RTCrawford’s Weblog

Open the New York Times last weekend and there were two articles concerning healthcare quality in the United States.  The first recounts the efforts by New York State government to close or consolidate hospitals with high patient-harm rates.  The first indication that such closures are exceedingly difficult is the necessity of creating a special, independent commission.  When elected representatives lack the spine or the consensus to do that for which they were elected, an independent commission is often the solution of choice.

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In my Quality Controls class, a number of students have been debating the merits and detraction of a tiered healthcare system, where the wealthy have the option of buying high-end services and the poor get the quality of services their wallets and government support can afford.  Here is my take on the question.

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Over the last several weeks, I’ve been hard at work with the start of the new school year and semester at UNC.  For the first time, I am teaching Healthcare Policy for the Bachelors of Science in Public Health program, in addition to the Quality Improvement class for the Executive Masters students (Masters in Healthcare Administration, plus the occasional Masters of Public Health student).  After a summer focused on consulting projects, it is great to again have a chalk board at my back and brilliant students to my front.

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The practice of balance billing is increasing, according to this Los Angeles Times article.

Balanced billing is defined as “billing beneficiaries for amounts not reimbursed by payers (not including copayments and coinsurance amounts); this practice is prohibited by Medicare regulations,” according to “Understanding Health Insurance: a Guide to Billing and Reimbursement”, ninth edition, by Michelle Green and JoAnn Rowell.

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As time permits, I am posting final exam papers written by selected students of mine (with their consent, of course). In each case, they have addressed the question of whether the tools and techniques of continuous quality improvement work in healthcare settings. This seemingly simple question is abundantly difficult. My students, however, are brilliant, and I am frequently rewarded with “mind candy” such as that provided by Sherika Hill, who posits that the continuous improvement of Shewhart’s and Deming’s PDCA cycle is not necessitated by perfection’s impossibility but, instead, by the changing forces and influences of the informing environment.

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The common churning of patients/customers between insurance companies every few years suggest that coverage of preventative medicine services is unlikely to render a benefit to the original payor. This becomes all the more problematic when realizing that most of the benefit of preventative medicine is likely to occur once the patient is of retirement age and covered by Medicare. As mentioned earlier with the Blue Cross Blue Shield description, this is changing but, like everything in healthcare, at an abysmally slow pace. Personally, I think that the likely model explaining this slow adoption is Garrett Harden’s “Tragedy of the Commons.”

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CNBC’s Mike Huckman is reporting on an Ernst & Young survey of senior executives in the pharmaceutical industry, in which three quarters of respondents indicate an increasing role for the chief financial officers. As the report indicates, pipeline difficulties and increasing unwillingness by insurance to accommodate the rising cost of pharmaceuticals prompts the industry to focus on cost reduction. What the report does not indicate, but what my students and I identified back in 1999 as a likely trend, is the net effect of this strategic shift within the industry.

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A short time ago I entered a posting in this blog linking Simon de Beauvoir’s concept of “The Other” to the healthcare environment and the loss of leadership by the practitioner. At the same time, I provided it to my quality improvement students, seeking their feedback. One of those students, evidently believing me more intelligent than the good Lord provided, “read between the lines” and identified a depth of thought that was never present in the original. So, I wrote a response designed to clarify the first posting –which I will provide below.

Before that, I should offer two reminders from the original. First, the genesis of the first posting came from one of my students, who noted that 360° reviews were becoming common as assessment tools for practitioners. The physicians in my class responded that they believed this, both, appropriate and beneficial, given the ill behavior they witnessed among a small number of their colleagues. Second, de Beauvoir’s “Other” refers to her recognition that women of her day were often depicted by men as mysterious, mercurial, and indecipherable. She believed this detrimental to women, causing them to be taken less seriously than their male counterparts. Others of that era noted that this prompted some women of that day to use this prejudice as an excuse for poor choices, and that this served to perpetuate the prejudice and further undermine the goal of gender equity. I saw a link between the two (360° reviews for practitioners and de Beauvoir’s “Other”).

Here is my clarifying response:

De Beauvoir’s point was that, when deference is accorded for behavior at odds with supportable convention (i.e., that which prompts the 360° review), something of value typically compensates for the accommodation. Surely, in the case of the ill-behaved practitioner, it is the “power to heal.” De Beauvoir, however, insists this is not a one-for-one, quid-pro-quo exchange, as the student of equilibriums might ordinarily assume. Instead, the group to which deference is so abundantly given suffers polite but negative critique, even as it encourages some to perpetuate the stereotype for short-term benefit. The observer views the practitioner as progressing from Bella Donna to Prima Donna. Applying this to another diva of note, we may love Aretha for her voice but find her company demanding, distasteful, and beyond tolerance. This explains why many contend the 360° is needed.

Even the worst offenders must know that common etiquette and the conventions of professional practice make such behavior unacceptable, but this disconnect persists, nevertheless. Why? De Beauvoir’s model explains it (i.e., short-term benefit for the physician and past acceptance by the rest of us), and, more importantly, she explains the downside of why the petite tolerances move beyond trifles to devastation for the practitioner, the patient, and the whole of society.

In fact, de Beauvoir’s model suggests that devastating consequences reliably follow. So, let’s test the model’s applicability. To qualify as devastating, the outcome must be negative and significant and, to avoid preemption, logically unexpected.

Today, as in the past, the practitioner enjoys greater standing than even the military or the clergy. They care for us when we are febrile, decrepit, emetic, diuretic, or otherwise at our least attractive. They treat us for the irritability and hot flashes of menopause and for the emasculation of erectile dysfunction. Dick Cavett, eulogizing Bobby Fisher in the NY Times, quotes a Souix friend as saying, “Count no man lucky until he has had a good death.” Sadly, many of us will not be so fortunate, but it is on the practitioner that we rely to ameliorate this most important certainty (i.e., death). So, we trust them with our deepest and most significant secrets and fears, and it seems only reasonable that this trust should be reverential, private, and uncontested by those whose involvement represents a conflict of interest.

Today, however, CMS controls payment, Joint Commission drives practice, insurance directs cost structure, Leapfrog (employers) influence delivery, misinformed patients second-guess recommended treatments, juries presume practitioner guilt, and government persists in seeking savings from those who are least able to accommodate reduced cash flows (i.e., providers). The practitioner, in effect, has been by-passed for the first time in modern US healthcare history – roughly, 1958 to present, starting with the first open heart procedure.

Personally, I believe all of this is negative, significant, and logically unexpected and, therefore, consistent with our requirements for a devastating change of circumstances – described above.

Why? Does de Beauvoir explain this, as well? Is all of this because an exceedingly small number of practitioners behave poorly, or is there more to it?

As healthcare costs have risen dramatically over the last 40 years, which practitioner representative forcefully argued that producer prices were the driving source, not physician salaries or hospital profit margins? When the IOM reports were released, who in the community (beyond Berwick, Rheinhardt, Wachter, Kaluzny, James, and Batalden) argued that the status quo was unacceptable – demanding that poor performance serve as the internal catalyst of reform? As outsiders took on the role of Ralph Nader and declared healthcare “Unsafe At Any Speed,” who in the community proposed a solution? As outsiders offered flawed solutions, who in the community offered an alternative?

Matilda (not her name) if your offspring were arrested for truancy, would you excuse the behavior because the officer mis-spelled “truancy” on the arrest record? Would you continue to do so with the second, third, or fourth incarceration? If the judge recommended consultation with a counselor possessing an excellent reputation and record of success, would you fault the judge’s preference for black robes as evidencing poor fashion sense and, worse, poor judgment?

Well, you might. A parent’s love is not always logical. But the community would eventually discount your judgment, and the judge would reasonably conclude that, as nice as you are, you could not be trusted to make a rational decision. This is de Beauvoir’s model applied to parenting.

In healthcare, it explains why a void of physician leadership is so devastating to physicians (and patients), and it explains why those who should control the practice of medicine are being ignored and by-passed. A failure to do that which the rest of society recognizes as reasonable has prompted the broader industry to treat the practitioner as trustworthy and admirable in the clinic but incapable of producing policy outside of it.

This harms, both, the practitioner and the broader community. The practitioner operates in a quasi-free market but, as an entrepreneur, the physician controls a decreasing number of production inputs. Even the metrics of compensation are controlled externally, and the producer of healthcare services is often paid most when working least (under capitation, global billing, or any other metric beyond fee for service). What other industry has such model?

The costs of court awards are inflated because juries presume guilt – a consequence of the IOM reports, local news stories about medical error, and a failure to address the problem. This presumption of guilt makes frivolous lawsuits more attractive to the tort bar, and it drives up liability insurance costs. It means the true drivers of healthcare inflation fly under the radar, and makes the practitioner the recurrent target of cost cutting – compelling the physician to churn through an increasing number of patients, deliver lower-quality care, and, via return visits and increasing patient acuity, perversely increases costs. This system effectively treats the practitioner as a child who is unworthy of the adult freedom to run his or her business as the entrepreneur deems appropriate, to focus on the buyer’s satisfaction, and to cultivate demand and compete based on quality and price.

The patient and the broader community are harmed by these unnecessary costs, as well. Expenses borne by the patient increase unmolested by a reasonable and strong practice community, making the defensible case that others are the principle drivers of healthcare inflation. (The role of medical technology as the leading source of health inflation is a new recognition by CBO, but the data has been available on the Kaiser Family Foundation website for nearly a decade.)

Quality is not just suspect, it is demonstrably poor. If dead men tell no lies, surely 44,000 deaths due to medical error constitute a paradigm and critical mass of candor. Expenses are not transparent (cost accounting) and variation in cost and quality are the surest indicators that free-market competition is absent, with both detrimental to patients (as well as practitioners).

Fernand Braudel (Capitalism and Material Life, 1400-1800) asserted that history is not about tracking the influence of powerful leaders but, instead, the recognition that economies are driven by the experience of common people during the time in which they live. In other words, Joe Six Pack is more telling and predictive of the future than George Bush. A future with nano-tech robots feasting on atherosclerotic-plaque, stem cell repair of spinal injuries, and medications tailored by genomic and proteomic research to battle the morphology of a cancer’s morphology is only significant in comparison to life for the average person just prior to their arrival. Put differently, we can only know a thing in contrast to its surroundings (per John Locke), and, with advancing medical science, the surroundings are the state of things just prior.

More importantly, it is the previous standard that determines our focus on reform and the need for it, suggests what improvement is reasonably possible, and defines demand for the improvement and the shrillness with which it is voiced. Before the electric light, gas lighting was poor, smelly, and unhealthy, which is why cities quickly financed and installed electrical grids when Edison invented the light bulb. The electric light, as an advance, was defined by its comparison to gas lighting.

In business, this is consistent with the work of Clayton Christensen (“Innovator’s Dilemma”). Christensen argues that progress follows from disruptive advances that are:

1. initially designed to meet the needs of small constituencies (which subsequently grow),
2. that powerful organizations rarely recognize these opportunities (because the advance does not address the needs and wants of current customers, and the market for the disruptive advance is initially too small to propel organizational growth for large and established firms), and,
3. most importantly, innovation and current practices are a function of market demand – the customer gets what she wants, not what management tells her she wants.

This means that the market by-passes management all the time. Successful firms may be rudely ignored, marginalized, and left bankrupted without so much as an apology. This is creative destruction at work.

So, to understand healthcare today, it is necessary to understand why all of the actors are behaving as they do, to understand their customer, and to grasp the experience of the common citizen. For the AMA, the customer is the physician practice community. For insurance, it is the employer and, to a lesser extent, the patient. For government, it is corporate lobbiests, unless the electorate takes an actionable position of dissatisfaction and does so in an election year. For the tort bar, it is the client seeking redress and compensation.

Matilda, the depth of this argument is realizing the unintended consequences of our actions. The Bastile was not stormed on whim. The problem that prompted it brewed for decades – long before the king financially supported the American colonies to the fiscal detriment of France. Indeed, historians define revolutions as the complete and violent overthrow of the status quo, but they recognize that the genesis of revolutions take time to develop and, often as not, the revolution itself is not a single event but, rather, a series of unpleasant proceedings.

Consider the revolutions in Russia at the start of the last century, the sequence of revolutions spanning more than 100 years leading to the current Mexican government, the history of India starting with Gandhi before the end of colonialism and extending through the independence of Bangladesh, and the on-going experience of the Philippines, Northern Ireland, and Palestine. Even the French Revolution did not end with the Bastille. And, to the extent that healthcare may be experiencing a revolution (with the overthrow of the practitioner’s dominance), I can not believe that the current model is so satisfactory or sustainable that a further revolt is not in the cards.

Will that end state be socialized medicine or a single payer system or one that returns healthcare to those who have sworn devotion to the patient? In short, will it be the physician, Washington, state government, insurance, employers, or lawyers who lead healthcare? Personally, as a patient, I am praying for the practitioner, but, lacking practitioner cohesion and leadership, the odds seem exceedingly poor. There simply is not sufficient time for them to heal themselves, learn to play well together, cultivate leadership, and reverse an earned reputation for dysfunctional division. The only thing about which they agree is their willingness to politely disagree. Cohesion, even in support of ending medical errors, has become a delusion of debate and sophistry, and achieving even marginal consensus represents a challenge that recent graduate Beauregard Bufford, MD, (not his name), described as “herding cats.”

So, the lesson of de Beauvoir is that, sometimes, the victim is responsible for her victimization and, more often then not, to cease being the victim, behaviors must change, leadership must be exerted, and common sense must return. This is why Kate Chopin’s “Awakening” was such a powerful advance for the women’s movement, even though it was written in 1899 and forgotten until the 1980s or so. Steinham, Brown and company may have used “Equal Rights” as their moniker, but their goal was defined by Chopin and de Beauvoir as a desire to be taken seriously and enjoy the freedom to confront challenges worthy of their intelligence, capabilities, and interests. Chopin’s protagonist, Edna, wanted a strong and passionate marriage, with children, and the ability to “awaken” her intellect outside of the home, and de Beauvoir wanted women to cease be treated as “the other” — lovable, indecipherable, illogical, and unworthy of serious consideration.

I may be wrong, but I see a corollary to the complaints concerning lost control of healthcare by the practitioner community. Several years ago, after having a glass of wine (okay, two … well, three or four), I attended a local government board meeting. Each of the members of the board of commissioners were (and remain, despite my behavior) friends. They were debating a proposal that would increase government maintenance obligations for the good of the community – without identified funding. With the public comment session long ended, there was no way to let the board know that they were about to make a significant mistake, as each member expressed support for the town managers’s measure. So, I lifted my leg above the chair in front of me, pointed my index finger at my foot, and said “bang.” The board took a short recess, and the mayor pro tem and I had a quick conversation, where I pointed out that the cost of giving birth is nothing in comparison to the expense of rearing the child into adulthood.

Regardless of whether it is our good intentions that gets us into trouble or the aftermath that does the deed, our most egregious injuries are those we inflict on ourselves.

If you work in healthcare leadership, you live the mantra of “The Boomers are Coming, the Boomers are Coming.” Technically, the boomers will start hitting the age of 65 in 2010, less than two years from now. In reality, a small percentage of boomers are already starting to retire. Current retirees number around 47 million, but that number is expected to grow to over 80 million by the year 2030. You can see why former Ambassador Pete Peterson of the Concorde Coalition has described this as akin to a goat passing through a boa constrictor. Perhaps more alarming is the recognition that between 70% and 80% of health-care costs are incurred in the last five years of life, and, with the average life expectancy currently at just under 80 years for both men and women, those health-care costs and the last five years of life occur well beyond the age of 65.

There is some concern that, with Medicare slated to go bankrupt in the year 2020, we will witness generational warfare over available finances. This is unfortunate, and it was never expected to be this way. This, in fact, was why the Medicare trust fund was created – largely financed by boomer generation taxpayers, who paid double fare to cover the health care expenses of then-current retirees as well is stockpiling a savings account sufficient to largely cover their retirement health care needs, as well. The Medicare trust fund, however, is empty, having been spent over the years by Congress and presidents of both parties on “needs” both significant and insignificant – defeating the Soviet Union during the Cold War and financing the Lawrence Welk Museum, to provide examples of both.

Today, health care costs are rising at an alarming rate, and there is no one single cause for it. Certainly, the rising cost of patent-protected pharmaceuticals represents one of the most significant contributors to health care inflation on a percentage basis, as do similar advances in the area of novel therapeutics by the medical device manufacturing industry. Another source is wage inflation within healthcare, due to current and anticipated shortages of nurses, certain allied health professionals, and family practice physicians. The anticipated portion of this shortage follows from the recognition that many of those in these positions are, themselves, baby boomers, who are anticipating their senior years in retirement – presumably, tooling around America in Winnebagos, if only gas prices will decline … and stay there.

There are a number of possible solutions to this resource constraints issue. Recently, we’ve seen the arrival of off-shoring, with patients heading down to Brazil (the land of the body beautiful) for the entire assortment of plastic surgeries – anatomically adding and deleting, in an effort to prevent Florida’s beaches from becoming a cellulose eyesore. In the area of non-discretionary procedures, some patients are heading off to India and Malaysia for low-cost necessities, such as coronary artery bypass grafts, where they can recover in Club Med surroundings at half the price charged in the United States. News reports indicate that some insurance companies are even splitting the savings with those willing to travel halfway around the world for life-saving and life-extending procedures – almost rewarding the poor lifestyle choices that made the procedures necessary.

Previously, medical off-shoring was limited to those areas of health care that could be digitized — such as radiology and medical transcription. Today, nearly every aspect of US healthcare seems ripe for such treatment, and it is fair to say that, if we ever invent the Star Trek transporter, the US healthcare system would disappear overnight.

Before tariff reform and the advent of modern international trade, domestic economic shortages were resolved the old fashion way – growing demand increased profits, and profits seduced those eager to fill the lucrative void. Such is the seductive power of the under-tapped market. Healthcare, however, is evidently made of different stuff – an amalgam of free-market competition, government-financed public health, and socialized medicine. To the extent any of these deviate from the competitive market, they serve to bastardize the effects and benefits of the free market, which include lower costs and higher quality.

This includes the cost for pharmaceuticals and medical devices – which the Congressional Budget Office now indicates serve as the principal cause of health care inflation. As outlined in a previous posting, “Is Marketing the Silver Bullet of Health Care,” the pharmaceutical and medical device industries exist in the free-market portion of health care. Their motivations, which are consistent with all free-market firms, is to maximize shareholder value. This means growth of the company or stock value to expand the wealth of company owners. They are not, therefore, nonprofit organizations, nor are they philanthropic. This is neither sin nor estimable. It simply is.

In the case of the pharmaceutical industry, just one in 5000 chemical compounds becomes a product on the market. Moreover, just one in 500 undergoing laboratory research makes it through human trials and survives the FDA approval process. On average, the industry estimates that over $800 million is spent to bring each new product to market. This is estimable (worthy of esteem) because, through this process, life expectancy has nearly doubled since 1900, and it is estimated that life expectancy could extend to 120 years, if medical science continues to realize the promise of genomics, nano-technology, and other discoveries not yet imagined.

It appears, however, that we cannot afford it. Healthcare costs have risen at more than twice the rate of wage inflation since 1980. It is not the elderly, the obese, the diabetic, or tobacco that is driving this unsustainable rate of growth, but, rather, it is the growing cost of medical technology, according to the Congressional Budget Office. Ray Kurtzweil, who created voice recognition, attributes our impressive pace of discovery on an explosion of information, of which the world wide web is a core piece, and he argues that, eventually, new discoveries will arrive almost instantaneously. Personally, I doubt it, but I am not nearly so brilliant as Mr. Kurtzweil.

What I do know is that our inability to afford new discoveries is largely a consequence of a shortening period of patent exclusivity. The patent laws provide 17 years of exclusivity, but the inventor is compelled to patent the expected discovery as soon as the idea arrives. Otherwise, no researcher would feel secure investing the 12+ years normally devoted to research and FDA approval that is the average today. This leaves just four years of exclusivity for new products entering the market. When I graduated business school in 1996, the period of exclusivity was eight years. This means firms have half as much time to cover their research and development investment and secure a suitable return for their investors. And, this shorter period of exclusivity means they must churn new products into the market at twice the pace to sustain the same level of profitability. Add competition to the equation, where a competitor can make a patent-protected offering obsolete by introducing a new and improved alternative, and that window of opportunity declines further.

These are the physics behind the cost of medical technology, and the inflation it promotes is not only unsustainable, it strikes hardest at government, because government covers the cost of healthcare for the four most expensive demographic segments – children, the poor, the elderly, and the psychologically disabled. Unfortunately, it is government, seeking to lower the cost of healthcare, which has caused this unsustainable rate of inflation.

By expanding government payments for an increasing portion of healthcare, it introduced new sources of cash flows into a system that is designed to quickly fill the void between current capacity and available capital. This was the result of Medicare and Medicaid when they arrived in 1965. As Medicaid expanded to cover those at 180 percent of the poverty level, the void was soon filled. When the SCHIPS system arrived, the same result followed. And the arrival of Medicare Part D is having the same effect as when pharmaceutical coverage of medications for psychological diagnoses arrived. Government payment for healthcare has no limit under a hybrid public / private system of funding, because government places no constraint on the pace of technological invention and it has the capacity to print money or increase taxation to cover the growing costs.

Confronting horror stories of defective products achieving FDA approval, government oversight and the approval process became more stringent and time consuming. This had the intended consequence, but it also cut into the period of patent exclusivity, in addition to increasing development costs. This was the unintended consequence, just as increasing government coverage was never expected to serve as the catalyst of healthcare inflation. Indeed, it was expected that increasing FDA oversight would intimidate industry into keeping costs low.

During the first term of the current President Bush, the administration instituted new regulations curtailing industry’s ability to secure patent extensions. Previously, extensions were granted when a patent-protected medication was found beneficial at a different dose, via a new delivery mechanism, or useful in the treatment of a different disease. For years, industry gamed the system to secure extensions, and the administration believed this contributed to healthcare inflation … which it did. The extensions, which averaged 18 months, however, provided industry with more time to achieve the required return on investment. Eliminating the extensions had the unintended consequence of increasing costs, not reducing them.

In the negotiations leading to enactment of Medicare Part D, government opted against negotiating volume discounts on patent-protected medications. Industry maintained that volume discounts would undermine profits and put it in the awkward position of deciding between several unsavory options. Presumably, this would include refusing to negotiate and provide these medications to government-supported patients, reduce research and development investment, cut provision of low-cost medications to third world countries, and other, unspecified, consequences. To avoid this, government agreed to the demands but did not cap expenditures to prior levels, and costs have increased. Again, we are left with the unintended consequence of government intervention that was designed to reduce costs.

To reduce healthcare expenses, government has increased the percent of Americans covered by federal-government healthcare programs under Medicaid. As cost have risen, the federal government has cut funding – leaving the states to shoulder an increasing portion of the burden. Many states have followed Tennessee’s lead and reduced, both, the number of citizens qualifying for coverage and the services provided to those who remain covered. These cuts have reduced delivery of preventative care and prompted an increasing number to ignore symptoms until their disease has progressed to a point where treatment is more costly than if addressed at an earlier stage. Again, the unintended consequence increases costs when the intent was to reduce them.

When other first world countries were converting to socialized medicine, the US elected to retain the free market approach, in order to realize the lower cost and higher quality benefits that accompany market competition. The socialized medicine countries sought to negotiate volume discounts. Industry realized that, if the US consumer paid for the fixed cost of production, selling discounted products outside the US would remain lucrative if just the variable costs were covered by non-US consumers. Having adopting a hybrid-socialized-medicine / free-market system in the US, the US consumer now pays double that charged outside of the US, as we have yet to benefit from illusory free market competition. In fact, the US consumer is now covering the fixed costs that would ordinarily be charged to international consumers — effectively subsidizing socialized medicine in Germany, France, England, Italy, Spain, Canada, etc. Again, government sought to keep costs low but, by adopting a hybrid system, the unintended consequence has been higher costs.

So, what is the solution? Personally, I doubt that a solution exists. It appears US healthcare has been so ineptly managed that insufficient time remains before the system implodes. Even if a narrow window of opportunity remains, I doubt government has the ability to achieve such a dramatic change of character as to move from incompetence to excellence with sufficient speed to achieve the necessary reforms in the time remaining. There are some things that government could do that might just work, and none of them requires adoption of a socialized medicine system.

First, start the patent-exclusivity timeclock when FDA approval is granted. Opponents of this proposal will claim that 17 years of full-blown patent exclusivity is excessive and likely to increase health care costs. Instead, I believe that it would extend the time available to secure a return on investment, reduced churning of new medications into the marketplace, and significantly lower medication costs. Moreover, competition between pharmaceutical firms would ensure that, for the most lucrative patent-protected medications, the next advance would arrive long before the end of the 17 years.

Second, government should negotiate volume pricing discounts. This would return a missing element of the competitive free-market to the system and force the pharmaceutical industry to make a decision between exiting the US market or, alternatively, increase pricing to other countries. Given this choice, I doubt that the industry will depart the largest and most lucrative market on the planet.

Third, in exchange for the patent extension, government should institute anti-gouging laws that limit medical technology firms to 20% profit margins. This should be sufficient to promote continued research and development, compensate for the risks associated with recurrently generating scientific advances, and compensate for the presence of a hybrid system. Would this prevent industry from moving offshore in order to avoid this new law? It would if the savings were reinvested in the US education system, with a required emphasis on math and science. Industry will go where the best and brightest minds are located.

Fourth, open the US boarders and open them wide in an immigration regime that is blatantly liberal and conservatively managed. It should limit acceptance of under-educated applicants to that proportion currently present in comparison to well-educated applicants. With the boomers leaving the workforce, tax-paying replacements are needed and it is too late to procreate our way to solvency. We will need replacement housekeepers, cooks, gas station attendants, and day laborers but not in disproportion to scientists, doctors, engineers, MBAs, lawyers, and teachers.

Fifth, government needs to mandate creation of evidence-based clinical pathways for diagnoses for which we know what optimal care entails. Practitioners treating patients in accordance with those pathways should confront a more forgiving standard of gross negligence in tort liability cases. Moreover, they should receive compensation in treating a patient off-pathway only if based on a medical-note-justification indicating strong patient preference or confounding comorbid condition. This would significantly reduce the variation in treatment practice costs and have the effect of lowering tort liability costs, frivolous lawsuits costs, continuing medical education costs, the costs associated with preventable medical error, supply costs for providers, and healthcare operating expenses due to the inefficiency of treatment variation. In cases were we are uncertain about which treatment approach delivers the best outcome, the pathway should reflect the cheapest among the best available options. The pathways should be created by the physician professors at the leading academic medical centers — giving the pathways credibility within the profession and preventing the insurance industry from confronting the ethical dilemma of conflict of interest. After all, the insurance industry argued in the Grenwald case that its fiduciary obligation was to stockholders, not patients … and the Supreme Court agreed.

Ultimately, we are in this predicament because of stupidity by well-meaning people. We may just have a fighting chance if able to retain the well-meaning people while putting an end to the stupidity. Otherwise, we should simply stop flailing about, suffering unnecessary agony with each new government budget cycle, and just adopt socialized medicine. Whether by choice or compulsion that is where we are headed if not discovering competence in this the 11^th hour.

It would, of course, help if our self-regulating industry enjoyed the leadership provided by an identifable self-regulator, but none of the prime candidates (AMA, AHA, Joint Commission, AAMC, etc.) are leading. Instead, most are following the disparate, atonal, and uncoordinated voices of their membership.

And that is why, I believe our system will fail.

And, oh, by the way, “The Boomers are Coming … The Boomers are Coming.”

Medical error deaths in Pennsylvania. We are all customers with something of a common experience. On a Saturday morning, if you head off to Wal-Mart and purchase a new toaster oven, you fully expect that the oven will work. If it does not, you take it back for a refund. For the customer, there is certainly a cost (typically measured in gas mileage, but including the time invested in the purchase and return, as well). For the retailer, costs are significantly higher. This, of course, would include reduced reputation, the logistical costs associated with returning the defective product to the manufacturer, and the cost of warehousing, both, the defective product and the necessary replacement – plus ancillary costs associated with marketing, in order to churn replacement customers into the system as dissatisfied customers head off to the competition.

In healthcare, there has been a tacit expectation that, when medical errors occur, we will be paid for our services. Under this system it has never been precisely explained why the almighty smiles with such benevolence on us uniquely. It may be argued that tort liability represents an expected healthcare cost, but tort liability applies to other industries (recall the Firestone tire cases and, more recently, the lead-paint-Mattel issues). Perhaps it is the advanced degrees, the lab coats, the stethoscopes, and the other accouterments of healthcare that make us special, but, increasingly, such deference is in short supply among payers – including the big kahuna, CMS (the Centers for Medicare and Medicaid Services). The states, especially, are increasingly opposed to paying for medical-error with Medicaid patients. Today, we have the latest such report, coming to us from the Philadelphia Inquirer, extrapolating the medical error rates from a small number of prominent counties in Pennsylvania to the state at large.

Interestingly, there is a comment in the article indicating that one member of the medical community believes it unlikely that such an extrapolation is accurate. Surely, we are not killing so many patients as these projections suggest, the respondent asserts. These figures, however, strike me as being perfectly reasonable (even an understatement of the reality). Over the last several years, I’ve had close connections with some senior members of the Pennsylvania government and gave testimony in support of legislation designed to reduce the medical error rate. From those sources, I understand that nosocomial infections kill 19,000 Pennsylvania patients per year. Consequently, the figure of 1,500 deaths due to medical error in other categories strikes me as being in the ballpark.

California –Emergency-Room Problems Threaten, Both, Patients and Emergency Rooms. Overcrowded conditions, patients stacked in the hallways awaiting available rooms, a patient writhing and dying in the waiting room, an un-attended patient leaving in disgust and dying on the sidewalk across the street are all recent stories from California hospitals facing loss of CMS accreditation, according to this Los Angeles Times story. California, however, is not like Pennsylvania, and, to our credit, no practitioner is quoted claiming the problem is not as significant as this description indicates. Instead, the problem is blamed on lost capacity. Like the previous story, however, there is a quality improvement aspect and opportunity, in the face of financial constraints. While quality improvement is largely viewed as a means by which to increase customer satisfaction, the process improvement component of CQI is designed to increase cost savings through improved operational efficiency. The problem with CQI, however, is a required and sustained level of commitment that borders on religious fanaticism. Quality Improvement is not, therefore, the hallmark of the merely average provider.

Is Iowa the Solution? A recent an unprecedented surge of patients during the month of January in Iowa provided local hospitals and emergency rooms with a real-world opportunity to test their emergency plans. While this wasn’t the long anticipated bird flu or terrorism-related surge, in many ways it was a more challenging experience – with patients arriving with nearly every conceivable diagnosis. Better approaches to triage, closer monitoring of room and bed status, use of conference rooms as patient-treatment wards, cots lined-up in the hallways, private rooms converted to semi-private, and coordination of patient volumes across multiple hospitals described the severity of the challenge. As indicated in this Des Moines Register article, the established emergency plans were helpful (indicating their utility), but those plans needed to be abundantly flexible, taking into account an assortment of changing scenarios. Today, most hospitals across the nation have emergency plans, but, as the Iowa experience indicates, the simple presence of such plans is not sufficient.

Just as Edwards Deming is considered a founder of CQI, Genechi Taguchi holds the same status for Six Sigma. While Taguchi is best known for his engineering approaches, the core of his method is to create systems that are so robust they will work flawlessly in the worst possible circumstances (as opposed to normal, the average, or the expected). This, of course, would apply to emergency and mass casualty events. As any military planner will assert, the time for such planning is not in the heat of battle, while suffering from the fog of war.

After the bombing in Oklahoma City and the execution of staff alerts in New York City on 9/11, hospital administrators gave press conferences congratulated themselves on the fast response undertaken by their facilities. At the time, I wondered how much of that response was a consequence of executing an established emergency plan and how much of it was accomplished by adrenaline and the application of good judgment in a moment of crisis. Since then, I have learned that both occurred. The emergency plan was initiated and modified on-the-fly. The plans were good but they were not sufficiently robust (as designed) to accommodate what was, arguably, something less than the worst-case scenario (bird flu, dirty bomb, etc.).

Pediatrician Training At Specialty Hospitals Confront Threat Of Federal Government Funding Cuts – Ohio. The Dayton Business Journal reports that a current budget proposal in Congress would cut funding for pediatrician training at specialty hospitals. As indicated in previous postings and newsletters, the federal government is increasingly desperate to halt the impact of health care inflation on government programs — which now accounts for 17 percent of expenditures. This is especially true of Medicaid, as evidenced by federal funding cuts in recent years.

Children, of course, are disproportionately represented among America’s indigent population – the poor tend to have larger families. There is, of course, a significant cost to be borne (literally and figuratively) if failing to provide adequate health care to America’s children, regardless of their financial status. Poor health care diverts student attention during the K-12 years, undermines learning, predicts lifelong poverty and lower incomes (with accompanying cost to government), is a predictor of crime (violent and otherwise), and, perhaps most egregious of all, deprives the totality of the population of this demographics’ future contributions (an especially important consideration in a globally competitive economic system). All these negatives are a consequence of unsustainable health-care inflation … and the boomer generation has not yet begun to retire.

Iowa Proposal Takes a Different Approach to Children Health. This Chicago Tribune article describes an Iowa plan to provide health care coverage to all children in that state – taking an entirely different position on the subject. This, of course, is just a proposal, but I cannot help wondering whether, if successful, the Iowa Legislature will experience “buyer’s remorse,” once the full price of such a change confronts payment by government. This is precisely the situation taking place in Massachusetts, following their new healthcare structure enacted a couple of years back — under then-governor Mitt Romney.

The Big Dig in Massachusetts. Some Massachusetts lawmakers are shocked to discover cost overruns that are projected at $600 million over 10 years for the new state health care plan. That plan was designed to reduce long-term health care costs for the state. The state, however, appears to have identified a solution – increase tobacco taxes.

Several years ago, the state attorneys general secured windfall payments from the tobacco industry, designed to compensate the states for smoker health-care costs. The states gladly accepted the payments and promptly spent the money to build roads, bridges, parks, and on other, non-healthcare initiatives. Very little money was spent to reduce smoking. Doing so would run contrary to the State’s interest – given the sin tax revenues collected on each pack of cigarettes.

In a related story from earlier this week, this blog reported on two stories indicating that obesity and smoking are not responsible for health care cost inflation. In fact, the opposite is the case, with both groups costing the healthcare system less (because both groups die sooner) than healthy patients. While the proposed Massachusetts tax raises the issue of equity, by asking smokers to finance a disproportionate amount of health care costs, such a proposal seems doomed to failure on two fronts.

If the proposed tax increase prompts a reduction in smoking, tax revenues from tobacco would decline. Presumably, this would prompt government to increase tobacco taxes, which would further prompt a reduction in smoking and a new decline in tax revenues. In the insurance industry, this death spiral is known as “adverse selection.”

The second problem with such a proposal is that it does nothing to address the drivers of health-care inflation, which would remain unmolested and free to promote increasing health care costs.

One Response To The Proposed 10% Cut In Medicare Compensation. Earlier this week, the Bush administration submitted its budget proposal for 2009 (following the State of the Union address). That proposal includes significant cuts in funding to Medicare (previously reported here). As the previous newsletter item indicates, we are witnessing systemic hiccupping in advance of Boomer generation retirements, as the federal government seeks the means by which to meet its health-care commitments, in an environment where medical inflation exceeds wage growth by more than double each year on average. If Medicare compensation were low, we would expect to see a practitioner rebellion in Florida – the bellwether state for retiree health care. Indeed, this Tampa Bay Online article indicates that two thirds of Sarasota practitioners plan to cease accepting new Medicare patients unless compensation improves.

That, however, is not the important part of the story. Recall that Medicare + CHOICE was the precursor of Medicare Advantage. Medicare + CHOICE confronted a similar problem of inadequate compensation and received the same response from Florida practitioners. More importantly, institutional payers (insurance) under the Medicare + CHOICE were exiting in droves, stranding as many as 400,000 enrolled seniors per year. This prompted the demise of the Medicare + CHOICE system, a one-time Clinton-era kickback to institutional payers, the undermining of faith and confidence in HCFA (leading to the name change to CMS), and the creation of the Medicare Advantage system (with its higher reimbursement rates).

There was, in fact, significant objection by Senator Charles Grassley and others when the kickback to institutional payers was promptly handed over to hospitals and physicians by the insurance industry. This objection was based on government’s hope that the insurance industry could be bribed or seduced into Medicare Advantage participation, but the insurance industry rightly noted that a growing number of physicians and hospitals were on the verge of bankruptcy. A Healthcare Advisory Board analysis at the time indicated that over one third of hospitals in the United States were in the red.

At the time, my students and I concluded that government’s “solution” would do nothing to halt healthcare’s hyperinflation. Hyperinflation is defined as yearly inflationary rates in excess of 30%. Healthcare has been averaging growth in excess of wage inflation by more than 200% since 1980. Accounts receivable charges by hospitals and physicians, however, are not a source of health care inflation, according to a recent Congressional Budget Office report (see earlier report). We, therefore, came to the conclusion that any solution not directly addressing the sources of health care inflation stood little chance of reversing it. Less than a decade later, we appear to have been right.

Minnesota Sees Things Differently. Two special task forces designed to seek answers to the rising cost of health care in Minnesota are reporting their results. The first is a task force established by the governor, who thanked the committee members for their service and indicated that he plans to largely ignore their recommendations.

This may, however, be a positive, since those recommendations largely mirror the Massachusetts approach (described earlier). The recommendations, of course, would include an increase in tobacco taxes (which were increased by $.75 per pack recently) and a state law mandating purchase of health insurance. It appears, the governor has been talking with the good people in Massachusetts.

The portion of the special committee’s proposals that the governor does like includes improving school lunches to undermine childhood obesity and legislatively preventing hospitals from charging indigent patients higher rates than provided to insurance. As mentioned previously, obesity is not a significant driver of health-care costs inflation, and it seems unlikely that mandating parity in compensation between the indigent and insurance will provide significant savings. The indigent, after all, are, by definition, poor.

Nevertheless, the state believes that these two proposals and a coordinated effort between government, insurance, practitioners, and patients will cut health care costs by $12.3 billion between now and 2015. All of this is described in a Minneapolis-St. Paul Star Tribune article.

The Pennsylvania Plan. The governor’s office, which initially sought to pay for increasing health care costs with a tax on employers not providing employer-based insurance, is now advocating a 10% increase in the tobacco tax, according to this Pittsburgh Gazette article. Beyond the realization that, at this rate, smokers will eventually pay for 90% of healthcare, the governor’s plan seems to ignore the reality that the Speaker of the House of Representatives is a smoker.

The governor has wisely decided against an obesity tax. As every male in the US understands, there is but one safe response to the question “Honey, does this dress make me look fat.” Government, in short, does not want to get into the business of answering that question.

US Health Care System Unsustainable, According to New AHA President. William Petasnick, the chief executive of Froedtert & Community Health, is the chairman this year of the American Hospital Association. He recently gave an interview, with the Milwaukee Journal Sentinel, in which he describes the US healthcare system as “unsustainable.”

First and foremost, we want to use the coming election as an opportunity to begin the debate about our health care system. And it ought to be a debate about ideas for improvement. What we are hoping to do is get the candidates really talking about how do we provide coverage for all? How do we focus in on wellness? How do we create a better health system that is more affordable and more efficient? How do we create a health system in which quality is measurable? And how do we get a better information flow through interoperability? We want to be certain that the next president and congressional leaders are committed to working for change. We don’t believe the current system is sustainable in the long term.

Why isn’t this man a Governor?