Those of you who are tired of hearing me say the way to pay for healthcare reform is through efficiency can rest easy. Someone else is saying it now. An editorial in the Washington Post last week quoted Dr. Ezekiel Emanuel, a "top health adviser," as saying that he is convinced there is enough wasted in the health-care system that universal coverage can be achieved without rationing. He is, of course, the brother of the White House Chief of Staff, Rahm Emanuel, and has written extensively about rationing of healthcare services. Now he's saying it's not necessary to ration services on economic grounds, if only we could harvest the intrinsic waste within the system. Philip Howard opens his opinion piece with the statement: "Health-care reform is bogged down because none of the bills before Congress deals with the staggering waste of the current system." He estimates the value or cost of this waste to be $700 to $1 trillion annually and goes on to argue that the root cause of all this waste is "defensive medicine" or the practice of ordering more tests to avoid being sued. His first statement strikes a sympathetic chord, but the source of the waste is less certain. With malpractice insurance estimates below 1% of healthcare costs, it's hard to imagine so much in added tests. There are certainly lots of unnecessary tests, but that judgment also depends on whom you're asking. Some of this is driven by the tyranny of local custom. Dr. B is afraid of being vulnerable unless he orders the same tests that his peers order in the local community. We saw this with bleeding tests for kids having T&A. Yes. Really. Can you imagine a 7 year old running and jumping and falling down and having a bleeding disorder that hasn't been discovered? But everyone was doing it. Then the surgery center announced that it wasn't necessary, and everyone stopped. One thing healthcare hasn't done that other industries have been doing for years is wringing the waste out of their internal processes. What does it take in time, money, and resources to repair a hernia or replace a hip? How could we do it for less? Identify those sources of waste and eliminate them to make the system lean. The Institute of Medicine published a book on applying standard engineering techniques to healthcare. Nobody read it. There are books about applying "lean" strategies to healthcare. They're not expensive. Someone at Geisinger Health Systems read one. Ceci Connolly reported on the result from a little different slant. First, Geisinger wanted to guarantee they could do a procedure for a fixed price. Fine, but to make that guarantee financially viable, you have to be able to pull it off. You have to be able to do elective heart surgery reliably, at the same cost to your institution every time. (See entry, Guaranteed! of 8 Nov 08) And of course, no one can be readmitted, or that blows your profits instantly. So they developed a system. The same system of care for everyone. And they did it every time. Any problems, and Geisinger pays for it. And they did it. One result of this sort of process improvement was that their could cut their fees by 15%. Detractors argue that Geisinger loses business by having fewer patients return after surgery. Hard to argue with that sort of fuzzy thinking. I remember a Baldrige Award winner who remanufactured auto engines and had a sign in their shop, "We make it nice, 'cause we make it twice." Essentially every engine the shipped out came back for defects. After their Baldrige effort, that percentage dropped below 1%. Think of the new capacity they created without building a new shop or hiring new employees. Can this work in healthcare? Geisinger is one example of partial success. There are others. The principles of process improvement are well founded, and other industries have been doing this for years. We need motivation. A business case for doing it better.

The rhetoric has reached a point now where we're beginning to see articles that attempt to summarize or outline the key issues. In today's Washington post, Alec Macgillis provides a cheat sheet which presents, in the first paragraph, the two key issues: 1. Coverage for the uninsured. Still quoting the old 47 million figure, tho with unemployment, the current number is certainly higher. How do we provide healthcare for these people? And, most important, how do we pay for it. 2. Cost. Macgillis lists cost control as a way of paying for the uninsured, but there are other issues: "Medicare and Medicaid are badly straining the national budget." I think Peter Orzag would use stronger terms and would argue that cost control ("bending the curve") transcends healthcare reform. Our total healthcare spending represents 20% of our GDP, more than any other country. Medicare alone is predicted to crowd out all other discretionary spending in the federal budget. In the same Washington Post, Fred Hiatt writes about "Three Camps" that really please no one: 1. Cover Everyone, a.k.a. universal access. 2. Bend the Curve. a.k.a. control costs. 3. Consumerism. (Guess where this came from.) The idea is that if patients could see how much individual healthcare services cost (and had some skin in the game), they would make wiser and less expensive choices. The volume of rhetoric breeds confusion, and that is indeed what some factions want. Others endorse covering the uninsured but don't want the cost controls that would be necessary to pay for it. Look at the last slide in the Washington Post Interactive and ask which of these players/interest groups would benefit from 47 million new paying customers in the healthcare system. (Answer: all of them.) So what's a poor consumer to do? Where do you get reliable information to even think about healthcare reform? The Post provides an index to their coverage, and reading the writing of reporters and pundits can help. Always ask, tho, what benefit would accrue to this writer or his employer or his interest group by passing the reforms he advocates. It's not that advocacy groups are inherently evil, but they do have an agenda, and you need to interpret what they write in view of that agenda. What about "experts," the gurus, the oracles? Surely, if we asked a very wise person, they would know everything and tell us what to do. But there is a chink in the armor of academia: smart people don't always agree. Yep. It's true. All Supreme Court opinions are not unanimous. And smart people sometimes make bad decisions. Still, it's worth listening to what they have to say. As a friend of mine once said, "It is a fact that you have an opinion, but that doesn't mean your opinion is a fact." Also reminds me of some lines from Phyllis McGinley: "When blithe to argument I come, Though armed with facts, and merry, May Providence protect me from The fool as adversary, Whose mind to him a kingdom is Where reason lacks dominion, Who calls conviction prejudice And prejudice opinion." Here's a link to experts, at least to a list of people the Washington Post thinks are experts. Their list includes--are you ready for this--Newt Gingrich. Now Newt is a very smart guy, and he has thought a lot about healthcare, so I'm willing to listen to what he says. But he, like some others in the list, talks in generalities that are so vague that it could be said he supports everything, or nothing. Nevertheless, the entries are short, and all are worth reading. Nuggets here and there but no magic bullets. And guess what? They don't all agree. Imagine that. Want agreement? Here's an Op Ed piece in the New York Times by a group from academia who all agree with each other. That, of course, doesn't make their opinion a fact. Their opinion is, however, well developed, well written, and worth reading. The Dartmouth approach advocates looking at low cost regions of the country where there is good quality healthcare but lower per capita expenditures. One fallacy of this approach is that their definitions of "quality" have little to do with healthcare. This is a trap shared by many who cite the high cost of U.S. healthcare but the limited quality of outcomes. Life expectancy, for example, has almost nothing to do with healthcare and more to do with genes and the environment. As you read and listen, keep you eye on the prize: How can we reduce the cost of the healthcare services we provide?

The battle over healthcare reform is becoming a test of the technology skills of each party. The Kaiser Health Policy Report cites efforts by the White House to squelch rumors and sound bites from Republicans who are trying to defeat everything/anything. The White House is responding to accusations that "cannot o unanswered." The Democrats proved adept at technology in the campaign and are using those skills in the healthcare debate. Right now, with Congress at home, it's a battle for public support. One big concern that is difficult to answer is cost. You can't buy health insurance for 47 million people without money. Lots of money. The other key concern is also about money--spending less, particularly on Medicare. So far, nothing in either bill seems to address either problem. Chief political problem for the Democrats is to put legislation together that all Democrats will support. Looks increasingly as if no Republican will vote for anything. The attacks on the insurance industry are interesting. Not that they are the choir boys of healthcare, but they really have nothing to do with healthcare reform. If you look at the two major concerns--the uninsured, and rising costs--the health insurance industry is mostly a passive pawn. Anti-insurance rhetoric is mostly a distraction from the key issues. If healthcare services were less expensive, health insurance would also be cheaper, and we could insure those 47 million without spending more money. In a Wall Street Journal article, Stephanie Simon writes about a dilemma faced by the Catholic church in MA. One of their core missions is to care for the poor. But one of the healthcare services most needed by the poor is abortion. In the past, Catholic hospitals have "arranged" for nearby secular institutions to perform the abortions for them. However, the MA health insurance reform program brought this controversy to public view, and the Catholic church eventually decided to cancel care for the poor. This same issue surfaced in Congress during debate over the "public plan" and whether that would mean tax dollars going for abortions. The religious right is always lurking in the shadows. The Kaiser Report also quotes NPR in a discussion of doctors' fees in MA, the state with the highest healthcare costs in the country. As they expanded coverage to include "everyone," those costs began to rise even higher. The response by those in charge was to propose bundled yearly payments to doctors for each patient they cover. This would effectively reduce the income of all primary care physicians but leave specialists fees untouched. Most people would say that is the wrong end of the equation to be working on. This is the same state that once voted to make the value of Pi equal to 3.0, because 3.1417 etc. was just too complicated. Medical tourism may become more popular as healthcare costs rise here. Even Medicare is considering sending patients overseas for expensive procedures. There are no hard numbers on how many Americans choose this option, but estimates are close to a million and growing. Cost drives the exodus, but there is also an incoming group attracted by sophisticated care, advanced technology, and a way to jump long lines waiting for care in the home country. Sometimes, care is just not available--even in first world countries. Virginia Postrel writes about this in his March Atlantic article, My Drug Problem. The issue is expensive chemotherapy. Some countries just don't do it. England puts a value on a year of life ($47,000), and if your treatment costs more than that, you have to go elsewhere. Rationing comes in various disguises and is accepted in many settings. Want an organ transplant? Not today. What if we had a 6 month wait for breast biopsies? Long delays are common in countries with state run healthcare systems, and he waiting is generally accepted because it is the norm. That change would be difficult here. We all want it NOW!

Ewe Reinhardt suggests in the Health Affairs blog that we move to a regional negotiated price strategy, where prices would be set by a rate setting commission for regions in the U.S. As evidence of the pricing problem, he cites widely varying payments by insurers for the same procedure within the same geographic region in NJ. An appendectomy in one hospital costs $2,700 but $4,200 in another. Similar but even more dramatic differences are noted for CA. His proposal is akin to an all-payer rate setting system where a central committee sets payment rates for physicians and hospitals annually, Maryland has been reasonably successful with this approach, primarily because their commission is reasonably independent of politics--a major failing of the Medicare rate setting commission. Still, as Robert Murray (Ex. Dir. of the MD Commission) said, " We have a statutory (and I would argue economic) requirement to establish rates that reflect underlying costs." This means that the price has nothing to do with the market. Increased costs by providers are passed on to consumers without any competition or consideration of lowering prices by greater efficiency. One reason cited by others for this discrepancy in prices is the lack of bargaining power of the payers. A sentinel hospital in an area may be an essential ingredient in any insurance provider list. Employers and patients will be reluctant to accept insurance that does not include what they see as "the best" hospital around. A larger insurer, like Medicare, could remedy that in a hurry. It is interesting that people will fly to Thailand for a total hip but are reluctant to journey 50 miles in their own state. Maybe not. Maybe this just reflects a lack of guts or negotiating skills on the part of payers. I encountered a woman in Boston once who was facing the prospect of paying for her breast biopsy out of pocket. I calculated that it would be cheaper for her to take a taxi 40 mile west to the Worcester Surgery Center, leave the meter running while she had her biopsy, and drive back to Boston. A lack of competition and a total lack of transparency created this perverse pricing situation. Other schemes are being proposed, but nothing seems to fit. Healthcare is a diverse industry, and the services provided defy lumping, so one payment system may not be appropriate. Consider the management of chronic diseases. Diabetes, hypertension, and asthma are the big three. A medical home and prospective payments may make sense here. Same with preventive care to some extent, with allowances for age and sex. However, as soon as you decide to have a colonoscopy, it's a new ball game. Now, you have a provider--maybe two--and an institution, each of whom is a separate business entitiy. Might be they could get together and offer a package deal, but don't count on it. However, price competition could dictate where the patient elects to go for the procedure. Same for a total hip. You read occasionally about "bundled payments." The concept is to aggregate services into one package, pay one fixed fee, and let the providers duke it out for their share of the pie. This works, of course, for closed panel HMOs where everyone works for a single entity. And that's the reason you hear this most form workers in that setting. Got to remember tho, the reason payers want to bundle payments is to pay less for the service. And less next year. Finally, a quote from Paul Ginsberg: "In closing, provider payment has a profound effect on the delivery of health care and the right payment methods have the potential to encourage higher-quality and lower-cost care."

In today's Washington Post, David Broder talks about the political landscape in healthcare legislation, particularly the public confusion about some terms. Sometimes, I think this confusion is deliberate on the part of one faction or another. It's the "baffle 'em with #####" approach to confuse the public so that they will fear change and vote for the status quo. Most Americans have moved past the fear-mongering invocation of "National Security," but it's being tried in the healthcare debate. Here are some minefields of confusion seen in recent writing: Revenue. This means the amount of money that comes in. Total. What customers put on the table when they purchase your products or services. It says nothing about how much/many they purchase or the unit cost. Revenue must, of course, exceed your cost of production, or you'll go out of business. Profit. The difference between revenue and expenses. And let's get one thing straight here: every healthcare organization makes a profit. If they didn't, they would not exist. The difference between a for-profit (FP) organization and a not-for-profit (NFP) organization is an IRS designation--whether or not they pay taxes. Most hospitals are NFP, and many of them are university hospitals. Many of them are, however, run by FP healthcare management companies that do pay taxes and share their profits with the universities. Yeah, it's confusing. But don't be swayed by the thought that there's something evil about making money. Everyone does it, and you'd want it that way. Costs. This is confusing and used in multiple contexts, so be careful. It should mean (when used in the singular, "cost") how much you have to pay for a given unit of care. What does it cost to have an appendectomy or a hip replacement? When you see this word, look carefully to see what they mean. Academics frequently talk about "reducing healthcare costs" when they really mean decreasing the amount of healthcare services provided but preserving the unit cost structure. When used in the plural, costs, it frequently refers to expenses for healthcare (see below). Expenses. This is budget item. How much will we spend this year on healthcare? The answer is our healthcare expenses for the year. This is the factor that will sink Medicare. Peter Orzag has made this point repeatedly (usually referring to "healthcare cost"). Price. What the vendor charges for what you want to buy. Price transparency is thought by many to be a weapon to bring down costs. If consumers knew the price of the healthcare service they wanted, the theory is that they might shop around for the best price. Today, that is all but impossible. The price structure of U.S. healthcare is opaque and inconsistent. Any given hospital has different prices for different payers, and the same payer has different price lists for different hospitals in the same geographic area. See more discussion on this by Ewe Reinhardt. The single greatest problem with American healthcare is that it costs too much. We pay to much for each unit of healthcare, whether that is provided by hospitals or by physicians (or others). Even allowing for differences in standards of living here, we pay too much. This difference is one of the drivers of Medical Tourism. There is one exception to much that I have said above: A surgery center in Oklahoma City, OK, that actively competes on price with medical tourism locations. They publish their price list on their web site and promise that's what you'll pay if you go there. Wouldn't it be interesting if everyone did that?