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Category: The Business of Health Care

You Get What You Pay For

Two recent research papers remind us that it may be difficult to cut U.S. healthcare spending without harming quality. The first, written by a research team led by University of Chicago economist Tomas Philipson, appears in the latest issue of Health Affairs and has deservedly garnered a fair bit of media attention. The authors examine cancer spending and survival times for patients in the United States and ten European countries during the period 1983-1999 (later data were not available.) Their data confirm what we already know about health spending; the average cost of treating a cancer patient was about $15,000 higher in the United States. But the data also show that the typical U.S. cancer patient lives nearly two years longer; most of the difference is attributable to prostate and breast cancer patients. The gain appears to be due to greater longevity rather than early diagnosis. Using generally accepted measures of the value of a life, they conclude that the benefits of additional health spending outweigh the costs by a factor of 4:1 or higher. The latter calculation does not consider QALYs (quality adjusted life years) and so may be overstated. The authors acknowledge that other nations may do a better job of cancer prevention, so that their overall approach to cancer may be superior to that in the U.S., but they can find no evidence of this one way or another.

Philipson’s study suggests that U.S. healthcare consumers may get a substantial bang for their higher bucks. Maybe the U.S. system is not so inefficient after all. What about efficiency within the U.S. system? Some providers are far more expensive than others. Is the higher cost worth it? A new study by a team led by MIT economist Joseph Doyle, and released as an NBER Working Paper, suggests that you may get what you pay for within the United States. Doyle and his colleagues ask whether higher cost hospitals in the United States achieve better outcomes than lower cost hospitals. It is not easy to answer this question, because higher cost hospitals may admit more severely ill patients. This results in a statistical problem known as selection bias that is difficult to eliminate with available severity measures.

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A (Real) Tragedy at the CDC

At the recent Health Care Quality Summit in Saskatoon, Sarah Patterson, the Virgina Mason Medical Center expert on Lean process improvement, noted,  “I’d rather have no board rather than an out-of-date board. They have to be real.”  She was referring to the PeopleLink Board that is placed is key locations in her hospital to provide real-time visual cues to front-line staff as to how they are doing in meeting quality, safety, work flow, and other metrics in the hospital.

Now comes the CDC, announcing in April 2012, that 21 states had significant decreases in central line-associated bloodstream infections between 2009 and 2010.

CDC Director Thomas R. Frieden, said “CDC’s National Healthcare Safety Network is a critical tool for states to do prevention work. Once a state knows where problems lie, it can better assist facilities in correcting the issue and protecting patients.”

I am trying to be positive when progress is made, and I am also trying to be respectful of our public officials — whom I know to be dedicated and well-intentioned — but does Dr. Frieden really believe that posting data from 2009 and 2010 has a whit of value in helping hospitals reduce their rate of infections?

Try to imagine how you as a clinical leader, a hospital administrator, a nurse, a doctor, a resident, or a member of the board of trustees would use such data.  Answer:  You cannot because there is not use whatsoever.

I am also perturbed by the CDC’s insistence on using a “standardized infection ratio” as opposed to a simple count of infections or rate of infections per thousand patient days.

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The Coming Boom for Hospital Chains – and Bust for Non-Profits

For more than a year, I have immersed myself in the history of for-profit hospital chains and their associated enterprises. My goal is to produce an account of the for-profit sector that will be a valuable resource to all parties involved in the serious health care policy-making that must surely take place in coming years.

Along the way, I have begun to understand the pressures that will soon make for-profit provider chains an even greater force than they already are – and will lead to an existential crisis in the non-profit hospital sector.

Hospitals wield immense influence in every city and county in the U.S. They are always among the largest employers in town. They touch the lives of all in the community as the sites of all births, most deaths and many health events in between.

Even the smallest hospital, in the smallest town, is worth tens of millions of dollars. Thus, for example, buyers in 2010 paid $28 million for a 124-bed facility in Marion, South Carolina (population 7,000), and $86 million for a 108-bed hospital in Ottumwa, Iowa (population 25,000). And at the upper end of the scale, another buyer acquired the 2,000-bed Detroit Medical Center for $1.5 billion.

Those buyers were for-profit hospital chains, and the sellers were non-profit operators. Some of the factors motivating such transactions have been around since the advent of the for-profit chain era in the 1960s – including inadequate access to capital for charities and local governments that needed to upgrade their hospitals, competitive pressure from deep-pocketed for-profits, and crises arising from poor management and governance. Although not-for-profit hospitals have long been coping with those issues and have often chosen to solve their problems by selling out to the for-profit chains, eighty percent of American hospitals are still non-profits, with about a third of those being government-owned. Those proportions are about to change dramatically.

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Why the Supreme Court’s Healthcare Decision Will Mean a lot … and Not so Much

Like waiting outside the Vatican for the puff of white smoke, the nation sits on edge awaiting the Supreme Court’s ruling on the Affordable Care Act. The ruling, which is likely to be announced next week, could toss out the entire healthcare reform bill, chop off one of its limbs (probably the so-called individual mandate), or leave the ACA intact. Whatever the ruling, it will be chum for the blogosophere, particularly in the heat of presidential silly season.

The two fundamental challenges to American healthcare today are how to improve value (quality divided by cost) and how to improve access (primarily by insuring the tens of millions of uninsured people). The bill sought to address these twin challenges in ways that were complex and intertwined. I’ll argue that a decision by the Court to throw out all or part of the ACA will have a profoundly negative effect on the access agenda, but surprisingly little impact on the value agenda. To understand why requires that we focus less on the bewildering details (mandates, insurance exchanges, PCORI, CMMI, IPAB, etc.) and more on some big picture truths and tradeoffs.

The job of any healthcare system is to deliver high quality, safe, satisfying care to patients at the lowest possible cost. Although America certainly does specialty and high tech care like nobody’s business, on all of the key dimensions of value we aren’t very good. The numbers tell the sorry tale: we provide evidence-based care about half the time, there are huge variations in how care is delivered, we kill 44,000-98,000 patients per year from medical errors, and we spend 18% of our gross domestic product on medical care, far more than any other country.

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The KP Model in the UK

I’ve had a couple of meetings recently with leading figures in UK health policy – one of them a senior figure at a doctors’ organisation, the other at a private health company – who both talked excitedly about the lessons Britain could learn from the US.

That’s rarer than you might think. Our National Health Service may be cautiously embracing market-led reforms, but there’s still plenty of scepticism about the US’s full-on competitive system, and people here tend to be nervous about citing it as an inspiration.

Still, the two figures I am referring to, both leading players in the British Government’s NHS reform programme, were talking not about US healthcare as a whole, but about one particular organisation with something of a cult following on this side of the Atlantic.

I am referring to Kaiser Permanente, and its ideas are about to become very big over here.

Kaiser is one of those iconic organisations that aren’t just known for what they do, but whose names come to define their particular way of doing things – in Kaiser’s case, managed care.

It is the classic managed care organisation, running all the disparate parts of the local health system as a fully integrated whole, and deftly incentivising doctors to make sure patients receive their care in the part of the health system where it can be delivered most efficiently.

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Healthcare M&A: Keep Calm and Carry On

With just a couple of weeks to go until we hear from the Supreme Court on the fate of Health Reform, bankers and the investment community are making grand pronouncements that M&A activity is “on hold” until the Court opines.

This is just not true as you will see below.

Here’s an excerpt with an evocative title from PEHub’s coverage of the annual Jeffries Healthcare Conference just this week (emphasis added):

PE-Backed Healthcare M&A on Hold for Election, Supreme Court Decision on Obamacare

Private equity investing in healthcare is on pause this year, according to executives speaking Wednesday on the panel “Financial Sponsors Perspectives on Healthcare Investing.” The industry is waiting to see whether Mitt Romney succeeds in overtaking President Obama. Also, dealmakers wants some clarity on President Obama’s healthcare reform bill….

Healthcare M&A has slowed this year. So far there have been 1,073 global announced M&A deals, valued at $75.3 billion. This compares to 2,729 deals in all of 2011 which totaled roughly $229.6 billion….

“Once we get clarity, and past Obamacare and the presidential election, we will see more deals,” the exec said.

The problem with this is that it might make for good reading or for an “entertaining” panel discussion at an investment banking conference, but it doesn’t reflect reality.

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Seriously: Is Digital Health The Answer To Tech Bubble Angst?

As an ever increasing amount of money seems determined to chase an ever greater number of questionable ideas, it’s perhaps not surprising that inquiring minds want to know: (1) Are we really in a tech bubble? (2) If so, when will it pop? (3) What should I do in the meantime?

I’m not sure about Question 1:  I’ve heard some distinguished valley wags insist we’re not in a tech bubble, and that current valuations are justified, but I also know many technology journalists feel certain the end is neigh, and view the bubble as an established fact of life – see here and here.  The surge of newly-minted MBAs streaming to start-ups has been called out as a likely warning sign of the upcoming apocalypse as well.

I have the humility to avoid Question 2: as Gregory Zuckerman reviews in The Greatest Trade Ever, even if you’re convinced you’re in a bubble, and you’re right, the real challenge is figuring out when to get out.  Isaac Newton discovered this the hard way in the South Sea Bubble, leading him to declare, “I can calculate the motions of heavenly bodies but not the madness of people.”

I do have a thought about Question 3, however – what to do: reconsider digital health — serious digital health.

Here’s why: Instagram and similar apps are delightful, but hardly essential; most imitators and start-ups inspired by their success are neither.  It doesn’t strain credulity to imagine investors in these sorts of companies waking up one day and experiencing their own Seinfeld moment, as it occurs to them they’ve created a portfolio built around nothing.

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Size Matters: Hospital Consolidation and Physicians

As health reform evolves,  I’ve been watching multihospital systems grow in size and power and speculating what their gigantic size means.

Here, as of 2008, were the 10 largest systems in revenue size

1. Veterans Administration Hospitals,   $40.7 billion
2. Hospital Corporation of America,  $28.4 billion
3. Ascension Health, $12.7 billion
4. Community Health,  $10.8 billion
5. New York Presbyterian, $8.4 billion
6. Tenet Health, $8.3 billion
7. Catholic Health Initiatives,  $7.8 billon
8. Catholic Health West,  $7.6 billion
9. Sutter Health, $6.9 billion
10. Mayo, $6.1 billion

What strikes me about this list are that such giant systems like Kaiser, the Cleveland Clinic,  Johns Hopkins,  Duke, and Health Partners in Boston don’t even appear, and the large  number of Catholic multisystem chains.  The revenues of multihospital systems has undoubtedly grown since 2008.   In 2011, hospital  mergers and acquisitions hit an all time high.

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Who’s Running Your Company: You or Your Client?

Venture capitalists like to use the word “traction.” It sounds all glamorous, like an ad showing a Range Rover toughing it out up some impossible incline. But when I hear a company talk about ‘early traction’ in its pitch, I’m always leery of the “First and Worst” effect.

My first customer at my first company was a grandfatherly CIO at a big hospital. Of course I wanted to please him, and was enthusiastic about doing so. But I was also very focused on taking over the world with our software. I told him, “We’ll change anything you want about the product, as long as it’ll be good for all our future [gazillion] customers.”

Of course, The Grandfather wanted lots of one-off customizations that would really only be good for him. I told him that all the time we spent doing custom work for him was going to make us less profitable, and less likely to be able to sell the product to other people. And to survive long enough to do any improvements to the product at all, we needed to be profitable. He seemed to think that made sense, and begrudgingly agreed.

In the end this arrangement was a win for both of us. Our product was a home run for his hospital. We got an evangelical reference customer, and his hospital helped make our product better. The precedent we’d set with The Grandfather gave us the courage to refuse other customers who wanted one-off changes. Sure, we could have done this for one or two hospitals, but by the time we got to hospital 300, it would have been a mess.

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The Irrelevance of the Supreme Court Decision on Obamacare

When I’m not writing pieces here, my “day job” is working with healthcare providers recognized as Disruptive Innovators who are reinventing healthcare and slaying the healthcare cost beast as a byproduct. In some cases, these are entrepreneurs. In others, they are pioneers within existing healthcare providers.

Even though this is the month that the Supreme Court is supposed to rule on the constitutionality of Obamacare, it is striking this fact rarely that ever comes up in discussions with healthcare providers.

Philip Betbeze described this in a HealthLeaders Media piece entitled “Disruptive Healthcare Innovations Trump SCOTUS Worries“   when he asked senior executives about their perspective regarding upcoming the Supreme Court decision.

But when you ask one question, you might get an interesting answer about something else entirely. That’s the way my sources for this off-the-record conversation surprised me. They agreed they are much more concerned about disruptive innovation than what nine people in black robes are going to say at an indeterminate date sometime this month.

The roundtables, set up for me by the good folks at Premier Inc., which is holding its annual “Breakthroughs” conference here in Nashville this week, revealed that these leaders fear less what the government may do in response to whatever decision the Court makes, and more what nontraditional competitors may do to their resource and capital-heavy healthcare delivery systems.

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