[1]In
my last post, I wrote about what re-engineering efforts might be like in
healthcare & why they might be relevant & productive. I also mentioned
(as I have several times in these posts) that re-engineering worked well in
segments like automobile manufacturing & aerospace because these industries
operated primarily as an actual market, but that it might not work as well in
healthcare because healthcare does not operate as an actual market. What does
this statement mean? & Why is it important in understanding the
possibilities for healthcare reform & the potential evolution of
healthcare? In order to understand we need a little Economics 101 on what
markets are & how they operate.
What is a market, & what characteristics do
economies that depend on markets exhibit[2]?
A simple definition of a market economy would be: “an
economy in which decisions regarding investment, production and distribution
are based on supply and demand, and prices of goods and services are determined
in a free price system[3]”
Such an economy would several essential characteristics:
- Limited government control & intervention
- Extensive cost & price transparency
- Competition in costs & prices based on this transparency as well as the quality of goods & services
Let’s look at each of these characteristics with
respect to healthcare.
The Gross Domestic Product, that is the value of
the total output of all goods & services in the country, for 2013 was $15.8
Trillion (with a T). We’ll use this as a baseline for other values. Total
healthcare spending in the U.S. in 2013 was $2.94 Trillion[4]
or 18.6% of the GDP. Total government spending[5]
on healthcare in 2013 was $1.22 Trillion or 7.8% of GDP & 42% of overall
healthcare spending. This is important for several reasons.
First, we can hardly assert that this market has
limited government control & intervention if federal spending on healthcare
is 8% of the GDP & 42% of total healthcare spending (for 2013, earlier
years have similar percentages). $1.22 Trillion is a lot of money, even by
Everett Dirksen’s standard[6],
but of course, he was allegedly only talking about billions. Even so, the
influence of the federal government, just on the spend side on healthcare, is
immense. This influence is separate from the legislative & policy impact of
the federal government on healthcare. Both the HITECH Act[7]
& the Patient Protection & Affordable Care Act[8]
have substantially influenced healthcare in this country. All told, healthcare
is far from independent of government influence.
Second, price in healthcare is not transparent.
Several recent studies have shown differences in healthcare charges that are
both regional & within regions. In fact, it is quite possible that
hospitals across the street from each other may charge substantially different
amounts for the same procedures. One of many, many possible examples is that an
uncomplicated birth at Bellevue Hospital (Manhattan, NY) costs the patient
$6,330 (median), while next door at NYU Langone Medical Center the cost is
$12,222[9].
A recent Institute of Medicine report[10]
found that difference in Medicare costs had to do with the large variation in
the cost of post-acute services such as home health care, while differences in
commercial insurance costs were mainly caused by the wide difference in
reimbursement that doctors & hospitals negotiate with individual insurance
payers. These differences in cost to patient are not evident, unless one makes
it their business to find them out. Even then it’s difficult, as many
healthcare organizations are not inclined to make this kind of information
readily available.
There are two other issues with transparency: the
actual cost to provide a service is not available or sometimes not even known,
& both Medicare & Medicaid costs are fixed but Medicaid costs are set
by each individual state based on differing sets of criteria & standards of
care. This pretty much ensures that a “consumer” of healthcare services will
not have real transparency for either the price they pay for a service or what
that service costs their provider. We won’t even discuss the fact that a
provider may charge the patient one thing, Medicare may pay 10%-25% of that to
the provider & the patient may be billed a fraction of the difference. We’ve
all gotten the (in)famous Explanation of Benefits (EoB) form that states at the
top: “THIS IS NOT A BILL”. Transparency in both price & cost is just not
available in healthcare.
Finally, does competition on cost & price
exist in healthcare? In a real market, competitive forces would act to minimize
both production cost & price. In
other industries, competition is a fact of life – automobile manufacturing was
mentioned at the beginning of this post. Price & cost competition are key
drivers in structuring this industry as well as determining what the price of
goods to consumers is. This does not appear to be the case in healthcare as
situations such as the one cited above for Bellevue Hospital (1st
Avenue & 26th Street, NYC) & Langone Medical Center (1st
Avenue & 29th Street, NYC) show that very different price (&
cost) structures exist & are tolerated virtually next door to each other.
This is not an atypical case.
So, it really doesn’t appear as if healthcare is
structured like or acts like a market. It is very heavily controlled &
influenced by the federal government, both financially & legislatively. It
does not have price or cost transparency, & it also does not appear to
exhibit price or cost competition in a conventional sense[11].
What might this mean for healthcare reform & evolution?Re-engineering, that is the systematic
modification of business process & practice to align with corporate goals
& customer needs, can be done regardless of the economic environment that
an organization exists in. It is, however most effective, when that
organization exists in a market economy. Competition on cost of goods, consumer
price & quality of goods produced drives a number of organizational
strategies including:
- The need for “continuous improvement” in lowering cost, aligning price with customer expectations & improving the quality of good produced; this, in turn, drives:
o Efficiency
in the use of capital, such as research & development investment
o Innovation
in both process & product
o Strategies
focused on customer needs.
Without competition, an organization has no need
to focus on these types of efficiencies. Without price & cost transparency,
there is no real competition & in an economy heavily influenced by
government, organizations have fixed strategies aligned with government
requirements, not customer needs. As we have seen, healthcare is a very mixed
economy with substantial government influence, little transparency &
limited competition. We talk a lot about the need for more effective &
efficient use of R&D investment (new medical devices, more spending on
clinical & public health infrastructure, etc.) & innovation (modified
clinical & administrative practice, new health information practices,
etc.), but the primary vehicles for much of this are legislative. The use of
electronic health records is a step that is inevitable, but meaningful use
(HITECH Act) is a legislative requirement, not an organic development arising
from perceived patient needs.
So, you say, what can be done? It seems clear (at
least to me) that government must play some role in the evolution of healthcare
from where it is as a mostly planned market to a more efficient open market.
The kinds of large changes that are required may eventually happen as
healthcare evolves, but we do not have 15-20 years (in my humble opinion) for
this to happen organically. The government has already acted to try to
institutionalize innovation in the form meaningful use of electronic health
records. This program needs to evolve (possibly in Stage 3) to start moving at
least this portion of the healthcare segment toward a better market profile.
What does this mean?
There are several directions that I think can be
productive here:
- Make healthcare substantially more patient-centered – There are a lot of initiatives around this, but patient-centered needs to really mean people taking responsibility for shared decision making[12] with their providers. This, in turn, means that people need to be able to access the information they need including information on at least: treatment options & effectiveness, provider performance, as well as price & cost transparency. This type of information is not currently readily available or when it is, understandable, but that needs to change. This type of decision-making will drive competition as transparency & quality of product (patient experience & outcome) make people better consumers of healthcare services.
o Programs
such as Meaningful Use, PCMH, etc. need to emphasize making this information
available to patients & facilitating this type of decision making.
- Provide guidelines & best practices for workflow modification to focus on patient-centered care. This does not necessarily have to be done by the government, although some initial projects & seed funding could be helpful. Many organizations are in the process of making changes to workflow in order to better align with the use of EHRs, but the emphasis really should be on patient-centered care, not meaningful use. This would emphasize such processes as:
o Simplified
administrative workflow for intake & patient information gathering
o Clinical
workflows emphasizing:
§ Co-ordination of care between & among care
teams
§ Care
transition from team-to-team & location-to-location
§ Realistic
medication reconciliation that allows for not just prescription & claims
data, but actual usage data gathered from the patient & other sources
An organization such as
the Institute of Medicine, the Kaiser Family Foundation, the Robert Wood
Johnson Foundation or any of a large number of credible clinical organizations
could begin by making their current processes &/or proposed guidelines
available.
These suggestions are
just a beginning. Healthcare needs to evolve to be a market driven by: customer
(patient) needs, competition & innovation & patient participation in
order to begin to address cost control (both cost of services to providers
& to patients) & improvement of outcomes. Government programs are
inevitable at this stage of market development, but they will be successful
only to the extent that they facilitate the evolution of healthcare to a more
open market.
Coming up:
- Who actually is the “customer” in healthcare. This question is key to market development.
- Lessons learned from the Path to Analytics Project (in progress)
- Revisiting the GM C4 Project & what it tells us about healthcare evolution
[2]
Please Note: There is a good deal of political content & controversy
associated with the idea of markets & how they do & should work. I am
not advocating any political position, but simply trying to use generally accepted
ideas of markets in relation to healthcare & healthcare reform.
[4] GDP
figures & all healthcare spending figures from: CMS National Healthcare
Spending Projections 2011-2021,
http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2011PDF.pdf
[5]
includes: SCHIP, DoD, VA, workers compensation, Indian Health Service &
other federal programs
[6] “A
billion here, a billion there, pretty soon you’re talking about real money”,
apocryphal but attributed to Everett Dirksen (R. IL) speaking about taxes
[9] http://www.kaiserhealthnews.org/stories/2013/december/12/ny-state-hospital-charges-vary-wildly.aspx
[10] Institute
of Medicine. Variation in Health Care Spending: Target Decision Making, Not
Geography. Washington, DC. The National Academies Press. 2013
[11] It
should be noted that it does exhibit competition on services, but not on the
price or cost of services.
[12] See
my post on Clinical Workflows & Other Arcane Rituals (12/16/13),
http://posttechnical.blogspot.com/2013/12/clinical-workflow-other-arcane-rituals.html
