2011 Pattullo Lecture 259 PATTULLO LECTURE On the Much Used (and Abused) Word "Value" in Healthcare Uwe Reinhardt, PhD, James Madison Professor of Political Economics, Princeton University Christi Lemak: Welcome to the 2011 Pattullo. I think it’s important that we understand why we have the Pattullo Lecture and its meaning. The Pattullo Lecture was established in 1983 to honor Andy Pattullo, an officer at the -Kel logg Foundation for nearly 40 years who had significant influence on both health administration education and health management practice. The lecture that we have today and every year at the Annual Meeting seeks to present an in-depth view of an issue that impacts how we teach healthcare management. The topic this year about value is certainly a timely, relevant, and important one for us as our speaker is an expert in this field. Let me tell you about our speaker, Uwe E. Reinhardt, the James Madison professor of political economy, as well as a professor of economics and public affairs at Princeton University. He teaches health economics, comparative health systems, general micro economics, and financial management at Princeton and does a lot of research on health economics in policy both here in the US and abroad. I know that many of us in this room are very familiar with his amaz- ing CV and the many organizations of which he is a member. To highlight a few, he’s a member of the Institute of Medicine; he is a past president of the Association of Health Services Research which is now Academy Health; and he’s a past president of the International Health Economics Association. He has served on a number of government commissions such as the Physicians Payment Review Commission, which is now a part of the Medicare Payment This is a modified transcript of the 2011 Pattullo Lecture delivered at the AUPHA Annual Meeting in Charleston, South Carolina. It has been modified for clarity and flow. A video of Dr. Reinhardt’s Pattullo Lecture, along with his slide deck, can be found on the AUPHA Network (network.aupha.org). Simply search for Annual Meeting 2011. 260 The Journal of Health Administration Education Fall 2011 Advisory Commission or MEDPAC. He is the commissioner of the Kaiser Fam- ily Health Foundation, Commission of Medicaid of the Uninsured, and he has been a trustee of Duke University and the Duke University Health System. We are proud to include on Professors Reinhardt’s resume that he was the 2010 winner of the William B. Graham Prize for Health Services Research that is presented by AUPHA and the Baxter International Foundation. What I think is most astounding and most important about all of these wonderful accolades for Professor Reinhardt is how he engages a wide variety of constituents in debate thereby helping us to think critically about many things that we take for granted. From the speeches he makes to practitioner audiences to the practitioner panel we enjoyed yesterday. I said to one of the panel speakers, “I’m looking for some speakers for a meeting, who have you seen lately that you like?” and Dave Fox said, “Well, Uwe Reinhardt.” In addition to his speeches and the way he engages practitioner audiences and policy audiences, he has a way of connecting. While I was speaking to students at Michigan, several of them said, “I just love his blog in the New York Times. And that makes me think about issues and economics in ways that I’ve never done.” So he makes us think. He makes us develop new ways of teaching. And I’m sure that today he will engage us in and present to us some ideas that we can use. Uwe Reinhardt: Well, thank you very much for this lovely introduction. The one addition that I would make to my CV is that I was honored and lucky enough about two weeks ago to receive an honorary doctorate from Drexel University. This was sort of a highlight, a wonderful day for these great stu- dents that they have. At Princeton, the truth is that 30-40% of the students go to Wall Street, but these kids from Drexel go out and shake the world. The other ones, I’m not sure what they do. Sometimes they destroy it, but, that was sort of exhilarating to see thousands of people who tomorrow will actually do a lot of good. But the degree awarded was a doctorate of letters of humanity, and I thought, “What a contradiction to give that to an economist.” To paraphrase Oscar Wilde, economists are people who understand the price of everything and the value of nothing. That can be applied it to a cynic, but we’re not cynics we’re quite the opposite; we’re blue eyed wonders I think. We believe all kinds of stuff that is true on Pluto, but not on Earth. This makes us look pretty stupid. It immediately makes all of you intellectually superior to the speaker. And that’s a good thing. That’s what you want, to come away and say, “I look better than that.” So mazel tov, feel good about it. When you’re in your human mode (as opposed to your economist mode which you switch on before you go to work in the morning and then switch 2011 Pattullo Lecture 261 off at night to become a mensch again) you realize that somehow the value of something must match the intensity with which a human being appreciates something. And I think everyone could agree—even economists could agree with that. The question is how to measure it. Now the truth is, God actually has a metric for that and psychologists like Danny Kahneman, a psychologist who received a Nobel Prize in Eco- nomics, have been trying to figure out what this is. Electrode caps now exist to actually measure electrically human reactions to things so that maybe 20 years from now one could actually measure utility. So, you have a util-meter and your date has her util-meter and, you know… if you scratch your head with a fork, then your util’s go down and you don’t do that again, right? We economists are too impatient for that so we decided to just measure it by the size of money prizes, the big prize. I teach freshman and usually I pick on some Chinese lady just from the mainland so that people not part of American culture could see the sport in it, and I say, “Imagine you have 2 boyfriends, you probably have 3, but suppose you only have 2. One gives you a diamond ring worth $25,000 and the other one $50,000. Wouldn’t you assume the second one loves you twice as much?” Invariably they look and say, “No.” And I say, “Good heavens, why not?” “He could be richer. Have you ever thought of that?” Usually we don’t have that in our theory. Then I say, “You just destroyed half of my course because all my lecture notes are based on the idea that this guy loves you twice as much, so what am I going to teach here?” And she feels bad—that’s the beauty. She actually says, “Oh, I came to America what do I to tell my parents? The professor’s mad at me.” This is a great way to introduce the destruction—the deconstruction—of the concept of efficiency and value in economics. So we apply this into social values as I’ll show. Speaking of which, I have a lecture which I’d be happy to share entitled, How Economists have Bastardized Benthamite Utilitarianism and Became Shills for the Rich. And that is a very sad story actually. Benthamite Utilitarianism...you may or may not like it... some people like Rawlsian thought better...but whatever it is, Bentham never thought that you measure utility by money. We economists assume that the margin of utility of wealth is constant. If you give Donald Trump a buck or a waitress a buck, the intensity of happiness created is the same. That’s what we must assume for this stuff to work. Economists have actually argued about value for centuries. The debate in the 1800’s was whether things have intrinsic value based on the usefulness of that thing or is it simply that someone is willing to pay for something that gives it value. For many years in Chile, potash was just a bloody nuisance and it wasn’t valuable to them, but once Americans went down and figured out 262 The Journal of Health Administration Education Fall 2011 this is fertilizer, then all of a sudden this thing had value that it didn’t before. You can see if you actually think about it that this is not so easy a concept. Now, the foreign example: does healthcare, say a pediatric visit, or perhaps having a stent implanted in someone, have an intrinsic value, or is its value determined strictly by what someone is willing to pay for it? When you talk to healthcare entrepreneurs who make medical devices, they literally can have tears in their eyes, I kid you not, when they wax romantic about the value of the thing that they’re producing. I always tell them it’s only worth what Med- icaid pays you for it and then you know that kind of ruins the cocktail party. So this is what has engaged economists—why is water so cheap and dia- monds so expensive when diamonds are basically useless, even in those days when they didn’t have industrial uses? You can imagine on a desert when you’re just about on the hump of a sand dune, just about to expire and some- body comes and says, “I’ve got a can of diamonds here or a can of water, what would you like?” The economist would probably say, “I’ll take the diamonds and go up to heaven where there could be angels.