Waste, Waste Everywhere and Not a Dime to Spare
The Institute of Medicine says we are wasting 30 cents of every dollar we spend on medical care. Originally I was going to pan the study, but I can’t resist a good read. Like this:
- If banking were like health care, automated teller machine (ATM) transactions would take not seconds but perhaps days or longer as a result of unavailable or misplaced records.
- If home building were like health care, carpenters, electricians, and plumbers each would work with different blueprints, with very little coordination.
- If shopping were like health care, product prices would not be posted, and the price charged would vary widely within the same store, depending on the source of payment.
- If automobile manufacturing were like health care, warranties for cars that require manufacturers to pay for defects would not exist. As a result, few factories would seek to monitor and improve production line performance and product quality.
- If airline travel were like health care, each pilot would be free to design his or her own preflight safety check, or not to perform one at all.
I also enjoy factoids like this:
One way to measure this impact is through mortality amenable to health care, defined as the number of deaths that should not occur in the presence of timely and effective health care. Examples of amenable mortality include childhood infections, surgical complications, and diabetes. The level of amenable mortality varies almost threefold among states, ranging from 64 to 158 deaths per 100,000 population. If all states had provided care of the quality delivered by the highest-performing state, 75,000 fewer deaths would have occurred across the country in 2005.
Wasted days and wasted nights
Also there are a lot of good descriptions of how complicated is the life of a typical doctor or nurse, of how many different ways there are to order a prescription in a hospital and how many other physicians a typical primary care physician has to relate to.
Here is my overall problem. Suppose I told you that in the bad old days of the Soviet Union one of every three workers was doing unnecessary work. Probably true, but what could anybody do with that information. Nothing. Russian workers didn’t walk around with a sign saying “Everything I do is redundant.” Knowing a system is inefficient and being able to do something with that knowledge are two different things.
Similarly, I have no problem believing that one of every three dollars we spend on health care is wasteful. But as loyal readers of this blog know, there is no line item in anyone’s budget that is labeled “waste.” If you don’t know where the waste is, you can’t eliminate it.
The IOM has a number of suggestions of what to do about the problem. None of these suggestions involve liberating doctors and patients from the perverse incentives of third party payment and leaving them with good incentives to root out waste and get rid of it. Instead they serve up these bromides:
- Improve the capacity to capture clinical, care delivery process, and financial data for better care, system improvement, and the generation of new knowledge.
- Streamline and revise research regulations to improve care, promote the capture of clinical data, and generate knowledge.
- Accelerate integration of the best clinical knowledge into care decisions.
- Involve patients and families in decisions regarding health and health care, tailored to fit their preferences.
- Promote community-clinical partnerships and services aimed at managing and improving health at the community level.
- Continuously improve health care operations to reduce waste, streamline care delivery, and focus on activities that improve patient health.
- Improve coordination at communication within and across organizations.
- Structure payment to reward continuous learning and improvement in the provision of best care at lower cost.
- Increase transparency on health care system performance.
- Expand commitment to the goals of a continuously learning health care system.
If Steve Jobs sent out memos like this one, there never would have been an iPhone.
More generally, getting rid of waste is what markets do. But they can’t do their job if they are systematically suppressed.
“If shopping were like health care, product prices would not be posted, and the price charged would vary widely within the same store, depending on the source of payment.”- This is awesome.
Agree, Dr. Goodman. The biggest waste is the redundant administrative expenses forced upon us by the private third-party payers.
I love observations like this —
“If all states had provided care of the quality delivered by the highest-performing state, 75,000 fewer deaths would have occurred across the country in 2005.”
This is like saying “Why can’t you be more like your brother?” Or Garrison Keeler’s Lake Woebegone where the children are all above average.
It is a meaningless truism that if everyone were as good as the best the world would be a better place. Or if we were all as smart as Stephen Hawkings we would all get As in science.
Fact is in any enterprise, anywhere, there are the best, and the worst, and most are in between. Only an adolescent would bemoan that reality.
Hm aren’t they planning to save billions through efficiency?
The VA had a number of efficiency schemes as well, and it’s performance is still dismal.
The anology of home building to healthcare is brilliant (but disturbing).
It’s interesting that the IOM (correctly) identifies some of the problems with our (dysfunctional) health care system and how outrageous these examples would be if applied to other (functioning) consumer markets. Then, it seemingly draws the wrong conclusions about how to fix out health care system because it fails to comprehend how other (functioning) consumer markets evolved the way they did. The panelists who coauthored the IOM report failed to identify the culprit as perverse incentives caused by third-party payment.
But we are continuously told that healthcare is NOT like anything else. That has been the reason the government has intruded far more into health care than any other field. It is not like flying airplanes, it’s not like rocket science, it’s not like building houses, trains, planes, or automobiles; and health insurance is not even like life insurance or property insurance. The IOM has been complicit in telling us that healthcare is unlike anything else (and so have the doctors and hospitals who originated 3rd party health insurance–in 1929 at the Baylor Hospital in Dallas, Tx, with the first Blue Cross program, to be specific). Healthcare is too complex, they told us. Consumers (excuse me, patients) could not possibly make informed choices. Patients are like infants, and need to have the decisions taken out of their hands. Someone else, some expert, needs to call the shots and pay the costs, and make all those impossibly complex decisions that patients can never make for themselves! Patients are infants in regard to heatlhcare, the IOM told us. Now they tell us it should be like everything else? They tell us the opposite? That there should be a market with market forces and individuals empowered with their own resources to make decisions for themselves regarding healthcare services?
The import of this post by the IOM, this admission by the IOM, this about-face by the IOM, is that healthcare is a COMMODITY like everything else. So, why does the IOM, the Government, providers, and everyone else claim healthcare is something entirely different?
If, indeed, healthcare is like everything else, we should get the government out of it, stop subsidizing it as an advantaged cost in our tax code, stop regulating it to a fare-thee-well, and turn the financing of the healthcare system back over to the individuals who consume it and let the market find the prices and values adn quality. As it stands, healthcare is a fixed price system, as all fees are tied to those set by Medicare. The whole of healthcare is run like every industry was run under Roosevelt’s National Industrial Recovery Act (which set prices for everything, goods and services). That act was thrown out (literally laughed out) by the Supreme Court on a 9-0 vote. Obamacare resembles nothing so much as the NIRA applied to healthcare, and should have also been thrown out on a 9-0 Supreme Court vote, but the SC no longer is constrained by the Constitution (except to the extent of calling a mandate a tax and a tax a mandate, like Jack Nicholson slapping Fae Dunaway when she kept identifying the little girl with her as her “sister” then her “daughter” and then “sister and daughter” meaning conceived through incest, which is on the same moral category as the logic John Roberts brought to bear in his Obamacare decision).
So the IOM has now officially changed it’s tune, and apparentlly agrees that our entire approach to healthcare financing is completely wrong. Good for them. So, one can construe correctly from this post that the IOM wants to get rid of Medicare, Medicaid, and all private health insurance, and implement a system of medical savings accounts (first party payor system) for all healthcare purchases. Hooray for the IOM!!!
Good post.
Well I was laughing at all the good analogies until I reached the end..
Wow.
•If shopping were like health care, product prices would not be posted, and the price charged would vary widely within the same store, depending on the source of payment. I have already seen this happen in several stores (clothing stores), and believe it or not, not many people seem to notice. Perhaps if we were talking about monumental prices (thousands, billions) they would start noticing more and actually do something about it? Wait, that reminds me of our health care system…never mind.
The similies you mentioned are exactly what is wrong with economic thinking in America. It’s pointless and stupid to compare Healthcare to air travel, or grocery stores, or banking. If you spend 10 minutes in a managerial accounting class you learn that cross-industry comparisons can’t be done because there is a range of differing environmental, governmental, and economic factors that can’t be reconciled.
The IOM bullet points give me a headache. It is typical promotional boilerplate word yeast designed to fill up a page, and adds absolutely nothing to the subject matter.
I continue to be amazed at how the “social engineering” part of people’s brains override the “common sense” part of the their brains when it comes to third party management of individual healthcare. I do assume that there is a “common sense” part of their brains because most of them get to work without being run over at intersections, and most do not stick their fingers into plugged in toasters, etc.
It seems to be true not only of left wingers, but of conservatives as well. In fact, I almost give left wingers a pass because their entire goal is to socialize everything possible in our lives. But some of these conservatives that promote third party solutions to healthcare keep me up at night.
Notice that all of their examples are cookie-cutter industrial widget examples, not complex service examples.
If the software is working and the ATM has been maintained, banking at an ATM is like a flu shot–hand over $25 and in goes the needle. (OK, its more like $33 if you’re on Medicare, but what does one expect when government runds things?)
But they really should have come up with better examples–how much waste is there in filming a movie, trying a complex business case in court, figuring out business structure to minimize taxes, building the next model of an avionics system, writing, maintaining, and updating the software that runs that ATM and keeps it safe from fraud?
Anyone who has been involved in trying to make something real happen in a complex process knows that what looks like waste to an outsider may be an artifact of the wrong turns that are unavoidable when one is discovering how to do something.
But IOM hindsight tends to be 20/20.
John,
I am reminded that many years ago Nucor was noted to have the most efficient steel factories in the nation. Their apparent solution was to pay the front line workers more than any other factory. By looking for uniquely qualified workers, they improved the moment to moment decision process during the steel smelting process. Similarly, the military has noted that a fully trained surgeon does a better job with the triage of the newly injured soldier to achieve the best outcome for all the injured. Accessibility is the issue. For Primary Health Care, having a Registered Nurse answer the phone builds the relationships with our patient population necessary for efficient triage. That is, call us when a new illness is just beginning to get “out-of-hand” rather than 1-2 days later. Thus, any pneumonia requiring hospital care takes 3 days in the hospital rather than 5-7 days. This is not rationing. This is about relationships, the social capital necessary for equitably efficient and reliably effective healthcare: a process so vitally necessary for any person who may have unpredictably volatile health, such as a pregnancy.
In the early 1990’s, our office partcipated in a classic gate-keeper, risk-sharing HMO. There was an employer plan and a Medicare Advantage plan. Six years in a row our 2 panels had hospital utilization rates that were 1/3 less than the plan as a whole (Share Health Plan of Nebraska, now a UnitedHealthcare unit). Besides having an R.N. answer the phone, there are many other strategies that can improve efficiency, such as a medication flowsheet for any person on >3 medications taken regularly (NOTE: None of the currently available electronic health records automatically generates flowheets in association with selected monitoring lab results.). Once you build a working environment commited to building an optimal strategy to stabilize each person’s health, all sorts of improvements in quality can occur as a result of highly focused Primary Health Care.
This is nearly impossible given the current reimbursement levels for Primary Health Care. During the HMO years, our reimbursement was averaged about $1.50 on each $1.00 of our billed charges. The increase was attributable to the risk-sharing. Currently, we are at $0.67 per $1.00 billed charges. Our nation’s Primary Health Care will be unable to attract the front line physicians necessary to make it work with this level of capitalization. Nothing in the ACA will reliably change this, community by community throughout our land.
Paul