Healthcare Efficiency

   In a recent sound bite ad for his new movie, Michael Moore advocated elimination of for profit healthcare facilities.  Now, MM is right on a lot of things and has an interesting way of presenting his point of view.  But he’s wrong on this.  Misinformed, I think.  

Many confuse for profit (FP), not for profit (NFP), and charity institutions.  We can dismiss charity care as essentially non-existent today.  For the other two, the distinction is partly how you do your accounting.  Everybody makes a profit.  Otherwise, they wouldn’t be in business the next year.  The distinction is in how that profit is reported to the IRS.  FPs pay tax on their profits, NFPs don’t.  

For the efficiency award, I’d generally choose the FP.  In the healthcare arena, payment is reasonably fixed.  (Medicare actually pays NFPs more for a given procedure, but that’s another story.)  The significant variable is cost--mainly supplies and personnel.

Surgeons are mobile, and the same surgeon may do the same procedure in two nearby hospitals--one FP and one NFP.  Same reimbursement.  Guess who’s more efficient.  The FP administrator has investors--stockholders who demand a return on investment.  He has to provide the same service as his NFP neighbor, but he must be more efficient in order to have something left for the investors after taxes.   He can’t charge more; he has to operate more efficiently.  His NFP competitor doesn’t have that same pressure and thus tends to operate less efficiently.  

Here’s an actual conversation overheard in a University hospital cardiology clinic in Washington,DC, yesterday:
Patient:  “It’s past my appointment time, and my doctor said I needed to be seen soon.”
Clerk: “You didn’t check in, so we can’t see you.”
Patient: “But I’m here!  and I need to be seen!”
Doctor: “If she didn’t check in, we can’t see her.  Send her to the back of the line or send her home.”
No profit motive here.  No interest in taking care of patients.  No compulsion to generate as much revenue as possible.  The doctor’s salary is the same regardless of how many patients he sees or what kind of service he provides.  What is his motivation to see this patient?  This would never happen at a FP institution.

But it’s not all sweetness and light.  Some FP centers lose sight of their mission and focus too intensely on profit.  Like the song says, reach for a rose, and you may grab a thorn.  Instead, focus on providing good service and pay attention to costs.  Profits will follow “as the night, the day.”  

So Michael, keep making movies, but be careful what you ask for.  You may make matters worse.

Posted by Dr. Robert Burney at 09:14 PM | Permalink | Comments (0)

When I was a resident, conventional wisdom said the more written about a subject, the less actually known.  Today, everyone is has a plan to fix healthcare.  So, probably they’re all wrong.  To maintain sanity, pretend the plan is the center of a dodecahedron, and look through each facet.  Facets include: who benefits?, who pays?, why did they write this--what problem are they addressing?, who has fleas--who’s in bed with them on this?  And on and on.  Look for common elements, and look for off-the-wall thinking.  One common element today is insurance for the uninsured.  Lots of constituencies are scratching on this--hospitals, physicians, insurance companies, etc.  Why?  They all stand to gain.  More insured patients means more revenue.  Not that it’s a bad idea, we just have to recognize why most are cheering.  And recognize that if you shift money into the healthcare system, it has to come from somewhere.  

It is possible, of course, to make the system more efficient and use those savings to pay for the uninsured.  We’ve written a lot about micro-efficiency and the cost reduction that would come from price competition at the individual service level.  But there are other possibilities.  

Ken Thorpe advocates for better treatment of chronic diseases as a means of controlling healthcare costs.  He argues convincingly that most of the growth in healthcare spending resulted from the “rise in treated disease prevalence.”  Simply stated, we have more chronic disease now, and we’re paying to treat it.  Where did these sick people come from?  Before you say it, illegal immigrants use proportionately less healthcare than citizens.  Partly, we are so good at taking care of the sick that they don’t die.  They stay around to make our statistics look bad.  Partly, we did it to ourselves.  By making ourselves fat, we generated more diabetes, heart disease, joint problems, etc.  And partly, we changed the rules.  Remember when a cholesterol of 250 was OK?  And a blood pressure of 140/85 was normal?  The bottom line is that any initiative to better manage chronic diseases should have a profound effect on healthcare costs.  

Wellness programs work.  We have had modest success in reducing the prevalence of smoking.  Since smoking is liked to education level, it is tempting to say we should spend our anti-smoking money on sending more people to college.  But wellness, like prevention, takes time.  We may have to wait five to ten years for a return on our investment.

It may sound trite to say that 90% of healthcare spending goes to the sick.  However, this truism has implications for healthcare policy.  Programs that chiefly benefit the not-very-sick will have minimal impact on overall spending.  Reduced spending is, of course, not everyone’s goal.  For a list of those who want more spending on healthcare, look at those who advocate insurance for the uninsured--those who sell healthcare products and services.

Posted by Dr. Robert Burney at 04:10 PM | Permalink | Comments (0)

About 1906, Vilfredo Pareto observed that 80% of the wealth in Italy belonged to 20% of the people. Since then, that principle has been used by Juran and others to look statistically at where improvement efforts should be focused.  In today’s Washington Post, David Broder cites a report by Ken Thorpe ("Impacts of Healthcare Reform") suggesting that healthcare improvement efforts should be focused on chronic diseases, since those account for most of the costs.  

We’re talking here about asthma, diabetes, hypertension, obesity, and possibly cancer.  And the cure advocated is a combination of prevention and disease management.  As with most such magic solutions, implementation is another matter.  Prevention is a good thing, and most people are willing to roll up their sleeve and get a flu shot--especially if it’s free.  We all know that obesity leads to diabetes and has intrinsic costs of its own, but the obesity problem has been getting worse instead of better.  Where’s the incentive?  Why would anyone want to give up an activity (eating) that brings instant gratification even if it may have negative consequences some years down the road?  Want to talk about smoking?  And even when successful, prevention and wellness programs take 5 to 10 years to be economically viable.  Not that we shouldn’t do these things--just don’t expect a return on investment before the election.    

Remember also that this is demand reduction and has nothing to do with the quality or  efficiency of healthcare services when they are actually provided.  We would still have the same people doing the same things for the same cost.  We might theorize that reduction in demand would decrease the overall amount spent on healthcare, except for one thing:  What do you think all those providers are going to do with their free time?  Take up knitting?  They’ll probably find other healthcare services to provide to other people, thus maintaining the same or larger volume of service per year with no net change in overall expenditure.

Any sincere approach to reducing the cost of healthcare has to look at the cost of individual healthcare services and introduce competition at that level.  When providers (institutions or physicians) compete on a cost basis, prices will come down and service will improve. 

Posted by Dr. Robert Burney at 06:03 PM | Permalink | Comments (0)