Health Reform: Banking on Telekinetics - Part I

Now that the shock of having actually passed a health reform bill (if you want to call it "passing," it was really just "deemed passed") is wearing off, conversations seem to be turning more towards costs. The problem of uncontrolled costs persists, and threatens to break the bank if not the very back of the United States.

Happily, some very smart people are sporting their opinions about costs. One of them is David Cutler, the Otto Eckstein Professor of Applied Economics at Harvard University, who spoke recently at a symposium organized by the prominent journal "Health Affairs."

Cutler's take is this: health reform will bend the cost curve, "because it has to." So there. Take that, all you doubters and haters.

"Health reform will only be successful," he says in his symposium remarks, "if it can successfully bend the cost curve."

"If it can," he continues, "then we will be able to afford the commitments we've made under the legislation as well as the committments that were already in place through Medicare and Medicaid. And if we cannot bend the cost curve, then not only will the new commitments we made fail, but the older commitments to Medicare and Medicaid and a variety of other programs will fail as well. And we know that from look - - any cursory look at the federal budget will tell you that. So the success or failure of health care, and health reform, will be determined to a great extent by what this legislation does about cost issues." (Emphasis is mine.)

Agreed.

But if you were wishing Cutler would then proceed to explain why he thinks health reform will actually bend the curve, well, keep on wishing. Instead of talking specifics, Cutler jumps ahead to explain how you will know if health reform is in fact bending the curve: "I think the right way to view this now is not as a kind of, he-said . . . she-said or, or this-team-said . .. that-team-said in the sense of what is likely to happen," he said, "but what I want to do is leave you with the sense of 'how will you know when reform is actually working.'"

He then looks to industries outside of health care, and points out what makes those industries successful. If you see those things happening inside of health care, the theory goes, it means (one supposes) that health care is also becoming a successful industry - - one with "high value, low production costs."

Point one: Information Technology.
"Very successful industries use information technology a lot," Dr. Cutler says, "so they know what they're doing, who's doing it, why they're doing it, who's the right person to do it, how long it's taking, how much it costs . . . everything about the nature of production. Of course in health care the most interesting thing is that we know essentially none of that. And when we do observe it, we observe that it's bad."

Now one hopes it doesn't take a doctoral degree from Harvard to understand that IT can be a useful tool to manage production. Which leads one to wonder, why hasn't the production side of the health care industry already adopted IT solutions to reduce production costs? Especially technologies that have been around for a while and are proven value-adds?

One reason might be because they have no incentive to do so. In other industries, production costs translate directly into retail costs, and retail costs need to be justified in the harsh light of day both against consumer expectations (I'm paying $100 for THAT?) as well as against competitor prices (But I can get it at Joe's for $80!)

Unfortunately, neither of those two factors appear in the health care industry. Either the consumer/patient remains blissfully unaware of the actual retail price of the good or service they are obtaining, or the price is obfuscated by byzantine policies, procedures, and billing practices. "The system" usually shows you nothing, and when it does show you something what you see is a Gordian knot. To top it off, if there is a third party payor involved (private insurance, Medicare, etc.) there is no need for either the hospital or the patient to rationalize the price, because it's someone else's money being spent.

In that basic environment, "cost-cutting" means only reducing your revenue and "productivity gains" means only staff-cutting. Neither of those things would make a hospital CEO very popular, especially the latter, especially in smaller communities where the hospital is likely one of the very few stable employers left in the area.

Take, for example, bar codes. Reading, for example, McKesson's summary of the "glacial" progression of bar code technology in the health care industry (see Appendix B of the target document) is downright depressing. Following adoption of the "uniform product code" in 1972, US grocers began adopting point-of-sale bar code systems "en masse." Throught the 80s, other industries "began leveraging bar codes for unprecedented efficiency gains." Not so health care. Come 2003, there is still more foot-dragging than progress despite proven benefits of bar-coding in terms of efficiency and patient safety.

So what is changing about that basic environment to provide an incentive for health care producers to adopt IT solutions? Nothing, so far as I can tell. And as any IT consultant can tell you, American businesses are full of IT products that were purchased and never implemented, or implemented and later abandoned. If there's no good reason to use the product, it won't be used.

Under Dr. Cutler's theory, if we look at the health industry and we see that it has finally gone mainstream on bar-coding, does that mean health-reform is working? Well, if your employer told you he was getting your computer up-to-par by mid-80s standards, would you be pleased about that? TRS-80, anyone? I didn't think so.

Once the incentive money to buy electronic health records, for example, runs out, nothing about the health care industry's basic environment will draw its major players either to spend the money to upgrade the current technology, or to adopt the NEXT technology - - the technologies that other industries are developing and adopting NOW to boost their productivity and cut costs. The result: a health care industry that is perpetually 20 years behind the times and experiences technology adoption if and only when massive government spending and perhaps a mandate or two is involved.

How successful do YOU think such an industry will be at controlling health care costs?