Are CFOs Taking Over Healthcare?

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.

Financial Institution Valuation

Back on November 7, 2007, I wrote a guest piece for Joe Ponzio’s FWallStreet.com. Joe and I have worked on a small number of projects related to equities investment, and I highly recommend his blog for anyone interested in understanding the value investment approach of Warren Buffett.

This was before the recent meltdown in the financial markets or the recent crisis with Bear Stearns. At the time, a number of Joe’s readers were asking about how to value the stock of banks, investment houses, insurance companies, and other financial firms. Interestingly, with the recent problems related to Wall Street investment houses, I’ve been asked this question at least three times in the last two days — twice today, alone. Given this, I thought that it would be beneficial to repost my earlier article here.

De Beauvoir Revisted … and Explained

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.

A Unfathomable Tragedy

Work has kept me from this blog for several weeks, and it will likely continue through Spring Break at UNC — a time devoted to grading mid-terms and assigned papers. On Thursday, however, the news of Eve Carson’s death arrived. Both Eve and I call Athens, GA home, and the local newspaper established a memory book, to which I wrote:

March 8, 2008
	I was on campus teaching undergrad seniors when the chancellor made the announcement, and the impact was nearly immediate. The news stories from Chapel Hill that you have seen reflect the grief that is felt here, and it is as strong among faculty as it is with our students. It seems she met and knew everyone in this university town. In fact, I met Eve briefly last year, and she was remarkable.I fervently hope the shared love for this exceptional young woman translates over the miles between Chapel Hill and my home town of Athens — providing some small measure of comfort to those who watched her develop and so freely shared her with us in Chapel Hill.
	Robert Crawford (Chapel Hill, NC)