Tag: Arnon Krongrad

Surgeons Doing Math

I bought a car as a package. It had wipers and tires and brakes. The car dealer gave me a simple price after he added the costs of components and labor plus profit. I wanted to buy surgery as a package. I wanted a surgeon and anesthesiologist and facility. There was no dealership for surgery packages, so I asked a facility to put one together. “Add sutures and gloves and some graspers,” I pleaded, “please, I have to have choice.”

Turnkey surgery packages are hard to find. That is partly because most surgery is paid for in separate fees for separate services by faceless third parties that take the patient’s money, dictate his choice, and keep price largely hidden behind a bureaucratic curtain. So why can’t a facility just put a surgery package together? Doesn’t the arithmetic of tires work just as well on sutures?

Consider the facility executive: he has no real subject expertise. For example, he rarely knows the difference between a nylon and chromic suture. He is also not used to costing and packaging, because he has had little incentive. This is because there has for decades been little market for simply priced packaged services. The big market for surgery is fee-for-service. To integrate a simply priced surgery package into legacy fee-for-service systems would require technical effort. Simplicity is complicated.

There is a second issue: legacy structures have brought atrophy to healthcare accounting. Paternalistic third parties allow payment of specific amounts and thus render informedactivity based costing and rational cost-plus-margin pricing irrelevant. The executive’s costs and profit don’t matter because his allowance has been set by another.

These are two of the reasons behind our wasteful excess capacity. Think about it. If the executive with little subject expertise indexes his price to third-party allowable, which is common, and those allowables are lower than true cost, the facility would subsidize care. If the executive indexes to third-party allowable and those allowables are higher than is marketable, the facility may sell nothing. Both propositions are losers for the facility and its patients.

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