I’m dealing with the not very nice condition of trigeminal neuralgia. I had it ten years ago and thankfully it went away after a few days. It seems to be getting better as the day goes on (possibly helped by the vast amount of ibuprofen I’m swallowing, and I’m trying to avoid breaking into my opiates), and hopefully it’ll soon go.
However, it’ll be quiet here today!
I’ m having a tough medical day myself so today I’m just sending you to two excellent bloggers—John Mack at the Pharma Marketing Blog on the new deconstruction of off-label marketing of Neurotin and its implications for consumer marketing, and MrHISTalk on a radical new (I think) interfacing company.
Finally, here’s more proof if you need it that the health care system sucks, and the health care financing system especially for the poor sucks really badly— from the Commwealth Fund and Harris.
In an excellent article at HealthLeaders, Brian Klepper believes that enough is enough and that transparency gleaned from large data sets is the key to solving the health care crisis. I think he’s mostly right, but of course what he doesn’t realize is the potential for delay caused by the ingenuity of the arguments that providers will use to show that “my patients are sicker.”
Over at Tony Chen’s Hospital impact, a very personal and very entertaining Grand Rounds is up
McKinsey, an organization that prides itself on increasing the amount of consulting dollars it gets paid by improving the strategic direction of American business is making another foray into health care.
You may recall their last study on CDHPs was roundly criticized (see Tom Hillard for a good example including a hilarious and brutal smackdown of their research methodology in the last couple of paras), and this time they cleverly aren’t bothering with data—in fact they’re basically copying Porter and Teisberg. The piece, by Kurt Grote, Edward Levine and Paul Mango, is about hospitals and how they need to get into the 21st century.
And of course the idea is that hospitals need to change their business approach. Well, given that I hadn’t noticed a rash of hospital closings and the the industry as a whole has been growing its revenues pretty successfully over the years, what exactly are the problems?
The rise of
employer-sponsored insurance in the 1930s and 1940s, and the emergence
of government-sponsored insurance in the 1960s all insulated hospitals
from the need to compete for patients. Today hospitals are “price
takers” for nearly 50 percent of their revenues, which is subject to
the political whims of the federal and state governments. Hospitals are
also required to see, evaluate, and treat virtually any patient who
shows up, solvent or not.
Furthermore, physicians were productive because hospitals put a great
deal of capital at their disposal. Yet these hospitals didn’t enforce
standardized and efficient approaches to the delivery of care. At many
hospitals today, doctors still bear only limited economic
responsibility for the care decisions they make. Little wonder that it
is often they who introduce expensive—and sometimes
excessive—nonreimbursable technologies or that hospitals not only
suffer from declining margins but are also performing less well than
other players in the health care value chain
The piece then has a pretty incomprehensible chart that compares the EBITDA (profit) of hospitals compared to drug companies and insurers. Surprisingly enough they make a whole lot less EBITDA than those businesses–although long time THCB readers will know we’ve been well down that path. And apparently their margins got worse and then better (from 25% in 1990 to 15% in 1995 to 10% in 2000 but back up to 15% in 2004).
McKinsey’s answer, basically filched from Porter/Teisberg, is for hospitals to specialize in particular service lines, stop being generalists and start trying to please the consumer who’ll be choosing among them. As a general mantra, this might be good for consultants to stick up on Powerpoint, but to be nice it’s massively oversimplified, and to be nasty it’s just plain wrong for most hospitals for the current and foreseeable medium-term future.
Their analysis ignores the fact that there are (at least) three broad categories of hospitals–inner city and rural safety-net providers, big academic medical centers, and suburban community hospitals. Each of these has a completely different audience, completely different set of incentives, and more to McKinsey’s point, different profit margins.
Right up front they talk about the 50% of revenue that comes from the government–but for the first two categories, it’s more than that! And for everyone, as public programs grow, it’s going to be increasing.
Those hospitals relying on Medicare make most of their money but playing very careful attention to the DRG mix. The ones who play that game well and make most profit on Medicare outliers (like the for-profits McKinsey features in its metrics) don’t really want to change that by stopping their patients becoming those outliers, because if they get better at treating patients, they make less money. Brent James’ famous Intermountain story tells the truth, and until Medicare really changes the way it pays, you don’t want to be ahead of that curve. Intermountain may have spent more than 10 years leaving
money on the table, but those rich Mormons can afford it.
Meanwhile, for the mainstream community hospitals, as more and more services and patients leave the building, the imperative is not to change their business model, it’s to get their hands on that revenue that’s leaving with them. That’s why most big hospitals are now-co-investing with physicians in specialty hospitals et al. But while that’s a defensive battle to build better “hotels” for the star surgeons, it’s still about building better “hotels”–not junking the model of being the nicest possible host to the big time admitting surgeons.
The McKinsey/Porter/Teisberg theory is of course that if you get good at one service line, you’ll be attractive to consumers, and that they’ll choose you. There is more truth to this notion now than there was five years ago, but not much more. Doctors choose hospitals for their patients. That’s always been the case, other for those that get admitted via the ED, and that’s a function of location. That’s why hospitals suck up to surgeons. But even when consumers make choices, they’re not very active consumers beyond the deductible, and basically all hospital spending is beyond the deductible, and even in the cash non-hospital business (the stuff like genetic testing) most consumers take their doctor’s advice.
Which leads of course to who the other real consumer for the hospital is, and that’s the third party payer. First rule of dealing with payers is to figure out how to play the Medicare system well enough that you make it very profitable, but not too “well” that you get busted, a la Columbia/HCA, Tenet & St Barnabas.
Second rule is that you need to get bargaining strength against the health plans. No one can pretend that health plans really care in a global sense about having their providers cut costs and improve care delivery. They may say they care about it, but health plans add a chunk on the top of what they pay providers and stick that to their clients (usually employers) — who basically take it in a mealy mouthed way.
There is, though, a fight in any local market about where to draw the line on hospital pricing. But this fight is not about having providers from outside (or even within) the region swooping in to capture all a payer’s business with better pricing on certain service lines, and payers moving patients to these disease-specific treatment centers. Well, it is about that in the McKinsey/Porter/Teisberg fantasy land, but in reality the fight is about setting global pricing for all the services a payer needs for its members in that region.
Look at the big fights going on now. In Denver there’s a dust-up between United HealthGroup and HealthOne and a similar one between United (again) and HCA in Florida. HealthOne is using a rather amusing tactic that–it says United should increase what it’s paying because it gave HealthOne a good report card. But let’s be real, this is about who can create enough market power so that the other side has to hand over a bigger slice of the pie if it wants services or patients delivered. Sutter showed this well when it beat up Blue Cross in California, and that lesson has been understood by provider systems across the nation as they lined up to form oligopolies.
If hospitals decide that they are going to improve care processes, and stop offering certain services, but offer the ones they are good at at a lower rate, insurers will say two things. First, thanks for the lower price, we’ll happily pay you less, and two, can you please organize coverage for the service lines you’re dropping as our patients in that metro area need it and don’t yet want to fly to Mumbai–they don’t even want to drive across town:
Aventura resident Jean Glick, who received a letter on Aug. 4, said she was furious. ‘If they claim to be a community hospital, this not serving your community,” she said. For Aventura residents insured by UnitedHealthcare, the next closest hospitals that accept their insurance are Parkway Regional in North Miami Beach and Mount Sinai in Miami Beach. <snip> Glick said she fears that not having a nearby hospital that accepts her health insurance could be expensive and even life threatening. ”I can’t afford to pay out of network,” she said.
The interviewed resident may not exactly understand the dynamics, but she doesn’t exactly sound ready for the brave new world. And let’s not underestimate the extent of the change McKinsey’s calling for. Here’s what they say about physicians:
For many physicians—particularly clinical specialists in the service lines where hospitals hope to differentiate themselves—the traditional arm’s-length and more recent competitive relationship must give way to some sort of formal employment or to gain-sharing schemes such as joint ownership of equipment or even whole facilities. Furthermore, performance criteria for physicians must shift. In a world in which transparent quality, service, and prices help patients choose places to seek treatment, metrics such as admissions volumes will become less relevant.
That looks like a license to drop a whole bunch of money hiring doctors and dealing with all the headaches that brings–not to mention dealing with the Stark laws. And all that just after the huge successes of hiring physicians in the 1990s! It would indeed be a brave CEO who stopped caring about the admission rates of his star surgeon. I can imagine the board meeting where he says that his hospital will have a smaller but more efficient service line that one day will grow to replace the others they’re dropping, and the gruff board member asks where the money to cross-subsidize the money-losing ED will come from.
It may be the case that in some far distant future patients can really be served (and moved around) on a national or international scale, and that the local monopoly/oligopoly model gets broken. But these things change very slowly. Delta airlines tried it about a decade back (flying employees around to centers of excellence)–have you noticed the huge impact on the system? Me neither.
Furthermore, almost none of the safety net hospitals, and few AMCs, can realistically take this course, as it destroys their mission of being all things to all comers. That matters not just because f their mission but because most of their money follows their mission. (For the safety-net via local taxes/Medicaid, and for the AMCs via Federal money for training residents and research).
I’m not saying that this is a good thing one way or the other. I’m in fact all in favor of changing incentives so that more efficient and better patient care is delivered, but I am saying that with the current and near-future market realities jumping on the McKinsey bandwagon is not a great idea for the vast majority of hospitals. But don’t worry—have McKinsey come in and change your strategy, and then in a few years they can come change it back!
CODA: It’s only fair to say that a while back (in 2001) one of the McKinsey authors Paul Mango wrote a prefectly sensible article about how hospitals could become more profitable by doing what they do now more efficiently, and understanding capacity optimization. And that five years later is pretty much still true.
Study Says Medicare, Health Insurance May Be Major Cause of Hospital Spending Growth. The Galen crowd are all over this study from an Asst Professor at MIT because it tells apparently a new tale which is that the spread of insurance, especially Medicare, has had the effect of increasing health care spending—rather than the BS foisted by the health care industry which explains that their costs have gone up because of the new medical technology that people want.
Brilliant and totally new, other than the minor fact that it is a concept called derived demand first coined by David Ricardo in the 1820s.
"It is not really true that the price of corn is high because the price of corn land is high. Actually the reverse is more nearly the truth; the price of corn land is high because the price of corn is high!"
Substitute the words health care for “corn” and medical technology for corn land and you have exactly the same thing. (If anyone’s got the brilliant poem about the corn and the hogs from the original text book, please add it to the comments)
So we added a huge amount of fuel to the fire by extending Medicare and private insurance, we left a mechanism where the providers made more money by doing more, and faced no restrictions on what they did, and we developed a medical and social culture where doing more was always regarded as better than doing less (or doing something was regarded as better than doing nothing). Exactly what did we think would happen, given those incentives? Providers would do more, get more medical technology and blame it all on patient demand for more technology. And we agreed to keep paying more. And that has never stopped in the last 75 years.
And of course the HSA crowd think that they have the solution. I’d be a damn site more impressed with this new discovery if Alain Enthoven hadn’t been ascribing the blame for increased health care expenditures to “cost unconscious” demand since the mid-1980s. He had a solution then and one that is much more comprehensive than the “let consumers spend their own money up to the deductible” mantra being quoted now. He just couldn’t get it past the health care industry…and there’s not much reason to think that the HSA backers will have much of a better experience. But at least Enthoven didn’t claim to have introduced the concept of derived demand.
So finally we got some resolution to the ridiculous Plan B situation which has helped drag the FDA even further into the mud —F.D.A. Gains Accord on Wider Sales of Next-Day Pill . It will go OTC but only for people over 18.
The drug agency has asked that the new Barr application restrict over-the-counter sales to women older than 18. Girls younger than 18 would have access to the pills only with prescriptions. Over-the-counter pills would be sold just in pharmacies and licensed clinics, the chairman of Barr, Bruce Downey, said.Mr. Downey said the acting Food and Drug Commissioner, Andrew C. von Eschenbach, had assured him in a call that the agency was committed to resolving the Plan B impasse. Barr had hoped to sell Plan B to women and girls of all ages, Mr. Downey said, “but I don’t have the ability to get all that I want.”
Of course this is bloody stupid, as women under-18 are those just as likely to be having unprotected sex and the consequences of them having unwanted pregnancies are much greater for them, and for the taxpayer and society, than for older women. And they are far less likely to want to have to deal with the shame and expense of going to a doctor to get a prescription. Plus the solution is unenforceable, because those under-18 will just get their friends to buy it, and they won’t even have the minor benefit of the pharmacist’s counseling.
But don’t worry about them, or the rest of us dealing with teenage pregnancies, Jesus (or at least his "representatives" on the loony right) will be happy. And they’re the ones who make scientific decisions these days.
I am up at Spot-on putting Health Care Politic$-As-U$ual in context. As ever come back here to comment if you like.
Welcome to Health Wonk Review. The bi-weekly round up of the great and the good in health policy wonkery around the web. Putting HWR together this week confirms that health wonks know alot about health care, but can’t follow simple instructions to save their lives. There’s a lesson in there for health care as a whole, and the lesson is that user interface design of software, insurance products, compliance regimens, or blog carnivals has to be mind-numbingly simple and foolproof.
So on with the show…
From Managed Care Matters, Joseph Paduda notes that some US employers are sending their employees to India for expensive procedures and that word is bubbling up into the mass media—more evidence that drastic times call for drastic measures. His take? The more pressure from alternative solutions like Indian surgeons, the better as it will force us to confront our mess of a health care system. Ain’t competition great?
At Ambulatory Computing Robert J Lamberts writes that Medicare has backed off due to pressure from device manufacturers. There were cuts due for reimbursement for high priced, high end devices, but caving to pressure from the lobbyists for the device manufacturers, the current administration has backed off from this plan. This entry is a rant by a primary care doctor who faces the threat of cutbacks on reimbursements for physician visits. "Politics as usual" threatens to undermine any attempt at real reform. His version is called Medicare Cuts Scaled Back
On the same topic at Health Care Renewal, Roy Poses says that some naively thought that CMS proposed cuts of its high reimbursement rates for high-tech procedures might make more money available for primary care, etc. Alas, the cuts were speedily rescinded. CMS bureaucrats could not withstand the onslaught of commentary from executives of big device manufacturers and hospitals, and surprisingly two famous left-wing senators.
At TMBN Dimitriy shares reports from two Silicon Valley conferences which hint how blogs and social media will transform health care, much like news, politics and entertainment. The AlwaysOn Stanford Summit offers an analogy with Hollywood (do not miss the War of the Worlds spoof video!). BlogHer offers a model of online community fused with a conference and an inspiration for TMBN. Finally, note how the health care blogger survey may help us find the right way to apply BlogHer ideas to health care.
What do the Grand Canyon, a Lotto ticket and the Union Jack have in common? Henry Stern from InsureBlog reports on how one nationalized health system gambles with folks’ lives.
Meanwhile Glowing appraisals of Cuba’s state-run health care system are plentiful in the health policy literature. But even if a few isolated metrics indicate something good (like a high doctor per capita figure), does it justify the whitewashing of medical apartheid? And how reliable are health data from a dictatorship, anyway? The Lucidicus Project touched on these questions.
Of course if you want to get beyond the rhetoric, perhaps you should look at some real data on the topic, as I did on this posting on Canadians grumpily waiting on waiting lists at THCB. Sadly for the anti-single payer crowd it’s just not as simple as they’d like it to be, even if most Americans can’t tell Cuba and Canada apart.
Talking about grumpy, also writing at THCB, surgeon Eric Novack is most pissed off with CMS for deciding just not to pay up for a few days….he should meet some of my clients!
Meanwhile a real full-time wonk, Michael Cannon at Cato@Liberty has not one but two interesting posts on P4P’s role in Medicare FFS (Hint: he doesn’t think it should have one). Michael also busts certain bloggers (err..me actually) for just reading the press release and not the whole report!
David Williams of The Health Business Blog writes about anesthesia-related adverse events which are four times as likely to occur when surgery starts at 4 pm compared to 9 am. Authors of the study call the results "expected." He’s not surprised either, but thinks it’s a scandal that quality varies so much based on time of day.
From MSSPNexus Blog, Rita Schwab writes that participating in the medical blogosphere has educated her about how strongly many clinicians feel about the Joint Commission on Accreditation of Healthcare Organizations. However, this post supports the premise that for all the angst and expense a survey generates, US hospital care is better than it would be without a "big brother" looking over our shoulders.
Vreni Gurd who writes the Wellness Blog says that drinking good quality water in adequate amounts is one of the foundational principles of good health. Therefore deciding where to source your water is important. Here are some ideas to help you make informed decisions.
Carol Krishner who’s still Driving in Traffic, tells us about a new senate bill (S 3719) introduced by Tom Harkin (D-IA) that would amend the Public Health Act and Rehabilitation Act of 1973 to establish a competitive grant program to support activities that would improve the health and wellness of individuals with disabilities.
At Drug Channels, Adam Fein has been busy..and he has a PhD too! He says that the Democrats are making Part D “reform” into a major theme of the 2006 elections, and wonders what effects direct negotiations between HHS and manufacturers would have on the pharmaceutical supply chain? Meanwhile the British fake Lipitor scandal continues to expand after an additional recall was announced. Adam wonders what can we learn from the European situation that can shed light on the misguided attempts to allow importation into the US? I think that we can all figure out his answers from his use of adjectives.
Finally people today are larger in stature and live longer than their ancestors. William Marcus Newberry, from Fixin Healthcare, tells us that most of this is the result of public health with sanitation, clean water, better nutrition and immunization, and antibiotics for life-threatening infections. Analysis reveals that conditions during pregnancy and the initial two years of life have a profound impact upon health status in middle and old age. The public would be well served if health policy was based upon these observations.
Meanwhile Fard Johnmar of Envision Solutions and Dmitriy Kruglyak of The Medical Blog Network have launched the first global survey of health care bloggers. It is open to all bloggers that spend at least 30% of their time blogging about health care-related subjects. The survey will run until September 29, 2006. Please go take it.
Next HWR is on August 24 at a to be disclosed location–check the HWR site for details or to volunteer. The one after that is at InsureBlog and the one beyond that at The Century Foundation.
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