The Same Quality at One-Tenth the Cost
Sundays at the Goodman household tend to include the New York Times crossword puzzle, the Dallas Cowboys football game….and (not to be missed)….an e-mail press release from Health Affairs, describing their latest, most interesting and most newsworthy offerings.
Yet by far the most interesting, informative and valuable article [gated, but with abstract] I've ever read in Health Affairs didn't make it into any press release. Nor did it get covered in any of the mainstream health policy media outlets. It was an article about a country with institutions that produce health care quality as good or better than what we have, at a fraction of the cost! It describes how and why this happens and what institutions keep similar innovations from occurring in the United States.
So why the news blackout? Hard to say. As in art, food and sex, perhaps in health policy there's no way to explain the diversity of human interests.The country is India, where fewer than one in seven people purchase health insurance. Yet two-thirds of Indian households rely on private medical care — a preference that cuts across classes and even extends to rural and paramedic care. Not to put too fine a point on it, but India appears to have the largest free market for medical care found anywhere in the world.
Because Indian patients are paying for health care out-of-pocket, providers necessarily compete on price and quality. Because even middle-class incomes are quite low, Indian hospitals have to keep costs down to make care affordable. Because these hospitals also compete in an international marketplace, the quality must be very high. The result: open heart surgery that would cost $100,000 in the U.S. is offered for $6,000 at Indian hospitals that rival their U.S. counterparts on quality measures.
How do they do it? By using the same continuous quality improvement techniques capitalist entrepreneurs employ in other businesses around the world:
- Keeping services patient-centered by importing routines from the hotel industry.
- Redefining job descriptions to delegate tasks to nurses and physicians' assistants where M.D.-level skills are not required.
- Maximizing the use of capital equipment — through continuous use, say, of scanning devices and efficient operating room turnover.
- Managing the supply chain by finding the lowest-cost items (subject to quality control) in a world market.
- Vertically integrating where appropriate, including one hospital group that manufactures its own stents and diagnostic catheters.
- Investing in information technology and telemedicine.
- Using real-time monitoring of provider behavior to reduce unexplained variations in clinical practice.
Above all, these institutions have discovered that cost reduction and quality improvement often go hand in hand. Minimizing adverse events achieves both objectives. As one executive explained, "we can't afford to have complications."
So, what's keeping the United States from copying the Indian experience? Government. Insurance companies. Pete Stark. Trial lawyers. All the usual suspects.
The reason for the media blackout is that the article shows that in hospital care, markets work if they are allowed.
For some people, that is an abhorant thought.
Good post. This should be required reading for all health policy types.
A great Medicare reform (not that it will ever happen) would be to offer gainsharing opportunities to seniors who went overseas for surgery. Split the savings with the Treasury 50/50, for example. It would be great to see a Congressman introduce such a bill.
Apparently, India is going in the opposite direction as China is going. China is re-socializing its health care system. It will be an interesting and contrasting experiment.
I saw something about this earlier and it was quite interesting. Shouldn’t there be a link to a serious discussion of the pro’s and con’s of this approach. The first, obviously, that comes to mind is the source of much of our high expense: remedies for damages from incompetent care. How does the Indian system treat screw-ups and how many screw ups are there? If it’s my leg they mistakenly took off, I lose interest in the fact that the cohort is doing pretty well.
Markets work. Incentives work. Self interest works. All this is an anathema to most health policy wonks. No wonder there is a news blackout.
There is a great expansion of this topic in today’s (Sunday November 2) Los Angeles Times business section. First page. Included in the article are listings of medical organizations involved and international medical travel firms. According the reporter quoting souce Deloitte Consulting, this is a burgeoning market. John’s observations are signifcantly amplified by this times article.
John:
Here is what you should have said but did not: The average income in India is very low. Even highly skilled medical personnel can be hired more cheaply in India than in the United States.
However, lower wages alone connot explain India’s costs advantages. Other countries also have low wages but have not done what India has done. So the hospitals described in the Health Affairs article really are pushing the envelope on efficiency.
This is an interesting and important observation. A point that might be included in this discussion, especially as it pertains to keeping costs down, is the aspect of personal liberty in choosing a route to healing. In India, the protocols and substances that we in the US call ‘alternative’ are routine (i.e. Ayurvedic System of Healing) Dietary ingredients, stress management through yoga, homeopathy and acupuncture are all typically first lines of care. There are studies that show spices in the diet such as curry can prevent cancer.
We have a lot to learn about returning a balance to personal choice, personal responsibility and the role of government in paying for health services.
Realize it is LATE, LATE but what’s the chance of getting this into a full page spread in say Chicago, Atlanta, Philadelphia. Boston, Cleveland and New York.
All well and good that one reply said if it is his leg–but our system “wants the best” for each of us, BUT no treatments that have not been approved by the gate keepers-such as acupuncture. My wife had to have two ops on her feet–10+ yrs apart, 1st in Doctor’s office==2nd in hospital with any more people & much more cost
John very nice piece!
In the past, India heavily subsided the production of doctors (as it does with other education- intensive professionals). That may be one reason we have so many high quality Indian doctors practicing in the U.S. Competition may have pushed the salaries of doctors far below where they would have been without the subsidy and that may play a part in India’s relatively low prices for health care. We make doctors more scarce, they make them more abundant.
John,
Do telemedicine services provided to other countries like the US at a higher cost than India but lower cost than the US help subsidize their system?
John,
Thank you very much for bringing the Duke paper to my attention. Your readers might like to know that the paper is able to be downloaded for free via the link you provided.
JOHN
YOUR LOGIC MAKES GOOD SENSE…
….SO SOMETHING MUST BE WRONG WITH IT.?
This is why I respect the Indian intellect so much.
How did Americans get so dumb so fast?
John:
What a great article, do you have a source for a more expanded version of this report????
It’s improbable that interventionist on the Left will permit the true prinicples enunciated to be implemented.
Regardless, meaningful tort reform would lead the way to the desired India experience. LOL with the new congress!
REC
Per Bob's request,
You can read the expanded version of the report if you go to the address below and click "download." http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1277407
[…] From John Goodman: Because Indian patients are paying for health care out-of-pocket, providers necessarily compete on price and quality. Because even middle-class incomes are quite low, Indian hospitals have to keep costs down to make care affordable. Because these hospitals also compete in an international marketplace, the quality must be very high. The result: open heart surgery that would cost $100,000 in the U.S. is offered for $6,000 at Indian hospitals that rival their U.S. counterparts on quality measures. […]
John…just got back from Bangkok. Visited 8 hospitals. They are at least 50 years ahead of us in hospital care if not more. Everything I thought I knew about medical tourism has been turned upside down.
Recently Newsweek had an article discussing how health care is becoming a global marketplace. Firms in the Dallas-area are building hospitals in Mexico near the U.S. border to attract cash-paying Americans.
http://www.ncpathinktank.org/sub/dpd/index.php?Article_ID=17290
[…] what lessons can be gleaned from all this to guide health reform? As we previously reported here and Health Affairs reported here (but which is not even mentioned in the BRT study!!!): Although […]