WHY HEALTH CARE COSTS ARE HARD TO REDUCE AND WHAT TO DO ABOUT THEM


In the Saturday-Sunday Wall Street Journal, for June 20, there is a lengthy article entitled “The Myth of Prevention,” by Dr. Abraham Verghese of Stanford University. It is a very thoughtful article with many good insights, but one comment captured in two separate sentences is worth a great deal more commentary:

“…a dollar spent on medical care is a dollar of income for someone. ..It may be the single most important fact about health care in America that you or I need to know.”

I experienced this when I was advocating postal reform. Everyone understands that we need to reduce the number of retail post offices, postal processing centers, and, probably, the number of postal employees doing what they are doing today. However, no elected official wants to sit idly by and let a postal facility close in his or her district, state, city, or county, because people will lose jobs or income.

Similarly, hospitals are almost impossible to close, even if they are losing money, delivering sub-standard care, and are unnecessary, because people will lose jobs and communities will lose income. When I told the people at Dartmouth’s Health Policy Center about the Pitney Bowes health program last December, their comment was that, unless we reduced the supply of certain kinds of physicians and medical technologies, those physicians losing business from our employees would find a way to stimulate increased demand from their other patients.

So what do we do? The answers are simple, but unsatisfying for those who want a quick fix. First, we need to reduce the growth in demand caused by unhealthy living. To use the analogy of postal reform, it is a lot easier to reduce capacity when mail volumes are flat or declining, which they are today, than it is to do so when volumes are increasing. The fundamental problem is that we spend too much of our wealth and income on products and services that make us unhealthy, like junk food, and products and services that treat the medical conditions that those unhealthy actions cause. Investments in healthy living are critical. By the way, when Dr. Verghese refers to the “myth of prevention,” he is largely referring to screenings administered broadly to the population, which actually add costs, rather than reduce them. We need to focus on reducing obesity, smoking, alcohol and drug abuse, injuries from violence, infectious diseases, and illnesses and diseases resulting from environmental hazards.

Second, we need to let attrition through retirements of health care professionals work, and simply not replace every specialist physician that retires. We actually need more primary care physicians in many communities, but increasing the supply of primary care physicians without having a plan to reach underserved populations is not a solution to the primary care shortage. Having more physicians will simply clutter the wealthier communities and drive supply-driven demand. To enable primary care resources to work effectively, we need payment models that encourage self care, remote care through telemedicine, and more care delivered by nurse-practitioners, physicians’ assistants, and nurses, in place of doctors.

Third, there are many businesses that have sprung up to manage inefficiency, such as firms that provide software to help physicians and insurance companies work better with one another. We need to reduce the complexity of billing and claims interactions, and to reduce the need for customer care support. These jobs can also decline as people retire, and some businesses will simply disappear. These are not caregiver jobs, but jobs for administrative and technical people who can be repurposed into more productive activities outside the health insurance sector.

Fourth, we need to reduce government micromanagement of health care, which adds cost to the private sector, as well as to government. There needs to be a much simpler, less politicized system for managing Medicare, Medicaid, and SCHIP costs downward. Setting cost targets and giving the private sector flexibility on how to meet those targets and improve quality is far better than micromanaging at the transactional level. Over time, these compliance-related jobs will disappear, and the people in them can be repurposed for more productive uses.

Fifth, we need strategies to close hospitals and repurpose their sites, just as we did with military bases, and will need to do with post offices. Having a hospital in a community is usually considered to be positive in terms of the attractiveness of that community, but we need customized strategies for each community. Stamford, Connecticut, where Pitney Bowes is headquartered, came up with a great solution ten years ago. We had two hospitals less than a mile apart. One of them, St. Joseph’s, was old and was financially shaky.

The solution that evolved was a win-win for everyone. The Stamford Health System acquired St. Joseph’s Hospital, closed it down, and built a state-of-the-art wellness center on the same site. The center, called the Tully Health Center has a state-of-the-art urgent care facility, fitness center outpatient diagnostic and surgical facility, rehabilitation and fitness facility, and community wellness outreach capability. The facility is modern, highly useful to the community, a better neighbor for area residents because it is quieter and less disruptive, and a more appropriate health care resource to be paired with the hospital less than a mile away.

In some communities, there may not be a need for a substitute health care facility, but we have to treat hospital closures as political challenges, not just as health care delivery challenges. We have to stop pretending that our runaway health care costs have mostly to do with greed, unsolvable health problems, better quality, greater efficiency, or better cost containment. We spend more on health care because health care professionals make good livings in health care and are respected by their families, peers, neighbors, and communities, and because health care spending is a major economic and financial market growth engine.

Unless we figure out alternative spending paths for our health care dollars, alternative careers for people in the health care industry, and alternative uses of excess health care facilities, this problem will not go away.

In the Saturday-Sunday Wall Street Journal, there is a lengthy article entitled “The Myth of Prevention,” by Dr. Abraham Verghese of Stanford University. It is a very thoughtful article with many good insights, but one comment captured in two separate sentences is worth a great deal more commentary:

“…a dollar spent on medical care is a dollar of income for someone. ..It may be the single most important fact about health care in America that you or I need to know.”

I experienced this when I was advocating postal reform. Everyone understands that we need to reduce the number of retail post offices, postal processing centers, and, probably, the number of postal employees doing what they are doing today. However, no elected official wants to sit idly by and let a postal facility close in his or her district, state, city, or county, because people will lose jobs or income.

Similarly, hospitals are almost impossible to close, even if they are losing money, delivering sub-standard care, and are unnecessary, because people will lose jobs and communities will lose income. When I told the people at Dartmouth’s Health Policy Center about the Pitney Bowes health program last December, their comment was that, unless we reduced the supply of certain kinds of physicians and medical technologies, those physicians losing business from our employees would find a way to stimulate increased demand from their other patients.

So what do we do? The answers are simple, but unsatisfying for those who want a quick fix. First, we need to reduce the growth in demand caused by unhealthy living. To use the analogy of postal reform, it is a lot easier to reduce capacity when mail volumes are flat or declining, which they are today, than it is to do so when volumes are increasing. The fundamental problem is that we spend too much of our wealth and income on products and services that make us unhealthy, like junk food, and products and services that treat the medical conditions that those unhealthy actions cause. Investments in healthy living are critical. By the way, when Dr. Verghese refers to the “myth of prevention,” he is largely referring to screenings administered broadly to the population, which actually add costs, rather than reduce them. We need to focus on reducing obesity, smoking, alcohol and drug abuse, injuries from violence, infectious diseases, and illnesses and diseases resulting from environmental hazards.

Second, we need to let attrition through retirements of health care professionals work, and simply not replace every specialist physician that retires. We actually need more primary care physicians in many communities, but increasing the supply of primary care physicians without having a plan to reach underserved populations is not a solution to the primary care shortage. Having more physicians will simply clutter the wealthier communities and drive supply-driven demand. To enable primary care resources to work effectively, we need payment models that encourage self care, remote care through telemedicine, and more care delivered by nurse-practitioners, physicians’ assistants, and nurses, in place of doctors.

Third, there are many businesses that have sprung up to manage inefficiency, such as firms that provide software to help physicians and insurance companies work better with one another. We need to reduce the complexity of billing and claims interactions, and to reduce the need for customer care support. These jobs can also decline as people retire, and some businesses will simply disappear. These are not caregiver jobs, but jobs for administrative and technical people who can be repurposed into more productive activities outside the health insurance sector.

Fourth, we need to reduce government micromanagement of health care, which adds cost to the private sector, as well as to government. There needs to be a much simpler, less politicized system for managing Medicare, Medicaid, and SCHIP costs downward. Setting cost targets and giving the private sector flexibility on how to meet those targets and improve quality is far better than micromanaging at the transactional level. Over time, these compliance-related jobs will disappear, and the people in them can be repurposed for more productive uses.

Fifth, we need strategies to close hospitals and repurpose their sites, just as we did with military bases, and will need to do with post offices. Having a hospital in a community is usually considered to be positive in terms of the attractiveness of that community, but we need customized strategies for each community. Stamford, Connecticut, where Pitney Bowes is headquartered, came up with a great solution ten years ago. We had two hospitals less than a mile apart. One of them, St. Joseph’s, was old and was financially shaky.

The solution that evolved was a win-win for everyone. The Stamford Health System acquired St. Joseph’s Hospital, closed it down, and built a state-of-the-art wellness center on the same site. The center, called the Tully Center (in honor of its major donor, Dan Tully, a retired Merrill Lynch CEO), has an urgent care facility open seven days a week, an outpatient diagnostic and surgery center, a rehabilitation and fitness facility, and a major community outreach capability. The facility is modern, highly useful to the community, a better neighbor for area residents because it is quieter and less disruptive, and a more appropriate health care resource to be paired with the hospital less than a mile away.

In some communities, there may not be a need for a substitute health care facility, but we have to treat hospital closures as political challenges, not just as health care delivery challenges. We have to stop pretending that our runaway health care costs have mostly to do with greed, unsolvable health problems, better quality, greater efficiency, or better cost containment. We spend more on health care because health care professionals make good livings in health care and are respected by their families, peers, neighbors, and communities, and because health care spending is a major economic and financial market growth engine.

Unless we figure out alternative spending paths for our health care dollars, alternative careers for people in the health care industry, and alternative uses of excess health care facilities, this problem will not go away.