In Search of the Holy Grail – the why

the holy grail

Most of my posts the last few months have focused upon the altruistic dimensions of providing healthcare – high-quality outcomes, empathetic service and the process-engineering that continuously improves that care. I’ve also written about the crisis in paying for America’s healthcare; private and public payors demand we use less money to achieve better outcomes. This week I’ll write about the search for The Holy Grail that connects the two … how integrated delivery systems (IDSs) such as ours lower the cost of a unit of care, while simultaneously improving patient outcomes.

total cost of healthcare

Historically, IDSs have gotten away with having higher costs for a patient office visit by having lower hospital and pharmacy costs for that same patient. Indeed, our “relative expense” from the former is more than offset by the “relative savings” of the latter, thus enabling us to charge a total price that is lower than non-integrated (traditional) care. That math works only as long as the patient (or her employer) pre-pays for total care (office visits + hospital + pharmacy).

value = improvement over cost

But what if the highly touted “Consumerism Movement” in US healthcare (individual patients making individual buying decisions for individual units of care), coupled with “Pricing Transparency” (every price for every unit of care from every provider in the neighborhood available on the patient’s smartphone, right now) led patients to truly shop for a unit of care (say, an annual GYN exam or diagnostic colonoscopy or laparoscopic cholecystectomy) among a number of IDS providers in the city? In the new healthcare market, if our price for a unit of care is higher, the patient must believe ahead of time we are worth the additional cost, or she’ll spend her Healthcare Savings Account (HAS) dollars elsewhere. If our price is market competitive and our service or outcome superior, more deductible HMO (dHMO) and high-deductible healthplan (HDHP) members will choose to receive their care from us, rather than the IDS down the road.

In the next three posts, I’ll propose a “what” and a “how” of reducing our unit costs (prices for an individual unit of care), followed by some business principles that must be reconciled in order to succeed.

Click here to read the next post in the series, “In Search of the Holy Grail – the What”

The Company Store, Built by Monopolistic Pricing and Conflict of Interests

After 30 years of high and rising costs, the lay press is (finally) learning the causes of America’s ridiculous healthcare spend. Dr. Atul Gawande was the first to explain the physician’s role (“culture of money”) in his sentinel New Yorker article June 2009 (“The Cost Conundrum: what a Texas town can teach us about the cost of healthcare”). Mr. Steven Brill then gave us the role of irrational pricing from hospitals and device companies (“Bitter Bill: why medical bills are killing us”; Time March 2013). In today’s New York Times, Elisabeth Rosenthal has chosen one common procedure (colonoscopy) to link together the physician and hospital roles (“The $2.7 Trillion Medical Bill“, June 2, 2013).

Her findings:

1. Regarding Physicians: “(Americans) are typically prescribed more expensive procedures and tests than people in other countries, no matter if those nations operate a private or national health system”; “(Physicians) have defaulted to … the most expensive option, without much, if any, data to support it”; “(Tests) are often prescribed and performed more frequently than medical guidelines recommend”; “Once (gastroenterologists) bought into a (surgical center), the number of procedures they performed rose (27%)”.

company store, coal mining2. Regarding Prices: “Americans on average pay 3-4 times as much (for a given procedure) as (patients in Europe).The high price paid … mostly results … from (a) (provider) business plans seeking to maximize revenue, (b) (prices negotiated) between hospitals and insurers that have no relation to the actual cost of performing the procedure, and (c) lobbying, marketing and turf battles among (providers) that increase patient fees.”

Potential Remedies:

1. Physician’s decisions on behalf of their patients must be disconnected from personal financial gain, otherwise an insurmountable conflict of interest is created.So that means, much less fee-for-service (FFS) care, and rules to limit or prohibit physicians from owning the surgical center in which they operate (Stark Laws for ASCs).

2. Physician leadership must organize patient care end-to-end to account for total cost and total benefit, otherwise each independent provider will maximize profit for self, rather than benefit for patients.

conflict of interest3. Healthcare services that exist for the community good (e.g., the cost of a day in the neighborhood non-profit hospital) should be regulated like public utilities, otherwise prices will remain irrational, given that a free market cannot exist in local healthcare.


A Caste System Among Physicians

caste system

In historical Hindu society, a complex hierarchy of socioeconomic groups arose that can be oversimplified by the graphic to the left. Priests held the highest place in society, followed by the warriors using swords, then merchants trading goods, followed by laborers doing the most manual work.  Each group’s social and material wealth was preserved by limiting the financial and social opportunities of the group lower.

greek warrior

Did the era of fee-for-service healthcare (FFS) over the last several decades unintentionally create such a caste system among physicians? Perhaps our Priest Class is represented by cardiologists, radiologists, and orthopedic surgeons; our Warrior Class represented by gastroenterology, dermatology, and most surgeons; our Merchant Class represented by primary care and cognitive specialties; and our Laborer Class represented by associate practitioners.

Before you scoff, consider this. In most hospital systems in the US (whether for-profit or non-profit), members of the highest paid specialties control more of the resource allocation (investments in equipment, space, and personnel). Think of the surgeon who gets a robot (which might not improve outcomes in 80% of the patients who receive surgery using it), along with a dedicated operating room and team of specialized personnel, whereas a cognitive specialist or primary care physician doesn’t get a cross-functional process-improvement or patient-engagement program to reduce hospital readmissions or improve self-care of chronic disease.  There’s more immediate income for hospital, surgeon and device manufacturer in robotic surgery; there’s more long-term cost for America in suboptimally managed chronic disease.  American healthcare will be forced to reconcile that math within the next few years.

robotic surgery At the dawn of the Specialization Era (1950s), the highest paid specialties received an income 2-fold (200%) more than the median income for primary care physicians (source – Department of Commerce, published in Time 30July1951:70). Today, the highest paid specialties receive an income four-fold (400%) more than the median income of primary care (multiple sources). Moreover, those higher paid specialties have more discretionary income from clinical care to buy buildings, imaging equipment, faux-research programs, and other infrastructure designed to generate non-clinical income, which in many cases eclipses clinical income.

patient as ATM machine

I see a day in America’s future when …

(1) resource allocation within health systems is based upon “doing the most good” for a community of people, rather than generating the most income for hospitals, physicians or device manufacturers,

(2) the highest paid specialties earn no more than 3-times primary care, and

(3) governance of the delivery system is distributed among physicians, staff and patients, based upon criteria other than magnitude of revenue generation.

healthcare teamThat’s the way it’s been at Kaiser Permanente for 70 years.

For those of you in non-KP integrated delivery systems, it’s in your interest to dispatch the physician caste system prior to the widespread use of bundled payments from payors.  Well, unless you are a Priest.

The Problem to be Solved

I continue to hear physicians in our state rant about ObamaCare, as if the latter is the root cause of healthcare’s ills, rather than merely a symptom (or solution, depending upon your politics).  We humans use our cultural biases and personal experiences to form (correct or incorrect) assumptions about changes in our world, too often failing to deeply understand the root cause of those changes.

I maintain that ObamaCare is NOT the problem to be solved; the Sustainable Growth Rate (SGR) and its offspring, Sequestration, are NOT the problem either; whether Governor Deal will or won’t expand Medicaid in the state – also, NOT the problem for us to solve.  What then?

The root cause of all those symptoms is in fact The Cost of American Healthcare.  That high and rising cost ($8,000 per year for individuals, $12,000 per year for families) is the problem causing the symptoms (2010 ACA legislation, 50% of state budgets used for healthcare, and the 2013 Federal Sequestration).

Here are some more symptoms: (1) employers shifting costs to employees (changes in benefit structure and financing of those benefits), (2) uninsured or underinsured individuals shifting costs to the general economy (see spike in personal bankruptcies due to healthcare bills, the cost of caring for the uninsured or underinsured and the cost of diminished productivity), and (3) the general economy struggling from lower spending in areas other than healthcare (innovation, education, infrastructure, the environment).    Dr. Atul Gawande revealed we physicians are part of the problem (New Yorker, “The Cost Conundrum”, June 2009), and Mr. Steven Brill revealed so are hospitals, pharmaceutical and device manufacturers (Time, “Bitter Pill”, March 2013).

So what’s the sustainable way out?  I see a short list of choices:

  1. Price controls (what Mr. Brill argues)
  2. Mandate all insurers be non-profit, coupled with community rating (our model in the US 1940-1960, and one of two European models today)
  3. Payment reform coupled with a free market (partially underway in the US – see  ACOs)
  4. Rationing of healthcare expenses (see UK or Canada)

What’s your preference?

Where’s the Line Between an Owner’s Right to Run Her Business, and an Employee’s Right to Personal Liberty?

Allow me to tell you the exact same story, but from two different (and equally valid) points of view.

woman business owner

The Business Owner: “During the last 10 years, I’ve seen my company’s healthcare costs increase 160% in total, now over $12,000 per year per employee. During that same time, I did everything the benefits consultants told me to do: (1) first increase the copays for doctor visits and drugs, then when that didn’t lower total costs, (2) change the employees’ financial obligation from copays ($15 per visit) to coinsurance (15% of the cost of the visit), then when that didn’t work, (3) change the plan design to place more of the financial obligation of healthcare expense onto the employee, which chased away my top 10 employees, lowering our sales productivity.  Now those same consultants are telling me the only way to lower next year’s costs is to insist my employees make themselves healthier this year.  So I’m financially mandating wellness from each employee.”

american workersThe Business Employee: “During the last 10 years, I’ve seen my payroll deduction for healthcare coverage rise 220% in total.  At the same time, my pay has increased only 30%, barely keeping pace with inflation, with fewer colleagues to share the workload.  The owner keeps changing our healthcare coverage every year or two, saying she can no longer afford the older, richer package, so my out of pocket expenses for healthcare have also increased.   Now she’s telling me I have to lose 50 lbs (get my BMI < 35) by the end of the year, or I’ll pay $1000 more than my slim and fit colleagues next year, for the same coverage.  There goes Christmas.  What’s next – fire me for having diabetes and bad knees from my weight?”

It’s a true story playing out all over America.   The Wall Street Journal recently reported that up to 60% of companies surveyed plan to implement penalties (rather than incentives) upon workers who don’t get healthier (Leslie Kwoh, “Shape Up or Pay Up: firms put in new health penalties”, A1 and A6).   This leads to at least two questions, “Are such penalties legal?” (Yes, within limits), and “Where do an employer’s rights end and an employee’s rights begin?” (Harder to answer)

Most would agree the employer has no obligation to build and run an onsite gym or cater lunch every day from Whole Foods (although high-tech, high-profit companies often do something similar).  All would agree that the employee has the right to quit if she/he finds the corporate rules, salary or benefits unacceptable (but that’s very hard to do in the new global economy).  Let’s seek the middle ground.

weight of the nation

Given the facts that obesity is now directly or indirectly responsible for (1) ~ 50% of the deaths in the US (CDC, Weight of the Nation), (2) ~ 30% of healthcare costs (several sources), and (3) 450 million missed days of work annually in the US (2011 Gallup), business owners feel financially obligated to structure benefits to attract and retain fit employees.  The question is, “how will the US workforce respond?”  Will we argue the financial reality of the business owner, or redirect those energies against the real enemy – overweight and obesity.

What is in an employee’s control?  Certainly not whether they get leukemia (Act of God if you will), but diabetes, hypertension and hyperlipidemia might be (diet and exercise balanced against our genetic inheretance).

What is an employer’s obligation?  Certainly not gym memberships and delivered veggie-humus wraps, but civil workloads and facilitating an exercise-at-desk-program might be.

At KP Georgia, we have the highest HEDIS ratings in the state for Adult BMI assessment, as well as, Weight Assessment and Counseling for Nutrition and Physical Activity for Children and Adolescents.  We join our members and corporate partners in the fight against obesity, and its sequelae.

The TRUE Definition of Physician-Productivity Might Surprise You

In his OP-Ed in today’s WSJ, Dr. Scott Gottlieb makes several mistakes.  I have time to address only three.

“ObamaCare is gradually making the local doctor-owned medical practice a relic.”

First of all, let’s stop calling it ObamaCare.  That term is intended to be derogatory, largely borne of fear, mainly from the current Administration’s political opponents (such as Dr. Gottlieb’s employer, the American Enterprise Institute).  Noble doctors realize healthcare reform should NOT be about politics, rather improving the access and quality of care for all Americans.  PPACA isn’t making small fee-for-service (FFS) practices a relic, the industry’s and country’s macroeconomics are (see 18% GDP, see Steven Brill’s Time article, see Sequestration).  Small, single-specialty practices don’t have the expertise, physician-leadership, or measurement / improvement infrastructure to eliminate the 35% of waste in America’s care (see recent IOM report).  Only large, multi-specialty group-model practices can do that, like the Permanente Medical Groups.

“When doctors become salaried hospital employees, their overall productivity falls.”

Let’s provide the correct definition of ‘physician productivity’.  It’s NOT “see the most patients per hour as possible”, rather “solve the most patient-problems per hour”, or if you prefer, “prevent the most illness, cure the most illness, resolve the most patient pain”.  A given physician’s RVUs fall 25-35% following the transition from FFS to salary-based compensation PRECISELY BECAUSE 25-35% of the “care” in FFS (testing, drugs, surgery) is not medically necessary for the patients who experience it.   It’s high time our entire profession define Physician-Productivity along the dimensions of patient outcomes (fewer illnesses, less need for hospitals, more cure, fewer mistakes).  We’ve been doing it that way in the Permanente Medical Groups for 70 years.

“(Physicians paid a salary, rather than FFS will) no longer take the time to give detailed sign-offs as they pass care of patients to other doctors who cover for them on nights, weekends and days off.”

Money is a bad way to ensure doctors give their all for each patient.  Measurement and Culture are the ways.  When doctors are beholden to one another for quality, service, diagnostic and therapeutic excellence, their patients (and colleagues!) benefit.  The purpose of paying physicians high salaries is to compensate us for working 70 hours a week, sleeping less than 4 hours many nights, and acknowledging our high-pressure, zero-margin-for-mistakes worklife, rather than to make money for the hospital (see my recent post entitled, “The Very Rational, albeit Regrettable, Link Between Profit and Salary in Healthcare”).  Here’s the real reason practice acquisition failed in the 1990’s – once physicians no longer were self-rewarded to rack up excessive bills on their patients, they stopped.  The acquisition companies were in it for the money in the 1990s (i.e., to receive the profits of overtreatment instead of the doctors).  Had they been in the practice-acquisition game for the right reasons (to raise the quality and reduce the waste in care), we might not have needed PPACA 20 years later.

In fairness, Dr. Gottlieb gets two things right. 

“When integrated delivery networks succeed, they are rarely led by a hospital.”  True.  They are led by humble physicians, grounded in the principles of evidence-based-medicine and continuous improvement, and experienced in effective leadership.

“(Most) hospitals aren’t buying doctors’ practices because they want to reform the delivery of medical care. They are making these purchases to gain local market share and develop monopolies.”  True.  I’m not defending the purchase of physician practices by hospital monopoles or oligopolies.  And anyway, from what I hear, the FTC is gearing up to (finally) enforce our county’s Anti-Trust Statutes in this regard (let’s hope the FTC follows through on their duty).

So I guess this is my summary:  Dr. Gottlieb’s editorial is more about earning his salary from his side of the political spectrum, rather than trying to inform the discussion of healthcare delivery reform.

Could Price Regulation Be Passed in the Extremist Culture of Congress?

Near the end of his highly accurate indictment of the American Healthcare Industry, Mr. Steven Brill concludes (1) it’s unlikely that our centuries-old mechanism of paying for American healthcare (“fee-for-service”) could be retired (I hope he’s wrong), and (2) the only plausible replacement is a “single-payor system” (wrong), which is politically untenable anyway (he’s got that part right).

Thus, Mr. Brill’s logic goes, we are left with only ONE path forward for reforming how we pay for our healthcare: price controls.

Well, I can’t imagine the creation of bipartisan legislation to regulate anything in our extremist political climate, much less private healthcare prices. It’s true CMS has effectively regulated prices for government-sponsored healthcare of seniors (Medicare Part A & B), but (1) LOTS of waste exists in those expenses too (see my prior posts, Dr. Atul Gawande’s June 2009 New Yorker article, and other sources), (2) fee-for-service Medicare cost trends are as unsustainable as commercial healthcare insurance (see fiscal cliff, sequestration, etc) and (3) my industry has always been effective at thwarting price reductions – we simply raise volume of services to a degree greater than the reduction in unit prices. So what then?

There exists another choice. One that rewards continuous improvement and innovation in clinical quality and efficiency, rather than the waste and fractured care of fee-for-service. Its known as pre-payment of medical care, and its been in existence for nearly 70 years (Kaiser Permanente). Or if you’d prefer, see the highly successful Medicare Advantage Program (Medicare Part C), inside of KP and outside of KP. We’ve routinely got the highest quality (see annual Medicare STARS rankings), the greatest care-efficiency (see Aon-Hewitt’s annual HVI report), and best customer satisfaction year after year (see JD Power and Associates Annual Award in the markets in which we operate).

You might be sick of me saying it by now, but here goes … America’s fee-for-service mechanism of paying for healthcare is the root cause of our country’s cost and quality problem. And at KP, we know how to fix it.

The Tragedy of the Commons, Revisited

In this week’s posts, I’ve (1) asked the question, “What would it take to Convince America that MORE (healthcare) is often WORSE (quality)?”, and (2) argued for the morality of resource stewardship in healthcare. For the third point on the triangle, I offer the point of view of patients when asked to contemplate differences in price of clinically equivalent choices. But first, let’s briefly revisit a well-documented observation of the human condition.

The “Tragedy of the Commons” refers to the default human behavior of “individually consuming ‘more’, while the resultant reduction in common resources is borne by the group”. The term refers to the individual use of common grazing areas for livestock. In short, the self-interest of the individual trumps his/her self-interest in the group. Others have described a separate but related human behavior – choosing among competing survival strategies – whether to compete or cooperate with a member of the tribe (see, “The Prisoner’s Dilemma”). Such very human behaviors have implications beyond healthcare of course (for example, perennially postponed legislative decisions on the consumption of government entitlement programs, Social Security and Medicare principle among them).

In this month’s issue of Health Affairs, a five member team representing healthcare ethics, economics, effectiveness, management and law describe patients’ point of view when clinicians include price as a variable when facilitating shared decision-making discussions (Health Affairs 2013; 32, NO. 2: 338-346); specifically, whether patients were willing to accept the less expensive of clinically equivalent options. No, most patients weren’t willing. These research findings should not surprise us, given the above reflections on the Human Condition.

A necessary component of restoring affordability to America’s healthcare is the willingness of patients to choose a lower cost option when considering clinical choices that differ marginally in expected effectiveness but vary substantially in price. If, in their mind, (1) price equates to quality in healthcare, (2) they have no real responsibility to the tribe when making individual healthcare choices, or (3) they feel entitled to consume as much healthcare cost as they wish, having previously paid the employee portion of employer-provided health insurance, healthcare “value” will be less common than our country’s macroeconomics require.

The authors of the Health Affairs article propose tactics to help individual patients become more comfortable with discussion of cost and price when making personal healthcare decisions. I’m more interested in addressing the root causes – the cultural tension between self v group.

How do we instill among present-day Americans a stronger responsibility to current and future Americans? To do so would benefit not only our healthcare cost conundrum, but environmental meltdowns, fiscal cliffs and waning education budgets. Our country was founded on the principles of “self”: self-determination, self-discipline, self-reliance, self-actualization. By considering the greater welfare of all, we eventually improve the welfare of self. Some may confuse the American ethic of “freedom” with “choice”. We can choose the lesser cost, equally effective healthcare option for our individual self, one decision at a time, or not. We remain free to choose either action, but only one choice leads to a brighter future for our children and their children.

If you prefer sound-bites, “We need more ‘us’ in the US.”

The ChargeMaster is Smoke; it’s The Wizard you Seek, Mr. Brill

In his Time Magazine piece this week (Bitter Pill – Why Medical Bills are Killing Us), Steven Brill rails against the evil chargemaster – the hospital’s exhaustive list of fee-for-service prices for every billable activity done to or for a patient. Again, Mr. Brill has made an important observation, “… no hospital’s chargemaster prices are … based on … the cost (of providing that particular service to that particular patient)”.  I’ll say even more – seldom do hospitals know the actual / true cost of providing any single service.  They’ve never had to – its easier to simply raise prices every year.   

Perhaps it would be useful to know the process hospitals go through mid-way through the current fiscal year to create the budget for the following fiscal year: first, they make an educated guess as to the amount of money they’ll receive from insurers, the government, and individuals in the coming year if they were to keep their prices flat (this is based upon a prediction of utilization of healthcare goods and services in their hospital [as well as contemplating their contract agreements from payors]; the more utilization the better); then they’ll make an educated guess as to the amount of expenses they’ll incur in the course of receiving that revenue (their expenses for staff, medications, supplies, and yes even their desired “margin” [profit]); there will be a gap between the forecasted revenue and expenses; indeed, every year there is a gap. Too often they close that gap by answering the last question, “By how much must we raise our (already irrational) prices in our chargemaster to make up for that gap?”.

In no way am I justifying or condoning the ChargeMaster.  Rather, I’m saying it is irrelevant, or at least should be.  Only when we stop paying for healthcare by piece, will we have hope our total costs will fall.  One thing the last 30 years have proved, my industry is better at increasing volume of care, than private or public payors are at decreasing price per piece.

So Mr. Brill has landed on a symptom (the chargemaster) of the problem to be solved (outrageous costs for healthcare in the US), rather than the root cause of that problem (we must stop paying our hospitals and doctors through a fee-for-service mechanism, if we are to eliminate enough overtreatment to reduce healthcare costs to “appropriate levels”).  You decide what “appropriate” should be …. I think it should be 12-14% of GDP, rather than the current 18% and rising.  By the way, that’s plenty of money to provide ALL the right care to everyone, no less, but that leaves no room for the huge waste from overtreatment that occurs today.  (For additional information, see my later post entitled “The Problem to Be Solved”)

So the Wizard we seek is in fact the underlying cause of the high-and-rising volume of testing, drugs and surgery within the American Medical System, rather than the price of each unit of care.

Cost Shifting from Medicare to Commercial

In his Time Magazine piece this week (Bitter Pill – Why Medical Bills are Killing Us), Steven Brill misses a few opportunities to speak to the “root causes” of the problem we must solve in our beloved country – the outrageous cost of healthcare.

Mr. Brill makes an appropriate observation – the price for a unit of healthcare for a Commercially insured patient is often many-fold more than the price for that same unit of care for a Medicare patient (Brill gives several examples, including the price of a chest x-ray: $283 for commercial, $20 for Medicare – same test, same resources used).

The missed opportunity is in describing “the why”.

For decades, commercially insured patients have partially paid for (“subsidized”) the care rendered to Medicare patients.  This phenomenon was first revealed over a decade ago in Paul Ginsburg’s classical article in Health Affairs:

So the point that Mr. Brill should have made is both the Commercial price AND the Medicare price are “wrong”, the former too high to cover the latter too low.  The “right” price is something in between.  Oh, and we’ve got to acknowledge that 10-30% of every price paid covers the absence of payment from the uninsured/underinsured.  And even more importantly, at least 30% of chest x-rays ordered are unnecessary.

Once an observation is made, the enlightened man and woman asks “why”.