Hospital Operating System Musings

Healthcare cost/capita versus the health of a nation...

2011-05-04T15:08:00.000-04:00

Hmmm... I got to thinking after reading one of John Goodman's posts on the cost of Healthcare...
So....

Innovation costs money… We seem to have won that race and our cost/capita is a reflection of that reality. At the same time though, the innovations are immediately shared across the world. Now I know this is a rather generalized and seemingly unreasonable statement. If you take pharma out of the picture though, the CT machine used here is the same as the one used in Germany. The clinical practices and protocols innovated here get used in Australia.

Notwithstanding there are socio-economic differences to be taken into account. While we are criticized for our cost/capita being so much greater, relative to the health outcomes of other countries, there is never any rhetoric on the health in these other countries being bolstered by the spend in the US.

Just a thought…

Wait a minute....!!! That's all we're going to save?

2011-04-11T10:59:00.001-04:00

Last week I spent a few days at the World Healthcare Congress just outside D.C..

Mercy St. Vincent Medical Center, located in Toledo and part of the Mercy Health and Catholic Health Partners organizations presented some very astounding outcomes they have experienced over the past two years. In round numbers they reduced their length of stay from 5.2 to 3.8 days and at the same time reduced the operational costs to run their organization by a total of $48,000,000. They were also able to claim a 75% reduction in preventable harm to their patient population.

St. Vincent's is a average to large tertiary hospital... So I started thinking to myself..., what if the same outcomes were achievable throughout the United States?...

For the sake of fairness, let's assume only half the savings are reasonably achievable by the average size hospital. That's $12,000,000 per year. Let's assume also that only half the hospitals in the nation achieve the same conservative amount of annual savings. That's roughly 2,750 hospitals.

If you do the math, that's an annual savings of $33 billion. If you follow the same logic the congressional budget office uses to calculate savings, this number must be extrapolated over 10 years. So the projected savings if half the hospitals in the US achieve only half of what Mercy St. Vincent's experienced..., the savings would be $330 billion.

The congressional budget office's projection for the savings from the Accountable Care Organization strategy would be $5.3 billion.

Hmmmm..., $330 billion or $5.3 billion? The projected savings from the accountable care strategy seems paltry. It's only $530 million annually. How can this level of savings be a solution to a trillion dollar problem. It's less than 5/100 th's of the total issue. It's kind of like living in a house that is two times what you can afford and thinking if you stop buying a coffee on Friday's, your cashflow problem will correct itself.

We need to change the debate.... We need to be talking about efficiencies that create at least $500 billion in annual savings...., and we need a bunch of these ideas.

Einstein said, "You can't expect the thinking that created the problem to also create a solution to the problem..." (paraphrased a little). We have to get way outside the box...

(Disclaimer - I am assuming averages here for the number of hospitals when it comes to size. Some would be larger..., some smaller than St. Vincent's. Some would save more. Some would save less. The average assumptions work for the sake of argument.)

I told you so....

2011-03-26T14:11:00.001-04:00

Well it has been a while since my last post... Funny how your brain can go into processing mode while life challenges you to learn more and more...

At any rate, I find it interesting that the tested and true concept of supply and demand continues to play out in the healthcare market place. If you recall one of my older posts discussing the repercussions of adding millions to the medicare population (demand) while at the same time not increasing the number of doctors (supply) the outcome is destined to be lower quality care...

I was surfing through my google reader content, which by the way has dramatically increased in the last 6 months without any alterations to the feeds I have my account linked to, and came across an article covering how psychiatrists have altered their practice behavior as a result of changes in reimbursement for the care they used to provide to their patients (see http://nyti.ms/hWf13V)...

If you reduce the money funding healthcare while at the same time you don't increase the efficiency of the system by an equivalent or greater amount..., the only logical outcome is lower quality. Economies are closed systems and our healthcare system has grown to be the leading healthcare influence of the world. If we don't deal with increasing the efficiency of healthcare operations, mainly hospitals in my opinion, we will cease to be a healthcare leader in the world.

I continue to be hopeful... and diligent when it comes to the operating efficiencies of our customers. We are a nation born out of conquest; a nation that not only survives challenges but advances as we conquer them. I chose the United States as my country and feel confident the future will be brighter than what we are now striving to work through....

Supply and Demand.... again....

2010-06-17T07:33:00.000-04:00

It is no surprise to me that people are starting to wake up when it comes to their healthcare future... Hopefully the news will spread...

This article says it again and more comprehensively than I could ever hope to achieve.

Happy reading... http://bit.ly/dtdbg8

Alyn

Supply and Demand in Massachusetts

2010-04-02T20:31:00.000-04:00

It looks like more people are thinking of the same topic I have blogged about. We should get ready for what is coming.... Make sure you have your family doc secured in the next two years.... This is a good quick read from the Associated Press.

Kind regards... http://bit.ly/cOhn3B

Again,… Why are the basics being ignored?

2010-03-16T13:37:00.000-04:00

I came across a good article through Rick Jackson, our CEO… from Thomas Sowell.

One of the biggest reasons for higher medical costs is that somebody else is paying those costs, whether an insurance company or the government. What is the politicians' answer? To have more costs paid by insurance companies and the government.

Back when the "single payer" was the patient, people were more selective in what they spent their own money on. You went to a doctor when you had a broken leg but not necessarily every time you had the sniffles or a skin rash. But, when someone else is paying, that is when medical care gets over-used -- and bureaucratic rationing is then imposed, to replace self-rationing.

Money is just one of the costs of people seeking more medical care than they would if they were paying for it with their own money. Both waiting lines and waiting lists grow longer when people with sniffles and minor skin rashes take up the time of doctors, while people with cancer are waiting.
In country after country, the original estimates of government medical care costs almost always turn out to be gross under-estimates of what it ultimately turns out to cost.

Even when the estimates are done honestly, they are based on how much medical care people use when they are paying for it themselves. But having someone else pay for medical care virtually guarantees that a lot more of it will be used.

Nothing would lower costs more than having each patient pay those costs. And nothing is less likely to happen.

One of the big costs that have actually forced some hospitals to close is the federal mandate that hospitals treat everyone who comes to an emergency room, whether they pay or not. But those who talk about "bringing down the cost of medical care" are not about to repeal that mandate. Often they want to add more mandates.

The most fundamental issue is not whether treating everyone who comes to an emergency room is a good policy or a bad policy in itself. If it is a good policy, then the federal government should pay for what it wants done, not force other institutions to pay for it. Then let the voters decide at the next election whether that is what they want their tax money spent for.

Confusion between costs and prices add to the Alice in Wonderland sense of unreality.
What is called lowering the costs is simply refusing to pay all the costs, by having the government set lower prices, whether for doctors' fees, hospital reimbursements or other charges. Surely no one believes that there will be no repercussions from refusing to pay for what we want. Some doctors are already refusing to accept Medicare or Medicaid patients because the government's reimbursement levels are so low.

Similarly, if it costs a billion dollars to create one new pharmaceutical drug, then either we are going to pay the billion dollars or we are not going to keep on getting new pharmaceutical drugs produced. There is no free lunch.

Virtually everything that is proposed by those who are talking about bringing down the costs of medical care will in fact raise those costs. Mandates on insurance companies? Why are insurance companies not already doing those things that new mandates would require? Because those things raise costs by an amount that people are unwilling to pay to get those benefits.

If not, it would be a slam dunk for the insurance companies to add those benefits to the policies and raise the premiums to cover them. What politicians want to do is look good by imposing mandates, and then let the insurance companies look bad by raising the premiums to cover the additional costs.
It is a great political game, but it does nothing to lower medical costs.

Politicians who want a government monopoly on health insurance can easily get it, just by making it impossible for private insurance companies to charge enough to cover the costs mandated by politicians. The "public option" will then be the only option -- which is to say, we will no longer have any real option.

Copyright 2010, Creators Syndicate Inc.

Healthcare and Operational Transformation

2009-12-10T19:58:00.001-05:00

I don’t believe, in a 10 year period of time, we are going to appreciably alter the process of actual clinical care. That is to say, going to the doctor 10 years from now is not likely to be a different experience than it is today. If we think back 25 years to our experiences with medical care, there has not been significant change… despite, the trends of patient centered care, HMO’s and a barrage of other well meaning clinical care trends. I think there are a number of characteristics of “medical care” culture that make altering its behavioral and cultural paradigm very difficult. It is ultimately a very fragmented professional body… many individual professionals and numerous practices without a technology to appreciably facilitate a change in clinical practice behavior. The real estate profession was similarly locked into a specific behavioral trend for many decades until the internet forced a change in practical behavior. The clinical lobbies and commercial enterprises invested in clinical practice not changing are considerable. So how can change really be affected?

I believe it lies in the realm of the business operations of medical care. The costs associated with operations, although inexorably attached to the process of clinical care, are not intimately embedded within clinical process. Additionally, while it would not be reasonable to mandate a massive change in the process of clinical care, it would be reasonable to mandate an alteration in operational practice. While there has not been a technology that has fundamentally altered clinical practice (more data can be shared and more experts can consult through better data access but without appreciable alteration to actual clinical process)… there are technologies available that can dramatically alter the process of operational management.

Research is now proving the investment in CPOE and clinical systems while a necessary investment for reasons of data preservation, sharing and utility, are not providing appreciable savings in either operational or clinical process. Rosenblum’s blog on “Hospital Operating System” highlights such a solution. I also work at StatCom with Jim.

The system needs quantum change. At the end of the day, I firmly believe there is a solution to the issues the healthcare debate is chasing. Mandating changes in clinical practice or the cultural expectations for medical care of the US patient population is not the answer. Quantum change is achievable through the operational transformation of the delivery of medical care.

Change the operational processes that surround the clinical activities of our healthcare professionals. They already lead the world in care and innovation… It is unreasonable to expect a quantum change in costs to be achieved through a clinical or cultural revolution in the short term.

Operational transformation… that’s the key.

Politics vs Economics and Healthcare

2009-12-03T08:41:00.001-05:00

As a new blogger… I have started following a number of healthcare blogs. One I find interesting is Action for Better Healthcare. The December 3^rd posting asks if it is reasonable to fix the issues with the bill after the election… the argument being offered by those in the house supporting the reform bill. I would say, at a minimum, it is a very risky strategy for such a large percentage of our economy.

We inside healthcare are not mistaken when it comes to the social and operational complexity of our sector so I am not surprised at the rush to get the healthcare bill passed given the political reality of house elections next year. After all if the real issues are debated… the bill will, at a minimum, stall and most likely will fail. I am surprised, however, that even the basic realities of supply and demand are not being argued by those in our country, both inside and outside healthcare, who understand the fundamentals of economics.

Dramatically increased demand without mitigation for the resulting supply needs is a recipe for difficulty. At the end of the day things are usually never as bad nor as good as politicians purport. I would gamble that if the healthcare reform bill passes, the ensuing entropic decline of service availability and quality will ultimately kill the specific reform strategies of the bill. Remediation of the bill’s policies will be needed for the survival of the system in some recognizable form and the politicians will thrash through amending it. If it does not pass, the issue of the overall cost of medical care will have been sufficiently highlighted and will draw increased and needed scrutiny of the operational efficiency of care delivery.

Either way, we are facing an accelerated period of change. It’s going to be a bumpy ride.

"Politics is the art of looking for trouble, finding it whether it exists or not, diagnosing it incorrectly, and applying the wrong remedy." (Ernest Benn)

Are our elected leaders chasing the wrong healthcare dream?...

2009-11-13T07:50:00.001-05:00

Perhaps our elected leaders are chasing the wrong “system aim”... The white paper Hospital Operating System - Unleashing Throughput Potential references the importance of system aim, an idea popularized by Deming. What if our leaders altered their approach and pursued affordable delivery of care rather than coverage as our system aim for healthcare? Would we be taking a different course of action?...

The danger of a political campaign, in my mind, is that personal preference and an ability to persuade can over shadow the basics and fundamental logic. Furthermore, once you have campaigned for something, an “in-flight” course change can been interpreted as weakness or perceived by the campaigner as an unacceptable mental construct. Finkelstein, Whitehead and Campbell’s book Think Again does a great job of exploring why good leaders make bad decisions and provides a context for why our elected leaders appear to be missing some of the basics I wrote about in my 11/10 blog.

Dr. Thomas Sowell’s book on Applied Economics (specifically part 1, the economics of medical care and part 2, how quantity of medical care is influenced by price controls) is a great read that a number of blogs and thought leaders are currently referencing. As I wrote in my 11/10 blog, it seems the basic concept of supply and demand has been abrogated by the apparent complexity of the problem being depicted by our elected officials. It appears we have locked on the wrong system aim and can't depart from the current thinking to see the logic of another argument.

Forcing a company to take a customer doesn’t work… just like forcing a customer into having only one choice of companies to purchase from doesn’t work. Government control and bureaucratic process only hinder efficiency and competitiveness… history has shown us this time and time again. It may seem counter intuitive based on the current public debate, but enabling more broadly based competition for the insurers would drive quality up and the cost of coverage down, ultimately making healthcare more achievable for all citizens. This has been proven to be the outcome in a free market economy. State by state and regional restrictions put on who can provide insurance and how it must be provided only ends up limiting the ability of the healthcare insurance industry to compete effectively.

So I it may be that the pursuit of coverage is not the right system aim as the government attempts to force/regulate the market’s customer group. If efficient delivery of care was the aim, we would be pursuing competitiveness rather than mandated coverage.

Let them compete… the patients will win… and healthcare will advance.

Tell me if I am the only person thinking this way… ‘cause if the rest of the world is crazy, then I may be the nut bag.

Does the Healthcare Bill skip the basics?

2009-11-11T15:04:00.002-05:00

The last time I checked… if demand is increased relative to supply… prices go up. So if we add millions to the healthcare roster while at the same time the incentives for clinicians to excel in their profession are diminished, isn’t the demand for care increased at the same time the supply of care providers is either stagnant or potentially declining. As there has been in the past, those who have succeeded and been rewarded for their achievement have a choice to either stay in the system or dial back their contribution as the conditions they exist in become less hospitable. A star athlete in high demand is likely to seek out the team who will provide compensation more aligned with his/her self perception of value.

I would argue the logical outcome will be one where there is an effort to maintain the standard of living and reward for professional ability. If this is not the case then altruism would have to prevail… That is to say, a unit of work effort would have to be maintained despite less money being provided for that unit of work effort.

People have a strong tendency to want their standard of living to grow not decline… in a worst case scenario, there will be an effort to at least maintain the status quo. So if there is less money proffered for a unit of work effort then the work effort must be reduced for the new, lower reimbursement.

In the realm of healthcare this means less time spent with each patient or on each procedure. As I debated in my last blog, I don’t think the solution lies in iterative clinical process improvement. Rather, “tightening the bolts” on a clinical process will likely result in lower quality outcomes. This has been seen, researched and proven in numerous studies but is outlined in a nice way by John Goodman's Health Policy Blog. There is no doubt our system has cost more to run… but there has been a corresponding benefit to the US population.

So, again, I argue for operations efficiency. Altruism is not likely going to save the day when it comes to sustaining the quality of our national healthcare system. History tells us we would be disappointed if this were to be held as a hope. It’s also the reason the Market Economy has worked so well for us in the USA and why we have been able to achieve the leadership position we enjoy.

Is it just me or has this debate been noticeably absent from the healthcare reform bill and the public option debate?

The status quo will fight for survival.

2009-11-02T14:58:00.003-05:00

Picture it... "A healthcare leader has a vision that could radically improve the efficiency or operating success of an organization... the clinicians or community fight for the status quo... the leader either dramatically reduces the vision and abandons the plan or in some cases is asked to step down". When faced with radical change, the healthcare ecosystem, like all organisms, will fight for its survival.

If you consider the challenge facing our national healthcare system, namely an inability to sustain the cost of delivery, iterative improvement is not sufficient. Sustainability of our leadership position in healthcare will only be possible if we can achieve dramatically better levels of efficiency, very quickly. So the very levels of change needed are likely to be met with substantial opposition… the survival instinct of the status quo.

In my opinion the healthcare issues we face as a nation have little to do with clinical care and much more to do with operating efficiency… (Having said this though, I do agree with Jim Rosenblum's blog raising the issue of unwarranted clinical procedures and their effect on the unnecessarily large cost of healthcare). While there is little doubt regarding the overall nature of the problem, “we can’t afford what we want”, there is little consensus on a resolution.

We could take the route that Canada or the U.K. has taken where lower levels of re-imbursement are enforced in a system that has roughly the same operating efficiency as the US. In these circumstances, elective work and some of the “fringe needs” between being healthy and being in hospital are sacrificed. Long elective waiting times or refusal of particular clinical services is the result.

We could take the route, as a nation, of driving down prices and limiting the investment in innovations and commoditizing technology, pharmaceutical products and med/surg supplies. The US has paid more for healthcare products and clinical talent than the rest of the world as a result of the profit margins established in the healthcare economy and has developed a resultant leadership position for healthcare technologies. If we commoditize these technologies by removing the opportunity for profit, who would step in to provide what the reinvestment of these profits has accomplished on a world scale, namely clinical innovation?

At the end of the day, I think the way for us to preserve the healthcare culture of clinical innovation in the US and our leadership position in healthcare is to drive out operational costs, those costs that add nothing to the overall value of clinical care.

There have been a number of notable, recent efforts by hospitals focusing on the challenge of operational efficiency. Dr. Fred Ryckman, Director of Pediatric Surgery at Cincinnati Children’s Hospital, presented outcomes at the recent IHI conference in San Francisco (October 5th and 6th) indicating a capacity increase equivalent to $137 million annually of which $50 million has been realized (the net margin of this realized capacity was not presented). Georgia Tech’s Health Systems Institute, this past August, validated the net margin increase of Mercy St. Vincent’s Medical Center, Toledo’s operational improvement efforts (a hospital my company is working with) at $10.3 million annually. If these levels of operational savings are sustainable substantial capacity increases could be realized. The system could halt or dial back healthcare spending and greatly reduce the commoditization trend in healthcare.

If we were able to dramatically increase operating efficiencies and the capacity of our delivery system to provide care, people of the world would still yearn for the opportunity to be part of our innovative healthcare culture and to participate in the system when they need care. We would continue to be an attractive healthcare investment market for the growing wealth in the rest of the world.

However, the current system will fight for its survival so we should be on the lookout for courageous pioneers, willing to fight the system’s tendency to maintain the status quo.