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.

www.PITHOCRATES.com

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LESSONS LEARNED #21: “The reason why health insurance is so expensive is because it is not insurance.” -Old Pithy

Posted by PITHOCRATES - July 8th, 2010

THE LONGER YOU live, the more you see and hear.  Here’s a smattering of our collective experiences.

YOU CAN LEARN a lot working in a small business.  I did.  I did about everything you could in a small business.  Including keeping the books.  And getting fired.  Over money.  It’s always about money, isn’t it?  And broken promises.  But I digress.

The business owner had a couple of kids.  As did some other ‘key’ employees.  I didn’t.  I was a young, single man.  Rarely went to the doctor.  So the ‘Cadillac’ health care plan we had meant little to me.  But it was important to them.  So important that it was a serious financial burden to the company.  The owner scrimped and saved elsewhere to maintain it.  Including my salary.

I helped to bring us through a difficult time.  I did my part.  Now it was time for the owner to do his part.  But he forgot those promises.  (Important life lesson?  Get things in writing.)  We had words.  I considered my options all the while dealing with one of the ‘key’ employee’s wife.  Who was always calling to bitch about the medical plan.  She didn’t like her co pays, that the non-generic drugs cost more, being billed for something that SHE thought should have been covered, etc.  I talked to her (it seemed like) at least once a week.  So and so who worked at such and such didn’t have to pay for this or that or the other thing.  And, perhaps, in some fairyland, they didn’t.  Our plan was good.  Above average.  She just didn’t want to pay for anything.  In fact, she wanted the business to pay for the things the plan didn’t cover.  She wanted it all.  But didn’t want to pay a dime for any of it.

She thought it was an outrage that she had to pay her bills.  But she took the health care.  Just wanted others to pay for it.  Even if cuts had to be made elsewhere.  Even if others didn’t get promised raises or bonuses.  As long as the cuts didn’t affect her. 

My experience is only a microcosm, but it applies to the big picture.  Our health care system is the best in the world.  But the way we go about paying for our health care is threatening to destroy that great system.  We’re voting ourselves the treasury.  We want more and more things but forget that old saying.  There’s no such thing as a free lunch.  Costs are costs.  And someone has to pay them.  If we don’t, others have to.  Until they choose not to.  And then what are we going to do?  Run to government?

Well, yeah.  There has to be someone we can take more money from.  Make those young and healthy people buy insurance so more people contribute into the big insurance pot and bring down the cost per person.  If they pay more, I wouldn’t have to pay as much.  Or my fair share.

Don’t like that?  Why, then let’s just nationalize it.  Wait a tic, nationalize care sucks.  So let’s not nationalize it.  Let’s do that other thing.  It’s just like nationalizing but we get to keep the things we have now.  Single payer.  Yeah, that’s it.  Let’s go with a single-payer system.  We keep the care we have and tax the rich to pay for it.

Or let’s be like Canada.

I DROVE INTO Quebec once from upstate New York.  At Canadian customs, the guy asked if I had any cigarettes. 

“No,” I said.

“Really?” he asked.

“No,” I said.  “I don’t.”

“Come on.  You must have some cigarettes.”

“No.  I don’t have any cigarettes.  I don’t smoke.”

“I don’t believe you.”

“Well, I don’t.”

He stared at me, smiling.  Waiting for me to break, I guess.  I didn’t.  I was confused.  Customs never interrogated me like that before.  He kept staring.  And smiling.  I looked backed.  Befuddled.

“Okay,” he finally said.  “You can go.”

And I did.  Found out later what that was all about.  Obscene cigarette taxes.  In an effort to stop people from smoking cigarettes.  But it opened a huge black market.  Drug dealers switched from smuggling in drugs to smuggling in cigarettes.  It was as profitable.  And less punishable.  If caught.

CANADA HAS A large tourism industry.  And high taxes.  They tax everything.  Making it costly to be in Canada.  They have a Value Added Tax (VAT).  It’s called the Goods and Services Tax (GST).  That means they tax most goods and services you pay for from the first level of being to its final delivered form.  They tax the thing you buy. And they tax the things that made that thing you buy.  At every level, when someone adds value, they add another GST.  Taxes upon taxes.  They can collect a lot of money.  But they also raise prices.  Which makes everything more expensive.  So Canadians can’t afford to buy as much as they once did.  Less demand contracts supply.  Lays people off.  They spend less.  Pay less in taxes.  Collect unemployment benefits.  Government collects less and spends more.  Deficit spending.  They raise taxes to offset the deficit spending.  And the cycle repeats.

There’s been talk about establishing a VAT in the United States.  Because of out of control government spending.  Those who support it say it will help the economy.  They lie.  Taxes don’t help economies.  At least, they haven’t yet.

In order not to hurt their tourism industry the Canadians (for a time, at least) let tourists get a refund on the provincial and GST taxes paid while in Canada.  Canadians have no choice.  But tourists do.  They could choose not to go Canada.  So they allowed the refund because they knew that higher taxes don’t stimulate consumer spending.  And they wanted stimulated consumers to come to Canada to spend.

SOME CANADIANS DO have a choice, though.  Those who live near the US-Canadian border.  I’ve worked with Canadians who traveled to America to work.  They love their country.  Believe America could learn a lot from her.  But they buy their gasoline in the States.  And everything else they can to escape their own high taxes.

WHEN MY DAD was in the hospital for quintuple bypass surgery, a few of his nurses were Canadian.  They said a lot of Canadian doctors and nurses crossed the border into the United States for better paying jobs.  My dad had no complaints.  They were good nurses.  He was grateful for their care.  That’s what high paying jobs do.  Attract high quality talent.

I SAW A fund drive once while in Canada.  There was a sign on the lawn with a colored-in bar showing where they were in achieving their goal.  A hospital was raising money to buy something.  An MRI machine.  For there was none in this medium-sized Canadian city.

I WAS AT a small community hospital (in an American city) walking the grounds with the facilities manager.  He had to close a small road intersection on campus that doubled as the helipad.  The university hospital’s medical helicopter was making a test flight to this small hospital.  I asked him if they flew in many patients here.  He said no.  But they flew critical patients at this hospital to the university hospital (about 30 miles away) where they had a better chance for survival.

I ONCE WENT on a skiing vacation throughout New England and Quebec.  I skied Jay Peak, Mont Tremblant, Mont-Sainte-Anne, Sunday River, Stowe and Killington.  I remember a helicopter flying overhead at one.  (It’s been awhile, but I think it was in Canada).  There was a sanctioned FIS ski event there.  Part of the requirements for a high-speed ski event is a readily available rescue helicopter to immediately air-lift a seriously injured skier off the hill.

NATASHA RICHARDS HAD a freak accident while taking a ski lesson at Mont Tremblant in Quebec.  She fell.  Like we all have while skiing.  She got up.  Like most of us do.  Laughed it off.  She felt fine.  But there was now a silent killer at work.  She declined immediate medical attention.  After awhile, she started to feel ill.  She would subsequently die from an epidural hematoma due to a blunt impact to the head.  A shame it was only blunt.  Had it knocked her unconscious, she may have survived.  That would have demanded immediate medical attention.

She died because her initial injury was not painful enough.  She therefore had little cause for concern.  As many of us no doubt would have if we were in her place.  Critical time was lost.  Time that she couldn’t get back.  There’s no one to blame.  It was a freak accident.  What made the headlines, though, was an interesting fact.  The province of Quebec did not have a single medical helicopter (probably wouldn’t have made a difference for Richardson).  The province had determined that the cost of a helicopter system was greater than the perceived benefit.

SO THERE’S A smattering of health insurance, tax and health care anecdotes.  A small smattering, but nevertheless a smattering you can draw some conclusions from.  First and foremost, people are cheap bastards.  And they have an entitlement mentality.  Put the two together and you’ve got an ever-expanding, under-funded, welfare state.  And that can only lead to one place.  Bankruptcy.

You can’t keep raising taxes on people to solve problems.  They’re just not going to whistle a happy tune and keep paying.  They will make efforts to evade those taxes.  Or they’ll simply cut back on their spending.  And when they do, they will create other problems in the process.  Those unintended consequences that have bedeviled government planners since the dawn of government planning.

The Canadian health care system is not the utopia some claim it to be.  It’s big.  And costly.  Bureaucrats conduct cost-benefit analysis.  It’s cold and impersonal.  What is the cost per unit life saved by having a medical helicopter system?  Does the mean wait-time justify adding another MRI in a geographic region?  Or would the resultant excess capacity from a second MRI be too wasteful?  And what is the acceptable mean wait-time for a procedure?  Would a 2% cost savings from a reduction in staff be acceptable if the corresponding rise in mortality rates is kept at or below 1%?  It’s all very analytical and rational.  But when it’s your loved one in a critical condition, you’re rarely analytical and rational.  And you’ll do just about anything.  Even go to the United Stated and pay out of pocket for medical care.

Of course, if the United States adopts a Canadian system, the Canadian system should improve.  Without those better paying jobs a short drive from the border, those doctors and nurses would probably stay in Canada and work within the Canadian system.

www.PITHOCRATES.com

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