FUNDAMENTAL TRUTH #22: “The only problem with health care these days is that it’s approached from a cost basis more than a medical basis.” -Old Pithy

Posted by PITHOCRATES - July 13th, 2010

THE PROBLEM WITH cost cutters is their vision.  They see costs.  Not the big picture.  Rockefeller was a notorious cost cutter.  Even determined he could save money by using a few less welds on his oil barrels.  But he saw the big picture, too.  He grew sales.  Something that cost cutters have trouble doing.  He didn’t.  In fact, he was so good that it took the government to stop his sales growth.

Roger Smith was a numbers man.  He managed costs.  Starting in the accounting department of GM, he reorganized GM to make better sense.  On paper.  To make nice, neat, bookkeeping-like ordered sense.  Things tend to work better on paper, though, than in reality.  Suffice it to say that few laud Smith as the greatest CEO of GM.

Robert McNamara was also a numbers man.  And he ran the Vietnam War by the numbers.  He carefully determined what U.S. forces could NOT attack.  (Any place outside South Vietnam was basically a sanctuary for the enemy.)  And he introduced the body count.  There was no strategy to win.  Just a policy to verify you were killing more of theirs than they were killing of yours.  Wars of attrition, though, take years.  And lives.  On both sides.  Americans don’t like sitting back and waiting for enough of their sons to die to declare victory.  McNamara failed to see the big picture.  Strategy.  He just tried to make the combat efficient.  Which did little to inhibit the enemy from making war. 

Managing costs is important.  It can improve profits.  But it can’t grow sales.  And if you can grow sales, you’ll be able to pay your costs.  Even if they are high and inefficient.  Few companies fail because they have a cost problem.  They file because they have a revenue problem.  They lack sales.  Cost cutting cannot fix this problem.  It can temporarily help reduce operating losses.  But if you don’t increase sales, you’ll probably fail in the long run.

There are detail people.  And people with vision.  Rarely are people both.  Rockefeller was.  Smith and McNamara were detail men.  They could not see the forest for the trees.  And this is the problem in health care.  We’re not looking at the big picture of medical care.  We’re looking at the details of cost. 

YOU WOULD THINK that doctors would oppose the government taking over health care.  Because when governments do, they tend to put salary caps on doctors.  Kinda diminishes the return on all that costly medical training.  I talked to two recently who favor a national solution.  Why?  Because of costs.  They like Medicare.  Because it’s simple.  Most of their patients are seniors.  So the bulk of their billings are uniform.  Medicare reimbursements.  They like anything that simplifies their overhead costs.  Private insurance companies don’t do this.  They’re not all the same.  Different people to call.  Different procedures.  Different approved tests.  Different paperwork.  And more of it.  And a bigger staff to handle it.

Doctors hate paperwork.  No doctor ever went through medical school because they wanted to shuffle paper.  Or because they wanted to fend off malpractice lawsuits.  Doctors are under a bureaucratic assault.  They spend more time with paperwork than with patients.  And paperwork does have a cost.  As do frivolous lawsuits.  A government takeover would standardize the one.  And, hopefully, eliminate the other.

I understand these doctors’ concern.  But they can’t see the forest for the trees.  Government is not going to approach health care from a medical basis.  They’ll approach it from a cost basis.  They’ll use statistical analysis.  They will manage care to maximize cost efficiency.  They will approach health care like Smith did in GM and McNamara did in Vietnam.  They’ll crunch the numbers.  Then determine what health care is cost effective.

THEY PROBABLY NEED no introduction.  Most people are family with the British comedy troupe called Monty Python.  Funny, a bit naughty and rather bookish, they’ve appealed to the masses across generations.  They spent a lot of time researching before making some of their movies.  Reading books.  The realism it adds made some of the funniest scenes.  A Roman centurion gives a Jewish terrorist a Latin lesson at the point of a sword (Life of Brian).  Dennis the constitutional peasant arguing with King Arthur (Monty Python and the Holy Grail).  And this scene from The Meaning of Life during a live birth lampooning the British National Health Service:

Nurse:  The administrator’s here, doctor.

First Doctor:  Switch everything on!

[They scramble to do so.  Machines turn on with flashes and sounds.  The administrator enters.]

Administrator:  Morning, gentlemen.

First and Second Doctors:  Morning Mr. Pycroft.

Administrator:  Very impressive. Very impressive.  And what are you doing this morning?

First Doctor:  It’s a birth.

Administrator:  Ah, what sort of thing is that?

Second Doctor:  Well, that’s when we take a new baby out of a lady’s tummy.

Administrator:  Wonderful what we can do nowadays.  [A machine makes a ‘ping’ sound.]  Ah!  I see you have the machine that goes ‘ping’.  This is my favorite.  You see we leased this back from the company we sold it to.  That way it comes under the monthly current budget and not the capital account.  [They all applaud.]  Thank you, thank you.  We try to do our best.  Well, do carry on.

This is funny.  Because it’s true.  When we approach health care on a cost basis.  You must show you need and use every piece of expensive equipment you have so it stays in the budget.  And the administrators administrating health care don’t understand health care.  They understand and make their decisions based on numbers in columns.  And speaking of numbers in columns.

 ONE THING STANDS out more than everything else when looking at numbers in columns.  In one cost column in particular.  Of all the costs in columns, one dwarfs all others.  The costs in treating very sick and very old people.  You can cut and trim the budget everywhere else but you won’t make a dent in overall costs.  Unless you cut and trim this one column.  Manage these costs.  Do some statistical analysis on these costs.  For if you cut THESE costs, it will make a difference.  It could even stave off bankruptcy without having to further raise taxes.  Yes, we can make the system more financially sound if we just stop treating so many sick and old people.

But it’s a body count mentality.  You have to willingly accept a defined number of additional deaths.  The Soviets were willing to trade 10 lives for one against the Nazis.   A steep price to pay.  But it did wear the Nazis down and lead to victory.  There was a similar ratio in Vietnam with America on the better side of that ratio.  But it was still too high a price for Americans.  It goes against our nature to think in terms of ‘acceptable’ losses.

But there will have to be a line that health care will approach but does not cross.  Where there are ‘acceptable’ losses.  Statistical analysis will take into account probable remaining years of life in a potential patient.  If few, the system will assign an appropriate value of care to match the health care expenditure with the expected return on the medical treatment.  People with more probable years of life left will receive more health care treatment.  People with fewer years left will receive less.  We’ll help manage their pain until they no longer feel that pain.  For it would be inefficient to spend a lot of money on someone who is going to die ‘soon’.

Perhaps I can best summarize this in song.

When you were young and your heart was an open book
You used to say live and let live
(you know you did, you know you did you know you did)
But in this ever changing world in which we live in
Makes you give in and cry
Say live and let die
Live and let die
Live and let die
Live and let die

(Live and Let Die, Paul McCarthy)

And that’s what bureaucrats will use all that statistical analysis for.  To determine who to let die.  You can sugarcoat it anyway you’d like, but it comes down to this.  A bureaucrat, not a doctor, will have the power of life and death as they decide what health care is appropriate and prudent.  As it must be under a system where bureaucrats distribute limited resources on a cost basis.  They will have no choice but to deny care that is not in the budget.

ONE PUZZLING THING about health care is that it is perfectly acceptable to approach it from a cost basis but not on a revenue basis.  For it is immoral to profit on health care.  Pity, because introducing market forces is one sure way to bring down costs.  People are willing to pay for medical services.  They pay for abortions.  And abortion clinics are readily available.  The free market laws of supply and demand work for abortions.  And so they would for other outpatient medical services. 

Instead of running a battery of tests because an insurance company requires this incremental approach of the cheap stuff first, you could go to an MRI (or some other expensive procedure) clinic and pay out of pocket.  Because they do nothing but MRIs, they achieve economies of scale.  The clinic makes money by offering low cost, high quality MRI scans that result in a high sales volume.  You benefit because you miss less work.  The doctor benefits because he gets your MRI scan results without additional paperwork to process.  I’m sure a market is there just waiting for an entrepreneur to come along.  I mean, if you can make money by performing abortions, you should be able to make money with some non-invasive, high-tech machines.

HEALTH CARE SERVICES will not become more affordable and more readily available by cutting costs.  If the bean counters try, they’ll damage the quality of health care.  Because the bean counters rarely look at the big picture.  You need someone with vision.  Because no cost cutter ever saved a business.  Or made the world better.


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