Costs2007
Right behind the Iraq war, healthcare cost is the subject voters want to hear about most. But, like imigration, it’s a subject candidates don’t want to talk about in detail. Important here to distinguish between healthcare costs and health insurance costs. True, they are related, but if you want to minimize the money spent, the tactics are different. General principles still apply--if you want to decrease the amount spent, you can decrease the unit cost or the number of units. For healthcare, that would mean decreasing the cost of a unit of healthcare (an appendectomy or an office visit) or reduce the number of appendectomies. The latter approach is called “demand management” and there’s a lot of evidence that it works. Providing protocol-based care for chronic conditions, such as asthma or diabetes reduces the need for healthcare services down the road. This thinking is behind much of the effort at NQF, and it should work--but not tomorrow.
But what about appendectomies? Hard to reduce the incidence until we can design kids without an appendix. That leaves us with reducing the cost of individual healthcare services, a.k.a. efficiency. We could start with the diagnosis--does it really take an MRI? A lot of complaints from those with gray hair that current kids rely too much on technology, in effect treating numbers or reports rather than patients. As a medical student, I went with a surgeon to see a young woman with abdominal pain in the ER. After seeing the patient, the surgeon asked the husband, “Has she had this problem before?” The answer was, “Doc, I’ve never seen her look worse.” And on the basis to that statement, we went to the OR and repaired her ruptured ectopic. No tests, no xrays.
And next? Let’s assume a Dx of appendicitis. The OR nurse pulls a card for Surgeon Jones and assembles the instruments and supplies that he typically uses for an appendectomy. These are run thru the autoclave and laid out on a sterile table in the OR. But, in this hospital, the surgeons got together 6 months ago and agreed they would all use the same instruments and supplies for appendectomies. The Hospital sterile supply room has pre-assembled all the instruments, and a contractor furnishes all supplies in a sterile pack. The OR nurse now has two sterile packages to open, and she’s ready. Faster, better, and cheaper. An appendectomy in this hospital costs 20% less now than a year ago.
Cynics among readers will ask what happens to that 20%. Today, it would go to the hospital bottom line. In a perfect world, it would help them to compete in a price-sensative mark place where efficiency is an advantage.
Bottom line: it is possible to reduce the cost of healthcare thru two strategies:
Macro-efficiency or demand management. Doing the right things for chronic diseases, so patients won’t need as much healthcare in the future.
Micro-efficiency at the individual service level. Virtually any service can be improved, but it takes powerful motivation. There’s nothing like the knowledge that you’ll be out of business unless you beat your competitor’s prices.
Translating these efficiencies into lower costs for the consumer requires transparent price competition. Making rules about how chronic conditions “must” be treated won’t do the job. These rules become a cost of doing business and won’t accomplish the goal in and of themselves. You just can’t make enough rules.
Health insurance costs? These are different but related. A lot of healthcare isn’t included in health insurance. Americans pay more out-of-pocket expenses (see also CMWF reports) for healthcare that anyone else in the world. Bad or good, it’s reality. When’s the last time your health insurance bought you a pair of glasses? A bottle of aspirin? A Band-Aid? A face lift? Well, you get the idea. The 15% or so that we spend out of pocket isn’t included in health insurance, but it is in the cost of health care. If health care costs were lower, our costs would be lower. As individual service costs go down, so does the aggregate expense for healthcare for the country as a whole.
Adding health insurance for the uninsured will NOT reduce the cost of health insurance or the cost of health care. In fact, the total amount paid for each of these will increase after the next election. Regardless of who wins, everyone loses financially. The unit cost for each will not change, because there is not reason for change. The total cost will go up, because more people will be getting more healthcare. This, of course, is one reason provider groups are pressing for this benefit to the uninsured--more revenue for them. What’s missing is downward pressure on prices.
Next time: more on why it costs so much.
But what about appendectomies? Hard to reduce the incidence until we can design kids without an appendix. That leaves us with reducing the cost of individual healthcare services, a.k.a. efficiency. We could start with the diagnosis--does it really take an MRI? A lot of complaints from those with gray hair that current kids rely too much on technology, in effect treating numbers or reports rather than patients. As a medical student, I went with a surgeon to see a young woman with abdominal pain in the ER. After seeing the patient, the surgeon asked the husband, “Has she had this problem before?” The answer was, “Doc, I’ve never seen her look worse.” And on the basis to that statement, we went to the OR and repaired her ruptured ectopic. No tests, no xrays.
And next? Let’s assume a Dx of appendicitis. The OR nurse pulls a card for Surgeon Jones and assembles the instruments and supplies that he typically uses for an appendectomy. These are run thru the autoclave and laid out on a sterile table in the OR. But, in this hospital, the surgeons got together 6 months ago and agreed they would all use the same instruments and supplies for appendectomies. The Hospital sterile supply room has pre-assembled all the instruments, and a contractor furnishes all supplies in a sterile pack. The OR nurse now has two sterile packages to open, and she’s ready. Faster, better, and cheaper. An appendectomy in this hospital costs 20% less now than a year ago.
Cynics among readers will ask what happens to that 20%. Today, it would go to the hospital bottom line. In a perfect world, it would help them to compete in a price-sensative mark place where efficiency is an advantage.
Bottom line: it is possible to reduce the cost of healthcare thru two strategies:
Macro-efficiency or demand management. Doing the right things for chronic diseases, so patients won’t need as much healthcare in the future.
Micro-efficiency at the individual service level. Virtually any service can be improved, but it takes powerful motivation. There’s nothing like the knowledge that you’ll be out of business unless you beat your competitor’s prices.
Translating these efficiencies into lower costs for the consumer requires transparent price competition. Making rules about how chronic conditions “must” be treated won’t do the job. These rules become a cost of doing business and won’t accomplish the goal in and of themselves. You just can’t make enough rules.
Health insurance costs? These are different but related. A lot of healthcare isn’t included in health insurance. Americans pay more out-of-pocket expenses (see also CMWF reports) for healthcare that anyone else in the world. Bad or good, it’s reality. When’s the last time your health insurance bought you a pair of glasses? A bottle of aspirin? A Band-Aid? A face lift? Well, you get the idea. The 15% or so that we spend out of pocket isn’t included in health insurance, but it is in the cost of health care. If health care costs were lower, our costs would be lower. As individual service costs go down, so does the aggregate expense for healthcare for the country as a whole.
Adding health insurance for the uninsured will NOT reduce the cost of health insurance or the cost of health care. In fact, the total amount paid for each of these will increase after the next election. Regardless of who wins, everyone loses financially. The unit cost for each will not change, because there is not reason for change. The total cost will go up, because more people will be getting more healthcare. This, of course, is one reason provider groups are pressing for this benefit to the uninsured--more revenue for them. What’s missing is downward pressure on prices.
Next time: more on why it costs so much.
Comments
Yikes! The story of the surgeon making a diagnosis and dashing into surgery based on the response to one question - and it wasn't even the patient's own response - is alarming. Who would want to risk their health (or their budget) on that approach?
Posted by: Meta Brown | December 27, 2007 2:59 PM
Read it again. He took a history and examined the patient. But no labs and no xrays. The Hx, PE, and husband's comment were sufficient to determine that the patient needed to go to surgery. NOW. As a student, I was impressed that the husband's comment was the trigger that set things in motion.
Posted by: RGBurney MD | December 27, 2007 3:48 PM