Centralizing and decentralizing health care

I have been working on an article in which I want to say that there are basically two models of health care organization at the poles: the integrated health care delivery model (e.g., Kaiser) and the decentralized system that used to be called derogatorily “the cottage-industry model,” or as I prefer to call it, the Centers of Excellence model. It will be a great article, but great is in the future. Years ago I coined Shenkin's Maxim and shared it with the kids: “A passing paper in the present is better than a great paper in the future.”

That maxim might have limited applicability, as you will recognize, since I have actually worked hard and long to produce some great papers (in my estimation anyway.)  Although, I have to say, I have other papers that haven't seen the light of day that died on the drawing board, maybe because of standards that have been set too high.

So, that's my “reader beware” statement. I'm not giving up working on the paper; I'm currently doing some basic reading on vertical integration of industries. But in the meantime, here is a little work in progress. First a response I wrote to an article, then the author's response, and then my response to his response. I'm hoping that you, the blog reader, enjoy this brief foray into health care organization theory.  Or skip it until my next post on consumer transportation ripoffs.

My response to his article:

You are of course correct that American costs are high.  Much of this comes from high prices rather than high utilization, although the latter happens, too.  We physicians make more than physicians in other countries, by a lot, especially specialists.  But more importantly, hospitals cost a lot more, and procedures cost a lot more.  And pharma is completely out of hand.  The recent trend to increase prices of established drugs is simply terrible.  Pharma companies have absolutely no sense of the general welfare, decorum, or what is "right."  As long as it is legal or almost legal, they will do it, and government stands by.  It would be really nice if there were honest competition in all of health care, which there isn't, especially since government has allowed lots of oligopolies to arise.

He wrote back:

Budd,

The fear I have is that because of the high costs of healthcare, the reaction may be to limit access to care.  The far better solution would be to introduce price transparency, patient choice and honest competition.  It seems that for elective healthcare, you could have an Amazon type site that would show a variety of providers and prices.  It seems crazy that when a patient goes to the doctor’s office or hospital, the prices are not displayed on the wall like they are at McDonalds.  When a patient asks about prices, the prices have a huge range based on who is paying.  The answer to “how much will this cost” is rarely clear.
A small example is an ambulance ride.  An ambulance ride can often cost  $2,500.  Rather than calling ambulance in a non-critical situation, why not have Uber offer a “medical” ride for $500.  For that matter, my neighbor may be willing to give me a lift for $200.  The ambulance ride has no price transparency or competition.  It is a one size fits all at the highest possible price.  The ambulance ride is typical of how we deliver medical services in this country.

Thankfully doctor pay is sufficiently high to attract high quality individuals to the profession.

And I wrote to him:

I'm with you on competition, and I'm with you on good compensation for doctors to attract the best possible people, and I'm with you on ambulance rides.  (On the other hand, high remuneration doesn't always work -- the administrations of hospitals and insurance companies are bloated beyond belief, and the high compensations has not noticeably resulted in superior performance, at all.  Medicine and higher education share the affliction of administrative bloat.)

In medicine, the bloat is everywhere, but the cost of care would best be ameliorated if we looked to where the really high costs are, which is in big procedures and studies, in hospital care, and in pharma.  How to introduce competition here is very problematic. 

I think there are two basic models of health care organization, the integrated group and a decentralized model I call the "centers of excellence" model.

For the integrated group, as early as the 1960's, Kerr White of Johns Hopkins wrote that corporate health entities should compete the way airlines compete (this was before deregulation).  Alain Enthoven's "managed competition" of the 1970's and 80's was similar.  There are problems with these proposals, corporate as they are, but they have some really good elements.  Kaiser likes this model a lot, and hospitals are energized behind it, as you probably see locally.  I've got a lot of problems with corporatization, but it seemed to make sense at the time.

When these proposals were offered, they deprecated the old decentralized system of doctor's offices and independent hospitals as a superannuated "cottage industry.” They had a point, although much that is valuable in medicine would be lost by corporatization.  With the advent of modern technology for information and communication, however, I think that intelligent decentralization is now possible. 

In a COE system, you and your primary care doctor could together find the best place for this and for that.  Doing the best job for you will always rely primarily on the doctor's professionalism and fiduciary responsibility, but there have to be financial considerations as well.  It's important to have you and your doctor on the same side of the ball, so you can harness his or her expertise and continuing involvement.  Technology should make this possible, with very transparent information on price and quality and with electronic medical records if they were freely inter-operable (which they are not and which both EMR firms and hospital buyers of EMRs don't want them to be), and there will need to be inventive financial arrangements so that both doctors and patients benefit from some frugality, and not just the insurance companies, but at the same time not overburdening patients financially.

One good step toward that goal is what is called "reference pricing."  I don't know if you are familiar with this, but it's where the insurance company will pay a standard rate for a procedure that is set to the second lowest price extant in the area, and if a patient wants a higher priced provider then he or she has to pay for it out of pocket.  Part of the problem there, however, is identifying standard procedures, and equivalent quality.  And the biggest pot of money is in chronic care, probably, rather than standard procedures, and I don't think reference pricing will work there.

So there is much more to be done. Note, however, that the first steps taken by insurance companies has been "narrow networks," which is a heavy-handed and quality-killing approach designed to introduce multiple levels of quality of care to patients according to their ability to pay.

The biggest problem, however, is really political, where the biggest players have immense war chests, and while all are for improvement and rationalization in the system, it's the other parts of the system that need change, not mine.  Pharma - 'nuff said.  Academic medical centers?  Hospitals?  Radiologists?  The constituency for meaningful change is not great.

This calls for government intervention to make the playing field work for the public, but our government is fairly weak and ineffective, and the path is far from clear.  Every good business does what it can to establish a monopoly or oligopoly, and the government has let that happen so much that one despairs.

And I added: “As Kurt Vonnegut observed, 'And so it goes.'”

Budd Shenkin