was available under DRM, and can use that music in a variety of formats.The researchers predict that these improvements will cause consumers to purchase more music online and reduce illegal downloading and copying.

The losers in this environment will be traditional CD retailers, whose customers will be attracted to the increased quality and ease of use of DRM-free music.   The Duke team predicts that traditional retailers will be forced to lower  prices in order to be competitive as more consumers shift to digital DRM-free downloads.

Image courtesy of news.sel.sony.com

Congress took the correct action on Wednesday not to push back the date for the nation’s transition to digital-only TV (DTV) broadcasting because a delay would have been neither politically shrewd nor in the interest of the public good, says a former Federal Communications Commission economist and Fuqua Professor.

“When the DTV transition happens, there are going to be some people — the uninformed, misinformed and procrastinators — who are not ready. They will complain,” said Leslie M. Marx, a professor at Duke’s Fuqua School of Business who served as the FCC’s chief economist in 2005 and 2006. “But that was going to happen regardless of whether the transition happens next month or in five months.

“By letting the DTV transition go ahead as planned, Congress and the Obama administration can blame any problems on the FCC and the previous Republican administration,” Marx said. “If they had postponed the transition, then they ‘owned’ it. Any problems were then theirs.”

Marx points out that a year ago communications companies bid $19 billion for the right to use the spectrum currently being used for analog TV signals.

“If I were working for one of the companies that bought the spectrum and a four-month delay had occurred, I would be asking the government for some kind of compensation,” she said. “Delaying the transition could also have cost the government a lot of goodwill.”