Fixing Healthcare in America

First in a series

To correct healthcare and get costs under control, we must first acknowledge, then change the healthcare industry’s unique and outrageously dysfunctional business model.

  1. Physicians and other practitioners who decide which resources will be used in a hospital are often neither the direct provider, the one who pays, nor the beneficiary of the service. Basic economic rules, therefore do not apply. Medical tests, which are intended to provide information that will in some way impact the patient’s course of treatment, don’t. Many test and other procedures are ordered even when the outcome of the test will in no way affect the treatment of the patient or its results.
  2. Medical products and services are priced without any rationale. Often, prices are set artificially high in order to allow large discounts to insurance companies. This means that patients without insurance can be charged list price; eighty dollars for an aspirin or $100 for a BandAid®. Hospitals, which were once a ministry, stewardship, or public service have changed their priority to the bottom line. Some hospitals now own and operate their own collection agencies augmented by a small army of lawyers to guarantee that they collect what they have billed. This is why it is not uncommon for a small-town hospital to have millions of dollars in the bank—and still retain their not-for-profit status.
  3. And the insurance companies that get those big discounts? The hospital needs a staff of trained bureaucrats to generate the paperwork that is sent to the insurance company in order to receive payment. Payments may not be received for several months (for the MBAs out there—remember the first rule of finance—a bird [dollar] in the hand is worth two in the bush [accounts receivable]). When payment does arrive, administrative staff must reconcile the payments and file additional paperwork as necessary. All this adds to the hospital’s costs without adding any value. The insurance companies, on the other hand, are usually quite profitable, even after spending a lot of money on lobbyists. But just like Don Corleone said, “It’s nothing personal, it’s strictly business.”

So, what do we do?

First, it would be valuable to have the physicians evaluate how tests really affect the outcome for their patients and develop appropriate protocols. Malcolm Gladwell relates an excellent example in his book, Blink. The cardiology staff at Cook County Hospital was able to reduce tests while simultaneously improving patient outcomes.

[Gladwell, Malcolm (2005). Blink: The Power of Thinking Without Thinking. New York: Little, Brown.  ISBN 0-316-17232-4 (Especially the chapter on Cook County Hospital Cardiologists)]

Second, revise medical pricing so that it reflects reality—and that must include adequate margin to offset costs for necessary but expensive services. Emergency rooms are expensive to operate while an intensive care unit for patients suffering from burns is actually cost prohibitive. However, hospitals have an obligation to the community to provide necessary services—either directly or by affiliation—to the community. The community, in turn, must ensure the hospital is resourced to provide a wide range of services. If hospital prices reflected cost plus a reasonable margin to offset other costs, and everyone paid the same price—patient or insurance company, it might lead to more rational decisions—outcomes first, but economics as a consideration. If Grandpa—God love him—is a 96-year-old heavy smoker with high cholesterol and other morbidity factors who was hospitalized because of a stroke, a battery of tests that will not affect his quality of life or his longevity are not appropriate, and the insurer should not be expected to provide carte blanche payments. However, if the prices are realistic, the family may decide that they would be willing to pay for those additional procedures on their own.

Third, emphasize cooperation over competition. Is there any other business, other than hospitals, that would allow someone to work in their facility AND directly compete with it? Radiologists have their competing imaging centers, surgeons may have their private surgery centers, etc. Should specialty practitioners be entitled to benefit from the hospital’s patients and compete with the hospital for those same patients? It should be the practitioners’ choice—one or the other, but not both.

Two excellent resources for these issues are:

Brill, Steven (2015), America’s Bitter Pill: Money, Politics, Back-Room Deals, and the Fight to Fix Our Broken Healthcare System. New York. Random House. ISBN 978-0812996951

Rosenthal, Dr. Elisabeth (2017). An American Sickness, New York: Penguin Press. ISBN 9781594206757

If you want to fix American healthcare, pass this along to your friends, neighbors, doctor, etc. I’ll get a lot of hate mail, but we need to have the discussion.

More to follow.

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