Tuesday, May 27, 2008

Unmanaged- Economics of Health Care

There is a book excerpt on the Forbes site for John Hammergrin and Phil Harkins' new book, Skin in the Game. I bring this up because Mr. Hammergrin brings up a lot of the same points that our own Mr. Halvorson addresses in Health Care Reform Now! and two of them share many common conclusions. Here are a few small teasers drawn from the excerpt for your perusal:

What's becoming better understood is that our health care crisis is fundamentally a business problem. The system is overstrained and is breaking down due to outdated information technology (IT); poor application of the basic principles of market economics; overall inefficiency in terms of work flow, care delivery and the spreading of best practices; a lack of transparency around quality and cost; and blocked access to making informed consumer choices.

Don't get me wrong: I 'm not assigning blame for any of these built-in flaws. They are a result of the way our health care system has developed into a set of parallel cottage industries that until recently have never had a real chance of being integrated into a seamless, efficient industry. Doctors, hospitals, insurers, suppliers and the government have all run their shops separately and distinctly from each other, so that literally one part of the system cannot talk to another in any trustworthy, efficient, error-free way.

He then goes on to address another huge factor -- the opaque, disjointed, and incredibly irritating nature of dealing with health care as a patient. Anyone who has had so much as a simple blood test can relate to that one. Take your average doctors visit as an example. First, Mr. Hammergrin touches on the universal experiences that go along with you as you navigate the experience: long waits (no matter how far in advance you schedule), brief and unsatisfactory time with your physician, and the additional time and confusion that result if a prescription needs to be filled afterwards.

Mr. Hammergrin states that the average doctor actually only has 12 minutes to spend with you once you are finally in the same room. I would say, from my own experience, that sounds about right. Then comes the clever bit:

The economics of the entire interaction are a complete mystery to you. Your doctor's visit will cost you a co-pay fee up front, if you have insurance, but you won't know what the examination really cost until you get the bill months later. If you have insurance, you probably don't bother to check that statement, but if you do, the numbers and codes are almost impossible to unravel, and you would get little comfort knowing how much confusion is rampant behind the scenes in those back offices. The doctor charges one thing, the insurance company pays something else, and chances are, it takes three exchanges back and forth before the final claim is settled, and you are lucky if you do not receive calls or notices drawing you into the dispute.

Small wonder. There are 1.5 trillion claims each year, and a full 30% of those claims have errors, while 15% get lost. Twenty-five percent of claims are still paper-based, and it costs $20 to $25 to manually process them.

Wow. In what other industry is this sort of margin acceptable? It is simply stunning to think that in a field as important as health the level of accuracy and efficiency is so dismal.

Consider how strange this would be if it were applied to any other economic transaction. Imagine you go to Macy's to buy a tie or blouse. You want to pay for the item, but the price isn't marked. You ask the salesperson, who says, "Sorry, we have to mail you the bill." You insist you want to pay right now, and the salesperson's manager says, "We just can't do it that way. The price is different for different people, and we don't know what your credit card company or bank will allow us to charge you." Four to eight weeks later you get the bill, but you have no idea if you've been charged the right price.

Perversely incentivized, disorganized and top heavy with complexity, the American health care system is truly in crisis. That is something that there is wide consensus on. Despite the precedents set in the past there is an urgent need to reboot the entire system and bring it into the 21st Century. While advances have continually improved the ability to care for various medical conditions (Jenner and Jarvik come immediately to mind), the ability to deliver that care to those who need it has been mired in bureaucracy and confusion.

It is time for a change! Check out the rest of Hammergrin's excerpt here.

SOURCE: "Unmanaged Care" 05/23/08
photo courtesy of bdunnette used under its Creative Commons license


  1. This comment has been removed by a blog administrator.

  2. The Farmer and the Insurance Agent comment has been removed as SPAM. While it seems at first glance to be an engaging comment the fact that I have now found it copied and pasted into the comments of several health care sites has caused me to remove it.

    Andrew, that is NOT the way to advance your views. If you wish to contribute to the conversation please do, but we will not allow SPAM comments.

    George "Loki" Williams


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