Goldsmith’s Wisdom By Brian Klepper

Last week, Jeff Goldsmith, who enjoys a reputation as one of health care’s more thoughtful commentators and advisors, wrote a curious post on this site. He puzzled over Kaiser Family Foundation Chairman Drew Altman’s failure to gush that the 2007 health care inflation rate had moderated to 6.1%, down from 13.9% in 2003. While acknowledging that, yes, the drop in inflation is likely a low point in a larger cycle, he noted that, on an $800 billion base, the drop in premium growth freed up some $62 billion in capital for American business, funds that might be applied to better purpose.

Jeff theorizes that

cost sharing has, over a number of years, compelled families to be more
careful about their use of health services

And he points to other influences that might have contributed to cost declines, including

"soggy admissions growth for hospitals, the
plummeting demand for expensive heart care (and the reduction in heart
attack admissions to hospitals), record low rates of prescription
drug cost growth, which stem from the explosion in generic drug options
," and declines in nursing home census [on the public financing side].

He chides the health care community’s Chicken Littles who, presumably, live in an alternative reality, sit around hand-wringing, repeating "Ain’t it awful," but don’t get that this drop in explosive cost growth is really a sign of how many improvements there are in the system’s function. He says, as though confident that he’s dispensing wisdom,

"Sometimes it seems like it’s the only
game in town. If you want to see moderating health
costs as a problem, and are creative enough, you can think of reasons
why this is bad. And how helpful is that?"

And he concludes by cheerily reminding us that, placing our problems
in a perspective of continuing progress and with a can-do attitude, we
can fix our problems.

"The good news is that we are a resource-rich and inventive
society that is perfectly capable of finding the answers. But, while
we’re at it, it is worth considering that one reason why health cost
growth is moderating is that we are doing a bunch of things right.  It
might even be that the lower rates of increase in cost reflect slow but
measurable progress in our battle against intractable human illnesses
such as heart disease and cancer."

Its always nice to have Pollyanna over for milk and cookies, but as Steely Dan said, "The things that pass for knowledge I don’t understand." One marvels that this nonsense can pass for serious argument.

I spend a good deal of my time working with business leaders from
non-health care organizations. They are apoplectic over their growing
inability to afford health benefits for their employees and their
families, and over the health industry’s obliviousness to skyrocketing
costs. The reality for employers and employees who pay for coverage is
that it consumes an increasing share of their resources, and its a
terrifying prospect.

While its great to see even a momentary decline in cost growth down
to only 2.3 times general inflation, Mr. Goldsmith’s Big Event was,
after all, a single data point in a larger stream of unrelentingly
rampant health care inflation. Worse, when understood in the context of
cost-per-unit-benefit, the comparison between the premium costs of
yesterday and today are not apples-to-apples. Benefit structures are
significantly skinnier than they were 5 years ago, and the
out-of-pocket costs higher.  In other words, 2007’s premium inflation
isn’t "only" 6.1%, but must be framed against a reduced benefit.

And then there are the cost drivers. There is no question that
there’s been some progress in the health care front. Medicare’s finally
decided to stop paying for hospital errors. There’s activity on the
transparency front, including the recent ruling requiring CMS to hand
over Medicare physician data to the advocacy organization Consumers’ Checkbook.
On the science front – and to the financial chagrin of interventional
cardiologists and device manufacturers – it’s become clear that optimal
drug therapy outperforms non-drug eluting stents. Uptake of EMRs and
best practice guidelines is accelerating, and a new era of information
flow from the Health 2.0 movement promises to move the locus of health care’s power increasingly toward patients and away from corporations.

But all these steps forward are still congealing. They have not
created meaningful efficiencies and savings yet. As a practical matter,
most health care processes and outcomes are still opaque to purchasers
and patients. Quality management systems remain in their infancy.
Fee-for-service reimbursement continues to be the dominant paradigm,
rewarding more care rather than the right care. And primary care, the
most valuable clinical specialty, remains critically undervalued.

And even though health care reform is back on the table, the most
important domestic issue in polls and a centerpiece of every Democratic
Presidential candidate, there’s little reason to believe that
meaningful change can occur as long as Congress remains susceptible to
the lobbying of this economy’s largest business sector. After all, the
half of health care cost that is waste is a big portion of health care
organizations’ bottom lines. Will health care’s business leaders
willingly agree to lose ground financially?

Call me a glass-half-empty kind of guy, but I fail to see that a
slight, arguably cyclical moderation in a longstanding and ferocious
economic trend is cause for rejoicing, especially when there are so
many other signs that the fundamentals remain unchanged. Nor do I see
how it is helpful to suggest to non-health industry business leaders –
whose understanding of the gravity of the crisis and whose support for
serious solutions is critical to its resolution – that we’re coming
out of the storm when proof of progress demands significant leaps of

I’ve generally been a fan of Mr. Goldsmith’s work, but not this
piece. I’ll be the first to cheer when there are substantive
enterprise-wide improvements in health care. But the simple measure and
trends he points to aren’t enough. Worse is his suggestion that the
rest of us are just too dumb and "neurotic" – yes, I think that was the
word he used – to appreciate progress. Coming from a guy of Jeff’s
stature, that sort of pop psychology is pure arrogance. It also conveys
to our potential allies, America’s business leaders, that we don’t
grasp what’s going on and that the crisis is beginning to resolve.

As far as I can tell, we do and it isn’t. Which means that one of us must not understand the situation.

Categories: Uncategorized

Tagged as:

14 replies »

  1. I can agree with you spike but since cost IS the U.S. medical dilemma then patient time saving is throwing crumbs to the masses. If I had a business where I could compete on everything except price I would jump right in because that’s the easy part. Anyway, I realize that universal single pay is not in my lifetime in the U.S. as too much money controls too few politicians in too few parties.

  2. The patient does exceedingly well in the Lean model. I’m sure you’ve noticed that hospital processes are not geared towards the patient’s needs, they’re geared towards the hospital’s needs. So you spend a lot of time waiting to see this or that doctor, they misplace records so they need you to take another test, they endlessly waste their patients’ time because their patients’ time has no value to them. In Lean, the patient’s time is very valuable, as is everybody else’s, so the processes are geared towards not wasting it. Imagine going to the hospital for a 3PM appointment, and actually being seen at 3PM. Time is money, and lean saves time.
    Of course that’s in addition to fewer unnecessary procedures being performed. Most insurance plans require some patient payment, so fewer procedures means less money spent by the patient.
    I don’t want to come off the wrong way. I firmly believe that we should have universal health insurance, and that health care in general should cost less than it does. I’ve just become disillusioned by our current political climate. Nobody wants to help anybody out, so appeals to people’s morality fall on deaf ears. The best and least controversial way to move to a better system is by adding value on a process level.
    There will still be losers. What if it turns out that 50% of the MRIs performed don’t add value? High-tech medical companies will complain and lobby that health plans or Medicare still authorize and reimburse MRIs as they always have. But in the face of actual data showing that they don’t add as much value as we thought, it seems like it’d be easier to make changes.

  3. “Their payers’ bottom lines are healthier”
    Now would that include the bottom lines (premiums/health bills) of the patients?

  4. Well, it’s kind of a chicken or the egg kind of thing. You saw Massachusetts attempt to go universal, but couldn’t because costs are too prohibitive. I would argue that any attempt to go universal will flounder somewhat because the underlying system is filled with so much inefficiency that costs will always spiral. You say that other systems have their own inefficiencies. No other system has the same perverse incentives we do that reward more care whether it helps the patient or not. We’re unique in our willingness to throw money at problems, with no knowledge as to whether it’s helping anything or not. Unless a move to universal care is accompanied by a move to value-based reimbursement as opposed to cost-based reimbursement, we’ll continue to see 7-10% health care inflation.
    There’s nothing inherent in the universal systems that allow them to cost far less, except for two things: Yes they pay their physicians somewhat less, but even more so they have a system in place that rewards the health of the patient rather than performing more services for the patient.
    Look at Virginia Mason. They’re operating in the same environment as thousands of hospitals nationwide They were doing ok, but weren’t doing well enough. Enter Lean and the Toyota Production System. Suddenly they’re able to treat more patients, eliminate high-cost/low-value procedures like unnecessary MRIs and other high-cost diagnostics, reduce staff over time, avoid building planned expansions because added efficiency eliminated the need for more space, etc. Their bottom-line is healthier because of their gained efficiencies. Their payers’ bottom lines are healthier because Virginia Mason doesn’t need to rely on unnessary, expensive treatments to survive. And their patients are healthier because they’re not having unnecessary procedures performed on them.
    The beauty of all of it is that it’s apolitical. Whether you’re liberal or conservative, everybody can stand behind more efficient processes that deliver more value and cost less.
    Your solution of lowered reimbursement and socialized medicine is so politically divisive it would never happen here. That’s my point.

  5. “We know cost is the biggest obstacle to universal health care, and inefficiency (unnecessary procedures, bad process, bloated administrative systems) is the biggest obstacle to reducing cost.”
    spike, I don’t know how you arrived at this statement when all universal systems cost/run for less than the U.S. system even with their own inefficiencies. There is also more to this than efficiencies, there are the high prices. Hospitals will only be able to survive reduced reimbursement if their inputs also suffer reduced reimbursements. That’s why a totally universal system is necessary to control costs, otherwise you’re just tinkering around the edges and continuling to feed the wolves.
    By the way, we do have a pac or series of pacs that are the “Keep Healthcare Inefficient” group, they are the 100s of healthcare lobbyists dishing out political money and influence to their own ends, not good public policy.

  6. Brian, you echo my reaction to Jeff’s original post. The cost drivers in health care will be unrelenting. Major employers are indeed hurting, and now we have the UAW assuming GM’s retiree health liability. This is another sentinel event in the erosion of health benefits As We Know Them. But, out of chaos, creation! See my blog today on the Financial Times rallying behind universal health care in the U.S. The Times, they are a’changin’! JSK

  7. Matthew;
    OK, so I googled him and was duly impressed. So he’s just one who ADVISES those whose primary goal in life is to make money.
    But his post still makes me less than impressed – he clearly has not had personal experience with the health care system any time recently. I’m with Brian all the way; this is just a pause in the downward spiral.

  8. I’m becoming more and more convinced that Lean, Six Sigma, and value-based reimbursement models (as opposed to cost-based) are the only ways out of this mess.
    We know cost is the biggest obstacle to universal health care, and inefficiency (unnecessary procedures, bad process, bloated administrative systems) is the biggest obstacle to reducing cost. Hospitals and health plans will be able to afford reduced reimbursement only if they move to more efficient practices that drive down costs. Just cutting them off at the legs without giving them tools to survive won’t help anybody. We can lower costs without creating tons of losers, but only if we improve the efficiency of both the thousands of tiny processes that happen throughout the healthcare delivery model and the system as a whole.
    Then the only losers will be the thousands of companies that feed off inefficiencies at hospitals and health plans. But I don’t think they make up a strong enough lobby to block that kind of reform. Unless they create a PAC called “Keep Healthcare Inefficient”, which probably won’t fly.

  9. “but don’t get that this drop in explosive cost growth is really a sign of how many improvements there are in the system’s function.”
    Or maybe the “system” is realizing that the market is approaching saturation point on absorbing (cost sharing)additional costs and not because there is a concerted effort to be more efficient? In other words, can’t get any more blood from that stone. I guess that 100k hospital visit just got more affordable for the average person or small company – woopee!!
    Using the rule of 72 6% annual compounding would double healthcosts in about 12 years – will your income also be there?

  10. Arguing over rate of increase of health costs is like arguing over how many angels can fit on the head of a pin – it is the wrong argument. The right argument was framed by the GM – UAW talks, and is tantalyzingly close to being recognized by non-health industry business leaders, in whose hands the solution resides.
    When GM rolls out a new vehicle, they don’t let the repair shops write the maintenance manual; GM’s scientists and engineers write the manual. So why does GM let the insurance and hospital providers (the health “repair shops”) design GM’s health plans?
    No scientist or engineer would design a health plan that didn’t even check for the causes of 80% of all health costs – chronic disease caused by poor lifestyle. Nowhere on our medical charts are the causes of chronic disease: inactivity, processed food, and chronic rat-race stress. Only symptoms are ever checked for – weight, and blood pressure, cholesterol, and sugar – which appear 20 or 30 years after the onset of slow inflamatory destruction.
    If GM ordered their scientists and engineers to design GM’s health plans, every chart would track hours per week of lifelong vigorous exercise, eating only unprocessed food, and thrift with time and money resources. Patient non-compliance would result in financial and other penalties, such as having to attend a class prior to the next appointment.
    When the businesses that pay for health plans start applying the same accountability for results that they demand for every other business expense, Americans will realise that our health crisis is not a crisis of health, but rather of cultural lazyness.

  11. I love the argument, and tend to side with Brian. but Bev, Jeff Goldsmith is who Brian says he is–one of the best known and most knowledgeable prognosticators on the future of health care. He’s not saying his piece because of some hidden financial agenda for sure. He might though be saying it to get Brian, me, Drew Altman and lots of others really riled up!

  12. Investment industry giant John Bogle explains the broader aspect of private equity groups’ buyout of health care industry. More and more money managers are taking control over corporations on Wall Street, making Main Street paying the price, making Health Care less attainable for more and more people.
    Bogle explains in Bill Moyers Journal, the financial sector takes $560 billion a year out of society. Banks, money managers, insurance companies, and certainly annuity providers. They’re all subtracting value from the economy.

  13. I don’t know who Mr. Goldsmith is, but I too thought he was way out in left field. It reminded me of the relentless optimism demonstrated on Wall Street after the Fed rate cut, despite overwhelming evidence that the overall economy may be lost in the woods while nightfall approaches.
    My “scientific” conclusion is that people whose primary goal in life is to make money tend to indulge in wishful thinking and tunnel vision, and often drag the rest of us down with them as they fantasize. It’s too bad – especially if you’re sick.