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Archive for February 2008

The Need to Perform Continuous Quality Improvement on CQI

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I am concerned that we have made healthcare quality improvement such a complex undertaking that it is losing its utility. Originally, quality improvement in automotive factories consisted of an industrial engineer and a team comprised of front-line workers. The performance data was plotted on process control charts by the production line worker (with the charts created by the industrial engineer), and incremental improvement was undertaken by frontline teams.

This provided frontline staff with a sense of process ownership and cultivated pride in its reform. The expense associated with CQI was minimal (beyond CQI training for a portion of the frontline leadership and the wage expense of those assigned to the teams).

This is significantly different than the concept of CQI today. Now we have:

  • moderators and facilitators,
  • an entire hierarchy of Six Sigma professionals,
  • a CQI department that collaborates with
  • quasi-CQI departments (i.e., some portion of the functionality of nursing informatics, risk management, credentialing, etc.),
  • an externally imposed infrastructure of accreditation, core measures, pay-for-performance (which requires measurement of performance),
  • data reporting staff, and
  • a hierarchy of executive leadership providing oversight to the quality infrastructure.

Chekhov couldn’t have imagined a more complex system, but he would have found it ironic that this complex system was designed to simplify complex systems. Am I wrong to wonder if we have, in short, created a jobs program for a newly created quality improvement industry?

Written by rcrawford

February 22, 2008 at 12:35 pm

Simone de Beauvoir’s “Other” and the Healthcare Practitioner

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In Woman: Myth and Reality, Simone de Beauvoir (January 9, 1908 – April 14, 1986), the existentialist philosopher, feminist, and mate of John Paul Sartre, argues that women are accorded a mythological aura of indecipherable strangeness by the male of the species, which she calls the “other.” This status, in her view, sustained a paternalism in society, in which women were relegated to secondary status in comparison to men. The “other” is not, however, unique to women, according to Beauvoir, but, rather, serves as a mechanism to maintain secondary status for others in society – such as, the day laborer in comparison to the intellectual elite or foreigners of nearly every stripe.


At the time of its writing, others maintained that, for some women, this stereotype excused mercurial and illogical behavior that might serve her purpose at that moment but sustained the myth that so tarnished the totality of women during that era. I imagine the perfection of this was Bette Davis’ greeting of her suiter in The Cabin in the Cotton (1932) , when Madge says to Marvin, “I’d love to kiss you, but I just washed my hair…” Indeed, the publication of Woman: Myth and Reality did not stop the practice, which we see sustained in the female characters of Tennessee Williams.


Increasingly, I wonder if society has accorded “other” status to dyspeptic practitioners – who are revered and tolerated, simultaneously. The irascible doctor (often a surgeon) is a legendary stereotype, whose indefensible behaviors have been excused by the expression “Well, what do you expect? He is a surgeon.” Pleasantly, this negative stereotype rarely applies to female physicians, but , as short-sighted and reprehensible as they may be, stereotypes are not entirely the product of the observer’s delusional nature.


As with Beauvoir’s “other,” the sustaining of this persona serves the immediate purpose of the individual practitioner, in much the same way as the fighter jock stereotype benefited the Great Santini (Pat Conroy). Ultimately, however, it is the practitioner who suffers the greatest harm, which the original Santini (Donald Conroy) never recognized.


Written by rcrawford

February 21, 2008 at 9:49 am

Newsletter – February 17, 2008

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This USA Today article questions whether cultural disparities between a largely Caucasian physician community and a more diverse patient population accounts for health-outcome disparities. This strikes me as interesting on a number of fronts. First, it has been a recent focus of my marketing class, as we’ve covered the materials related to cultural differences and the necessity of providers to accommodate an increasingly diverse patient population. Second, my quality improvement class has indicated a growing belief that the physician practice community is similarly reflecting the melting pot of America.


For hospital administrators, this indicates the need to take into account not only language translation as an operational necessity (to avoid miscommunication when family members are used as interpreters), but the increasing need for multi-lingual signage in larger facilities, an understanding of cultural uniqueness (such as gender-appropriate physicians for Islamic patients), and accomodation of dietary practices (when not in conflict with best-practice medicine).


Perhaps, more interesting still, is the position of a former student, Frank Shelp, MD, who argues that the superior outcomes enjoyed in Europe’s socialize-medicine is largely attributable to a more homogeneous population. Under this logic, the question is not “What are we doing wrong (in the US) and what are they doing right?” Instead, there is no question, because healthcare does not control the cause of the disparity (i.e., the demographic mix in the US).


This article from Seattle outlines the settlement of a government lawsuit against Caremark for $1.7 million (out of a $41 million multi-state agreement), in which the pharmacy benefits manager was accused of urging practitioners to switch patient medications. The switch, as recommended, argued that doing so would save the patient unnecessary costs. In order to do so, however, additional diagnostic testing was often necessary, and the new medications may not have provided the promised savings. Assuming, for the sake of argument, that the company was acting with the best of intentions, this may represent an unintended consequence of change – just as we initially witness added costs associated with adoption of electronic medical records (prior to realizing anticipated savings). For healthcare executives, this further urges the adoption of the rule of twos and threes – namely, that new initiatives take twice the seed capital and three times as long as originally projected. This rule typically applies to new entrepreneurial startups, but delays and cost inflation apply to new initiatives by established firms, as well.


The Minneapolis-St. Paul Star Tribune is reporting on the uncertainties and consternation for senior management at United Healthcare, following announcement by the New York attorney general of a probe into the company’s practices. Under the heading of “full disclosure,” I should mention that I own stock in United Healthcare. My purpose in mentioning this article, however, is not to, either, defend or oppose the company’s practices. Instead, it is to note that this second-day, follow-on article is consistent with an earlier blog entry describing the expandable news cycle — with initial reports and a long sequence of sustaining articles. For healthcare executives, this is an important recognition. It urges strong establishment of corporate leadership focused on customer satisfaction, quality, and public relations/marketing. At a time when the industry is questioning whether the Chief Marketing Officer should occupy a C-Suite position, there is nothing like defending bad news in the press to settle the issue. The time to bring the Chief Marketing Officer in to the boardroom is not after the fact.


It has been a week since my last newsletter or blog contribution, which is longer than at any time in the past. This is a particularly class-focused semester, teaching a seminar at the start of the semester and marketing and quality improvement classes during the semester. Consequently, my weeks are filled with teaching and grading assignments, and this newsletter will be shorter than most.


Allow me, therefore, to do three things at the close of this newsletter. First, I would like to reiterate the purpose of the newsletters, which is to use local newspaper articles from around the country to identify health-care market trends before they become broadly recognized and disseminated by consultants in their white papers. Once that happens, the professional healthcare executive works on a treadmill, constantly seeking to catch up with what the competition knows.


In addition to daily reading of the New York Times, Wall Street Journal, Washington Post, the Chicago Tribune, and the Los Angeles Times (using the Factiva service) and weekly reading of Time, Newsweek, US News, Business Week, and Forbes (primarily the healthcare and economic content) I rely heavily on the daily newsletters provided by Healthleaders.com. I also have the table of contents for the New England Journal of Medicine, Journal of the American Medical Association sent by email and scan the content of Health Affairs magazine (each of these last items is subscription based).


This may seem like a great deal of reading for a busy professional, but my focus is on topics that influence the future direction of the industry and those providing a different perspective and density of content (as opposed to filler, fluff, and flatulence). Most of what is published fails this test, and I move through the materials quickly. Life is too short to live it as other than a news snob, so the Time Magazine article on whether the Sports Illustrated Swimsuit edition is porn gets ignored (no matter how hard it may be to pass up).


The second item that I would like to reference is the availability of thought-leader materials that are increasingly offered free of charge on the web. MIT is offering course content for its classes free on the web, Harvard’s faculty has just voted to require opting out of providing journal articles authored by faculty, and, within the realm of healthcare management, UNC is providing the syllabi for courses offered through the School of Public Health – which reference the texts employed. The MIT and UNC offerings provide working executives who have been out of business school for some time an opportunity to stay abreast with best practices without returning to the university for added training. Of course, seminars, extension courses, and other continuing education offerings are important, because so much of what is published and provided at the local bookstore represents a waste of perfectly good trees.


The final recommendation for professionals seeking actionable content is Knowledge@Wharton. Their book reviews, alone, are excellent, and they provide executives with an early description of recent publications that are likely to influence professional practices at the executive level. Here is an example of their coverage of marketing (traditional and on-line) or a report on changing international capital flows from the Davos conference.


And, lastly, my favorite mind-candy web site is www.ted.com. What comes in second? How about http://www.kurzweilai.net/ ?


Written by rcrawford

February 17, 2008 at 9:03 pm

Will the US Healthcare System Implode?

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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 11th 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.”

Newsletter — February 7, 2008

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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?



Eat ’em if You Got ’em — Smoke ’em, too — Why The Fat Chick and the Marlborough Man Are Saving Healthcare Dollars

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In the earlier “Luddites” piece, I argue that the problem of healthcare inflation is not attributable to the poor health practices of the patient or the American people but, rather, the cost of technology. This is based on the recent testimony of the director of the Congressional Budget Office and their research.

Today, we have research findings from the Netherlands National Institutes for Public Health in indicating that the obese and smokers actually incur lower healthcare costs over their lives than those who are healthy. It seems that obesity and smoking, on average, prompt death seven years sooner than for the healthy and, with the bulk of health costs arriving later in life, the increased longevity of the healthy drive up healthcare costs / spending. Here is the supporting research:


And accompanying materials:




Written by rcrawford

February 7, 2008 at 4:04 am

The Ludites Were Right — Technology Costs Threaten to Bankrupt US Healthcare

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Testifying before the Senate Budget Committee on January 31, 2008, Congressional Budget Office Director Peter R. Orszag described the impact of technological change on the current healthcare environment as follows:


“Most analysts agree that the most important factor driving the long-term growth

of health care costs has been the emergence, adoption, and widespread diffusion

of new medical technologies and services by the U.S. health care system.


Other factors, including rising personal income, a growing share of health care

costs borne by third-party payers, and the aging of the population, contributed

to historical spending growth by increasing the demand for medical services.

Even taken together, however, those factors appear to explain less than half of

long-term spending growth.


Technological advances are likely to yield new, desired medical services in the

future, fueling further spending growth and imposing difficult choices between

health care and other priorities.


CBO projects that, without changes in law, total spending on health care will

rise from 16 percent of GDP in 2007 to 25 percent in 2025 and 49 percent in

2082. Federal spending on Medicare (net of beneficiaries’ premiums) and Medicaid

would rise from 4 percent of GDP in 2007 to 7 percent in 2025 and 19 percent

in 2082.”


In other words, it is not the retirement of the boomer generation, the sedentary lifestyle of Americans, or the greed of hospitals, providers, or health insurance firms prompting health care inflation in the United States. It is, as indicated in previous postings here, the advance of medical science and the patent-protected products that follow.

This is enormously important. Our natural inclination is to point the finger of guilt at those whose practices and behaviors prompt in us a comforting sense of arrogance and superiority. The woman with the expansive bottom wearing tight shorts, the beer-bellied commission salesman at Sears, and the raspy voiced slot machine player in Vegas, with a cigarette dangling from the lips, have their health issues, to be sure, but they are not the principal cause of health care inflation in the United States. Not even close.


· If health care spending per capita remained at 1987 levels for each category of body weight but the prevalence of obesity changed to reflect the 2001 distribution, health care spending would have risen by only 1.4 percent per capita on average. Because actual spending per capita rose by 34.6 percent, this implies that the change in the prevalence of obesity could account for only about 4 percent of all spending growth from 1987 to 2001.

· In other words, most of the increased spending on obese people occurred not because of greater obesity prevalence, but rather because spending increased on each obese person – which itself likely reflected changes in technology. In 1987, spending per morbidly obese person was about 18 percent higher than spending per person of normal weight, but by 2001 it was 70 percent higher.” According to the Director’s Blog at the Congressional Budget Office.


Nor can we blame the Boomer Generation for living too long and not departing quickly enough.


· Under CBO’s projections, health care spending will double by 2035, reaching 31 percent of GDP. Thereafter, health care costs will continue to account for a steadily growing share of GDP, reaching 41 percent by 2060 and 49 percent by the end of the 75-year projection period.

· Net federal spending on Medicare and Medicaid now accounts for about 4 percent of GDP. That rises to 12 percent by 2050 and 19 percent by 2082.

· Most of that increase is due to excess cost growth, not to an aging population”

It does not take the director of the Congressional Budget Office to tell us what common sense should make abundantly clear. Each of us confronts two immutable certainties, according to Mark Twain – death and taxes. For married couples, filing jointly, earning between $68,000 and just over $120,000, the government stake in our incomes is 25%. One dollar in four. For average two-income household, the majority of the second / lesser income goes toward paying taxes. While some may argue that the wealthy pay an insufficient portion, the fiscal problems related to health care are not a consequence of insufficient taxation.

On the other side of the scale (i.e., death), all those that we commonly blame as the source of health care inflation (the smoker, the obese, and the sedentary) tend to live productive and taxable working lives. Indeed, we may be more obese and sedentary today because we are more productive – having invented computers, robotics, and other automating and mechanical approaches to accomplish work more efficiently, with less effort, and with more reliable precision. While the health-care costs of the obese, diabetic, or nicotine-addicted senior citizen may be more expensive, they tend to die sooner, on average.

Besides, even if we were to reform them and pursuade them to die more cheaply, their passing does nothing to abate the desire of the medical technology economy to alleviate the age-prompted discomfort of even relatively healthy senior citizens or cure that which prompts their demise. This is, in fact, the imperative of the pharmaceutical industry and the medical device manufacturing industry. Their very business model requires the presence of death and the advance of medical science sufficient to incrementally palliate or cure disease. Such a model assumes that, with each cure or extension of life expectancy, death will eventually prevail and provide the next target for medical research.

American patients have always died of heart conditions and cancer — the two leading causes of death. It is not as though we discovered these DRGs only recently. With cardiac diagnoses, the advance of new surgical techniques and medications now make such conditions chronic (even if not curable), but the treatment of the condition is an addiction unto itself, where, both, the condition and its treatment become “chronic.” It guarantees a return customer and a recurrent expense.

It has long been a realization in the military arts that three of the enemy are required to care for a wounded comrade – consuming the focus and attention of four soldiers –, while a soldier killed in combat consumes the labors of only the deceased. When it comes to health care costs, the treatment is often more costly than the cure.

In the case of cancer, medical science has significantly advanced the capabilities of radiation therapy, for example. With 3-D conformal treatment and combination chemo/radiation, cancer patients are living longer but at higher cost. In fact, some cancer patients are not dying from the neoplasm prompting their original diagnosis but, rather, from the side effects of their life-extending treatment. An increasing number of lung cancer patients (presumably prompted by a long history of smoking) are now diagnosed with brain cancer. This is not from metastasis of their lung cancer but, rather, from the radiation therapy designed to treat their lung cancer. [This is so common, in fact, that some radiation oncologists openly debate using prophylactic cranial radiation to preemptively treat those at risk for radiation-induced brain cancer]. All those who abhor smoking may advocate denying such costly treatments to former smokers, but the same threat confronts breast cancer patients whose only sin was inhaling oxygen and possessing breasts.

The problems confronting healthcare are significant and, interestingly, fewer in number and cause then we might believe. It is a convenience to blame the patient for their condition and the subsequent expense to society, but it is not the patient that is the cause of our problems. [Ours is the only industry to blame the customer for cost of purchasing our services.]

Instead, it is the unintended consequence of the human animal being intelligent, curious, and creative. We have the ability to identify a problem and seek solutions, to craft products based on those solutions, and the desire to profit from them. It is evident, however, that we cannot afford our own brilliance, unless we turn our intellect toward the resource-scarcity challenge that threatens to bankrupt us.