Productivity? In Healthcare?

Obamacare is built on the assumption that healthcare can be more productive, that we can squeeze more health per dollar out to the system that is built to give it to us. Practically everything I write is based on the same idea — big time. I believe we could do healthcare better for half the money we pour into it now.

There is a widely-cited theory that this is fundamentally impossible, popularized by William Baumol, a New York University economist, in a 2012 book, The Cost Disease: Why Computers Get Cheaper and Health Care Doesn’t. Baumol trades on the idea that healthcare is mostly the individual labor of highly trained professionals (doctors, nurses, and technicians) whose labor cannot simply be baked into machines and software. So we can’t expect healthcare to become any more productive, especially as healthcare keeps getting more complex.

We can’t both be right. What’s the daylight between these two radically different points of view?

I believe that the Baumol argument assumes many things that are simply not true. These include:

o  We are using doctors and other personnel at their highest and best use (when in fact we waste masses of clinician time on documentation and other processes that do not add value at all, let alone value that only they could add)

o  The goal against which productivity should be measured is provision of healthcare processes, such as how efficiently one can do a gall bladder removal or an uncomplicated birth (as against, say, improvement in health of patients and patient populations)

o  There is not much wasted motion within those processes (when in fact there is a great deal wasted, as anyone who has applied lean manufacturing principles to healthcare processes has discovered)

o  There is little that a doctor or nurse does that could be supplanted by a machine, or helped by automation in a way that would make it more efficient (a laughably bald assumption being disproven every day in every sector of healthcare).

Most importantly, the Baumol argument assumes that everything we do in healthcare is necessary and beneficial (when in fact at least a third of all we do is waste, unnecessary, not helpful and often actually harmful). What is the productivity of doing a procedure more efficiently, if it is a procedure you actually shouldn’t be doing at all? How do you measure the productivity increase of dropping an unnecessary or wasteful procedure (such as routine colonoscopies asmass screening for colon cancer)? The flip side is: The Baumol argument takes no cognizance of the many procedures that could be supplanted by less expensive treatment paths, such as medical management for simple back pain in the place of complex back fusion surgeries.

The search for greater productivity in healthcare will lead us somewhat toward streamlined processes, a fair amount to automation, and massively to simply not doing what does not need to be done.

Joe Flower is a healthcare futurist and author. He is a contributing editor with THCB.

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12 replies »

  1. One could imagine a health insurance company that really exploited medical tourism.
    The insurer would pay full freight with no deductible if you went abroad for surgery, and even throw in plane fare to boot.
    Not all consumers would go for this, of course. Many patients want to be operated on by an American doctor they know, with family at the bedside. Patients are not hunks of plastic or steel, which in my view is the main reason why American health care is so expensive. If foreign labor and materials were banned from the car industry, we would have the same crisis in the affordability of cars.
    Anyways, a medical-tourist insurance policy would be wildly opposed by the AHA and the AMA, but it might make inroads nonetheless.

  2. I don’t really see how the music example is an accurate analogy for healthcare – maybe Matthew can explain.

    I think a lot here are judging productivity from a clinical perspective and not an economic one, as Baumol does. Productivity = output per unit of input. Baumol is highlighting productivity to address the gross increase in wages for physicians even tho their producitivity has largely lagged (for reasons previously discussed). Do not foget how interconnected productivity and wages are. Although the middle class has found out this economic theory doesn’t always hold true, but I think for reasons seperate from this argument.

    Also, individuals have been positing for some time that ‘technology’ will disrupt medicine and increase productivity, but we have yet to see that happen. And while many people may take up the services of teladoc, many more will value a face to face interaction with their physician and an hour long appointment (thus making increasing productivity much more difficult).

    And forget worrying about the expensive ‘physicians’ – how about the expensive hospitals? Physicians secure those high wages with the help of their hospital’s increasing clout, leverage, and negotiation power.

    Lastly, I’m not sure why you’re dismissing the average productivity argument as it relates to healthcare – If all other industries are increasing productivity (like cars, guns, etc.) then by definition, there must be others below the average.

  3. “That’s why there are many many fewer professional musicians than there used to be.”

    Most without health care.

    Matthew, I am missing the analogy with reproducing music on 45s, 33 1/3s, LPs, tape, CDs, downloads, with health care getting cheaper due to mass production??? Unless we can do a YouTube on heart surgery.

  4. “Industrial firms have global supply chains, and do not hesitate for ten seconds to substitute cheaper materials or labor from overseas.”

    We need to be shipping patients to India.

  5. Excellent Joe!- The “more is not always better message in health care” is a very hard sell because most patients still believe that we are denying them something that “they need” Nortin Hadler is my hero in this regard.

    Dr. Rick Lippin
    Southampton, Pa
    “Charter Hadlerian”

  6. I want to share one caution. American hospitals have been getting more productive steadily for the last 25 years (if you measure how many work hours are required to treat an illness or perform a procedure.)
    But hospital employment has gone way up, and the same is true for hospital prices.

    I assume that some of this is due to the understandable preference to treat patients locally. Industrial firms have global supply chains, and do not hesitate for ten seconds to substitute cheaper materials or labor from overseas.

    Hospitals buy American and hire American. That is how they are sustaining the middle class.

  7. We hardly know what we are doing. Look at mental health and most cancer/chemo. Witch doctoring. It is like telling the guys at Kitty Hawk in 1904 to be more productive. People are trying to make it a business before its time. You shouldn’t be so enraptured by something that is so early.

  8. Glad to see someone put the sword to this crap. It actually doesn’t take 4 people to play a Bach quartet every time you want to hear one. It takes one recording, scaled across a million radios/CDs/ipods. That’s why there are many many fewer professional musicians than there used to be. The very same thing will happen in health care. Plus it’s closely related to another ridiculous argument (from Mark Pauly et al) that US health care is expensive because the rest of the US economy is so productive.

    Joe is correct in saying that we are both changing what we measure (from inputs to outputs) and we will use technology to scale–and replace) expensive clinicians. If you don’t think that’s happening, why is the Texas Medical Association so intent on stopping Teladoc?

  9. In the later part of the book, when Baumol discusses solutions to the Cost Disease, he directly addresses some of your bullet points – ie. waste in medicine and technology’s impact on cost. It’s not that Baumol doesn’t believe we aren’t able to increase productivity, its just that the realities of this labor-intensive market diminish our ability or desire to increase productivity. He uses the classic example “in 1792, it took 4 people to play a Bach quartet, and in 2015, it still takes those same 4 people.” This is very true in medicine, and in Baumol’s other pertinent example, education (just think of all the headlines you’ve read “cost of college education skyrocketing.” Evidence of poor productivity in medicine is everywhere, and while you might be trying to incrementally improve those outcomes, the system will continue to fight against you. It could be as simple as “Martha wants her doc to spend more time with her and make her feel like his only patient,” a preference many patients hold, thus increasing the tendency for docs to see less patients. That’s diminished productivity, but something we might value in healthcare. The result of this is evident, as healthcare inflation continues to outpace CPI, and to Baumol’s point, will continue to do so. It’s one of the oldest standing economic theories that hasn’t been busted. Try to find a health system in the US that has kept healthcare inflation below CPI, and I’ll call you a liar. It just doesn’t happen and Baumold doesn’t think it can. If you think about all the industries that have seen dramatic increases in productivity – ie. cars, guns – then there must be other industries, above the average, that have seen much smaller productivity gains. That’s healthcare. And in order to compensate and provide docs with higher salaries, prices must go up. This is the vicious cycle of these labor-intensive industries and almost no one is talking about it. So thanks for highlighting the theory.

  10. Each cell has 22,000 genes. This means 22,000 proteins at least (The RNA can be read and spliced so that many more proteins are actually possible.)

    22,000 proteins mean 22,000 enzymes and building bocks are in our mechanics kit bag for human maintenance and repair.

    How these enzymes = tools and building blocks all work together and interreact is still largely unknown.

    Two conclusions:
    1. Too early to talk about productivity. Meaningless for awhile.
    2. You ain’t seen nothing yet.

  11. “I believe we could do healthcare better for half the money we pour into it now.”

    That conclusion comes from the conservative press. I agree, but that requires free market capitalism that seems to be quite different from what many have continuously suggested. However, you are on to something, “ greater productivity in healthcare will lead us somewhat toward streamlined processes”. Greater productivity requires innovation and where do we find the force to increase productivity and innovation? The free marketplace. That means government intervention needs to be reduced and the ACA abandoned.

  12. Joe, why is doing complicated things faster the only definition of productivity or efficiency?

    Wall Street doesn’t look at it that way. if a company produces the same amount of goods but pays it’s workers less and/or buys production materials for less investors say it’s, “more efficient” and buy the stock.

    Healthcare – “It’s the Prices Stupid”. Control the prices like other western nations and we have a more efficient system.