Competitiveness and Innovation

Up Close and Personal: Our $2.7 Trillion Cottage Industry

17 Feb 2014  

I recently had the experience of intensively studying an industry as a consultant — then subsequently (and unrelatedly) becoming a client of that industry.

The industry, as you probably have guessed, is health care.  There are things you learn when you are a patient that you never see when you’re not. (I’ve heard doctors report this as well.)

In the past year I spent a few hours as a “client” in each of two major New York hospitals.  The net results from a clinical perspective were excellent, and I’m relieved to report that in both cases their work is now finished.

One of these hospitals was ranked near the top in NYC hospital quality by the US News and World Report polls, the other somewhere down in the low 40’s.  But my observations apply to both.

Systemically speaking, hospitals as seen from the inside seem almost artisanal in nature.  Very hands-on, customized, laid-back — and, well, expensive.  It’s as if you were a guest in the city’s best private club, where no expense or courtesy is spared.

This has both positive and negative consequences.  On the one hand, the leisurely pace and attention are welcome, especially when one is in a state of discomfort and/or anxiety.  The most obvious negative — the cost of doing things this way — is often hidden, at least until later.

The quest for cost

Inside “the club”, of course, money is never discussed.  It’s just not done — and if you try, you don’t get very far.  In one case I asked my doctor’s office assistant what the cost of a routine, elective outpatient surgical procedure was going to be.  I was honestly trying to decide if it would be “worth it” at this time.  I was told that I would not pay more than 20% of the cost, due to my excellent private insurance plan coverage.  “Sounds good…but 20% of what number?”  was my obvious question.  “Well, let’s see,” she responded, clearly taken aback by my question. “The surgeon’s fee is $7500, the anesthesiologist is probably about $1500…then there is a hospital fee, I don’t know what that is.”

My positive feelings for my doctor notwithstanding, I couldn’t stop myself from mentioning that $5000 per hour sounded like a lot.  “Of course you won’t pay 20% of $7500 — it will be based on whatever your plan has negotiated with the surgeon.  It could be much lower. You’d have to call your plan to find that out.”

Not wanting to give myself sticker shock, and only having so much time in my day to spend on this, I did not pursue her recommended option.  When weeks later the Explanations of Benefits (“the tab”) arrived, she was shown to be nearly 20% low on the professional fees — which were actually $9000 for the surgeon and a little over $2000 for the anesthetist.  But the part she didn’t know — the hospital charge, was over $26,500 — more than twice the combined fees of the three doctors involved.  My afternoon in the hospital cost $37,900 “list price”, of which my insurance plan paid the “discount price” of $17,200 (a discount of nearly 55%).

Hospital costs a

Her advice to me not to worry about it too much, though, was sound.  The cost to me was nothing.  (Thanks, excellent health care plan!)


The cost of quality

High cost in the pursuit of high quality is luxury.  High cost as a consequence of poor management is waste.

In both my consulting studies and my personal experience, I’ve found it’s a combination of both at work in US health care. The challenge will be to pull them apart such that quality doesn’t get sacrificed when inefficiency does.

One thing that stood out to me (as an information guy) is the relatively primitive way patient information is gathered and used.  I’ve worked with a number of industries as a consultant, and have not recently seen one set back in the 1980s as hospitals seem to be.  This has both efficiency and data quality ramifications.

I lost count of the number of times over successive visits I was asked my personal and family medical histories when seeing a new institution.  In most of the cases, the well-meaning attendant would ask these questions with a clipboard and pencil in hand. I politely suggested at one point that they take the information, and store it in a database somewhere — so they wouldn’t have to ask it again and again, and so it wouldn’t be forgotten or misinterpreted.

It does not give a patient in the medical system confidence to be asked the same things repeatedly.  In one case, I found myself being given what turned out to be misleading advice based on my own poorly-remembered answer about something else that happened more than ten years ago!  If they had been using a medical record, instead of my recollections, things would have been much more clear.  So this all does have implications for the clinical quality of care.

Why can’t all my past and current medical data be stored on a chip-based, secure card that I take to my doctor and the hospital — including the results of all tests done on different dates, all inoculations, procedures, hospitalizations, past diseases, family history, blood type, allergies — EVERYTHING done ANYWHERE?  Or on a secure “cloud” server.  This could all be verified and refined at show time — but to ask the same questions over and over makes the ‘system’ seem more like a cottage industry than a modern enterprise.

In one case, the (large well-funded) hospital had just installed a new (market-leading) electronic health records (EHR) system.  Being curious by nature, I positioned myself over the physician’s assistant’s shoulder as she was attempting to input my responses to her questions.  The crude, brightly colored screen reminded me of Windows 3.1.

And it looked very cranky to use.  Twice during a ten-minute routine data entry, the PA had to call down the hall so the EHR vendor representative could stop in and help out.  I thought perhaps this was the first day of installation.  Wrong — second week, I was told.

Recent studies have shown that, of the nearly $3 trillion we spend on health care in the US, about 1/3 is waste that could be reduced or eliminated.  This is because we have a dangerous cocktail of (1) more care, (2) better quality care, and (3) few tools to effectively manage — or even monitor — the resulting costs.


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