A follow-up from yesterday’s bankruptcy post, below. Megan McArdle:

Yet upon closer examination, it turns out that it is not just wrong, but actively, aggressively wrong.  Warren and her co-authors have obscured important and obvious facts that call the integrity of the work into serious question.

For those of us less-well-versed in academic critique it’s worth, well worth, the read.



Medical bills are behind more than 60 percent of U.S. personal bankruptcies, U.S. researchers reported on Thursday in a report they said demonstrates that healthcare reform is on the wrong track.

More than 75 percent of these bankrupt families had health insurance but still were overwhelmed by their medical debts, the team at Harvard Law School, Harvard Medical School and Ohio University reported in the American Journal of Medicine.


It’s still, and always will be, about the costs; required reading

More care, worse outcomes.  Misaligned incentives.  Complete ignorance of the macro view.  Buckets of waste.  Gaps in medical education.  Lack of coordination and accountability.  Solving health care locally.

In other words, Atul Gawande’s most recent dispatch in “The New Yorker” is, in my opinion, required reading.  A snippet:

When it comes to making care better and cheaper, changing who pays the doctor will make no more difference than changing who pays the electrician. The lesson of the high-quality, low-cost communities is that someone has to be accountable for the totality of care. Otherwise, you get a system that has no brakes.

Hospital shakeout good for hospitals?

Staggering study from Thomson Reuters revealing frightening realities facing the nation’s hospitals in 2008’s third quarter (via the Los Angeles Times):

  • approximately 50 percent had negative margins
  • the median total margin was zero
  • reimbursement rates shrinking
  • cash on hand hit historic lows

The study indicates that no hospital is doing particularly well; the economic effect spans the spectrum: from rural hospitals to academic medical centers.  Hospitals have long depended upon additional income from investments to sustain operations; a dependency that is proving difficult at the moment.  Improving financial performance through operations is an equally difficult task as Americans cut back on health care services during this recessionary time. From United Press International (via @jenmccabegorman):

Kaiser Family Foundation’s healthcare tracking poll found 53 percent of Americans say their household cut back on healthcare due to cost concerns in the past 12 months.

Twenty-seven percent report putting off healthcare they needed, 21 percent say they have not filled a prescription and 15 percent say they cut pills in half or skipped doses to make a prescription last longer.

Sixteen percent report putting off care for a more serious problem, either postponing a doctor’s visit related to a chronic illness such as diabetes or delaying major or minor surgery.

The reality is that it is a tough time to be in business of any form, even traditionally recession resistant health care.  Hospitals have been diligently working to reduce costs and continue to do so according to Fierce Healthcare, “Given these projected losses, 47 percent of hospitals expect to make staff cuts, and 69 percent plan to cancel or delay equipment purchases, according to a survey by Novation.”

Chris Ellington, chief financial officer of University of North Carolina Hospitals, told Marketplace that a hospital shakeout is probable, “There will be some winners and losers over the next year in health care, for sure.”

A shakeout may be exactly what the hospital industry needs.  It may provided the needed impetus to spur business model innovation in health care delivery.

Clayton Christensen, Jerome Grossman, and Jason Hwang provide the explanation in their (somewhat) recently released book, “The Innovator’s Prescription: A Disruptive Solution for Health Care,” (it’s the health care release in Christensen’s disruptive innovation series) writing that the value proposition of doing everything for everybody has never been a successful business model.  General hospitals currently exist to provide all services; the author’s claim that is not efficient or cost conscious.

Its not that we don’t need hospitals.  “We will always need hospitals.  We will just need fewer of them, as scientific progress continues to move more diseases along the spectrum from intuitive medicine toward precision medicine.”

One of their arguments is that hospitals need to deconstruct their operations into two business models: solution shops and value-adding process activities.  Read Scott Shreeve’s review for a break down on the theory and terminology part one, part two.

Solution shops should be focused on optimizing the delivery of accurate diagnosis and recommend the most effective therapy (think the institute model at Cleveland Clinic, “specialists, equipment, and procedures are knitted together across each of the potentially relevant organ system specialties;” as opposed to dysfunctional silos).

Value-adding process clinics take a patient with a definitive diagnosis and treat their condition “effectively, conveniently, and economically” (think Shouldice in Canada or Cancer Treatment Centers of America; organizations with a distinct focus on specific treatments).

The book explains:

The solution to the cost problem in hospitals, in other words, is not efficiency within that business model.  Rather significant improvement will come only through the creation of fundamentally focused business models that in the end are highly disruptive to the present profit formulas of general hospitals.

Health care people should at least read the book; it’s difficult to do their arguments justice without reproducing the entire chapter (+ there is lots more).  Admittedly there are skeptics; what potential solution doesn’t?  Regardless, the examples of success the authors use hold sway.  Health care has tried controlling costs with little past success.  Trying something completely revolutionary may be exactly what health care delivery needs.

The (dis)incentives of transparency

Paul Levy (CEO of Beth Israel Deaconess Medical Center in Boston and health care transparency champion and CEO blogger): “Shouldn’t there be some correlation between what you get paid for doing something and the quality of what you do?”

That quote from an intriguing exposé of sorts in The Boston Globe (a fair presentation of the situation in my opinion).  The bottom line: Partners Healthcare in Boston (generally) makes quite a bit more (around 30 percent) than other hospitals in the state (Massachusetts has lots of good hospitals, especially in Boston).  So the question is: why?  Here’s the secret: it’s less about quality and more about market control.  What’s more is that it is happening in nearly every corner of this country.

Okay, so the free market is the United States of America.  Economists have a list of conditions in order for markets to be “perfectly competitive;” they include: large numbers of anonymous buyers and sellers, easy mobility of resources, homogeneous goods, and perfect access to information.  Health care, more or less, fails on every condition.

It is very difficult to efficiently, effectively, and equitably distribute resources when a market fails.  What that translates to is that health care costs more than it needs to (for a multitude of reasons).  But the argument here is that more information would prevent such wide disparities in payment (especially when a requisite increase in quality is not the reason for a higher price).  If insurers knew what hospitals collected from other insurers; if hospitals knew what insurers paid other hospitals; if patients and payers could effectively compare quality; if hospitals could benchmark quality against other hospitals; a more efficient, effective, and equitable distribution of health care dollars would occur.

All of that above summed up in one word: transparency.  We need: complete financial and quality of care transparency.  Watch health care costs fall and quality improve as hospitals start competing on outcomes and cost effectiveness instead of on market share and perceived notoriety.

Ross Dawson at Trends in the Living Networks writes:

Secrecy has its place in business, but it is highly over-rated. In most cases there is no valid reason not to share information, just a disinclination to give away things. We are going to see transparent models increasingly favored moving forward.

A disinclication indeed.  Transparency is the future.  It’s how we’re going to improve our health care system.

The Truth About Costs

Bob Laszewski at Health Care Policy and Marketplace Review highlights a recently released Robert Wood Johnson Foundation Synthesis Project report authored by Paul Ginsburg from the Center for Studying Health System Change.

High and Rising Health Care Costs: Demystifying U.S. Health Care Spending” is very interesting reading.  This especially:

If the efficiency of the delivery of services could by increased by 20% over 10 years, this would roughly close the gap between health care spending and GDP over that period.

Mr. Laszewski explains:

The bottom line is that if we want to contain our health care costs we need to find productivity improvement in things like technology use, treatment patterns, and administrative overhead.

The big-ticket play is in productivity—the more discriminate use of medical technology, consistently practicing outcomes-based medicine, and reductions in system overhead particularly in the insurance system.

Something different…

A coal miner in Wyoming has taken a nontraditional approach to reducing health care expenses: incenting workers to receive care at the nation’s best health care organizations.

From Bloomberg:

The coal producer says it has found an unconventional way to cut health costs: Seek out the nation’s best care and give workers incentives to use it. About two-thirds of operations have proven to be cheaper at better-rated hospitals out of state. Even when the price was higher, the Linthicum Heights, Maryland-based company saved money by reducing misdiagnoses, complications and repeat procedures.

The cost savings:

Health-care costs for an average employee at Foundation’s two Wyoming mines have dropped about 5 percent a year since the program took full effect in 2005, while U.S. spending rose about 7 percent annually. As Foundation’s Wyoming workforce grew, its total medical bills remained steady at about $5.5 million a year.

The article says the Wyoming experiment could be a model for regulators centered on curbing the growth of health care costs in this country.  “The approach in Wyoming is a twist on efforts by insurers and Medicare, the U.S. health program for the elderly and disabled, to encourage better care by rewarding hospitals that meet national quality standards.”

The thought is good, the reality is trouble.

This part is easy: capacity limitations would prevent the majority of Americans from seeking care at places like the Mayo Clinic.  Our health care consumption habits require large amounts of capacity and receiving care from a national health care leader is just not realistic for every patient.

Replicating quality efforts is a much more realistic thought—and one that could pave the way for better care for everyone.

We can’t blame any company for focusing on a fix for their health care problems; but a collaborative effort to reduce costs for all is much more likely to become a health care solution.