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The Way Out of the Wilderness

Aug 17, 2012• 37

By David Dranove

In 1932, the Committee on the Cost of Medical Care identified rising medical costs as a threat to the financial security of millions of Americans. In a series of studies that created the field of health services research, the Committee recommended several strategies for cost containment that reads like a blueprint for today’s cost containment efforts: prevention, price controls, capitation, elimination of unnecessary care, and integration. If it sounds like a précis of my previous two blogs – cut prices and cut quantities – it should. We have known for a long time that those are the only ways to cut spending. And yet here we are, 80 years later, facing a spending crisis that threatens to take down the entire economy.

In my lifetime, we have been subjected to a steady drumbeat of rising medical costs. There have been respites – for a couple of years after Medicare introduced DRGs and for about five years in the 1990s during the heyday of HMOs. While DRGs and HMOs shifted costs down, they did not seem to reverse underlying growth trends, although HMOs did not thrive for long enough to be certain.

Not for lack of trying have medical costs continued to increase. We promote prevention, regulate prices, capitate providers, and review utilization to eliminate wasteful spending. We have seen horizontal integration that led to market power and higher costs, and vertical integration that more often than not created unmanageable bureaucracies. Most of today’s proposals for cost containment can be encapsulated by two words: “Try harder.” The Affordable Care Act gives us free preventive care, stricter price controls, ACOs, and the Comparative Effectiveness Institute. We need radical change but all we get is creeping incrementalism. I will take creeping incrementalism over the do-nothing approach of the previous decade, if only because we could use another respite. But the ACA is no permanent fix.

Let’s Do the Numbers

Aug 17, 2012• 10

By Paul Levy

Julie Creswell and Reed Abelson offer a story in the New York Times about the HCA for-profit hospital system, noting “A giant hospital chain is blazing a profit trail.” The HCA story and similar ones about other hospital chains financed by private equity force us to consider how a such firms can achieve a return on equity that satisfies investors.

The answer is that they cannot, if we think about running the business on a long-term basis. What makes it work is extracting cash and the exit strategy, the heart and soul of private equity.

As Warren Buffett might say, let’s keep this simple. A for-profit hospital system has the following disadvantages vis-a-vis a non-profit hospital system: (1) Its finances are a mixture of equity and taxable debt, both of which are more expensive than the nontaxable debt of a non-profit; (2) it pays taxes–federal and state income tax, property tax, and sales tax–on which the non-profit is exempt; and (3) it is an unattractive vehicle for charitable donations, compared to the tax-advantages offered donors of non-profits.

These are hefty financial advantages for non-profits, which nonetheless are fortunate if they are able to earn an operating margin of 3%. Admittedly, that’s 3% of revenues, not a 3% return on capital.

An equity investor in a for-profit doesn’t care about margin, strictly speaking, but rather is focused on the rate of return of his or her investment. But let’s stick with the operating margin just for a moment, and let’s just accept that a 3% margin would not generate the kind of equity return demanded by the market place: You pick the hurdle rate: 15%, 20%, 25%, more? It doesn’t matter. A three percent margin just doesn’t get you there.

Using Predictive Modeling to Make Better Decisions

Aug 17, 2012• 7

By Russ Richmond, MD

In an article posted earlier this year on this blog I argued that hospitals have traditionally done a sub-par job of leveraging what has now been dubbed “big data.” Effectively mining and managing the ever rising oceans of data presents both a major challenge – and a significant opportunity – for hospitals.

By doing a better of job connecting the dots of their big data assets, hospital management teams can start to develop the crucial insights that enable them to make the right and timely decisions that are vital to success today. And, better, timelier decisions lead to improved results and a higher level of quality patient care.

That’s the good news. The less than positive story is that hospitals are still way behind in using the mountains of data that are being generated within their institutions every day. Nowhere is this more apparent than in the advanced data management practice of predictive modeling.

At its most basic, predictive modeling is the process by which data models are created and used to try to predict the probability of an outcome. The exciting promise of predictive modeling is that it literally gives hospitals the ability to see into (and predict) the future. Given the massive changes and continuing uncertainty that are buffeting all sectors of the healthcare industry (and especially healthcare providers), having a clearer future view represents an important strategic advantage for any hospital leader.

How Do We Bend the Cost Curve? Reduce the Waste.

Aug 17, 2012• 1

By Wendy Everett, ScD

Health care had its own version of the LeBron James “Decision” last month with the Supreme Court upholding the critically important elements of the Affordable Care Act. Now that the uncertainty is behind us―at least until the November elections―health care leaders can continue preparing their organizations for the changes ahead.

Fixing the system requires reforms at the macro level. But it also takes a symphony of smaller actions happening in concert. As experience bears out, it is difficult to agree upon a collective action with so many competing interests in health care and the partisanship that has gripped politics. But there is a song that we can all agree upon, loud and in unison. Reduce the waste.

Nearly a third of our health care costs come from wasteful spending and inefficiencies that could be avoided. Left unchecked, this is a nail in the coffin of our system; but, if tackled, is a huge cost containing opportunity. By identifying waste in the delivery system and systematically reducing it, we could lower costs without resorting to budget cuts and fees that compromise the quality of care.

The Coming Battle for Medicare

Aug 16, 2012• 68

By Robert Laszewski

Republican Vice Presidential pick Paul Ryan isn’t the only one Democrats are piling on this week. The knives have come out for Senator Ron Wyden, the Oregon Democrat.

I guess that isn’t a surprise. If Ron Wyden is right on Medicare then so are Paul Ryan and Mitt Romney.

The fundamental problem here is that the Democrats have decided that their best path to victory in the November elections is to say that the Republicans want to destroy Medicare as we know it and that the Democrats can preserve it.

The truth is that no one can preserve Medicare as we know it. There isn’t a prayer that your father’s Medicare will be around in 10 years. There is a legitimate policy debate going on about the direction we will have to go with it.

There is just plain going to be less money to spend on senior health care than there would have been if we let the program continue on its present unsustainable track. Health care providers and patients are going to have less money.

The question is who will control that money.

Gamification

Aug 16, 2012• 5

By John Halamka, MD

Recently, I’ve met with several internet startups, web thought leaders, and venture capitalists.

There’s one word that’s come up in every conversation and it’s not Plastics. It’s Gamification.

Gamification, described by Wikipedia is applying gaming principles to non-gaming applications and processes,

“in order to encourage people to adopt them, or to influence how they are used. Gamification works by making technology more engaging, by encouraging users to engage in desired behaviors, by showing a path to mastery and autonomy, by helping to solve problems and not being a distraction, and by taking advantage of humans’ psychological predisposition to engage in gaming.”

My Doctor Is a Computer!

Aug 16, 2012• 67

By James Salwitz, MD

There was no mistake, but a bad thing has happened. Despite the best efforts of the doctors, Bob’s wife is very sick. Due to a rare side effect of treatment, her liver is failing. Bob believes this could have been prevented. He is very mad.

“When we go to see the doctor, he stares at the computer,” says Bob. “He does not look at us. Most of the time, the doctor is not even listening to us. He just sits there typing at the keyboard, gaping at the screen. If he had been listening when my wife talked about the pain, then he would have stopped the drug. Then her liver would be fine. She would be OK. All you doctors have become nothing but computers.”

Now here it gets interesting. After I listened carefully to Bob and sat with him at his wife’s bedside, I decided to check “the computer.” There in the doctor’s records I saw a long discussion and analysis of the problem with her liver. Quite opposite of ignoring her, her doctor had listened, had changed therapy and was watching her liver carefully. Sadly, despite the change, her liver had gotten worse. The problem therefore, was not that the doctor was not listening. He definitely was. The problem was that the computer had stopped him from communicating.

It is strange to think that a system of information and data exchange, which allows you to communicate with anyone around the entire world, interferers with connecting to the person right in front of you. We see it constantly as cell phones, Ipads, computers and even that “old” obstructer the television, get between us. At the time we need to communicate most desperately, electronics can block that most human connection of all, the physician – patient relationship.

Here’s a Question to Ask Romney or Ryan

Aug 15, 2012

By Aaron Carroll, MD

Last week, I noted the significant differences between Paul Ryan’s proposals, from his 2012 budget to Ryan-Wyden to his 2013 budget. I also noted that while it would be tempting to campaign against the 2012 budget, which massively shifted costs onto seniors, his later proposals did that to a far lesser extent.

Or did they?

Governor Romney has endorsed Paul Ryan’s latest plan, which is specific in that it will reduce future Medicare spending by unleashing the power of the free market through competitive bidding. But what if that doesn’t happen? Well, just like the ACA, his law backstops the growth of Medicare spending at GDP + 0.5%.

The ACA is explicit about what will happens if growth goes above that amount. The IPAB will make recommendations on how to cut it. Congress will have to override those recommendations to stop them, and have their own ideas that save just as much. It’s likely those recommendations would involve reducing provider payments. But it’s the hope of those who support the ACA that other provider-based changes, like ACO’s and the excise tax, will keep the IPAB from having to act.

Do You Believe Doctors Are Systems, My Friends?

Aug 15, 2012• 24

By David Shaywitz, MD

In the current issue of The New Yorker, surgeon Atul Gawande provocatively suggests that medicine needs to become more like The Cheesecake Factory – more standardized, better quality control, with a touch of room for slight customization and innovation.

The basic premise, of course, isn’t new, and seems closely aligned with what I’ve heard articulated from a range of policy experts (such as Arnold Milstein) and management experts (such as Clayton Christensen, specifically in his book The Innovator’s Prescription).

The core of the argument is this: the traditional idea that your doctor is an expert who knows what’s best for you is likely wrong, and is both dangerous and costly. Instead, for most conditions, there are a clear set of guidelines, perhaps even algorithms, that should guide care, and by not following these pathways, patients are subjected to what amounts to arbitrary, whimsical care that in many cases is unnecessary and sometimes even harmful – and often with the best of intentions.

According to this view, the goal of medicine should be to standardize where possible, to the point where something like 90% of all care can be managed by algorithms – ideally, according to many, not requiring a physician’s involvement at all (most care would be administered by lower-cost providers). A small number of physicians still would be required for the difficult cases – and to develop new algorithms.

Hospital Rankings Get Serious

Aug 15, 2012• 4

By Ashish Jha, MD

After years of breaking down, my sedan recently died. Finding myself in the market for a new car, I did what most Americans would do – went to the web. Reading reviews and checking rankings, it quickly became clear that each website emphasized something different: Some valued fuel-efficiency and reliability, while others made safety the primary concern. Others clearly put a premium on style and performance. It was enough to make my head spin, until I stopped to consider: What really mattered to me? I decided that safety and reliability were my primary concerns and how fun a car was to drive was an important, if somewhat distant, third consideration.

For years, many of us have complained about the lack of similarly accessible, reliable information about healthcare. These issues are particularly salient when we consider hospital care. Despite a long-standing belief that all hospitals are the same, the truth is startlingly different: where you go has a profound impact on whether you live or die, whether you are harmed or not. There is an urgent need for better information, especially as consumers spend more money out of pocket on healthcare. Until recently, this type of transparent, consumer-focused information simply didn’t exist.

Over the past couple of months, things have begun to change. Three major organizations recently released groundbreaking hospital rankings. The Leapfrog Group, a well-respected organization focused on promoting safer hospital care, assigned hospitals grades (“A” through “F”) based on how well it cared for patients without harming them*.