Healthcare Better Faster Cheaper

Financial management of healthcare organizations is a highly fraught subject, and has become more so in the past few weeks. How do you run the finances of a big organization when the only measure of the value of your products is the reimbursements you are paid for them - and those reimbursements are all over the map, bear little resemblance to any underlying value, and are decided by faceless bureaucrats and committees someplace? How can you put a real price on things when you are not selling what the customer wants - the customer wants a fixed heart, a birthed baby, or help managing their diabetes, but what you are selling is nights in the hospital, tests, and home visits?

How do you run the finances of an organization when most of the people whose decisions and processes deeply effect your costs, your revenues, and your quality (the doctors) don’t work for you - and in fact often have interests that contradict yours? How do you plan for a very turbulent future when the predictive analysis tools you have are so poor, and when the supposedly best predictive analysis tools in the world - the risk management software of major banks and financial institutions - have shown themselves completely unable to deal with the simplest outliers, multiple variables, or changed assumptions?

How do you plan for a future in which an emboldened Democratic Congress and a new president will confront the growing fear (indeed the boiling rage) about healthcare insecurity in this country among an increasing fraction of the population - including most of the insured, who are one layoff, one serious cancer drug, or one arbitrary rescission away from bankruptcy - at the same time that they deal with a financial crisis which not only robs them of any funds to throw at the problem but greatly increases the very healthcare insecurity that they are trying to solve?

You can see why hospital CFOs sleep like babies - they wake up every two hours and cry. The industry desperately needs to get a much more modern handle on its processes, to be able to tell what they do that makes money and what doesn’t and why, what is a true asset and what isn’t, what their real risk exposure is. As we head into the vicious season of long knives represented by the coming new Congress, that is exactly what we don’t have.

Doesn’t any talk about a “cheaper” future of healthcare mean a huge loss of jobs?

A fair question, but the answer is not as simple as you might think.

In most communities, the hospital is one of the largest employers, if not the largest, and healthcare as a whole the biggest piece of the local economy.  Nationwide, the healthcare sector, which will probably top out at something like $2.4 trillion in the U.S. this year, is one of the biggest sources of jobs in the whole economy.  And they are more highly prized jobs than most.  Though the job slots range from janitors and security guards to radiologists and economists, healthcare jobs skew more than those in most industries to the highly-trained and highly-specialized, such as phlebotomists, radiology techs, and physician assistants.  Even for the custodians and groundskeepers, healthcare jobs tend to pay better.  They are more likely to be union jobs.  They are less vulnerable to economic swings, with fewer cutbacks during recessions, and less likely to be outsourced to Kuala Lumpur or Bangalore.  You can’t do a blood draw, an X-ray, or a chemotherapy session over the Internet, or delivered by container ship from Shanghai.

At the same time, all this highly-trained and steady employment is one of the big reasons healthcare is so over-the-top expensive.  Labor is usually the single largest expense of any healthcare organization.

So when we try to imagine healthcare that costs significantly less than today’s, we must be talking about massive job loss, even a crippled economy, right?

Not quite. Sort of, kind of, not really.

Why not? Let’s take a look.

First of all, any such change will take place over years to decades.  If we imagine that tomorrow healthcare will cost half as much as it did today, we are imagining an economy plunging suddenly into recession, even depression, from massive job loss.  But if we imagine a transformation that takes 10 years, the downwinding of the healthcare labor market looks much slower, less chaotic, less wrenching - especially keeping in mind that it is common in healthcare institutions to experience a 10 to 20% turnover every year.  At the same time, spending that much less money on healthcare will mean that other parts of the economy will have that much more money to invest.  Over time, reducing healthcare spending could well lead to an economic boom by cutting what is, in effect, a massive tax on all other industries, and on all taxpayers.

Different types of jobs will be affected differently.  Those most subject to streamlining by healthcare information technology (such as some office support staff, transcriptionists, and order entry clerks), or to replacement by automation will be the most affected - and many of these are the least-specialized, least highly-trained jobs.  Messengers, for instance:  Buy a small fleet of robots, and hire a few techs to service them, and your messengers are gone.  But even more highly-trained jobs are subject to automation.  Automate your lab, and you may reduce the need for lab techs to a fraction.  Invest in digital image processing and storage, and the image processing tech jobs go way down.  This is true even at the very high end: robotic-assisted surgeries often call for one less assistant surgeon and one less surgical nurse in attendance.

So some job sectors will be strongly affected, but slowly, in bits and pieces, as we invest in healthcare information technology, as we digitize, automate, and streamline.  In some areas, on the other hand, all this streamlining will only relieve the shortages in trained personnel looming as the baby boomers age.  By today’s standards, we have nowhere near enough nurses already, let alone for the time five to ten years from now when the halls of healthcare are glutted with me and my cohort.

Much of the outrageous cost of today’s healthcare comes from doing too many things that are unnecessary and unhelpful, even injurious - such as tens of thousands of unnecessary back surgeries, an estimated $100 million in unnecessary scans, and many heroic measures on frail elderly people in the last stages of dying, which they did not ask for, which do not benefit them, and can often hurt them - while at the same time not doing enough of the necessary things to curb chronic disease and detect disease in its early stages.

So in a “better faster cheaper” system (particularly one dealing with aging boomers) we can expect a great expansion of preventive and chronic-care jobs, such as diabetes educators and nutritionists, physical therapists, and home health nurses.  We can expect, as well, a great need to expand and strengthen primary care of all sorts.  And of course, we can expect a much higher component of data technologies tying it all together, which means an expanded need for tech geeks skilled in healthcare information technology.

At the same time, if we imagine a universal healthcare system that still includes private insurance, but a rationalized, digitized system operating under firmer insurance rules, we can imagine a far more automated payment system with far less human handling, and less need for the endless wrangling and appeals which consume a significant fraction of our health plan dollars today with no benefit to the consumer.  As health plan overhead needs approached those of the Center for Medicare and Medicaid Services, providers could also shrink their staffs - no need to hire people to fight with the insurance companies if the insurance companies are simply doing their jobs and honoring their contracts.

So yes, in the long run, a less expensive but higher quality healthcare system would mean many fewer jobs overall.  And if we conceive of healthcare only as a massive make-work program, with no concern for whether it is impoverishing us as a nation while failing to provide us with true health security, then maybe we should leave the system as it is - bloated, wasteful, and misguided.  But I believe few Americans would see it that way.  I believe most people would welcome - and even demand - changes that bring us bit by bit closer to a truly effective, efficient system that does what we need it to do and no more. Such a system, while offering fewer jobs than today’s would still be one of the largest sources of good, steady, well-trained, high-paying jobs in the entire U.S. economy.

When John McCain talks about healthcare on the campaign trail, he often challenges people who point to Canada’s universal healthcare system as preferable to the U.S. system to “ask the Canadians how much they like it.”

That’s a fair challenge. After all, we all know of Canadians who cross the border to get a procedure or a test - just like the U.S. citizens who cross the border to get pharmaceuticals at controlled prices. This sounded like an occasion for some serious primary research into the public impact of universal health care, preferably over a mug of Dark266 at Cameron’s Brewery in Oakville, Ontario (”Beer brewed by a connoisseur, instead of an accountant”). I was already looking up tickets on Kayak.com when, unfortunately, I remembered that someone had already asked the Canadians, and I already have the answers right here.

According to the Commonwealth Fund International Health Policy Survey released in July, 14% of Canadians believe that their system should be rebuilt completely. Looks pretty damning until you look at the next line over - 33% of people in the U.S. have that thought about our system, more than twice the proportion. If you ask the physicians, only 3% of Canadian docs think that the system needs to be rebuilt completely, as opposed to 16% of U.S. docs, more than five times the proportion. Despite their problems and complaints, Canadians like their system far better than U.S. citizens like theirs.

Oh, and there is this detail: in 2004, the CBC conducted an elaborate two stage poll via phone, email, web site, and postal letters, to determine who Canadians believed to be “the greatest Canadian of all time.” The winner? Tommy Douglas, the Saskatchewan Premier who led the first socialist government in North America and introduced universal public healthcare to Canada.

So I guess they kind of like it. Read the rest of this entry »

Take a look at this YouTube clip from a “Town Hall” meeting that features John McCain addressing a question about healthcare, and you’ll get a keener sense of the political vulnerability of real healthcare reform. Amidst the rhetoric, McCain mentioned two actual ideas about reform: a federally-backed insurance pool for the uninsured, and payment in some way tied to outcomes, or at least to packages of care, rather than to whatever processes the doctor might come up with and get reimbursed for. Both of these, in themselves, are good things.

But only one specific line garnered whole-hearted applause from the audience. The line was, “I don’t believe that government-run healthcare is more efficient.” This is a widespread belief without a shred of evidence for it, and many counter-examples, both in the United States and in other countries.

The percentage of money in the door paid out in medical claims by private health insurance is far lower than is paid by Medicare and Medicaid - and this low “medical loss ratio” is closely followed and highly applauded by Wall Street analysts, since that’s where the profit comes from. At the same time, all providers know that, on average, Medicare and Medicaid are far more abstemious in reimbursements than private insurance - even though, unlike much private insurance, they actually pay reliably. The most widely praised insurance programs are government-run, including the military TriCare program and the Federal Employee Health Benefits Program and, of course, Medicare. Outside of its politically inspired troubles at Bethesda, and some problems of underfunding in caring for the wounded of the Iraq War, the Veterans Administration is widely considered to be on the forefront of both efficiency and effectiveness.

People occasionally ask me, amidst talk of healthcare reform, “But wouldn’t this lead to ’socialized medicine?’” “Socialized medicine” is a curious locution, the tocsin of the American Medical Association during their fight in the 1960s against Medicare - a battle cry the physicians promptly dropped when they saw their incomes rise 11% in the first year that Medicare was implemented. We have, in this country, a number of government-run and government-owned systems, including schools, airports, libraries, national parks - all kinds of things. I have never heard of anyone complain about “socialized airports” or “socialized national parks.” Most people seem to think that owning and running these things is a normal duty of government.

Yet even the purest form of government intervention in the healthcare market suggested in the U.S. debates, the single-payer model, does not contemplate a government-run and government-owned system, but merely a government-paid system, an extension of Medicare to all ages.  Calling such a plan “socialism” or “socialized medicine” is pure nonsense, a chimera, a political scare word with no solid meaning, yet one that many voters seem to have bought without really thinking through its meaning.

The specter behind the term “socialized medicine” is a Soviet-style scenario in which faceless bureaucrats following efficiency mandates would decide what course of treatment you are allowed, what specialists you could see, and when to cut off treatment. The irony is we already have that scenario in place for many Americans, we have just outsourced it to private insurance companies.

The majority of Americans are in favor of a universal healthcare system for the U.S.  In fact, a majority has favored it since Harry Truman sat in the Oval Office.  So why don’t we have it?  An analysis of polls published a few months back shows why an idea that has such strong and continuing public support can be politically vulnerable.

In an article in the May 1 issue of the New England Journal of Medicine, Larry Jacobs looked at all the available polling data.  What he found was that if you ask Americans the straight-on question, “Are you in favor of a universal health care system supported by taxes?” a majority - 55% to 60% - will say yes.  But if you ask them, “Would you be in favor of such a system if it would restrict your choice, restrict your access to specialists, or produce long waits for appointments, or cost you more in co-pays and deductibles?” a majority will say no.

Does this mean that healthcare reform is doomed from the get-go?  No.  But it does show its political vulnerability.  Opponents of any reform bill do not have to convince the American people that the U.S. cannot afford universal care, or that it is somehow a “socialist” idea.  In order to stop a universal healthcare bill, they only have to convince the public that giving other Americans better access to healthcare will mean that they, personally, have worse access in one way or another.

Of course, the reality is that the mechanics of true healthcare reform based on giving all Americans real value for their money is not something you can fit on a bumper sticker or in a ten-second sound bite.

Things are changing so fast, I may have to give up calling myself a “futurist” and ratchet back to “presentist.” Here’s the latest: For several years now, in talks and columns, I have described a future healthcare in which you could easily look up on the web all the providers for any particular problem.  You need diabetes management, get your knee fixed, having a baby? Here it all is: What’s the package, how much will it cost, how much of that will I have to pay, how good are they, including the outcome numbers and customer satisfaction scores?

Now, it’s here.  Or something this close to it.   At least if you live in the Twin Cities in Minnesota.  Take a look at Carol.com.  It’s still in beta, just struggling out of the egg, a little wet in the feathers still, but the basic pieces are all there - the packages, the quoted prices, the ratings, the “shopping” atmosphere.

What’s missing from the model?  I can think of two things.  One: It’s geographically based.  Now, for most things, convenience is not only important to the consumer, it is medically significant.   If it’s hard to get to, many people do not do so well with their medical care, especially maintenance-type stuff like checkups and well-baby care.  But for some big things - getting your hip or heart valve replaced, or maybe brain tumor surgery, for example - you really want the best available, and it may not matter so much where it is.   So being able to look beyond the local area would be a great improvement in the model.

Two: Real outcome scores.   That’s not the model’s fault; real outcome scores for most things are simply not available yet.  But that’s what I, as a customer, really want to know - just as when buying a car, I want to know what the EPA says the mileage score is, and how those crash test dummies felt about the whole thing.  I want to know who does it best, by some objective standard, beyond knowing who makes their customers feel best about them.

But Carol.com is a great start.  This kind of thing could do for healthcare what Travelocity, Orbitz, and Kayak have for travel.   And as it does that, something much more important than consumer convenience starts to happen.  As providers begin to feel that they are competing, with real products, with real prices, with real results, on an equal footing with whoever wants to offer the same products, healthcare will get better faster cheaper.

Healthcare organizations are big, complex, and slow to change.  Any path to real change inside healthcare includes lots of communication about what works and what doesn’t, who is trying something, who in the organization might have some expertise in a given area, what are all the quirks and workarounds - the kind of broad, but threaded and guided, conversations for which email is poorly adapted.  Many individuals in organizations have been reaching out to consumer-oriented Web 2.0 connection technologies such as blogs, wikis, podcasts, RSS feeds, and social networking sites like Facebook and LinkedIn.  Some organizations outside healthcare have successfully adapted these technologies inside the organization for what is now being called “Enterprise 2.0″ - such as the system that E2 consultant Pam Strayer built at Wells Fargo.

But IT departments themselves have been seen as hurdles to adopting these high-speed “hive mind” techniques, showing little familiarity and little interest.  Now comes a Forrester Research study that CIO Magazine characterizes with the headline, “IT Embracing, Maybe Even Leading Web 2.0 Movement in Enterprise,” Forrester says.  Maybe, maybe not.  Maybe the numbers are rosier than they were a while back.  But the numbers, if we can trust them, are actually shocking, coming from career IT professionals.  So 35% say that they use blogs, and 59% say that they are “familiar with” blogs.  That means that 41% are not familiar with them.  Similarly, 47% apparently say that they are not familiar with podcasts, 54% not familiar with social networking (like Facebook, MySpace, and LinkedIn), 68% with wikis (like Wikipedia but used for a specific purpose), and 69% with RSS news feeds.

It’s kind of surprising that 63% think these technologies will have a substantial or moderate impact on their business - a number that is substantially higher than their familiarity with any of them.  At least as important is the fact that 79% see these technologies as potentially a problem.

There are plenty of reasons for this skepticism.  After all, IT departments were slow to adopt email, slow to adopt the Internet, and even slower in healthcare, coming to them only when the people in the organization demanded them, or when the organization at the board and executive level embraced the Internet as a business strategy and ordered the IT department to implement the strategy.  These newest technologies are messy and difficult to implement, they are somebody else’s idea, they are “not invented here,” they are seen as time-wasters for kids.  But perhaps more importantly, the problems that they solve are not technical problems, they are organizational problems.  There is no felt need in IT to adopt them.  The felt need is out there in the organization.

Are you a white-knuckle flier?  My sympathy.  Planes are scary and dangerous.  But let’s see: In the last 10 years, a passenger has stepped onto a U.S. airline about 7 billion times.  How many of those 7 billion times did the passenger survive?  Not counting 9/11, all but 438.  Those are actually pretty good odds – 438 out of 7 billion.  There has not been a fatal crash on a major U.S. carrier for seven years.

Then there are hospitals.  The famous Institute of Medicine (IOM) study (”To Err Is Human” 2000) found 44,000 to 98,000 premature deaths every year due to medical error.  A 2006 IOM study found that a patient in a U.S. hospital suffers, on average, one drug mistake a day.  When the Kaiser Family Fund asked patients, in 2003, whether they feared for their safety in healthcare environments, 47% said they were “very concerned” - while only 32% said they felt that unsafe when they flew on an airplane.

Now Blue Cross/Blue Shield organizations in some states, Aetna, and (starting in October) Medicare are all saying that they are not doing to pay for “never events,” such as the $50,000 it can take to retrieve a sponge left in a surgical patient.

“Never events” are wonderful things to try to explain to your average civilian.  Yes, they are called “never events” because they are literally never supposed to happen.  Yes, they happen often enough that we have a name for them in the industry, and statistical categories, and payment policies.  They always want to know: How many are there?  And how bad are they?  Nobody knows how many there are, because there is no canonical definition.  But Minnesota tallied 125 of them in a year starting in October 2006.  How bad were they?  They included (for example) patient kidnapping and sexual assault, giving a baby to the wrong person, operating on the wrong body part or the wrong patient, or the wrong procedure; and burns, falls, and drug mistakes leading to death or serious disability.  One hundred twenty-five of them.

Is this an IQ problem?  Not at all.  Like almost all patient safety problems, the tally of “never events” is not a picture of rampant stupidity, laziness, or evil intent.  It’s a picture of very smart people operating under pressure, without adequate systems in place.

What do I mean by “systems?”  Are we talking high tech?  Sometimes.  Studies show that instituting digital order-entry eliminates some 86% of drug mistakes.  But just as often it’s not high tech at all.  For instance, many surgeons have taken to writing the basic surgical instructions (”Cut here”) on the patient in indelible ink before the operation, during the patient consultation.  It’s hard to cut off the wrong leg when the correct one has a big dotted line across it.

What it takes mainly is a change in attitude, a willingness to admit that mistakes happen, a willingness to ask (systematically, formally, and repeatedly) the people involved in delivering the care (whatever their rank in the system) how to improve safety - and to listen, and to implement their recommendations.  It is a willingness, as well, to make safety guidelines mandatory, and a consistent disregard for them a firing offense, just as it would be in any other industry.  Maybe then it would be as safe to go in a hospital for a routine appointment as it is to take a routine flight.

We are all going super-size: Researchers at Johns Hopkins School of Public Health examined trends of the last decade or so, ran a sophisticated “projection analysis,” and popped out some numbers (the report is on their web site). By 2030, 86% of Americans will be overweight or obese, including 96% of non-Hispanic black women and 91% of Mexican-American men. Obesity is a major contributing factor in the epidemic of hypertension, type-2 diabetes, heart disease and stroke in the country, and surprisingly is even a factor in a number of types of cancer. And 70%-75% of all health care costs spring from such chronic conditions.

What does this mean, besides that you should cancel that DonutFans.com subscription? It means that treating the symptoms won’t cut it, dealing with the acute phase when people show up in the ER will swamp us both economically and medically - the scenario does not work. That’s where we end up when we as a society pay no attention to the systemic roots of things. If you want to save billions of dollars, millions of lives, and a lot of suffering, you have to start with public policy changes, education initiatives, and healthcare outreach programs that change behavior.

Why don’t we do it? Because in the short term it just costs money and doesn’t make much money for anyone (except maybe for diabetes educators). Think of it this way: A car wreck adds to the gross domestic product. Why? Because everyone gets paid - the EMTs, the ambulance company, the doctors, the hospital, the auto body shop, the car dealers and manufacturers. If we made our decisions on strictly economic grounds, we would encourage car wrecks. Does that strike you as a stupid idea? Yet by ignoring the systemic roots of chronic disease, by not enacting public policy changes that enable healthier lifestyles, by choking the funding for education, preventive and chronic care, while at the same time the amount we pay for acute care mounts year after year, we are doing much the same thing.

Picture this - your baby has infantile spasms (IS), a rare condition that could kill. Only one drug works, Acthor from Questcor Pharmaceuticals. The drug costs $1,650 a vial - until Questcor jumps the price to more than $23,000 a vial, putting the cost for a course of treatment at $80,000 to over $100,000, according to the company.

Or maybe your kid has a rare kidney cancer, and again there is one drug that works, Cosmegen from Ovation. And overnight the price jumps from $16.79 per dose to $593.75, more than 34 times as much.

Or suppose you have a more common disease, HIV/AIDS, and you are depending on an expensive, difficult, and ever-changing cocktail of retrovirals and other drugs to keep you alive - and one of the principal drugs, Abbott Laboratories’ Norvir, suddenly quadruples in price to over $1,200 per prescription.

How do you feel? What do you do?

Okay, you might say, these people are insured or they have Medicaid. No one is paying these prices themselves. Maybe. And in fact, for “Orphan Drugs” for rare diseases, it is more likely that few, if any, patients or families are paying the price out of pocket. The companies making them establish programs to help patients find funding. And the companies claim that without these price increases they would have to stop making them, and then where would the patients be?

Questcor, for instance, is not a huge company. It bought the drug Acthor in 2001. In recent years it has not made the huge profits common to the pharmaceutical sector. Before the price change, it was losing about $10 million per year. So the price increase was the most rational action for the company to take, both to stay alive and to keep its patients alive.

But the problem remains. An estimated 64 drugs will more than double in price this year, up from 22 in 2004, according to researchers at the University of Minnesota. Some individuals and families do pay the cost (or a portion of it) out of their own pockets. Many make the choice to pay for rent, food, heating fuel, and gas to get to work, rather than refill the prescription. Here in the United States, where we spend more than anybody in history for healthcare, people actually die because they can’t afford the drugs that would save them.

And the drug companies have no price pressure on them. Every other major economy in the world negotiates prices with drug companies, sets caps, mandates generics - they actively manage their economic relationship with the drug companies. The United States government, the largest buyer of drugs in the world, does not. By law and regulation, it is forbidden to. It must pay the price the drug company sets. So the price pressure on drug companies is, in fact, in the other direction. If you’re an executive team at a drug firm, you want to push that official U.S. price as high as possible, to give you negotiating room with everyone else - private payers in the U.S. and other governments around the world.

The U.S. government not only offers the drug companies the shield of non-negotiable prices, it does this without even demanding that the company open its books to show its real costs. If the company says, “We need $14,000 a dose, because the drug costs us $12,000 a dose to produce,” the government says, “Okay.” How much of that cost is phantom, a product of creative bookkeeping, no one outside the company can know. One is reminded of Hollywood bookkeeping, which is notorious for producing no profit, even on blockbuster hits.

This is a condition of severe information asymmetry.

Even if the putative costs are real, are they irreducible? The situation also relieves you, as a drug company executive, of much of the pressure to improve your processes and bring down the cost of producing the drug. Are there efficiencies to be gained in manufacturing the drug? Who knows? Lowering your cost of production would increase your profit. But your profit on the drug is already comfortably high, so the Wall Street analysts are not coming at you with torches and pitchforks to get you to wise up. Could you “auto-genericize” your own drug, inventing a new formulation that would produce the same effect for less? Why would you do that when you can make a good profit for years to come on the drug that you have? Why spend research money to cannibalize your own product?

When most people pay for drugs out of their own pocket, it is very difficult for people to pay for them.  Some people even die because they can’t afford them. On the other hand, that awareness does serve as some brake on price increases. When most people are not paying out of pocket (and there is no other brake on prices), drug prices rise. If you look at any graph of price rises in drugs in the United States, you will see a sharp tick upwards starting in the early 1990s - just when many health plans began covering prescriptions. Now we are seeing a new uptick in the past several years since Medicare began to cover drugs as well.

So what these drug price increases tell us is not that pharmaceutical companies are evil. They are doing what we are paying them to do, playing the game according to the rules that we have set up. What they tell us is that here, as elsewhere in healthcare, there is no feedback loop forcing the pharmaceutical companies to compete to provide us the most effective drugs at the lowest price.

Economics 101: People do what you pay them to do, and they notice the shape of what you are paying them to do with great specificity. If we want to reform healthcare, we have to find ways to define just what it is that we want (in every part of the industry), measure what we get, let providers and producers compete to provide the best result at the lowest price, and only pay for what really works at the lowest possible price. If there is no competition (as there often is not for certain orphan drugs and vaccines), obviously the government must provide subsidies to the drug companies to produce the drug - but only if the companies truly become partners of the government, open their books and accept price caps. In no industry, in no situation, will you get efficiency and effectiveness if you don’t demand it and pay for it.