• The Cost Disease: Chapters 9-10

    Chapters 9 and 10 of The Cost Disease are not exclusively by Baumol; we start to hear the voices of co-authors. They make the same point: productivity enhancements by sub-sectors that serve businesses experience a multiplier. A small increase in the productivity of an organization that specializes in business processes is amplified as the products of that organization are used to enhance the productivity of other organizations. Chapter 9 has a general focus and Chapter 10 is specific to health care. Both use the case study method.

    Let’s focus on Chapter 10. My comments are brief. Despite an earlier focus on spending (never mind the “cost” verbiage), Chapter 10 is about costs. It is also about quality, which Baumol argued is irrelevant. We’re told about how a specific heath care organization improved safety and quality and reduced its costs through use of information technology. I am willing to believe health IT can increase quality of services delivered. I am willing to believe it could decrease cost, though I’d need to see more than a case study or two to convince me that that is readily generalizable. I do not believe it will reduce spending without other changes to the system. For more on why, see this.

    All posts about the book are under the Cost Disease tag.


    • Regarding health IT, I agree completely that improvements in costs or in quality are not guaranteed. The problem isn’t just in health care, these improvements don’t happen very often in most business settings. I spent a long career in corporate America, and was involved in numerous IT implementation projects. Virtually every project failed to deliver benefits that even approached the costs.

      IT systems can only deliver benefits if people change their behaviors. Well, getting people to change their behaviors is incredibly hard — and IT implementation projects almost never devote enough thought or resources to solve this problem.

      You can always think of a few examples where technology brought significant productivity improvements – think ATMs. But generally the successes have been in relatively uncomplicated business processes — like confirming someone’s ID and bank balance, and then handing out cash. Trying to translate this into more-complex business processes is rarely successful.