Healthcare Efficiency

Keep your eye on the prize.  If you want to decrease the amount of money Americans are spending on healthcare (HC), there are only two strategies:
    1. Decrease the amount of healthcare they use
    2. Decrease the unit price for healthcare services.
With a small footnote, neither of these goals is espoused by any of the political candidates, nor by any of the HC reformers.  Remember, adding health insurance for the uninsured will only increase the total amount of healthcare provided.  Without a corresponding attack on unit costs, the aggregate expense will go up.  The footnote is that some reformers hope that disease management will lead to decreased use by patients with chronic diseases.  Diabetics who take good care of themselves need less care, etc.  Same prayers for prevention.  These strategies appear to work, but only after many (~10) years, and the magnitude of the benefit is not clear.  The state of MA is beginning to pay a global fee for care of some chronic diseases, thus shifting the financial burden to the primary provider.  

It is interesting to note that HC expenses for the country are frequently reckoned as percent of GDP--now about 16% and rising.  However, these two numbers (HC and GDP) are not related and respond to different stimuli.  For example, assuming no changes, the total spent for HC will go up in 2008 (for reasons discussed last time).  However, with the current recession, our GDP will probably decrease, and the classic measure of HC expenses will soar.  (Rising numerator, shrinking denominator.)  But the quotient will be meaningless, especially when plotted as a trend.

So what’s a guy to do?  How do you decrease the amount of healthcare used?  One thing that doesn’t work is make access more difficult or expensive.  The HMOs tried that and started a revolution.  Better to make people not WANT to go the doctor.  Well, nobody really wants to go to the doctor, so lets look at why they do go.  Here again, the strategies probably fall into two categories:
    1. Primary prevention.  Keep people from getting sick.  Remove causes.  There’s a long list.  Obesity and inactivity are high on most people’s list, but it’s becoming less clear that obesity in and of itself produces a need for healthcare.   Air pollution (think cars and coal) has been implicated in the rise in asthma.  Anyone want to go to Beijing?  (Maybe not the most polluted city, but in the running.)   Flu shots (and other immunizations) would be on my list.  Sex education reduces teen pregnancy--make that happen.  Do a little Root Cause Analysis, and find out what drives people to the doctor.  Make a Pareto chart and start at the top.
    2. Secondary prevention.  Find people who are sick before they become very sick.  Some conditions are easier to treat when discovered early.  Big question here is who should pay.  Some put this entirely on the patient--no money for a root canal unless you’ve been getting your teeth cleaned regularly.  Colon CA?  Let’s see the receipt for your colonoscopy before we’ll pay for treatment.  Probably wouldn’t work, but the opposite tack does.  “We’ll pay for your colonscopy AND send you a check for $100 after it’s done.”  I’ve heard that France pays women to obtain prenatal care.  I once worked in a company that covered all your co-pays and deductibles if you had no sick leave in the prior month.   Whatever works.  But make sure that it does.

So, how do you know it’s working?  What do you measure?   Well, if you’re trying to reduce the volume of healthcare, you measure the volume of healthcare.  Point is, don’t try to measure “health” (whatever that is).  Some shake their finger at our expenses for healthcare and point to our standing on longevity to show that we’re not getting our money’s worth.  Buzzer!!! Not related.  Want to live a long time?  Start with good genes.  This has been studied, and long life has almost nothing to do with healthcare.  Longevity in the US has been  increasing, and our treatment of heart disease is just beginning to show on the graph.   Other reasons do not relate to healthcare.

The second arm of our basic strategy is to reduce the unit cost of healthcare services.  That’s too big a subject for the space that’s left.  Perhaps another time.  General principles:  Stop paying so much.  Reduce what Medicare pays, and don’t allow anyone to charge more than Medicare pays.  Force providers to become more efficient.  Take lessons from surgery centers, from retail healthcare, from specialty hospitals, from . . . .
There are people who make processes more efficient for a living.  Use them.  There is a better way, but as long as providers get paid for doing it poorly, no one will try to improve.

Posted by Dr. Robert Burney at 04:52 PM | Permalink | Comments (1)

There’s a lot of rhetoric in the current campaign about healthcare and money.  Pundits and politicians  point to our large expenditure for healthcare as a problem that needs to be fixed.  Granted, we spend more for healthcare than any country (tho some are catching up), but before we can attack the problem, we must know the causes.  A little Root Cause Analysis.  But even before that, a few cautions about terms:

Healthcare--Be careful.  Is a mammogram or a colonoscopy “healthcare?”  How about having your teeth cleaned?  A new pair of glasses?  To avoid these arguments, let’s define healthcare as anything any health insurance would pay at least part of.

Healthcare expenses--they total amount spent on “healthcare” by any funding source.

Health Insurance--the vehicle that pays for most of healthcare expenses.  As a  country, we pay more in out-of-pocket expenses than any other country (and insurance pays less) for our healthcare.  Given our high utilization, it seems unlikely that shifting more of the cost to patients would have any effect on healthcare costs.

Healthcare costs--the price of an individual healthcare service.  If appendectomies cost $1,000, and 1,000 people have them, the healthcare expenses for that population just went up by $1,000,000.  If you manage to reduce the cost of an appendectomy to $800, you just saved the system $200,000. 

Medicare expenses--the amount paid by Medicare (CMS) for the healthcare of Medicare beneficiaries.  Beneficiaries are predominately but not entirely over age 65.  With the advent of the Medicare drug benefit, Medicare expenses soared  , Medicaid expenses dipped slightly, but total healthcare expenses didn’t budge.

Medicaid expenses--same concept as above.  Note, however, that Medicaid includes all age groups, and the eligibility rules change with the political wind.  As Medicaid eligibility  increases, some people will move from private insurance to Medicaid, thus shifting some expenses from private insurance to Medicaid.

SCHIP--a state program to provide some healthcare benefits to children in low income families.  Expenses for SCHIP are frequently lumped with Medicaid.  Like Medicaid, as SCHIP eligibility  is expanded, you begin to capture more and more children who are already insured thru their parents’ workplace.  It’s a bell curve, and politicians argue over where to draw the line. 

This intrduction may seem trite, but be careful.  The terms cost and expense are used interchangeably many times, and Medicare expenses are sometimes equated with total US healthcare expenses.

As a country, we do pay more for healthcare than any other country.  More per capita, more as a percent of GNP, and more per unit of service received.  Why?  The answer is complex, but the simple version is that it just costs more here.  The price of an appendectomy is higher in the US than any other country, with the exception of England, particularly with the fall in value of the US $.  The high cost of goods and services in the US has led many companies to move operations overseas, and this has  sparked the development of medical tourism for elective procedures. In general, however, you can’t offshore personal services, particularly those that must be supplied in a hurry.  So we pay the price.  And since there’s no pressure on prices (e.g. no price competition), we pay a high price.

Older people need more healthcare, and one might think that our aging population would push Medicare expenses upward.  And this is true, but not very much.  Peter Orzag of the Congressional Budget Office published charts demonstrating the small effect of age on total healthcare expenses.  As he and others point out, the primary driver of rising healthcare expenses is technology.  We keep inventing new and more expensive ways to spend money on healthcare.  In most industries, technology drives improvement in productivity and reduces unit costs.  Not true in healthcare.  Each new technology adds to our annual healthcare expenses.  For a classic example, think about prescription drugs.  New drugs are sometimes demonstrably better than older ones, but they are also more expensive.  Much more expensive.  And there is no requirement that they reduce to overall cost of treating the patient.  There is no driver for a competitive advantage through using the new drug.  Look also at hernia repair.  As a patient, you will be offered the option of having it done with a laparoscope--a technique that produces equivalent results with higher risk and much greater expense.  Yet, surgeons do it, patients accept it, and insurance companies pay for it.
So the major villain is technology.  (This, of course, does not include the use of information technology (IT).  Healthcare as an industry is just beginning to think about the use of IT  in areas other than billing.)  Other factors contribute, including our aging population.  Don’t forget the expanding number of people.   More people use more healthcare, and that means more total healthcare expenses.  Try adding up the costs of CDC recommended immunizations for a new child up to age 18 years. 

The net result of all this pressure is that our healthcare expenses are increasing faster than our GDP--a fact that alarms Mr. Orzag.  This cannot be allowed to continue, but where and how do we draw the line?
 

Posted by Dr. Robert Burney at 12:50 PM | Permalink | Comments (0)