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Healthcare Economics: Why this stuff doesn’t work the way you think it does — and how to fix it

Posted by capcityspeakers on April 19, 2017

by Joe Flower

albatross-close-up

[This is a letter I sent to Gary Cohn, appointed by President Trump to head the National Economic Council and, among other things, come up with a plan for reforming healthcare. Formerly president of Goldman Sachs, Cohn may be a wizard at finance, but healthcare economics are wildly different and famously opaque.

So I thought I would help him out. As things are going with the Republicans’ health plan on Capitol Hill, Trump may need a Plan B.]

Healthcare economics are weird, opaque, and convoluted. The business of healthcare is unlike any other business. The politicians and pundits arguing about how to fix healthcare in the United States don’t understand what they are trying to fix. Neither do you, probably, because almost no one does.

So let me help with this explainer. Here’s the promise: This will be non-partisan, factual, and some parts at least will be different from anything you have heard before. This is a version of a letter I sent to the White House economists charged with coming up the new, better replacement for the Affordable Care Act.

Subject: Your best eight minutes on healthcare economics.

  • Why healthcare economics are different.
  • What would work

Who I am: An independent healthcare author and analyst since Jimmy Carter’s administration, speaker, consultant across the industry at all levels, including insurers, hospitals, device manufacturers, employers, the Veterans Administration, the pharmaceutical industry, the World Health Organization, the Department of Defense, a real insider.

Core problem: The core problem in fixing healthcare is the actual cost of medical care.

  • Healthcare in the U.S. by any measure costs about twice what it should and is twice more than in most other countries.
  • Medical prices are completely disconnected from the cost of production.
  • Few medical providers even know the true cost of their products, their tests, therapies, and surgeries because they reverse-engineer their prices based on reimbursements
  • By a number of highly respected analyses at least one third of that (well over $1 trillion this year) is waste, paying for things that we don’t need and that don’t help and often hurt.
  • Solving just the federal part of this would completely wipe out the deficit.

Trying to “take care of everybody” will always be impossible politically and economically as long as healthcare costs twice what it should and wastes trillions of dollars.

Solvable: This is a solvable problem. If we manage to stop paying for waste, over $1 trillion per year in unneeded overtreatment will disappear. Prices will drop to something like a true market price. This will not happen overnight, but it could happen over five years with vigorous implementation.

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Why Did Healthcare Inflation Slow Down? Why Does It Matter?

Posted by capcityspeakers on August 11, 2016

by Joe Flower

The costs of healthcare turned a corner in 2009. You can see it on any graph of National Health Expenditures, whether by dollars or dollars per capita or percentage of the economy. There is a decided downward bend in the trend line between 2008 and 2009. The line then stays nearly flat, close to or below the increase in the general economy.

This Great Flattening is really interesting, but the reasons why it’s happening are even more interesting — because they tell us something about healthcare’s future.

Robert Woods Johnson Foundation just put out the latest report on this. The line blipped up a bit in 2014, the first year of the full implementation of Obamacare. According to the RWJF analysis, though, it then resumed its near-flat trajectory in 2015. The Great Flattening is not over.

Why is this happening?

Healthcare commentators have given three competing reasons for it. At first, most dismissed it as an epicycle of the Great Recession. Later others claimed that its continuation showed that Obamacare was working.

I and some others had a different idea: The Great Flattening, at least in part and increasingly as time went on, has been the first sign that structural changes in how we pay for healthcare are beginning to make a difference in how much we pay for healthcare.

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What healthcare must learn — from a chain restaurant

Posted by capcityspeakers on September 13, 2012

by Joe Flower

In Healthcare Beyond Reform: Doing it Right For Half The Cost I lay out the five strategies that healthcare must adopt, and is adopting in various ways and places, to make healthcare better and cheaper at the same time.

Strategy Five is “Rebuild Every Process.” It’s about “lean manufacturing,” smart standardization, measurement, “big data,” evidence-based design, teaching the innovation, all the detailed, rigorous, hard attention to intelligent process re-design that healthcare is so obviously lacking — and that is absolutely necessary if healthcare is to improve its abysmal cost/benefit ratio.

Now in The New Yorker writer/surgeon Atul Gawande has done a brilliant turn on this theme, by diving into, of all things, the processes of a restaurant chain, comparing them to the duplicative, chaotic, mistake-prone processes of traditional healthcare, and finally to some examples of smart, rebuilt healthcare processes that drive down costs while killing fewer people.

Gawande shows how The Cheesecake Factory manages to deliver 308 dinner menu items and 124 beverage choices to exacting standards, on time, from fresh ingredients, with only 2.5% wastage, in a linen-napkin and silverware environment, at lower cost, then compares that with the disconnected, uncoordinated, messy environment that is most of US healthcare. He details several examples of how new drives toward standardization and control of processes in the operating room and the emergency department, for instance, are making a difference, lowering costs and improving not only outcomes but the patient experience, all at the same time.

There are still voices in medicine decrying standardization as “cookbook medicine” and insisting that every medical decision and action must be made on the spot, on the fly, on the doctor’s judgment and say-so alone. Yet there are right and wrong ways to do most of medicine. There is no clinical justification for not elevating the head of the bed for a patient with pneumonia on a ventilator; or for not fully covering a patient during a central line emplacement; or keeping a patient on 100% oxygen for longer than absolutely necessary. As one of the docs engineering the standardization of a group of EDs told Gawande: “Customization should be five per cent, not ninety-five per cent, of what we do.”

The contrast in the diffusion of innovation is quite stark. The Cheesecake Factory changes some of its menu every six months, and all of its cooks throughout the chain must learn the cooking and presentation of the new items. The chain has a dedicated system for teaching the new items to managing, and then teaching them how to teach them, so that they can propagate the new items throughout the system. Healthcare has no such system at all. When some new fact or technique is established through research (whether the proper use of negative and positive ventilation flows in patient rooms, or a superior wound closure technique, or better post-op therapy after knee replacement surgery) there is no mechanism to propagate that discovery throughout healthcare. Studies show that the average medical innovation takes 15 years to reach even half of patients in the system. That is simply unacceptable. People die and suffer because of such resistance to doing things a better way. We must rebuild every process in healthcare continually, striving for better care, better results, and lower cost.

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