I’m currently reading Michael Lewis’ new book The Big Short: Inside The Doomsday Machine, about the subprime mortgage collapse. (Side note: while I was happy to see Sandra Bullock win an Oscar the other night for her role in the movie production of Lewis’ book The Blind Side, where was the Oscar nom for Tim McGraw, who was just great in his role as Sean Tuohy?).
One of the heroes of The Big Short is Dr. Michael Burry, a Stanford-trained neurologist who left the practice of medicine to manage a hedge fund called Scion Capital. Mike Burry was one of a handful of Wall Street-types who foresaw the collapse of the subprime market. What was it about Burry that enabled him to see what financial giants like AIG, Lehman Brothers, Bear Stearns and Merrill Lynch missed?
Lewis offers two of Burry’s personal traits as explanations. First, Burry lost one of his eyes as a child and the glass eye he wore as a replacement made it difficult for him to engage in normal eye contact in social situations and difficult for him to participate in team sports, imparting to him something of an outsider’s perspective.
Second, Burry, like Warren Buffet’s partner Charlie Munger (another guy with only one eye), had a preternatural ability to ferret out the hidden incentives that motivate people’s behavior. Even before he was in finance, back when he was a neurology resident, Dr. Burry spotted his colleagues’ tendency to act in their own financial best interests, rather than doing what was best for the patient.
“Even in life or death situations, doctors, nurses, and patients all responded to bad incentives. In hospitals in which the reimbursement rates for appendectomies ran higher, for instance, the surgeons removed more appendixes. The evolution of eye surgery was another great example. In the 1990s, the opthamologists were building careers on performing cataract procedures. They’d take half an hour or less, and yet Medicare would reimburse them $1,700 a pop. In the late 1990s, Medicare slashed reimbursement levels to around $450 a procedure, and the incomes of the surgically minded ophthalmologists fell. Across America, ophthalmologists rediscovered an obscure and risky procedure called radial keratomy, and there was a boom in surgery to correct small impairments of vision. The inadequately studied procedure was marketed as a cured for the suffering of contact lens wearers. ‘In reality,’ says Burry, ‘the incentive was to maintain their high, often one- to two-million dollar incomes, and the justification followed. The industry rushed to come up with something less dangerous than radial keratomy, and Lasik was eventually born.'”
What does any of this have to do with medical malpractice law? Well, as our country struggles to find a way to overhaul our dysfunctional health care system, people are casting about for ways to reduce health care costs. The Republicans and the tort reformers have proposed a one-size-fits-all answer: medical malpractice reform – making it harder for people to sue their doctors and capping their damages for pain-and-suffering.
The Republicans and the tort reformers say that fear of medical malpractice lawsuits has driven doctors to practice “defensive medicine” – ordering numerous unnecessary tests and procedures to protect them in case they get sued for medical malpractice.
What hedge fund managers and medical malpractice lawyers understand is that, very often, doctors aren’t running unnecessary tests and procedures because they fear medical malpractice lawsuits; they are, very often, whether consciously or not, ordering the tests and procedures because they are lucrative.
But don’t take my word for it. Take the word of a certified financial genius like Dr. Burry, who saw what virtually everyone else on Wall Street missed.
Now to plow through some of the other books on my nightstand, including Dr. Atul Gawande’s Checklist Manifesto.