Jens 'n' Frens
Idle thoughts of a relatively libertarian Republican in Cambridge, MA, and whomever he invites. Mostly political.

"A strong conviction that something must be done is the parent of many bad measures."
  -- Daniel Webster

Monday, November 09, 2009 :::

A long, pretty good write-up on "evidence-based" medicine over at the NYTimes, and let me highlight some of this:
James peppers his classes with anecdotes about W. Edwards Deming, arguably the original quality guru, and it is easy to see why Deming would be attractive to James. Deming grew up on a farm in Iowa in the early 20th century and majored in electrical engineering at the University of Wyoming. During World War II, he was part of a committee that helped the government make wartime production more efficient. After the war, his statistical methods caught on in Japan, and the Japanese credit him with helping to make their postwar boom possible. The so-called Toyota way stems from Deming’s work. Eventually, the same ideas caught on at General Electric, Intel, Wal-Mart and elsewhere in this country.

But there is a fundamental difference between Toyota and Intermountain [the hospital chain to which this James fellow has brought the scientific method]. As Toyota built better cars than its competition for less money, it won new customers. Some rivals matched its successes (as Honda did); some lost market share (as Detroit did). No such dynamic exists in health care. ...


Even more important than how we choose our health care, though, is how we pay for it. .... [I]f a hospital does a rigorous analysis of what actually works, it is likely to discover a fair amount of waste.

But in our current health care system, there is no virtuous cycle of innovation, success and expansion. When Intermountain standardized lung care for premature babies, it not only cut the number who went on a ventilator by more than 75 percent; it also reduced costs by hundreds of thousands of dollars a year. Perversely, Intermountain’s revenues were reduced by even more. Altogether, Intermountain lost $329,000. Thanks to the fee-for-service system, the hospital had been making money off substandard care. And by improving care — by reducing the number of babies on ventilators — it lost money. As James tartly said, “We got screwed pretty badly on that.” The story is not all that unusual at Intermountain, either. That is why a hospital cannot do as Toyota did and squeeze its rivals by offering better, less-expensive care.

For all of its focus on efficiency, Intermountain, too, can be tempted by the dark side of the fee-for-service system. In one committee meeting, I listened to a debate about how much the hospital should charge patients for a certain medical device. Intermountain previously had negotiated a price reduction from the manufacturer that saved thousands of dollars on each device. But the hospital was still charging patients the old price, and the insurers, including Medicare, were still paying. That was what their reimbursement charts said they would pay.

A few people in the meeting were clearly bothered by this. They asked the finance executive, participating by speakerphone, if anything could be done. One committee member argued that Intermountain (which is nonprofit) should not overcharge for a treatment, even if it helped the hospital cover its overall expenses. The finance executive replied, apologetically, that changing the reimbursement rate would cost Intermountain millions of dollars and that there did not seem to be any way to make up for the loss. The meeting then moved on to another topic.
The last two paragraphs seem out of place with respect to what goes before. Of course they should continue to charge the same amount for the same benefits to the patients. If they want not to make a profit, but to serve some other set of goals, then would this really be the most effective way of using those millions of dollars, or are there several more poor patients who could be handled pro bono, or another community education initiative, or some other use of the money that would better serve the organization's mission?

I have heard, though without the details, that Medicare moved briefly in the eighties toward outcome-based fees, creating the incentives for suppliers of medical care to reduce costs, but around 1991 shifted back toward a cost-reimbursement model. Medicare, for better and worse, plays some role in creating norms in the health insurance market. However, let me take issue with this:
As long as doctors and hospitals are paid for each extra test and treatment, they will err on the side of more care and not always better care. No doctor or no single hospital can change that. It requires action by the government.
(It is the Times....) I'd love to see Medicare, Medicaid, VA services — anywhere government is, appropriately or inappropriately, involved in reimbursing medical expenses — move to paying for outcomes rather than inefficiency, but I expect a lot of the action that government needs to take here is to get more out of the way. How do state regulations of health providers and insurers drive inappropriate behavior? How does the tax code? Can we at least get to where the government is causing less harm than good on this? (In New York, we almost certainly can't.)


::: posted by dWj at 12:44 PM

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Idle thoughts of a relatively libertarian Republican in Cambridge, MA, and whomever he invites. Mostly political.

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