In ancient Athens, the philosopher Diogenes wandered the daylight markets holding a lantern, looking for what he termed, “an honest man.”
It seems since the dawn of the consumer economy that customers and buyers have traded most heavily on a single currency – trust.
Three millennia later, our financial system still hinges on the basic premise that the game is not rigged and any trusted intermediary is defined by a practitioner who puts his client’s interests ahead of his own.
Anyone responsible for procurement of healthcare may feel like a modern-day Diogenes as they wander an increasingly complex market in search of transparent partners and aligned interests. The art of managing medical costs will continue to be a zero-sum game where higher profit margins are achieved at the expense of uninformed purchasers.
It’s often in the shadowed areas of rules-based regulation and in between the fine print of complex financial arrangements that higher profits are made.
Are employers too disengaged and outmatched to manage their healthcare expenditures?
Are the myriad intermediaries that serve as their sentinels, administrators and care managers benefiting or getting hurt by our current system’s lack of transparency and its deficit of information?
Unfortunately, like most mothers, she relishes telling funny (usually embarrassing) stories about us kids. I, unfortunately, seem to be the subject of the vast majority of those stories. But my big brother gets the leading role in one I will now tell. I guess it’s a small way to get back at him for…well, for lots of stuff. One day he came home from school all excited (unusual for my half-vulcan brother). ”Mom! Mom! I learned how to swim today!” he said. ”Oh?” my mother answered, not sure how and where he learned this new skill. Bill got a very pleased expression as he explained, “Steven V. taught me on the bus!” This is where my mother guffaws and my father chuckles and we kids look at each other with the well-worn “when will this story get old?” expression. He’s probably making that expression at his computer right now.
But the naïveté expressed by my brother at the nature of learning how to swim is similar to my confidence going into this project. Certainly it helps to know you can’t breathe underwater, and that swimming in a suit of armor is a bad idea, but this knowledge does not substitute for the first-hand experience of keeping afloat while the water seems to be trying to drown you. Similarly, I could read books, make a business plan, and impress people with my thought and insights, but that does not substitute for the first-hand experience of building a new business from scratch. It does nothing to keep me financially afloat while unseen forces try to pull me under.
Which brings me to my current situation. Would I have taken the plunge had I known what it’s taken up until now? It has been hard.
I hesitate to write about this, because:
I hate to sound whiney.
I don’t want people to worry that things are worse than they are. Especially my patients.
I don’t want to get a lot of advice from well-meaning people who don’t know the details of my situation.
But I want to give a realistic picture of what this journey is like, not just throw you the vaporware version. Besides, my world right now has significant stress and pressures that I didn’t anticipate.
The first sign of trouble came very early, in the renovation of my office. My goal was to start seeing patients in mid-December, and officially opening around the first of the year. Unfortunately, the office wasn’t ready until February 6th, and the construction cost twice what I expected. For those who can’t see the implication: I spent more money and lost a month of earning it. More money out, less money in. Maybe swimming’s a little harder than Steven said it was.
Then came the EMR debacle.
Of the areas I was most sure of, my ability to use computers to improve care was at the top. After all, I had won national awards and much acclaim for my use of electronic records to improve care. Two months and five EMR products later, I was beginning to see just how far the health IT industry had moved away from patient care. I din’t know what to do; I was at an impasse. Each system I tried either lacked some basic element of organization I required (such as management of outside documents) or was unable to generate anything but the voluminous documentation which succeeds only in two areas: getting physicians paid and hiding useful clinical information.
“One reason for the employers’ passivity in paying health care bills may be that they know, or should know, that the fringe benefits they purchase for their employees ultimately come out of the employees’ total pay package. In a sense, employers behave like pickpockets who take from their employees’ wallets and with the money lifted purchase goodies for their employees.”
“The correct economic argument is a bit more nuanced. Employees do not care about the cost of their benefits; they care about the benefits. If an employer can procure the same benefits at a lower cost, the employer need not increase wages one iota. In this regard, there is nothing special about health benefits. Suppose an employer offers employees the use of company cars. Workers don’t care what the employer paid for the cars, and if the employer can purchase cars at a deep discount, it will pocket the savings.”
So far I can buy the nuance. It is something we could theorize about.
But then David he notes that:
“Employers may have an incentive to reduce benefits costs yet they are passive purchasers. With a few exceptions, nearly every American corporation outsources its healthcare benefits to insurers and ASO providers and then looks the other was as the medical bills pile up. Sure, they complain about the high cost of medical care, but they don’t take direct action by aggressively shopping for lower provider prices. Doesn’t this passivity demonstrate a lack of interest? No more so than the fact that auto makers do not aggressively shop the lowest rubber or silica prices implies that they are disinterested in the costs of tires and windows. Auto makers outsource the production of tires and windows (and most other inputs) and let the Michelins and PPGs of the world worry about rubber and silica prices. By the same token, American companies outsource the production of insurance and let the Blues and Uniteds of the world worry about provider prices. This is entirely appropriate.”
Forgive me if by now I am lost. Do we really believe that modern corporations, whose management and board of directors agonize even over an extra penny of earnings per share (EPS) – believe me, I know whereof I speak – simply outsource the procurement of major inputs and then look the other way?
They do seem to do it in health care – which is the puzzle – but they surely do not in connection with other important inputs where smart buying can add pennies to EPS.
I welcome Leah Binder’s earlier post on this blog, written in response to my blog post in The New York Times. To be thus acknowledged is an honor.
As an economist, I am not trained to respond to Ms. Binder’s deep insights into my psyche, dubious though it may be. Nor, alas, can I delve into hers, fascinating though that might be. Let me therefore concentrate instead just on substance.
First of all, I do not recall calling employers “stupid,” nor did I question their IQ. I do confess to having once called employee benefits managers, when addressing them at some of their usually mournful meetings, “kind-hearted social workers dressed to look like tough Republicans.” At that meeting I contrasted how carefully their company’s tough-minded VP for Procurement, Murgatroid de B. Coverly III, Princeton ’74, purchased paper clips for the company with the much more mellow approach taken by their V.P. of Human Resources to purchase health care for their company’s employees.
Benefit managers – I hate to call them BMs — really are the nicest folks. They care deeply about their employees’ well being (until, of course, the latter lose their job with the company). They worry incessantly about their company’s ever rising outlays for health insurance. And, after a cocktail or two, they regularly lament how rarely they get the attention of top management and of the board of directors – the very folks I once told to go look into a mirror in their search for the culprit behind rising health care costs.
No, when I say “employers” I really mean top management and boards of directors who make the rules. And I did not even call those mighty ones stupid, but merely “passive payers” as did, by the way, David Dranove on this blog in his critical response to my New York Times piece. Why these usually tough and smart people have behaved so passively in buying health care for themselves and their employees remains a puzzle at the level of economic theory.