Health care delivery in America was always different. America’s founders rejected the european standard of government-guaranteed and provided health care for all the people— preferring free consumer and provider choice. Letting private hospitals form as wanted in communities and allowing individual providers free choice in choosing practice location. But, excepting a group of DOD/VA facilities, native american reservations, and several large city hospitals and city sponsored clinics, the vast majority of americans have never recieved any service in a government health care organization in their life. Yes, like restaurants, barber shops, and hardware stores, health care in America was clearly not provided by government, but was allowed to form as a private market, where service volumes and prices are set by private firms and customers, both pursuing their selfish interests (as economists would say).

Though our founders would smile, health care wasnt seen by anyone as a real business, but its job was special, and the people that worked there were different. It was there to save lives. Government did acknowledge the uniqueness of the industry (in the first edition of the IRS code in 1916, in Sec 501 (c)(3) ) that qualifying charitable organizations do not have to pay taxes. And, the way it was treated by its customers (eg the ones that paid the bills) reinforced the fact that it wasn’t a real business. In the 1966 bill authorizing Medicare (and Medicaid) the way hospitals and nursing homes would be paid by the new govenment insurances would be by paying the provider’s “reasonable costs”. And, so it was; hospitals, nursing homes and other delivery organizations were private organizations, many even for-profit companies, were somehow special.

But something changed in the early 1980s in America. Here the chart shows the trend in health care per capita spending and life expectancy in many countries. Yes, health care in America has always been special (more spending, poorer outcomes—- less cost effective) than other countries (which generally have a larger government role in health care). But clearly something happened in America in the early 1980s that set the health sector off in a new direction; one with even less value for the money.

My hypothesis is that the implementation of a new way of Medicare paying hospitals may be the “change agent” we are looking for. The Medicare program had been looking for a new way of paying hospitals for a decade. This was provoked by the higher-than-anticipated increases in hospital expenditures (and “reasonable cost” payments to hospitals) in the decade following the implementation of Medicare and Medicaid in 1966. Pilot programs in over a dozen states starting in the 1970s demonstrated the concept of paying hospitals in new ways ranging from fixed budget systems, to prospective rates per type of patient. There was a good deal of political momentum about achieving some incentive payment solution that would encourage hospitals to be more efficient and slow the growth in hospital costs. And, it was no surprise that Congress passed legislation to implement a system of payment reform in 1983, wherin a national system of fixed rates for 383 types of patients (DRGs) was approved, and as demonstrated in a New Jersey pilot, had strong incentives for hospitals to be efficient and to be prudent about the special services provided to admitted patients.

So, what’s the big deal about a change in the payment system by one of the payors for hospital services? Did hospital spending go up because Medicare overpaid hospitals? No, and actually research estimated that hospital expenses went up by less than would have been expected otherwise. And, research later also showed that the new payments system and the inability of managers to keep costs below the fixed rates was instrumental in closing the doors of about a 1000 hospitals. Indeed, most hospital CEOs were also replaced.

The big deal may have been that the actions by Medcare in 1983 may have confirmation that the party was over for hospitals and health care. The days of the protective community climate of health care of “Good people doing God’s work” and protected from financially worry by being paid “reasonable costs” were over. Managers in the good old days before DRGs didnt lose sleep worrying about sustainability of their organization, or strategic partnerships for bringing in new revenue streams, or consolidation to grow, or hiring doctors to better achieve control of practice patterns. No, in the good old days the leadership of hospitals wasn’t losing sleep over survival and financial ruin.

But it all changed. Health care managers and Boards came to quickly realize that the future was not guaranteed any longer by the payors; indeed organizations would sustain only if they could produce services efficiently and generate sufficient volumes of revenue. My hypothesis is that these organizations began to behave like other other private businesses — where competition, taste and technology changes, newspaper headlines, and other stimuli can bring distress and failure of the enterprise. Management changed. Instead of easy going and community-oriented managers, proper business, financial strategy and planning skills became essential. And, executives with pro-active determination to do what was needed to keep organizations moving in a financially sustainable fashion were needed. Hiring executives with such skills became a priority for Boards. Indeed, most hospital CEOS were replaced during the mid 1980s.

The hypothetical story is as follows. Health care executives began behaving like private business leaders and managers in the early 1980s after seeing that payors were no longer going to pay the “reasonable costs” of care, and that nearby hospitals were failing as a result of not being able to get costs to be less than revenues. As a result, hospitals began to behave differently to assure survival. They began to cut business risk by getting bigger (acquiring new health care practices, adding new services), cutting waste (outsourcing some services, adopting lean and quality improvement practice) and they gean to mimic their business counterparts in other industries by paying attention to profits, by looking for new revenue opportunities, and by raising prices early and often (remember, some payors still pay fee for service or a percentage of fees).

These trends dont explain the lack of effectiveness in increasing life expectancy (see the figure). But, of course, this is America, where lifestyle is so important to health. Whether hospitals do more, or do less, or spend more doing it, may have little leverage on life expectancy.

U.S. Health System Characteristics   

The health system is a collection of provider organizations that provide health services and products to the population. Those providers are supported by training institutions, product suppliers, financing organizations, and research infrastructure. The way this “system” is organized, and governed is different in every country. In some systems the Government provides care and pays for everything through the tax base of the country (eg England). In some instances the Government provides all the financing (via taxes) but the service delivery is done by private hospitals and private practitioners (eg Canada). In most other countries the role of Government in the system is to finance some, but not all of the care, and to provide some but not all the of the services. In most countries the Government sets policy so that everyone is someway assured of financing for the health services they need. America’s health system is, as we might expect,  somewhat unique.

Structure of Our Health System

Unlike other countries, our huge health system has developed organically, without design, or by explicit direction. The structure of the health system of educators, suppliers, providers and insurers and arrangements between them is purely a product of free choice and market competition and not the result of any plan or design. It is a product of free choices people have made about (1) careers (where to get educated, where to locate their practice), (2) about setting up and growing health care businesses, (3) about which kinds of health benefits (if any) to offer employees, and (4) about household free choices about when, where and from whom to seek care. This organic health system (some would call it a private, or market system) has nobody in charge! It is like the market for mobile phones or for breakfast cereals, or pizza shops. Free choice of investors, workers, employers, and consumers determine the winners and losers, with government influence more or less just a token presence.

The government activities, or functions, in the operations of our health care system are quite limited. The primary federal government functions are to (1) provide financing (eg insurance) for selected underserved populations (poor, elderly), (2) to provide free services for some groups (military, veterans, native Americans), and (3) to approve for sale new drugs and medical procedures based on proven safety and efficacy. The state (or local)  governments also licenses most health professionals. Local government licenses health caregiver organizations. But, generally, our Governments don’t set prices, or regulate profits, or guarantee insurance coverage, or in any other way regulate the performance of the health care sector. The limited function of government in health care (and in most other economic sectors) is a legacy of our Founders, and our culture— Americans have always feared of growth of large, oppressive governments.

This “attitude” about treasuring free choice and small government is tied to why we can’t seem to muster enough public support to fix some of the problems in our health system. There are two related issues. On one hand, we value small government, and don’t want government to grow by creating new programs for the poor, and taxing the rest of us to pay for those programs. Secondly, we think that individuals who have been successful in earning a living should be “entitled”  to use their money to buy whatever they want from whoever they want as long as they can afford it: eg. the American way.

The U.S. scientific and academic support systems are unequaled. We lead the world in medical R&D, new drug development, and train the world’s best clinicians. Health professionals often want to come to the U.S. for post doc research experiences and to work in our health care delivery system at some point in their career. This is one area of the health system where the government has had a very active role:  actively promoting more investment in health care R&D than would otherwise occur. This is done to speed the pace of adoption of new medical innovation (new drugs and new devices and new procedures).

The government speeds progress by guaranteeing high investment returns for new innovations (drugs, procedures) by (1) granting patents (monopoly pricing power) to new innovations, (2) by granting tax subsidies for spending on R&D by drug companies and others, (3) by directly funding (with tax dollars) about 1/3 of all medical R&D in this country through federal research laboratories and grant programs(NIH, CDC, NSF, others), and (4) by forcing Medicare to pay the R&D companies undiscounted list prices for Part D drugs, and forbidding Medicare to negotiate lower prices (as is commonly done by health plan organizations in America and by purchasers from other countries). These policies, and some others, have been long advocated by big pharma and others to promote firm success, but the Congress and White House have also been influenced by strong voter support for using tax dollars for promoting the search for new “miracle” medical interventions .

The Performance of the U.S. Health System

The health system in USA is rated as very mediocre (37^th in the world by the W.H.O.) due to (1) not very good population health outcomes relative to what is seen in many countries in the world. Outcomes are things like life expectancy, maternal mortality, infant mortality, and many other measures.  (2) longstanding unresolved disparities in health and access to care across segments of our population (poor,uninsured and rural population segments), (3) excessive spending, and (4) lack of suitable policy responses about these problems.

Excessive and Misallocated Spending

The U.S. System of health care consumes about 18% of the U.S. economy and we spend 50% more on healthcare per person than our nearest country competitor. We spend almost exactly twice as much on health care per person as the average of the world’s other wealthy countries.

fig on US spending

Excessive health sector spending in our country stems mainly from four things: (1) out of control (and unregulated) medical care prices, (2) our proactive policy of encouragement of fast paced adoption of new medical technologies, (3) excessive administrative costs (mainly stemming from so many separate insurers faced by each provider).and (4) vast amounts of unnecessary services stemming from strong insurance incentives (low prices at the point of service) and the way providers are paid (Fee for Service— providers are paid more if they do more). About one third of services provided are deemed unnecessary.

How providers get paid has become a major matter of payor policy to improve efficiency of care, and more recently, to improve quality or the value of care. Hospital providers were long paid their incurred costs for services provided— calculated based on a methodology for allocating all costs incurred by the provider to the various payors (Medicare, Medicaid, BCBS, etc.). Professional providers (doctors, therapists, etc.) are still paid by fee for service. Both of these approaches to payment encourage doing more for patients, which simultaneously increases the provider revenues. Medicare was first . Starting in the late 1970s Medicare was experiencing double digit annual growth rates in Hospital spending, and began pilot programs in conjunction with a dozen or so states to pilot test different approaches to paying hospitals. In 1983 a policy change was made by Medicare to begin paying hospitals a fixed rate per the entire hospital episode for each of 383 types of patients (DRGs). These “prospective rates” encouraged hospitals to be efficient, and to ‘underserve’ patients or shorten their length of stay. The new system of payment cause the rate of increases in hospital spending to be reduced, the economic failure of small hospitals, and precipitated new thinking by all payors (even globally) that the way providers are paid will predictably change their patient care behavior—ushering in a 40 year period when health policy has been dominated by provider payment interventions across all payors and across all types of providers.

One payment method has been featured in all proposed (and failed) health sector insurance reform efforts in the U.S. This is a system where a provider organization enrolls a group of beneficiaries, and agrees to provide “all medically necessary health care” in exchange for an annual premium payment per person. This approach to paying  provider is fundamentally different in terms of the incentives it creates for providers. Namely, the provider is at risk for how well the patient is: if they are sickly, the provider may bear large hospitalization and specialty care expenses. If the patient is quite healthy, on the other hand, the provider will not incur much in the way of expense. So, the provider will have incentives to do whatever they can to keep the insured pool of patients as healthy as possible (and out of hospitals). Enrollees using capitated providers being paid this way use far more ambulatory care services, and far less hospitalizations (30% less).

Insurance and Incentives

Insurance is a way for providing access to needed care in the form of portable financing (eg a credit card) for health services—strongly supported by organized medicine as a way of guaranteeing free choice of providers. Theoretically, a patient could change providers at any point, and find another—and the financing via insurance would enable it. We have private insurance in this country, and government insurance like Medicare and Medicaid (eg Social Insurance).

There are two systemic concerns about health insurance. “Moral Hazard” refers to the influence of insurance on the behavior of the insured person. Studies have shown that people with fire insurance are less careful about fire hazards in their home, and that persons with auto insurance drive faster and have more accidents. Health insurance, where we pay only a small copayment at the point of service, tend to cause people to use more services (because the price is so low). Indeed, persons with good insurance use 40% more health care (in terms of spending) than do persons without health insurance. And, the data show that there is no difference in level of health between the two groups. The second issue with insurance in America is the proliferation of private plans. We have hundreds of private health insurors. Some countries have only a single payor (usually a government plan) and some have a handful of private insurance organizations. The number of plans affects administrative costs of health insurance. Larger plans (plans with more enrollees) have economies of scale and are far less costly to operate (as a % of premium dollars). And fewer plans requires providers to have far more streamlined billing departments, and incur lower administrative costs.

3. Poor Health Outcomes

The U.S. system ranks 34^th in the world on life expectancy at birth. For all the spending we do, we don’t do very well in producing health. The chart below shows the trends in spending per capita and life expectancy for a number of countries, including the U.S. (the flatish line with the years marked). Here we see that relative to the other countries, we have been spending a lot more but achieving very little increase in life expectancy as a result. In the U.S. we get less bang for the buck as we spend more money. Indeed, many of the other countries exceed our level of health outcomes.

Fig on Flatness

There are several main reasons for our “inefficiency” of the health system: (1) while our system may excel in human provider skills and modern technologies of care, these are not easily (or ever) accessibly to many of our people (the poor, the uninsured, the residents of rural areas). (2) about a third of what we spend is due to totally unnecessary (eg. unproductive) services. (3) Almost all of our spending is for treating disease (eg. curative care), and little attention and little money is spent on preventing disease, (4) much of our spending is higher because of the prices we pay for services and drugs are much higher than in other countries, and (5) mainly, health is less a product of health professionals, but is a product of lifestle, eating habits, andf the decisions we make in households. Sure, when we get sick we rush to somebody who has a proper diagnostic tools and a “cure”. but studies dwmonstrate that the  main driver of “health” is not the health care system as we encounter it. Americans do not live health lifestyles vis persons in many countries of the world. Spending more monety wont solve this problem (much to the chagrin of the AHA and AMA—who try hzrd to drive public policy in a direction that worl make it appear othertwise.

But, ignoring the spending excesses, why is the health level so inadequate in the U.S.? Research provides us with some ideas, but no proof. Three possible reasons: (1) We know that underserved and underinsured racial and ethnic groups, especially in rural and inner city areas experience very low life expectancies and poorer birth outcomes than do white and insured populations. (2) we know from research that health in populations is driven mainly by household behavior (risky behavior, nutrition, concern about health), and less so by quality of medical providers, genetics, or environmental factors. Both of these plausible factors are supported by research on the Determinants of Health, as illustrated here from on such study.

Fig on Soc Determinants

As we see here (in one of dozens of similar attempts to determine the drivers of population health) the choices households make (the black segment) are the biggest driver of population health, followed by social circumstance, with professional health care (where we spend all the money) fallowing as the least significant driver of population health. It may be that Americans (or a significant fraction of them) are not as engaged in healthy behaviors (for whatever reasons) as they are in other countries.  Keeping people well is usually a matter of engaging them in the process making better household choices.

Another factor we might suspect might matter in the relatively poor levels of health we see in the data for the U.S. is a related concern that providers of care in America may not be sufficiently concerned about keeping patients healthy as may be done in other countries (who use fixed budgets as a way of encouraging providers to keep their populations as healthy as possible).

The final possibilities for the poor health performance of the U.S. may stem from the virtual autonomy of physicians in what they do for patients, and how they do it. Medical guidelines to attempt to “manage” the way care is delivered are notoriously unwelcome in the much of the medical culture. In America we have tried several times to start agencies of government to study “what works best” and publish “guidelines of care” to try to standardize diagnoistoc and treament decisionmaking. These attempts have failed, largely because the physicians don’t want to lose theior autonomy to do what they want. They are special, you know, and need to have flexibility to “tailor the care to the peculiar circumstances of patients” in all decisionmaking. Why do you think they began to write prescriptions in Latin here in America? Because it was an attempt of organized medicine to create an aura of mystique and vast intelligence about physicians that would create a bubble surrounding physicians in our culture that would maker them permanently autonomous, and immune from any control.

The most burdensome health problem in America is mental health issues. It exceeds health disease and cancer in terms of the social burden of disease (premature death and years of disability). (see other posts on Mental Health System)

Scientific Basis for Care and Quality (adherence to best practice)

While we spend a lot (about 4.4% of health spending) on research and development activities the science backbone of medicine is VERY INADEQUATE to guide the practice of clinicians. Studies find that only about 1/2 of medical decisions about adult care made by clinicians in our country are supported by science! This means that decisions about what to test for — are, in half the cases cannot be made based on science— but can only be based on some thing else—experience, guesswork, or other bases— decisions are about things like;  what the diagnosis is, if to hospitalize, whether to do surgery, what drug to prescribe. This is NOT a poor provider quality-of-care problem — this is about science not being available to provide guidance for providers as to best practice.

The popular belief is that medicine is “bazsed on science”. But, why do physicians all want the freedom to want to follow their own instincts and experience and treat each patient as somehow unique——- and why they must have freedom to prescribe whatever brand named drugs they are being psid to prescribe?

There have been large national studies  of what doctors decide for paptients, and how that compares to what science shows about what should be done (Rand). Of the adult care decisions that are supported by science, clinicians only follow thescientific evidence about half the time  (48%).  (eg this is a quality problem).

What about the fact that many of the decisions made by caregivers doesnt have any science anyway? The lack of comprehensive science background for medicine stems largely from the limited science for prescribing medications and othert therapies. But, dont the drug companies always have to clinical trials before the FDA allows them to sell drugs? Yes, but the FDA allows drug companies to “test” drugs in the quickest and cheapest what the drug companies prefer— allowing smaller and cheaper studies to be done.

To illustrate: when testing a new drug for safety (will it do harm) and efficacy (does it work), companies must propose sample designs for their clinical trial–how big is the sample—which types of patients are represented in the sample . For a new hypertension drug, for example, they might propose a sample of 500 white men of age 50-60 who have no comorbidities other than a history of hypertension. They test, they get the drug approved, they go to market. The problems with this—doctors cannot tell from the research whether the drug actually works for women, or for men under 50, or for men who have diabetes, or other common chronic problems. This is largely why science coverage for medical decisionmaking is so low. Could the studies be designed differently. Sure, we can increase sample sizes to test all the things we’d like to know. But this would add expense for drug companies, and add complexity to the studies (add time, which delays going to market for the new drug). We also know that part of the problem with science coverage stems from discrimination— women are much less represented in clinical trials than men, and minorities are also significantly underrepresented. This means that the scientific basis for medical decisionmaking for women and minorities is smaller than 50% coverage, and smaller than for white males. Why does the FDA approve these study designs?

Medical Errors

Unfortunately, medical errors are an important quality problem in health care. Indeed the third leading cause of death in the U.S. is medical error. Attempts to highlight and resolve these problems is very slowly getting traction.  Medicine is learning much from aviation and other industries when similar “error” problems have been studied, and resolved, often by using tools like “checklists” and “pause points” in situations where errors often occur (like before the scalpel cuts the skin, or before we wheel the patient out of the OR).

Most medical error is the result of “systemic” issues, not human mistake. In commercial airplane accidents, for example, the errors are often due to “failure to communicate effectively in the cockpit.” (pilot doesn’t listen to subordinates, subordinates unwilling to speak up, etc.). In airline safety programs building teams and working on teamwork is a key focus. In healthcare, teamwork is a long- known key element in improving care and reducing errors in primary care and in acute care, but it is still not widely implemented
in practice.

Population Health Management

Patient care is universally focused on “what the patient needs” , not what kind of care would be best for the population, or everyone in the covered group. This is a consequence of not caring about the overall cost—the cost will end up being “whatever it will turn out to be”. So, we have situations like doing a heart/lung transplant costing $200,000 on 85 year old Mrs. Smith (which may be expected to give her another year or twp of life), yet not having money in the system for giving adequate preanatal care for 150 uninsured poor teen moms living down the street (which may cost the life of a couple of moms and a dozen infanst  —   and several thousands of lost life years).

Whenever providers are paid a fixed budget (for a hospital, or for a entire health plan). the issue arises—–for the fixed budget, how do we achieve the maximum impact on health?  The common practice of “individual patient management” often creates a suboptimal situation for the group as a whole. Being totally focused on a patient, the provider may decide to do the “marginally necessary” CT scan even though the return for the money may be very low (but, just to be safe, let’s go ahead and do it anyway) . Contrasting with the “individual focus”, the “population focus” asks “is there another thing we could be doing with the money that would yield more health for the whole community. For example, in most countries of the world (Canada being one example) hospitals are paid a fixed budget per year. Many choose to limit hi tech spencialty services because they cost too much, and patients that need them have to go elsewhere (or be flown by helicopter to another facility). But, the point, someone is in charge of maximizing the health we get for the community. In the US nobody is in charge—– its a scrample of getting the most you can for every provider because there are no limits (as long as insurance covers whatever the doctors are prescribing.

Rationing is a term that often arises in the context of Population Health Managemtn and fixed budgets (when health plans get paid a fixed premium it is called “capitation”). It means “limiting” services available to individual patients in order to maximize the health for the entire population. Coverage limits of insurance, or medical guidelines can be used to set such limits.

In a “fee for service” system, which is largely what happens with the US system, providers assess “need” for a particular service based on an assessment of the individual benefits to the patient vis a vis the convenience, and the expected benefits. That is, they make decisions about maximizing the net benefits to the individual patient, and maybe even themselves. Overwhelmingly, providers today are of this view—that the patient deserves to get what their condition warrants, and it would be unethical to drag in other considerations.

But when provider organizations  are capitated, they are “at risk” for the health (and cost) of their entire enrolled population. This means that they would be expected to behave as if they were trying to allocate resources so as to maximize total population health achievable with their fixed budget. To do this, there may be instances where such a provider might not want to do a marginally necessary (but expensive) CT scan — preferring to conserve money which might be better spent providing counseling to expectant teen moms— moving money around to make sure the plan is getting the biggest bang for the fixed amount of bucks they have to spend on this population.

When working for a capitated plan like Kaiser, or Fallon, of HCHP, it would be confusing and probably infeasible to ask individual clinicians to weigh the alternative uses of the resources as they decide what each individual patient “needs”. So, as a practical matter, the concept of “population focused” care would necessarily be implemented  by adjusting coverage rules or by using medical guidelines to guide providers in using expensive proceedures. HMOs, for example, have been able to be successful in “guiding” their clinicians to avoid unnecessary admissions to hospitals (they use 30% less hospital care, with absolutely no deterioration in health.

Rationing is not an evil word, it is a way of getting more bang for the buck by limiting the use of high revenue producing specialized services in hospitals and some overutilized services that have small benefits to the covered population relative to other services that are currently underulized in the covered population.

A few comments on labor markets before talking about some policy issues in the health professions.

Labor markets and how they work.   Wages in a labor market are pushed higher and lower by the intensity of supply of workers looking for work, and the intensity of demand for workers by employers, who are looking to fill jobs. Other things constant, as the supply of workers looking for jobs goes up, this tends to suppress wages. As demand for workers by employers goes up, it tends to raise wages. Things that tend to restrict supply tend to eventually lead to higher wages (things like higher educational requirements–which limit the number of workers. When the PT profession engineered a requirement for a doctorate degree some years ago (rather than a Master’s) it reduced the supply of new graduate PTs to be somewhat lower than would have been the supply otherwise — because some students who would have otherwise entered the profession would be disuaded from entering because of the added time and/or extra money it would take to become a PT.

Things that tend to change the demand for workers of a particular type also occur and change the demand for workers and the equilibrium wage  (such as new treament options, new technology in treatment for certain types of patients, availability of new types of workers who may be partial substitutes, and the design of the patient setting can influence demand for workers too. Thinkgs like COVID reduced the supply of healthy workers in the health professions (they got sick) and possibly also increaded the demand for healthcare services: both of these tended to increase wages being paid in health care.

Unions (where qualified workers join togethjer and “negotiate” wages and other terms of employment) tend to increase negotiation leverage beyond that of individual worker, and make wages higher as a result.

Governmental occupational licensing (eg like many health professions) require specific conditions be met to be licenced ( a degree from an accredited school, passing an exam, etc.). These requirements will limit supply because some workers who would otherwise be in the workforce competing for available jobs will not be able to be licensed for various reasons——and thus, licensure will always cause wages to be higher than they would otherwise be in that profession.

Both unions and Occupational licensure will also cause costs of health care services to be higher than they would otherwise be (and health spending will be higher too). .

The operation of health delivery, health insurance, health professional requirements and education, and other aspects of health care are deeply embedded in government policy. Yes, we have a market-based health care system (private providers, private insurance, private training programs for professionals) but nearly every aspect of the system is prone to government intervention. While we don’t want government deciding what price to put on new technology, or what kinds of coverage packages there are for insurance, or what doctor persons need to go to, or what limits might be put on the services we want to buy——we in the health care business definitely turn to government to help us get what we want. Professional associations (AMA, AHA, ANA, etc) are actively working to get the legislature or get the congress to tilt the marketplace in their favor. Relentlessly. While we often hear people praise competition, what they usually mean is that we want protection for ourselves, and competition for every one else!

The most recent Nursing Shortage scare is an interesting case in point about the way Professions try to get their way, not thru the marketplace (they have little control over Supply and Demand), but through intervention by government. This pattern of practice extends throughout the health professions, not so much in non-health professions, and it sets them apart from unions, where the idea is to use market power to get what you want in negotiation with employers.

The recent “shortage” of nurses was like the others that came before it. Maybe once every 10-15 year we experience these events. It starts with newspaper stories about unfilled vacancies in hospitals (part of the Hospital association’s PR campaign)   —employers cant find the number of nurses they would like to hire at the current wage level. Rather than shut up, and raise the pay to get the extra nurses they need, they tacitly form a pact with other employers to fix the problem another way, a way that doesn’t require a “wage war” between employers to get the extra nurses they need. They go to the media first.   The media is talking about it, interviewing hospital administrators who rant about the inability to find nurses to fill their vacancies, and how patients suffer. Nurses are also interviewed who rant about forced overtime and stress and burnout, and the potential for the poor, suffering patients. The professional groups hire researchers to do studies about it.  Congress and states hold hearings, remedies are proposed (below). It’s endless. Of course other professions have periodic shortages too—- software engineering, cost accountants, money managers, etc. These are important to society too, and the shortages may be bigger and last longer, but we don’t hear about it. Why do we hear about Nursing shortages, maybe even primary care doctor shortages?

One reason is because of the usual and customary practices of the health professional associations. They look to their friends in Congress in particular, for solutions. What has generally happened as a solution to past nursing shortages? Well, what happened, after stirring up local media to the seriousness of the shortage, the hospital administrators and deans of nursing schools go arm in arm to DC. They explain the crisis to their congress people. Congress or the Administration then proposes a new version of the NURSE TRAINING ACT (this happens regularly), which provides massive new training funds for universities, and new scholarship monies for students, allowing schools to expand supply. Everyone smiles and takes the shuttle home. The deans are happy, since they get to run bigger empires and become heros in their universities. The hospitals are happy, because this will ensure that they will not have to have a wage-war with other institutions over the inadequate supply of nurses. Unlike the usual case of a ‘shortage’ (excess demand for workers), when wages would typically rise for all nurses, the idea here is to boost supply, and keep wages from going up. Hospitals are happy. And in another couple of decades they’ll do it again next time someone declares another shortage is here.

Is the consumer better off? Well. Taxes have been used to fund more health care (education in this case, but it adds to the % of GNP used in health care), and there may be more nurses available at the bedside (though I do not think there is any evidence that hospitals actually respond to all this by increasing nursing care hours per patient day— it just keeps the wages lower).

Are nurses or the other professions better off? Well, wage increases are suppressed by the government intervention. And a good number of the new graduates will continue to stay out of the workforce, staying home, selling real estate, or whatever.  Maybe some get relief from stress because overtime pressures may be relieved. The government activity suppresses the cycle of shortages to boost wages. Hospitals win, universities that train nurses win, the deans win, and the nursing workforce loses.

Does this happen for other health professions. I do not know. In primary care, there are the same pressures, the same appeals to “importance” of health workers, and the need to create training packages stimuli. Other professional groups (dentists, PTs, dietetics, etc.) are too small to be able to find hospital administrators who would get on the plane with them to go lobby for relief of shortages. Or, maybe, as professional organizations they are more controlled by their members than are the nurses (who are controlled by the academic deans) and would NEVER argue for public policy that would suppress wages of working professionals! Can you see the Teamsters going to Washington to try to get new government programs to increase the supply of Truck driver training programs?

In general, the health professional organizations are deeply connected with government, at state and federal levels. This connexion has led to state laws to segregate each profession from all others, and make the state a protector of the unlicensed workers. Does the state come in to protect the driving of trucks by non Teamsters? No. And, the professions themselves are given the authority by states and feds to accredit educational institutions. That is, the professions essentially have control over the scope of work their persons do, the competencies of persons doing it, the supply of trained professionals.

This doesn’t mean that health professional groups are bad, or should be prevented from lobbying congress. But it points to the fact that professional groups (and every provider organization) is playing the governments to get more of what they want. Most of the licensure law upgrades, and frankly, most every action taken by government is done on behalf of patients: improving quality of services, increase patient safety, make the health services better. This is the argument that professionals always make, this is what the politicians buy. Does quality get better? Maybe. Does patient safety get better? Maybe. The research certainly points to the evidence that economic outcomes (about wages and costs) are clear and consistent, and they aren’t flowing to the patients or the taxpayers. Sure, we all heard the arguments:

• Nurses are surely getting older. What’s going to happen when the old ones retire?
• Vacancies are unfilled? Who’s going to take care of the patients?
• Wouldn’t outcomes get better if we had more nursing hours per patient?

Sure, these are what we hear. Someone has an idea of “need for nurses” and its not what we’re getting. And someone doesn’t like it.  But remember, these are the basis of the argument that is being made to mess with the usual market responses. If we have shortages, then let the wages rise to solve the problem. Let the schools decide to expand nursing programs if there is an excess demand for applicants to nursing schools. Don’t believe everything you hear. Remember who else has a stake in the game. The hospitals? Should we suppress nursing wages so that administrators can hire more nurses at lower rates of pay? Sure, patients would be better off with more nurses. They’d also so be better off if they didn’t drink sugary beverages, and if they had better access to doctors. Or if they we educated kids in the schools about basic prevention. What’s so special about spending tax money to allow more nurses to be trained so that hospitals don’t have to pay nurses more money? Is this the best value we could get if we truly were concerned about patients and citizens?

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The U.S. health care system is neither fair nor efficient. And, it is also well established that it doesn’t produce high levels of wellness or even longevity. We certainly spend a lot, but we don’t seem to achieve as much as other countries do. There are several dozen countries of the world that achieve higher levels of health for their people than we do. There are no countries that are even close to us in how much we spend on professional health care services and products. What’s our problem?

There are several ways to approach this important question. At the surface, we can look at how we organize our “system”, and the incentives that are created for households, for providers, for insurers, etc. From this surface appraisal of our system it is easy to conclude that a system composed of insurance, coupled with private provision of care (and a fee for service arrangement between the two) can lead to excessive utilization and spending.  We can, and should also look more deeply at government policies, and how they sometimes create or perpetuate problems, or fail to exploit opportunities for achieving more for what we spend. These are both important approaches for understanding more about why the health system sometimes “runs off the rails” in terms of performance.

But if we pursue the tool of “root cause analysis” and continue to ask WHY we will be led to deeper and deeper “root causes” of why our system doesn’t achieve more “bang” or “more bang for the buck”?

1. why is the system underperforming?  — we might say that it is because it relies mainly on private insurance, private care providers , and fee for service arrangements between them.

2. well, this begs the question of “Why does this happen? Why did we set it up that way? Why doesn’t the health policy fix this problem? — we might conclude that it has from time to time tried to insert more prepaid care into the system, which foists the financial risks of poor health onto the providers–who would then have incentives to keep people healthy–and replace the FFS incentive to keep them unhealthy enough to keep them coming back, and back again as patients?

3. So, why haven’t these efforts to change our system been successful? Why haven’t we moved to new policies that create better incentives for providers and patients? At the top level, we could quickly conclude “because our elected representatives cant agree on better policy”.  Potentially better policy has been introduced (unsuccessfully) many times to the Congress by the executive branch since WWII (Truman, Nixon, Clinton, Obama are the main ones) .Only the Obama reforms were passed (but much of them were nullified within the first year of the following administration).  Why can’t government act to improve the system’s performance?

4. We could answer “politics”, but that begs the real root question– why do our elected representatives choose to ignor the fact that the system is “underperforming” in producing more health for the people, and is vastly overspending to achieve so little? — are they stupid or tone deaf or just incompetent?

5. If so, we need to ask WHY do the people  keep reelecting them? — we could conclude that the people just don’t care much about their health, or don’t care much about giving nearly 20% of their family income to hospitals, doctors and drug companies. Or maybe the people are collectively ignorant about how far off the charts the U.S. health care system is in terms of comparative performance? Or maybe U.S. voters are more concerned about electing representatives who vote for things they care about more than the health of their children or their parents (abortion, global warming, immigration, world peace, etc?

So, however this sequence of “root causes” as to WHY?, can go even further? Why don’t the voters know? Why do they care more about one issue than another? These may be worth exploring further. But, as we ask these question it is going to become obvious that the answers are going to being to relate to the values that Americans have, and how they play out in terms of the kind of health care system we have here.

I want to review with you some of those things we deeply value as Americans, and suggest how they have played out in the way our health care system is organized, and how they have guided our country as we monitor and evaluate the performance of our health system over the years. The concepts i want to discuss with you are:

a. entitlement

b. technological progress and innovation

c. economic freedom and limited role of government

these values are deeply seated and longstanding. they largely came on the boats in the hopes of our ancestors, and they are largely institutionalized in our founding documents, and laws, as well as beliefs.

Value: Entitlement 

Founding fathers left England and other Monarchies in Europe to seek both religious freedom (in some cases) and to have economic freedom—eg.  to not put artificial intergenerational boundaries on career opportunities as existed in the rigid societies in europe.  At the root of all this was anger, largely directed at the Monarchies and socioeconomic rigidities of the culture. Elite classes were “entitled” to the privileges of wealth, and commoners restricted to lives of modest desperation. The concept of “entitlement” became different here. Instead, “entitlement” accrued to persons who earned it based on merit, rather than based on birthright.  And, when capable people are successful, they are “entitled” to spend their wealth on whatever they want–after all, they earned it based on merit.

This concept of entitlement, though not talked about often nor well understood as an underlying value in American culture,   it is extremely important in understanding our health system. Our notions about “fairness” are guided by this value. Essentially, if someone can afford to buy it, they ought to be allowed to do so. It is their right. And, the fact that other people cannot afford to buy it, should not limit the consumption of others who can. And, if there are people who want some something but can’t afford to buy it— then they ought to get better jobs and work harder.

I call this value concept of economic freedom and entitlement the “american way”.  This concept of “entitlement of those who earned it” is almost uniquely American. In other countries, particularly our European friends, the shared distaste for the “entitlement by birthright” created more social solidarity — where most of the people have developed a “shared concern” over the welfare of other people, not just their own. And the health systems of other countries reflects this “shared concern” or social solidarity. How ironic.

Back to America. The concept of economic justice and entitlement has had specific implications for health care.  There was push-back against the notion of “rationing or managed care”, where population health for a group of enrollees might be better off if we managed the allocation of resources better by eliminating some high cost, low payoff services for some people and instead shifted the resources to provide high payoff services to other enrollees.  This kind of reallocation creates more “bang for the buck” for the group. Such an idea will make providers and patients unhappy because it runs counter to the culture of economic entitlement. if they want a Porsche, they ought to be able to get if they can afford it. If the doctor said the costly procedure may help our 94 year old grandma live a little longer, then we should be entitled to get it done if we want it, and can afford it. Why should we care about the opportunity costs of using those resources somewhere else in the health system? For someone not as entitled as us!

Where did this thinking come from. It has blocked universal health care for over 200 years. And It continues to block it. I used to think “economic entitlement”  was a reaction to “birthright entitlement” which prevailed in western europe at the time our ancestors came to the colonies–and was likely one of the reasons they came here. They could never “make it” in such countries through hard work, and whatever successes were available to them. So, they came here, and dumped “birthright entitlement” in favor of capitalism and “economic entitlement”. And it continues to cast a pall over our health system– making it too expensive, too ineffective in producing health, and too unfair.

This little piece i found offers a more informed perspective on where the “economic entitlement” came from.

https://academic.oup.com/annonc/article/26/10/2193/144592

Value: Technological progress and innovation 

Americans have always thought they (as a society) are exceptional (distinct and better than non Americans); driven to work hard and produce more, deserving and wanting the best, discovering the best ways to do things, better at making things happen, and always unbridled by barriers like religion and stifling government that affect other cultures. This early insight about our culture mainly came from French scientist Alexis de Tocqueville who visited the U.S. about 190 years ago to try to understand and write about our new and emerging culture (Democracy in America: 1835, 1840). He wrote an extremely perceptive analysis, which still amazes many.  see (Sasascus, The American, 2013).  and   http://straightstory.gmu.edu/alexis-de-tocqueville-a-19th-century-french-visitor-to-the-united-states-shed-light-on-why-todays-american-politics-are-so-dysfunctional/. 

This  self view of ‘exceptionalism’ has had a strong impact of our Health System in terms of our demand for innovation: we want to find new and better ways of getting things done. New test, new treatments, new science about ways to prevent disease, etc. Contrary to a taste for scientific discovery (as in Europe, De Tocqueville noted that Americans had a thirst for science that improved life, productivity, and wealth. We might say a peculiar taste for progress and innovation or “applied” science.

Not only do we love to encourage investing a lot in bio/pharma research, and “wars on cancer” and spending tax dollars on NIH, NSF and other scientific grant programs in health care, but Americans demand (way too much) heroic health care. Ask anyone who worries about end of life care. We like to reward miracles of science in our culture, and this aspect of hope, and positive or optimistic attitude of Americans has always been the sources of the bias. We are different than the Europeans we fled from…. their cultures were rigid, no real chance of intergenerational upward mobility. We fled. We want better ways of doing things, we need science to show us a better way in all aspects of our life, we dont want to be trapped in a rigid and hopeless way of life when it could be better. We want this. We look to our NIH and NCI grants as a source of miracles of a better life, even more so than we look to our faith as a source of those miracles. We are different.

And our health policy reflects our unique culture.  we have (1) a strong patent-oriented culture to protect high private investments in medical innovation.  (2) the absence of policy attempts to reduce price we pay for new drugs and other technology, (3) no regulations that would elevate the bar for new technology to be introduced into the health system.  (4) even simple solutions to increase price competition for new drugs such as reducing years of patent protection or providing more price transparency for generic drugs are not done. (Lieberman, S. M., & Ginsburg, P. B. (Brookings, 2017). Anything of these sorts would reduce private sector investment in R&D. Americans don’t want that. In one of the most egregious policy actions in recent years Congress and President G.W. Bush mandated that Medicare’s new drug benefit mandated that Medicare pay drug companies the full list price for ever prescribed drug used by a Medicare beneficiary (unlike all foreign governments, and all other insured populations in the U.S.). in order to preserve profits for the drug companies to protect their willingness to pursue research on new drugs.

The policy bias is also reflected in the way government “looks the other way”, rather than by overt policy action. We fight over issues like the Medicaid expansions, and the generosity of the rates we pay hospitals and doctors. But we do not fight over the price of drugs, the pace of technology change, or the way drugs are marketed in America, in part because of the powerful demand for innovation in this sector.

Value: Economic Freedom and a   Limited role of Government

Another of the longstanding beefs of those fleeing to America was the heavy role of central government is society, which generally sought to protect the power and wealth of the the elites, and was seen as a limiting factor in the economic growth and wellbeing of the commoners. Americans were distrustful of strong central government.  When the Constitution was written, this concern was a dominant influence. The framing of the federal government of the U.S. was set up subject to checks and balances from the Congress and the Judiciary branches, and the power of the executive deliberately limited in scope.

In health care, the powers over health of the people were deliberately delegated to the States (rather than the federal government). The idea of centralized government control over health delivery or financing is always a worry of many.

The Social Contract

We live in a society where individual have “natural rights” to live according to their own own “life, liberty and pursuit of happiness” . Of course, individuals have different needs, desires and abilities. How society accommodates to these differences, particularly as related to abilities to earn and accumulate wealth is always a stress point for societies.  Generally, government gets involved in providing for people who cannot provide for themselves. To do this, the rights of freedom possessed by successful individuals are somewhat  tempered (surrendered, or taxed) by individuals to the STATE, to create a sense of order and justice in the society as a whole. The “social contract” is defined as the unwritten arrangement between the state and the individual about the limits of the state to involve itself into private affairs.

Essentially, what this usually boils down to is that society, thru democracy or other means, must decide how to organize and provide for the less fortunate members of society.  For example, for many generations our “Social contract in America” consisted of a shared belief that citizens should form self supporting family units, and pay some taxes so that persons unable to work (the disabled, the very young, and the very old) could share in the proceeds of the society. But the “sharing” was deliberately skimpy, so that strong incentives remained to “work and be self supportive. if at all possible”. Of course the ebbs and flows of politics occurred. sometimes broadening the scope of social contract and the role of government, and at other times narrowing it.

Underlying the social contract is the concept of social justice we see as our standard of social fairness.  Who deserves support from society? What level of support is fair? These are hard questions. And, today we find the polarizing and disturbing divisiveness in our discourse is highlighting widening views about what is fair, and how far should society go to create fairness. The social contract is under reexamination.

In my view the impetus of these strong and disparate opinions about what is fair stem directly from the “pace of progress” we have experienced since WWII (computers, internet, wireless, genome, software, robotics, etc).) and the success of so many Americans (often the educated ones, and the ones with earnings from capital markets) and at the same time the Americans who have suffered from this “progress” by not being able to adapt quickly to it. The income distribution trends (the the blogs on Income Distribution, and the one on Progress). The higher income segments of the population have received larger and larger shares of the proceeds of our economy–while the lower paid segments have barely been able to stay ahead of price level increases.

inc dist

The anger and polarization we have been living is about a blame game for the proceeds of the economic pie in America. Are the immigrants responsible for me not being able to earn more or be happier? Or is it the Chinese trading partners who have cut a better deal than they should have been allowed to do? Is it the educated “elites” living on the coasts who have been conspiring to shift the economic pie around and get a bigger piece for themselves? Some see the “welfare” programs and the “affirmative actions” that were the product of social justice policies– are now seen by many as an unfair use of tax dollars. The wounds of a broken consensus on what is fair in America are upon us. Why now? It is partly due to the striking disparities in income and wealth. I may also be mounting anger over the income distribution coupled with the election of the first black president (who may have been a convenient scapegoat to blame).

So what are the views of social justice, of fairness in our economic system or in our health system? I think there are three basic views in play today about what is fair or just about health care.

1. doctrine of individual contribution to society— largely the view of justice attributed to the founding fathers, echoed now by libertarians. This view is a reaction to the European concept of Entitlement of the Monarchs, the birthright to get whatever they wanted from society because they were borne into the entitlement. Generalizing a bit, to America— this view of justice says that people are entitled to the yield of their contribution to society. If they have economic power, work hard, and accumulate wealth, then it is fair for them to keep it. If people, on the other hand, don’t think ahead, don’t work hard, etc, then they deserve a smaller yield from society. That is only fair, under this concept of social justice. Only the truly aged or disabled persons , through no fault of their own, deserve to be supported by others.   This view of justice imagines a social contract with a very minimal role of government to reallocate resources of society to health services for variously underserved groups.

2. doctrine of Equal Opportunity for all— Many argue that all members of society are entitled to the share equally in the “opportunity to be successful”. Sure, some people will always outperform others, and there will always be unequal allocations of health care. But, this view of justice is that what is critical is whether everyone gets a fair shot at being a successful contributor to the economy.   Things like a good education or good health care would be viewed as necessary for the “opportunity to be successful.  So, for example, if poor rural farmers are not provided the same level of health resources, or education, then they have no opportunity to be as successful or as productive as others in society. So, Paul Farmer, for example, believes that poor countries deserve the same level of access to advance cancer treatment as we get here in the U.S. and anything less is unfair because some human  lives are therefore being values less than others. This is the standard of fairness. Equal access to health care is critical if you believe that social justice requires equal opportunity to be successful.

3. doctrine of  achieving maximum benefits to society (aka population health management) This view of justice is a collective one–and suggests that in a society, the available resources should be allocated in such a way to achieve maximum amount of benefit to society.  In health care, for instance, the budget for health care should be allocated across interventions,  across regions, across people — so as to produce the maximum benefits for the society. The Oregon Medicaid program sort of does this. The single payer Canadian health system sort of does this by setting a single coverage package, and limiting hospital budgets and doctor income, These kinds of systems of allocation set rules for who gets what under which circumstances, in order to produce the greatest good for the group, and provides no rights for individuals to achieve their      maximum benefits. So, rather that pending $1m to do heroic organ transplants to attempt to extend the life of a 90 year old gravely ill person, the money would instead be used for something else (say a vaccination program for poor kids in a rural area) where the health payoff per the $1M would be much higher.

These views all affect our view of the health system, and what ought to be done about it. We see the views of Paul Farmer, a major player in helping fix broken health systems in Haiti and elsewhere. Why should any group (or person) suffer from inadequate care just because they are poor? Knowledge of what should be done is viewed as a “public good” once it is known, and according to him, should be available to anyone who needs it. Of course, knowledge may be a public good, but getting the resources mobilized to provide the care is another matter. Which is where the third doctrine raises its ugly message of reality. Should we provide a 300,000 course of stem cell treatment for Benito’s cancer because that is now the standard of care? Or should we spend 300,000 on a vaccination program for infants that would save 100 equally young lives? Choices, and the need to make them because of limited resources, imposes economic realities.

In my opinion, the concept of “social justice”(the role of government as contrasted with the role of individual ability) in allocating the product of our economic system is changing. Most people believe that able bodied persons should be expected to support themselves and work. The role of government is to help take care of persons who cannot be expected to work, and to otherwise provide support for public (free) education to give all an equal opportunity for contributing to society as an adult. We quibble about the particulars of this, but this view, more or less, has been the social contract for many generations.  But, we read and watch what is happening to our society. Things are changing.

Technology (namely computers, internet, wireless) has been changing how people live and work. Amazon, for instance, has almost single handedly eliminated much of the “retailing” sector, making it far cheaper in both money and time, to shop on line and have goods delivered in a day or two to the buyer’s front door. This eliminated millions of jobs in the U.S. Economic growth around the world, and the growth in robotics, and the growth of free trade that resulted has made all countries less self-sufficient than they used to be, and has allowed every country to benefit from accessing cheaper products ( that are available because of cheaper resources available in other countries than would be available domestically). China has lots a very cheap labor, Kenya has a better climate for growing more flavorful coffee , etc. This trade has been a fabulous boon for our consumers, and our standard of living. But, all of the innovation and economic success is making it harder and harder for unskilled workers, and people with limited education to find work.

In the old days, excellent careers were available to such persons in manufacturing, retail, sales, and other sectors. This opportunities have noticeably shrunk. Sure, careers in software engineering , and bio sciences, robotics engineering and finance are booming. But, these careers demand substantial education and experience. As the impact of progress continues to eliminate jobs for less educated workers, the pressure will mount to change the “social contract”. Some will say, no, don’t change the social contract— just try to get government to slow innovation and progress, to keep these jobs from disappearing. Of course, if we do this, the pace of economic growth will slow — a very high price to pay to protect American jobs. Other people will say that the solution is to let progress happen as fast as possible –and change the “social contract”— now about 2/3 of adults have more or less full time jobs. It is a declining trend. Say in ten years only 50% have full time jobs—- and in 100 years lets say that nobody has to work more than a day a week  (everything is produced, sold, and distributed by robotics, internet transactions, and by telepathy). Would this be bad? If we didnt all have to work, or if we worked we didnt have to do much of it. No, it sounds like the Garden of Eden. But, as needs for worker labor falls, we would need to replace the the way incomes are produced.

How does everyone get the cash or the coupons that entitle them to have food to eat, a place to live, etc, etc.? Jobs do this now— jobs create income based on “level of ability to contribute”. Some get big incomes, others get far less. How might a different social contract –without using jobs to give us consumption coupons??

The Marxian notion of a social contract is the most extreme example —- “from each according to their ability, to each according to their need”   Though this ” socialist” social contract and social justice is idealistic in many ways— it also provides poor economic incentives for economic growth. But wherever the future brings us with new technologies, innovations and ways of living— it does appear that basing our economic system and social justice concept on “jobs” is in clear jeopardy at this point. Maybe jobs will be made to include mandated social service work (peace core, military, infrastructure renewal work for government, etc) which all could be required to do to get fed and housed, etc. Maybe the tax rates on highly valued professional and managerial workers would need to skyrocket to pay for all the new public programs? Who knows.

Rationing

The “hot” word during the Obamacare policy debates (and earlier) is “Rationing”. It is often contrasted with “economic entitlement”. Rationing is also a term that conflicts with the medical priority we refer to : giving each patient what they need. Rationing is particularly hated in health care in America because it implies that patients will sometyimes not get what they need because the resources are limited, and a better result (more health for the society)  would be achieved if applied to some other patient.(eg sending some of our doctors and nurses from Boston to the Mississippi delta to provide primary care there– would create a higher health level for the entire U.S. because of the reallocation of resources— a large increase in health in the Delta, and a small decrease in health here in Boston ). Economists say that by reallocating (rebalancing) resources the GROUP or the COVERED POPULATION, or the SOCIETY can often achieve a higher level of health though some INDIVIDUALS may suffer a bit.

This rationing juxtaposes the idea of “individual entitlement”  with “rationing or limiting individual entitlement to allow for balancing the needs of everyone in the group in order to achieve the maximum health level for the GROUP.

This is viewed as evil and unamerican. HMO’s are long known to be able to achieve a more efficient result (more bang for the buck) than other kinds of health care financing, and practice a form of “rationing” of hospital care— by limiting (rationing) hospital usage the can use premium dollars to provide more of other types of services that can benefit the enrollee population and create a net payoff for the group. The research shows that, relative to a population using traditional insurance, HMO’s (health plans that are paid a fixed amount per year per person) can deliver care to an enrolled population for 20-25% less spending (and over 30% less hospital spending) with virtually no change in overall health of the group. Though there is a reduction in customer satisfaction. People often dont like being told no (and doctors too express dissatisfaction with being told no). The requirements for practice guidelines, and preauthorization requirements are not the American Way, and cause the loss of freedom and “entitlement” in favor of the better result for the GROUP. Health policy continues to struggle with this as one of several core issues—- to ration use of resources to get more for the money we spend on healthcare, versus the loss in individual freedom for those of us who are feeling victimized by rationing because of losing our entitlement. Other countries dont have this problem.

Mental health care is totally inadequate in America. It always has been this way it seems. And government policy has led the way to one, then another, inadequate situation. It is a shameful story, and a bit ironic. Today, prisons and jails represent the largest institution that houses and treats persons with mental health in America. This is not something to be proud of. And, the irony is that when the country was young, in the early 1800s, many of the mentally ill were also house guests of the state in jails. Full circle in 200 or so years. And one young female social activist from New England would be rolling over in her grave today to hear that the mentally ill were flocking into prisons again… after she had almost single handedly fixed that problem in America before the civil war.  Like social activists before and since, she shined a bright light on an ugly truth, on the conditions and exploitation of the mentally ill housed in prisons and jails in early America. Her light changed policy, to flush these people out, into society, and into the open where they could be cared for and not be the objects of cruel and shameful treatment by the bullies who occupied and managed the jails. She was Dorothea Dix.

A Mainer at birth (1802), daughter of itinerant and alcoholic parents, a sometimes depressed and abused girl.  At 12, she moved to Boston to live with a wealthy grandmother. She worked some as a governess.  By the age of 19 she had started her own school for girls (from wealthy Boston families). She even wrote some children’s books.

By  her mid 30s she had become deeply interested in the fate of socially vulnerable persons, particularly the mentally ill, and was emboldened by a visit to Europe where she met and studied with like-minded female activists.  She returned to do a now famous study of the horrible treatment of the mentally ill in the Cambridge MA. jails. She wrote and talked about what she observed there, and even testified on beacon hill: “I proceed, Gentlemen, briefly to call your attention to the present state of Insane Persons confined within this Commonwealth, in cages, stalls, pens! Chained, naked, beaten with rods, and lashed into obedience.” This testimony was embarrassing, and led the state to do a large expansion of the Worchester State Mental Hospital.  And, it later led to further studies in other states, and eventually the movement to develop the state mental hospital system across the U.S.

dorothea

Before she died she had not only made her mark on mental health policy,  but in her 50s, when duty called, she became the Superintendent of Nurses for the Union Armies during the Civil War where she innovated the hiring, training, management, and rights of female nurses. Another story.  She was buried in Mt Auburn Cemetery in Cambridge in 1887. At Simmons University, an adult women’s scholarship program is named after her.

Deinstitutionalization of State Mental Hospitals

By the 1900s the extensive system of state funded mental hospitals had become quite large, housing over 558,000 seriously mentally ill persons in 1960, and serving as a Mental Health training ground for most nurses and doctors in America. But society (and state government budgets) began to wonder if there wasn’t a better (and cheaper) way to deal with mental health needs. Persons in the professions began to talk and write about new, active treatments for some types of patients as an alternative to “asylum care” (referring to the state mental hospitals). Maybe community based care alternatives would be a more effective model of mental health care?

This point of view evolved over several decades and eventually sparked a new public policy that replaced the state Mental hospitals. This “new idea” of using community mental health centers rather than mental hospitals (where patients were generally housed until they died) was fueled by many things, such as:

• the development and use of thorazine in the 1950s, the first psychotropic drug for controlling behavior and symptoms. The idea was that this was going to be first of many miracles of science that would revolutionize mental health treatment and make the “asylums” obsolete forever.
• the provocative book and later film, “One Flew Over the Cuckoos Nest” which angered many people and voters about the conditions and abuses occurring in the state mental hospitals.
• Stories in the press began to appear about cruel and ineffective care like “electro shock” treatment of some patients, and the use of Lobotomy as a “treatment” (the story of the “other” Kennedy daughter’s involuntary lobotomy brought this into the public eye duringc the 1960 campaign of Jack Kennedy for President.
• and, as President, Kennedy supported legislation (passed after his death) to federally fund the development of community based mental health treatment centers throughout America. (it turned out, this was a very empty promise by the feds). The new community approach to mental health  was intended to provide a range of inpatient and outpatient services, day programs, home support programs, and essentially a one stop shop for mental health services.
• The promise of federal support for getting rid of the state-funded State Mental Hospitals sounded great to the states, who’s budgets were being taxed heavily by commitments to fund their share of the (new in 1966) Medicaid program signed into law by LBJ.

All of this created nearly a perfect storm of support for shrinking the expensive state asylum system for serious mental health health problems, and replacing it with a new system of community mental health centers, fueled by a stream of effective treatments, better opportunities for active family support, a to-be-expected flow of new miracle drugs, all fueled by lots of federal money and provider support and public opinion. A perfect storm led to the closure of much of the state mental hospital beds in America over the next 20 years. The new policy was called “deinstitutionalization.”  And it went on for years after the Kennedy-inspired new law was signed in 1963 (Community Mental Health Construction Act 1963).

It worked: sort of.  It caused legislators to begin to shrink budgets of the State Hospitals, close down wards, and discharge patients. But, it didn’t do so well in replacing all this capacity by building and operating community based mental health (CMHC) infrastructure. Yes, thousands were built and operated, but hardly a system large enough to be accessible to all who were discharged from state hospitals, nor others needing mental health services….Only about 50% of the state mental hospital infrastructure was replaced by new CMHCs.  Like the VA system and Medicare it was hard for the government to keep up with budget demands of rapid population growth,  unanticipated aging of that population, and changing diversity of the population—all of this changed very fast in the 1960-2000 period, taxing our government’s ability to keep up political support for the promises it made during the 1960s. But the state mental hospitals did shrink, losing most (90%) of their peak patient census.

shifting burdens

So , what caused the feds to withdraw promises? Well, they didnt directly do it.  The main mechanism for implementing a funding reduction was President Reagan and the Congress changed the funding mechanism for the Community Mental Health Center Law (CMHC) to make it a block grant to the states, not requiring the states to spend the money on CMHC infradtructure and operations. Essentially, the block grants allowed the states to to use the money in whatever way the wanted.  So, many (all) states took parts of the money and used it for other things, building schools, fixing roads,  etc. So the states cutback the previously earmarked CMHC money. Mental health is still, to this day, something states are backing away from–see the states making cutbacks in recent years.

mh states still cutting bugets

Prisons.

A snapshot from today shows an almost uncanny correlation between the shrinkage of patients in state mental hospitals and the rise in number of persons housed in prisons and jails. Its not like the prisons and jails are preferred places to run treatment programs for mental illness. But, seriously mentally ill persons can’t hold jobs, often have little recourse but to live on the streets, and when their antisocial behavior irritates or harms others, and sometimes leads to drug abuse and illegal activities — they get arrested and they get sent to jail. Sometimes, when they broke the law, and sometimes because we have no place else to send them. Its like a return to why they were in Dorothea’s Cambridge County jail 200 years ago: same reason. No place else to send them.  Here are the mirror image trend lines:

miroor trend

video on prison health          https://www.pbs.org/wgbh/frontline/film/showsasylums/

The prisons house a disproportionately large fraction of the mentally ill in America. Of course, we are stuck with the effect now of opioid addiction problems in the current numbers. Of the 1,350,000 prisoners in state prisons in America, well over half have mental illness or a history of it. This is the defining Health System problem with mental health care in the current U.S. system.

prisoners

And, the trend in housing the mentally ill persons in prisons has come back to what upset Dorothea so much.

growth prison problem

Snapshot Of Mental Health in the U.S. health System

While prisons dominated by nearly a million mentally ill Americans,  the current state of mental health in America is not good for four other reasons. Here are the four other challenges.

1. mental health illnesses are the most burdensome health issues in America, responsible for the most burden of disease (premature death and disability), higher than cardio vascular disease, or cancer,etc. One reason the burden is so high is that most disease onset occurs when people are young (unlike other diseases which occur later in life, which dramatically reduces the potential burden of the disease.   Another big factor in Mental Health is that probably about 55% of the people affected by mental health are not treated. This is because insurance policies limit coverage for mental health (though the ACA tried to create parity) and poor aceess in general.. Even with insurance, or ability to pay there is a stigma about seeking help.

mh BOD

acceesmh

mh underuse

The incidence of mental illness is high. About 20% or so of Americans have a mental illness of some sort, and about 2.8% have a serious, life altering illness.As the chart shows, the prevalence of mental illness is higher for women and for men, both in the community, and in prison populations. This may be one of the reason why insurance coverage is so bad. And, the prevalence of serious mental illness is much higher among prison populations than civilian populations.As shown here, nearly a third of female prisoners have serious mental illness, while 1 on 7 male prisoners are seriously mentally ill.

mh epi

2.  Mental health is very expensive. It is expensive in two ways. Not only does                           treatment, drugs, and programs of care cost a lot. But, when mental illness is a                     comorbidity, it contributes to the costs of treatment of the other diseases the patient may have (diabetes, cardio, etc.). This is one of the reasons why capitated health plans (and the ACA) advocate for integrating behavioral health into primary care practices— there are substantial cost savings available premium based plans for identifying and treating mental illness, particularly if the patient has other chronic diseases .

MH Cost

MH adds costs

mh cosrs adds

3. Access to mental health care services is very limited in many areas and populations. In Montana, for example, there were no psychiatrists in the eastern half of the state (an area the size of new england). Child psychiatry is particularly in short supply, largely due to the extensive training requirements, residencies in Medicine, Pediatrics, and Psychiatry coupled with low salaries/incomes. Social workers, nurses and psychologists are more available, but they are prevented from prescribing, an important feature of mental health in todays treatment regimes.   Poor sections of cities are also underserved. In the chart below, see that many people surveyed dont know where to access services, and many doctors have trouble knowing how to                 refer to mental health providers.

mhaccess

4.  Illustration of the problem. So, every community has a story like this these days. But, here is mine from my town where i lived and raised my family. A young man, early twenties, was seriously mentally ill, with a history of episodes of “acting out” while in school, at community events, at home. Police were called to the home, to the school, by neighbors over several years. The parents tried, but were not wealthy. The child was not violent, and every time there was an episode and the police were called, they filed a report and took the kid home to the parents or to the local hospital, to be checked out— and then the child would be discharged home to the parents. This pattern persisted. He graduated from high school, had some occasional counseling, some drug therapy, but for the most  part was living with parents and was OK most of the time. The police didnt really have a good alternative for this sick kid, who was “most of the time” able to function at home, and in the community.

But it wasnt enough. One day he showed up at the town library with a knife. He stabbed a young college student he didnt know who was studying there.  She died from 19 stab wounds. She died and two families were ruined because there really wasnt much else the police could do than take the young man home every time he behaved badly. I guess they could have charged him at some point with a “crime” — gotten a conviction, and sent him off to jail. That wouldnt have likely done much for his mental health problem, but it might have saved at least one of the 2 families some misery. And, quite frequently that is exactly what police do at the behest of school officials, neighbors and others. Send them to prison. Thats why the prisons are full. Either send “misbehaving” mentally ill persons off to jail or give them back to the family. A very poor choice to have.

Sending them to the local community mental health center might have been better. A place with a wide variety of short term inpatient and outpatient treatment options. A place that provided day treatment programs. A place with home based follow up programs, and a place that can integrate support teams across schools, home, and health care service providers. A place where police could have taken him to get help.

Progress (noun)=developmental activity in science, technology, etc., especially with reference to the commercial opportunities created thereby or to the promotion of the material well-being of the public through the goods, techniques, or facilities created. (dictionary.com)

Economics of Progress

Individuals continually look, or sometimes make investments in,  to improve their earning capacity. They invest in education, health, household relocation, new jobs, and other things. This selfishly motivated activity improves their own earning power, and society’s output level. Progress on a small scale.

Owners of firms also continually look for opportunities to increase numbers of new clients, look for new product opportunities, opportunities to improve efficiency and product differentiation, and look to expand marketing channels in order to grow output levels and market share. They look to do all this for selfish reasons, but it also improves the yield to society from the pool of scarce resources.

Firms and households are always looking to make things better, and these changes make small, incremental changes in society’s output levels, in what gets produced, who consumes this incremental output, and what jobs exist for people in the workforce. We would call this “economic progress” because we are allocating our scarce resources more economically. This improvement in allocative efficiency, and higher social output level, allows some households to get more of society’s yield, and other households will therefore get less. Some firms will grow and benefit in controlling society’s resources, but other firms will shrink.

Progress creates a growing sized economic pie for society, but it also reallocates who gets the pie itself. There are winners and there are (at least temporary) losers as jobs shifts occur, as firms and people move around, as product demand changes, etc.

Some examples of progress:

In the last half of the 19th century several innovations led to a huge change in the quality of rural life in America, and how all Americans were clothed. Cotton was needed to be grown in the south, but was not a particularly viable crop (even with slave labor) because of the problem of extracting the seeds from the fibers after the cotton was picked from the plant. The “cotton gin” was invented which made the task of separation much less expensive than doing it by hand. A second innovation was rural electrification–spreading infrastructure for a “power grid” to provide access to electrical power to non urban areas across the country. Together, these innovations led to increased reliance on cotton fabric, and a shift in the location of the textile industry south from New England, where mills had previously been located near fast flowing rivers to have a source of power for the mills.

This innovation expanded the productivity of farmland in the south, cheapened the            cost of clothing for families, and otherwise made the economic pie in America                   bigger. But it also raised incomes in rural areas, created jobs and incomes for people  living in areas that a previously had no viable source of power and, therefore, no   manufacturing. But, this economic growth also was accompanied by a negative shift          in economic opportunity in places like Lawrence, Lowell, Manchester and Fall River.

More recently, the growth in access to the internet beginning in the 1990s led to vast advances in the ability of the economy to create growth in the size of the economic pie. One example is in the way inefficiencies in the use of time were eliminated, allowing people to work and play more, and not spend so much time driving and shopping. Amazon led the way to use the web to shop more efficiently. Comparison shopping requires a few “clicks” rather than walking to another store, or driving to another location, parking, etc. The time savings involved (a scarce resource) is a huge benefit, particularly for two income families. But there are downsides here too. By allocating resources toward software, distribution centers, package delivery. and enjoying the time savings, we have caused thousands of retail businesses to fail and dislocated the lives of millions of families who depended on those firms.

Driverless cars are another, rapidly approaching form of “progress”. The technology issues seem able to make this work, but we remain ignorant of what the stream of economic benefits will follow from this innovation. But, we can imagine some of the “dislocations” that may follow. The single biggest occupation in the U.S. today, according to the Bureau of Labor Statistics is “Drivers”. All kinds of people work as paid “drivers” of some type (long haul trucks, delivery vehicles, taxi/Uber, etc.). So, when we consider economic progress in the form of “driverless vehicles” we know it will “replace scarce labor” with software and hardware of various sorts, but we also can anticipate massive dislocation of people who now have jobs, who will lose them!

The Theory of Economic Progress

The benefits of technological progress, or innovation, is best understood as in increase in Output of the economy (or the firm, or household) for the same quantity of input resources. The PRODUCTION FUNCTION shown here captures the basic nature of the economic benefits:

production function

The “shift” in production, or output, due to an innovation, allows output to be increased at all levels of input usage. Henry Ford achieved it by introducing mass production techniques in auto production.  We also achieve it when we outsource some business functions when we hire more effective managers or more advanced systems, for replacing our own efforts to do that function (cafeteria functions, receivable debt collections, shipping). We also achieve this kind of “Progress or technology effect” when we ‘outsource’ to organizations in other countries, where labor costs 1/10 what it does here. We call that specialization and trade. “Progress” can take the form of technologic innovation, or “specialization and trade” —  it is always depicted as an intervention that shifts the PRODUCTION FUNCTION and improves the productivity of labor.

There are several related concepts to Progress.

1. Disruptive Innovation.  The “uberization” of an industry because someone revised the business model is certainly a form of “progress, at least to the extent that the new model drives out the preexisting business model. The general thinking about “disruption” is that firms, over time,  tend to prefer to expand share, gain monopoly power, and generally drive up prices, at least for many customer segments. At higher price points the firm thrives, but many potential customer remain unserved because the cannot buy at the existing price point. Disruptive opportunity exists to capture the growing volumes of unserved customers at low price points. So, disruption isnt just “a new way of doing things” , but a new business model that can deliver at a lower price point.

2. Entrepreneur. An important innovator— of a new industry, a new business model,             and often a disruptor too. Usually, persons starting new firms are copy-catting the            prevailing business model. Yes, it will likely have some differentiators, but basically          not really entrepreneurial. The entrepreneur is an essential driver of capitalism.                Someone who has ideas and a business vision that can, if implemented, create a                  new   industry, or a “progress” in a big way. Most entrepreurial wannabees are                    dreamers and not successful. Most people people walking around with business                  plans and looking for angel investors are certainly not entrepreneurs.                                    Entrepreneurs are the source of “progress”, able to create new industries out of                   invention and technological progress.

The forces of innovation are, in a capitalist society,  largely unplanned and uncontrolled. They happen when they happen. Yes, firms often invest in research and development (R&D) in anticipation of change. Tax policy may deliberately encourage higher levels of R&D and promote progress(see the other posts on Entrepreneurism and the one on R&D). Patent policies, and other actions by government to encourage R&D activity in Bio tech firms are notable in their bias to encourage higher growth rates for new chemical entities. So innovation and progress may sometimes be random, but not entirely, because society sometimes deliberately invests in progress.

Dislocation Effect of Progress

There is a dislocation effect of “progress” on the nature of jobs, and incomes of the displaced workers (and the loss of incomes). Economists often consider this a relatively minor transaction costs, one that will be only temporary and therefore not important in the long term. True enough I suppose. But the dislocation effects don’t always get resolved instantaneously. Ask the people of Lawrence or Lowell how important or long lasting it was to achieve family resolution of the loss of the textile industry. Or ask the people of Detroit how long it takes to replace the jobs lost in the auto manufacturing plants when Americans began buying small, economical Japanese cars?

Does this mean that “innovation” or “technological progress” is not GOOD in an economic sense. Hard to say. Was electrification good? Looking back, we’d all say yes it was progress. But at the time, urban area were electrified first, rural areas last. Implementation wasn’t fair. Was the progress of the cotton gin invention and rural electrification good, along with the relocation of the textile industry? Sure, looking backward it provided economic growth. But it hurt a lot of lot of people for a long time. Was it fair? Nobody ever asks.

More systematically, lets consider the labor market effects of “progress”. The personal computer, the web, then wireless— all touched everybody’s lives, their budgets, their jobs, …everything. Lots of new businesses, lots of new jobs emerged– and at the start these new firms had difficulty finding enough workers with the skills they needed. Wages rose as a result for things like software and computer engineers for Apple, Microsoft and IBM. New kinds of salesmen and repair/installation people were needed for verizon, comcast, and other similar new companies. So, the emerging business opportunities have come almost continuously in the past 40 years….with great new opportunities for people with the needed skills–and people with the vision and drive to start new firms that fed off of the opportunities. The capital markets made fortunes for 1000s of Americans who bought Intel at $6 and initial offerings of Microsoft and Apple and some biotech stocks. Those who could participate in the “new” progress, as a laborer or as a capital investor, also experienced a good rate of return.

But many workers saw their jobs eliminated, or replaced with outsourced contracts to companies in other countries. People’s budgets changed, where they chose to live changed, and how they live changed. Amazon was a wonderful form of progress— for those of us whose time was saved by the new shopping experience — but millions of retail and shopkeep incomes were displaced. And, while we were discovering the software economy, others were experiencing progress in the form of mass manufacturing in China. As many people lose jobs with progress, they cannot instantly (or easily) adapt to the newly created jobs. No, they aren’t ready to do that— and they tend to apply for work they can do. And, markets for lots of unskilled and common skilled labor become crowded, and wages stay stagnant for long periods of time, or even fall.

So, there are three categories of workers in the economy. The main group– where progress doesnt have a direct effect on products and markets, or wage growth. The second group are those directly affected by progress– where investors and workers who experience fast growth in earnings. And, the third group– where displaced workers find themselves out of work & very unsuited to the new labor markets that progress has created. The strong opportunities and income growth for some, and the corresponding wage and income reduction or stagnation for others has created a huge economic problem over the last 40 years— the income distribution inequity in America. The fast paced growth and back-to-back forms of progress has created an economy with a huge and ever increasing “wedge” or “gap” between the “haves” and the “have nots”—- a gap that arises because of the pace of progress and the slow adaptation of the displaced workers it causes. see the blog post here on the Income Distribution and Public Anger.

Schools and Retraining        

Most of the unfairness aspects of “progress” stem from people losing jobs because of the innovation or new technology. We may well not want to regulate progress that grows the economic pie. But if we want to think about how to minimize the temporary harmful problems with progress. We probably don’t want to ask Thomas Edison (who along with Tesla, brought us electrification) to bear the burden of paying for dislocation he caused. Three points about schools and retraining.

1. The idea of government taking over k-12 education was because the market for private education was not efficient or fair in getting out people educated enough to run a democracy and a growing economy. But, the way we finance the Government system of schools in the U.S. is certainly not fair to everyone. Property taxes finance public schools, and schools in wealthier communities have bigger school budgets, and better educated children, who are more likely to go on to college, and more likely to earn higher future incomes.
2. Retraining (not K-12 education) is the main issue in coping with dislocation due to “progress” anyway. If dislocation becomes so protracted, and becomes an intergenerational thing (as in Lowell and Lawrence) then schools may be a needed area of intervention. But, the real problem of the manufacturing workers laid off in Detroit is not school financing, but retraining to find a decent job.
3. The size of the payoff for “retraining” or “redeployment” is related to the speed of the process.

What should the government do here? Options to think about are:

1. the government should finance and run the retraining programs

2. the government should expand the systems of community colleges to do it

3. the tax code should be revised to have a “negative income tax” structure. this                      would Pay tax money to families according to achieve a minimum standard (this                 was proposed by famous conservative economist Milton Friedman). And then, let               the govt let the people worry about the retraining problem (what they need,                        where to get it, how to pay for it).

When  we examine the spending, or patterns of care, or availability of providers of various kinds across cities or other small areas we find what are often big differences. These differences remain a bit of a puzzle about the U.S. health system (or non system). Why do they exist? What patterns do they take across places? Are they a problem worth fixing in their own right?

What do Small Area Variations Look like?  

The table below describes some of the U.S. cities and a few indicators for the Medicare population in 2012. All Medicare FFS beneficiaries in these places are included.

SAV1

The spending data (column 1) is standardized across places for differences in provider prices — so the spending averages per beneficiary are dues to the mix and levels of services provided. The data don’t prove anything, other than there are large differences in the kind of care that are provided to persons in different places, even though these people have exactly the same insurance coverage. McAllen, Tx. and St. Petersburg, FL. have exceptionally high levels of medical utilization, compared to other locations. These are not necessarily the highest or the lowest spending areas in the U.S.

300 or so Hospital Referral Regions are shown below in the scatter plots. They show the very large (vertical) differences across HRRs in attributes of the local health systems.

SAV2

The earliest work in SAV was done by Wennberg and Gittlesohn (Science 1973). It demonstrated extreme variations in practice in small communities throughout the state of Vermont, as shown here. There were less than 20 small areas in the small state, and the data show the high and the low values for several indicators. The most shocking data is the five-fold differences in tonsillectomy rates across regions of the state.

SAV Vt

The researchers who have studied small area variations (SAV) in health care document the fact that places with more spending or higher utilization often have more providers (more beds, more doctors) than do other places. This is sometimes referred to as Supply-induced-demand or Roemer’s Law. In the earliest example of SAV research, Wennberg and Gittlesohn (1972) demonstrated that counties around the state of Vermont had quite different patterns of utilization (hospitalization patterns, surgical utilization patterns, others) and that these patterns were often accompanied (correlated with) patterns of high and low supply of providers. Places with more beds had more hospital utilization than places with fewer beds. And, places with more surgeons did more surgery than places where there were fewer surgeons.

In later work, comparing extremes in Medicare utilization between Miami and Minneapolis the authors also suggests that the differences in utilization is not fully explained by differences in age or population severity of illness. But, these cities just have enormous differences in usage patterns and total spending. During the portion of a lifetime that enrollees are on Medicare, spending in Miami is about $50,000 higher per enrollee than in Minneapolis.

These patterns (Miami high, McAllen high, Minneapolis low, Birmingham low, etc.) are not one-year anomolies. Indeed, the differences remain stable year to year over many years, and are not much ameliorated my market forces, which might be thought to eliminate the differences over time. They seem to remain.

Why do they appear in the first place? The literature suggests that they arise from two kinds of ignorance, and may persist in part because of the way malpractice issues are handled.

Science Ignorance. Evidence shows that about half of the occasions when medical doctors make decisions regarding a test, a procedure, and drug, or whatever, there is no scientific evidence to follow. The first chart shows this evidence. The second chart shows the extent to which evidence is used, when it is available.

On about half the issues in adult medicine science exists about what to do. But,  half the time science exists on some issue of care it is actually used to guide practice. So, as Rand’s McGlynn et al report, in practicing with adult patients, the decisions made by physicians are guided by practice only 28.6% of the time—- and not guided by practice 71.4% of the time. Essentially, what this means is that there is a good bit of uncertainty in the practice of medicine— or we might say a good bit of discretion, too.

Consumer Health Ignorance. There is widespread evidence to suggest that patients are not well informed about the benefits, costs and risks of their options when making medical decisions. This ignorance is described by economists as a marketplace where the “demander” is not well informed and the market is characterized by “asymmetric information”; a form of market failure.  In such circumstances, customers often seek out advice from experts including suppliers. So, if trust has been established, patients rely on their provider to give advice on what decision to take, given the options available. Well functioning markets do not have such ignorance by the customer, and do not put suppliers in such a conflicted and self-interested role.

SAV 3a

SAV 3b

The combination of limited science that might guide providers, and the dominant role assumed by providers in deciding what to do for patients creates the basis for SAVs.  But, if provider discretion is rampant, why don’t we just observe lots of variation across providers in EVERY market area? Why does each market area assume a somewhat different central tendency about practice: a local standard so to speak. This has been studied, but no “smoking gun” has been identified. Some tried to test whether it comes from where the doctors went to medical school. Or, whether it is age, or some other tangible characteristic of the place. Or maybe level of income of the marketplace? No cigar. The pattern isn’t that obvious to detect.

What seems to be happening is that each place exerts a coercive influence on doctors who practice there, encouraging them to adopt the practice style of the existing physicians. Of  course not everyone adopts the exact same criteria for when to recommend surgery, or when to do a MRI for example, but there seems to be some sort of “central tendency” in Miami, that is different than the “central tendency” in Minneapolis. See the illustration of the distribution we might see something liken the following

SAV chart

This simple scatter diagram shows how doctors in these two places (red, black) differ in terms of their practice style in using hospitals. The averages for the two places is shown in the two vertical lines—which are noticeably different.

One of the most novel of the Wennberg studies of SAV was done to compare practice styles in two cities both with dominant cultures of medical education: Boston and New Haven. The study showed huge differences in the use of hospitals, with the Boston practice style being a more intense use of hospitals, by every measure. The key findings were:

SAV newhaven

Why does this sort of convergence into a more or less distinct practice style happen in each place?  Well, it starts from the enormous discretion that is afforded doctors and their influence over patient choices. There may be some peer influences as well. But possibly most critical as a cause for non random “clustering” in each city is the way the malpractice law and precedent has developed over time.

Malpractice

When sued for some act of malpractice, doctors are not held to the standard of “best practice” as might be documented from the science literature, or the most recent textbook from an expert from Harvard Medical School.  No, the standard to which doctors are held is a community standard: what would have other doctors in the community have done under similar circumstances? Nobody from Birmingham is held to the standard of care in NYC or Boston, nor to the most recent scientific evidence about what works best. This tells doctors that the risky position is being an outlier in the community.

This probably produces regression to the mean in terms of practice style in every community, though not to the same practice style across communities. So, why are the local standards in Miami and Minneapolis so different? Part of it may result from supply endowments of doctors and hospitals, and also from the historic patterns of care by leading practitioners in those places. That is all that is known.

Why should we care if there are variations in practice styles?

We care primarily because it represents substantial evidence of waste in the health system. The literature suggests that if we limited all communities to the 10th percentile in per capita spending U.S. health care costs would be cut by 15-30%.

Poverty and race can have huge effects on the demand for health, and demand for health services, and for other choices people and families make in our society. Of course, at any point in time lack of income limits demand for health care services. And it also costs poor households more of their own scarce time to travel to and from the points of service because they dont have a car or can’t afford taxis. But, more importantly, these same factors (scarce money and time) limit demand for important personal investments in education and in personal health, which we call Human Capital Investments. The levels of health and education are critically important factors or human infrastructure that determine our ability to function well in society, our capacity to earn decent incomes at work, our ability to manage a family successfully, and our happiness and satisfaction with life itself. We make decisions to make or not make these investment decisions to get more education, or to engage in a healthier lifestyle. And when we choose to invest in out own human capital, we divert our scarce time and money resources to these ends, and away from things that might have brought more satisfaction in the moment.

We talk about three big issues in this post:

1. how Poverty and lack of insurance influence access to care, and related patterns of health and care seeking behaviors.

2. how poverty and race seems to influence attitudes and levels of trust among vulnerable populations, and ultimately affect patterns of care and levels of health

3. how investment decisions (eg long term ) that households make in education and health are influenced by their poverty situation.

1.    Accèss to care     Simple economics would tell us that higher income and attachment to the workforce (where health insurance benefits are usually found) would influence the access and use of health services. These conclusions about the differences between a middle class and a low income population might be stated as:

a.   since many poor people will not be able to access insurance through Medicaid (unless they are parents of a child, also eligible for Medicaid) the use of health services may be easiest to access via hospital ER’s, since their license requires hospitals to check out and stabilize as necessary anyone who seeks treatment. The Medicaid eligibility requirements vary a lot across states, and the convenience and attitudes of workers across hospitals will vary as well, tending to concentrating poor people in some but not all hospitals in every community. (rural poor are it an unusually precarious situation, where the protection provided by hospital licensing are simply not available as a default option).

b.  Primary care services, having a regular doctor, being able to afford to fill prescriptions, propensity to take precautions and protections suggested by providers etc. are going to cost money, and be less accessible to the poor. This general problem is NOT something that Hospitals are required to provide in the ER, so without insurance this is simply not affordable outside of Medicaid.

c. there may be knowledge gaps as well, that might limit access to solid precautionary methods of staying health which may benefit the non poor (who access more education, and better medical advice). And, precautionary dietary patterns may not be affordable for the poor.

d. we know that higher levels of income are associated with more health care consumption and spending. That means that whatever advantages accrue to insurance and proximity to health services, those persons and families who earn more income will, other things the same, generally choose to spend a portion of their higher income on more health care. Their will be no equality in health services rendered if incomes are different when we are living in a society where consumers and providers have free choice about seeking care, and locating/providing services.

2. Levels of trust            Poor people are more than “poor” and sometimes less well informed (eg may suffer from information gaps that are available to their higher income counterparts). They make decisions about care seeking, about adherence to advice, and other matters based on the perceived power dynamics of society, often not trusting providers and organizations because they are perceived to be part of the same social structure that has created the social and economic differences that they suffer from day to day. For vulnerable populations this “lack of trust” is more than a poverty problem, but is a racial, ethnic, sexual identity and gender bias situation. This creates issues like (1) reluctance to seek care, (2) reluctance to adhere to provider recommends, and even to be more likely to believe in alternative theories of health and treatment propagated on the internet and in the community. Often, the alternative narratives are not articulated to providers when seeking care, but are deliberately suppressed(so as not to offend or otherwise cause the provider to mislead or do harm.

These attitudes have deep roots in our culture, and providers who often see these socially and economically vulnerable patient populations are commonly aware of the difficulties this deep distrust creates for diagnosis and effective treatment. Even enriching the mix of professional staff from these vulnerable communities, while helpful to regain trust, will not eliminate the distrust of institutions, of government policies, and of professed scientific guidance.

These “trust gaps” influence not only the access to care, but also the effectiveness of care rendered.

 3.  Investment decisions made by poor households

The theory of Human Capital (G. Becker) provides a basis for understanding how people make decisions when using time and money to invest in their future well being. Specifically, we are thinking about the demand for education, the demand for health and the demand for relocation– anything where household must invest time or money today, in exchange for benefits that may occur in the future. This theory may inform two seeming intractable social problems. (1) It may explain systematic under investment that poor people tend to make in education, and in health—- which may tend to perpetuate the poverty problem intergenerationally. (2) It may also explain why institutions in poor countries (LMICs) are so poorly managed.  These situations are discussed at the end of this essay.

“Demand theory” suggests we weigh the value of time/money spent buying goods/services based on the incremental benefits of consuming them. This kind of decision calculus doesn’t apply directly to decisions when the benefits or costs are spread over future time periods. Why does money (or any benefit) have a lower value when it occurs in the future? Well, lets say someone owes you a dollar. They ask if you would prefer to have the dollar repaid now, or a year from now. You would always prefer it now because you can do something with it now (like put it in the bank) and it would be worth $1.02 or $1.03 or much more a year from now depending what you do with your choices. The value of money depends on when you get it —-  the value is greatest now, and the value declines the longer you wait to receive it.

The time value of money is different for everyone.  Those with a strong preference for “living in the moment” will not value future benefits — viewing them with large discount rates. Those who think more about the future, may value future benefits more and have lower discount rates.

Relevance? People making investment decisions to stay healthy, to go to college,  to move the family to another city have to weigh the present value of all benefits and costs. Do poor people have the same discount rate as other people? Probably not. It is likely much higher because of the urgency of life. So for me, maybe it is 10%. BUT, FOR A POOR FAMILY YOU’D HAVE TO GIVE ME A BIG PREMIUM TO WITHHOLD THAT DOLLAR FROM ME TODAY, TO PAY IT TO ME IN A YEAR.

        See Carvalho (Rand 2010) https://www.rand.org/content/dam/rand/pubs/working_papers/2010/RAND_WR759.pdf

        Klawitter et al (Contemporary Economic Policy, 2012)                                                                        http://courses.washington.edu/pbafadv/handouts%20+%20my%20presentation%20materials/savings%20and%20personal%20discount%20rates%20CEP.pdf

Application 1:  Making Educational Investments

What about choosing to make educational investments? Young people will make different choices regarding obtaining a college degree:

• Some will perceive a higher opportunity cost of not working (or working less) now than others —- other things the same, these people will not attend at the same rate
• Some will perceive more urgency in time preferences than others (a higher discount rate) —- other things the same, these people will not attend at the same rate

Unfortunately, these differences are not just randomly scattered across all high school graduates.

What about choosing to make Health investments? Some benefits of healthy living (eating well, exercising, etc.) yield immediate benefits; better mood, increased blood flow, better sleep, etc. Other benefits, may not appear until later in life. The benefits for health investments may be seen as short term or long term depending on the person. The long term benefits at the point of decision are going to be worth far less to those with higher discount rates than others.

What might contribute to differentials in time preferences across socioeconomic groups? Where does “investment” make sense? Where doesn’t it make sense? In the case of poor people, there may not be much opportunity in waiting. When you don’t know when or how you will obtain your next meal, it’s easy to conclude that discount rates regarding future benefits are very high. Urgency rules.  Planning, patience, investments, and future returns all may pale in the unmet needs of the moment. Investments in education aren’t appealing because the benefits are well over the horizon and aren’t worth much presently.  In spite of comparability of other costs and benefits associated with education, the difference in the time preferences (discount rates) will make the investment look less attractive for person A than person B. Person A may have such time preferences and discount rates because of the urgency of poverty.

This situation is problematic because the way out of poverty for families may well involve educational investments of money and time (opportunity cost). This may help explain why the income distribution is so sticky for the poorest Americans. It is because of “preferences” about scarcity of time and money, not just because of the lack money. Urgency in life creates a huge preference for living in the moment, and this creates a large discount rate on future time periods.

When you aren’t sure where the next meal is coming from…or how you can get the required school supplies, you have different frame of reference about the future.​ In poor countries this is a familiar, and nearly universal experience. Beyond that, in poor countries people who have jobs are often not sure if they will be paid on schedule, whether government corruption and absenteeism will interrupt operations today, or not. And the culture is consumed by the “live in the moment” decisionmaking. This carries over from household decisionmaking to the way organizations work and the way their managers think.

Cultures of poverty have a familliar theme—- withdraw to trust yourself, and the interests of your family and maybe the tribe ——- but dont trust of worry about the collective interests ( R. Klitgaard, The Culture and Development Manifesto, Oxford 2021).  Organizations like schools, Businesses, Hospitals and the like are a  form of collective activity). And when these organizations are created in poor cultures they often fail to  t perform well. Patients and other clients are ignored, supply chains are broken and nobody is fixing them, absenteeism is rampant and nothing is being done about it, demand for services may vastly exceed supply capacity, and yet nobody is acting to take obvious steps to rebalance supply and demand for service.  And the list goes on and on. Every person tells the same story about these miserable organizations: there isn’t enough money to meet the need, we have no authority to take actions, and often there is a cry to “change the overarching policy to improve the perfromance of the organizations”.  Unfortunately the problem isnt at the top of the organizational heirarchy— but a deeper, cultural problem among employees who just dont see the need of  improving the perfomance of the ‘organization’.  Indeed the ‘organization’ is is almost seen as a threat to what is important (individual and the family), or like the guy in the village with a car—everone hates them.

Experience suggests that poor performing organizations in LMICs, as elsewhere, result from a missing management function.  While many local and international organizations prefer to suggest that poor central policy is at fault, the new policies usually do not result in better performance owing to the failure to tackle the fundamental problem—- nobody is managing. Being a manager, and trying to improve the ‘organization’ is not valued behavior in the culture, and nobody does it.   Put explicitly, the culture of poverty maybe causing people who are assigned “management roles in the hospital, the school, the government agency …to say…..”why should i hassle these individuals who report to me, to work harder or work more effectivley, to improve this outsider’s organization?”

 From top to bottom, appointments to “managerial roles” are based on politics and status, not on achievement (competencies).  Experience from the field shows that organization’s performance is a direct impact of the management style in the organization itself and at the same time an indirect outcome of the ineffective governance that governs the whole system.  Good management practices are not part of mentoring in government service, not ever modeled by leaders, and the performance expectations for most managers are very low in many situations, hence the institutional and systemic performance suffers.

What is good management anyway? At different levels of organizations, managers are responsible to organizations being effective in their mission, and efficient in the way that it gets done. Good managers do this by the often steer organizations using a Plan-Do-Check-Act sequence:

Planning (setting goals, allocating resources against those goals),

Making explicit assignments to staff

Monitoring achievement of these plans,

Identifying performance problems

Seeing that those problems are fixed,

In well developed economies we have expectations that managers will see to it that “things get done” at all levels in organizations, or “heads will roll”. Our high levels of performance (output, customer satisfaction, profits) in organizations is astonishing, and we take it for granted. But, it doesnt happen in poor countries. because, among other resons, the management function, as we know it,  is completely missing.

What is missing?  Think about Plan-do-check-act!. Its about a process to create sustained levels of high performance in an organization. Its about solving problems that might interfere with sustained levels of high performance. Its all about PLANNING for achievement of goals set for the future, and tracking performance of the processes for achieving those goals. Its all driven by achieving future goals. Indeed, management is all about investing some of our resources (now) for the purpose of achieving meeting organizational goals and sustainability of those goals through time.

Why is it missing? The “in the moment” LMIC culture doesnt value activities that diverts resources from the urgency of today to invest in a better future. Nor, is it of value in these cultrues to compromise the individual-family-tribal culture to help make the “outsider” organization stronger. Nobody sees the point. Managers are honorific titles. They dont solve problems, they certainly dont plan, the accept the pay raise. But they dont do the job we would expect as typified in the P-D-C-A framework. As a consequence, these organizations are not designed with such a function in mind. Nobody who works there would expect someone doing that function to be there. Nobody has seen such a role in these cultures before.

The function of planning,  and investing resources in a manager to steer us toward that future, is a foreign notion in a culture of living in the moment and high discount rates.

We know that competition between suppliers is good for the consumer, because the competing sellers struggle to get more customers by cutting price, adding supplemental services, improving product quality and other things that consumers value.  Referencing the Post on how markets work, more competition is good because:

• the value that consumers put on output is = to the additional resource cost of producing it.
• Consumers have many choices.
• Firms don’t have excess profits. Extra profits result in the expansion or entry of other firms and compete excess profits away.
• The firms that survive over time will be low cost, efficient organizations because those that aren’t will be put out of business.
• The quantity of goods bought and sold tends to go up with more suppliers (more competition) and price tends to lower. Lower prices let more consumers buy the produce.

Monopoly power occurs when firms (products) dont “compete” in the eyes of consumers. There are perceived differences products in the eyes of customers; brand, quality, location, and maybe aspects of functionality. Firms that have monopoly power have down-sloping demand curves and have autonomy to set their own price. With lower prices, they can sell more (though at a lower profit margin) and with higher prices they tend to usually sell less (though at a higher profit margin). Another way of saying this is that customer loyalty exists with firms with monopoly power—– the firm will lose some but not all customers if they raise price. In a truly competitive market the market itself determines the price. And if any seller tries to set a somewhat higher price, nobody would buy. In competition every seller sells exactly the same thing (a commodity). In a monopoly power situation, the sellers (one or more) are selling differentiated products. Buicks, chevrolets, ford, toyota, and honda are “competitors” for the car buyer’s business, but there are differences (real and imaginary) that create limited loyalty, allowing the firms some limited pricing autonomy.

This is monopoly power. And, sometimes there really is only one firm that is selling something (a particular new drug, or access to the electric grid).

Monopoly pricing

Like all suppliers, firms are assumed to price in a way allows them to make the most profit (net income).  If we have a firm making mulch to sell to gardening stores in our suburb they may have monopoly power and face a down-sloping demand curve according to the following schedule of their revenue and cost situation. They need to choose a preferred output level—-and the corresponding price that customers would pay for that quantity of mulch.

They should choose to produce at the output level where profit is highest. Here, the profit maximizing output level is  15.6 tons. What price do they charge to get customers to buy the exact amount they want to produce?  $70

Note on the chart that we have marginal cost (the additional cost of producing the additional quantity of mulch) and the marginal revenue (the additional revenue they get by selling the additional quantity).      The profit maximizing output level is always where MR =MC.      Graphically, this looks like:

Monopoly Pricing

The competitive solution (no monopoly power) is where demand = supply (marginal cost). That situation is shown by the arrows. The competitive solution would have a larger output level and a lower price than the solution of firms with some monopoly power. What do firms with some monopoly power do? They restrict output levels in order to raise price (and margins). They ration the consumption of the product to those of us willing or able to pay more. This is what’s bad about monopoly power.

Can firms facing less competition charge any price they want? Sure. Can they force consumers to pay any price they might want? No. They are disciplined by the demand of consumers. If price is higher, people will buy less because they must forego purchasing other things as prices rise. —- Firms can force customers to pay any price—without a gun!

What if another firm enters this industry tomorrow? What would be altered? We would observe more competitive pressures:

• Consumers would have more choices.
• Both firms might try to increase efforts to retain their customers = better service.
• Both firms may be forced to give bigger discounts to get customers = lower prices.

As a result of these things, prices fall, profit margins fall and the total amount of the mulch sold to consumers will increase. We move in the direction of the competitive equilibrium. What happens when one competitor leaves or is purchased by another firm? We move away from the competitive equilibrium resulting in higher prices and lower volumes of mulch sold.

Monopoly power (down-sloping demand curves) causes price rationing regarding who gets the consumer’s business. Those willing to pay the most, get the product. Those unable or unwilling to pay more don’t get it. Monopoly power raises prices and cuts consumers out of the market who would have purchased during more competitive conditions. This is sometimes perceived by society as a “problem” if the product is seen as a necessity by the poor. Social actions remedy this problem by controlling price (rent controls), by giving vouchers to the poor to buy the item (food stamps) or by government taking over the firms that supply the product (public schools).

Industry Groups

Economists have created market categories to describe prototypical situations of monopoly power or competition.    These groups are:

• Perfect competition: So many sellers that adding or subtracting some won’t matter to the equilibrium market price. Every seller sells the exact same undifferentiated product. Price is set in the overall market and each seller can sell all they want at that market price. eg. The demand curve facing each firm is horizontal at the prevailing market price and is perfectly elastic. Generally, agricultural products and extractive products fit this as an example.
• Monopolistic competition: Many sellers each having a somewhat differentiated product. Most retailing is like this. Gas stations, convenience stores, grocery stores, hardware stores, coffee shops, etc. They usually sell the same products as the others, but have geographical differentiation and may have some service differentiation. They can raise price and lose customers or lower price and pick up new ones. Demand curve is flat, but negatively sloped. They have some (little) monopoly power.
• Oligopoly: A few firms in an industry rivalry. When one does something, the others react in some way. Generally, demand curve is flatter above the current price, and steeper below the current price (kinked). If a firm raises price, rivals may let them do it to gain customers that flee from the higher price. If the firm lowers price, the others may have to follow them. Auto, steel cell phone plans, and computer manufacturing are like this. The kinked demand theory suggests that firms in such rivalry situations are reluctant to change price due to fear of being worse off if they do (up or down).
• Monopoly: One firm with a demand curve that is the same as the market demand curve. It could be flat or steep, as dictated by consumers. They face competition only from related products and from consumer purchasing choice. Generally, if a monopolist is making lots of profit, other firms will try to enter the industry to compete, and the firm’s monopoly power will decrease.A natural monopoly  occurs when a new firm enters the market, causing a price war. The result will be one firm’s exit of the industry. There is only room for one optimally sized firm in the market. Special cost situations such as enormous fixed costs and average costs are falling with respect to output in the region of the demand curve. More than one firm could survive if the demand for the product increased significantly.

These market situations display different levels of competition and monopoly.  In the last three levels of situations; industry structures, the suppliers all have some degree of monopoly power (down-sloping demand curves). Profits can be made in all industries, competitive pressures occur in each as do threats of new entry. Consistent profits tend to be zero in perfectly competitive industries because market forces are responsible for price changes and price will settle where P=MC. No firm is able to make excess profits and no inefficient firm can survive in perfect competition.

The other three industry groups have firm-abilities to set price because demand is downsloping. Profits tend to be higher when the firm’s demand is steepest, which reflects loyalty of customers. When profits are high, other firms try to enter and compete them away. Only “barriers to entry” represent a source of persistent excessive profits in any industry.

The chart below briefly summarizes the situation in these industry structures.

Industry Types

A. Provider Risk Bearing and Changing Managerial Role

• determine the organization’s survival strategy (where to take the organization)
• set coverage policies and priorities
• sell the BOD, staff, and the marketplace on that strategy and the specific program changes
• reorganize operations in order to achieve objectives, and to operate efficiently
• Develop appropriate planning and budgeting mechanisms for the organization

•    preventing  chronically ill patients who are at high risk for exacerbations & rehospitalizations that are directly preventable by changing patient behavior, particularly those that might arise from medication  adherence & nutritional problems
•   eliminating the high cost, heroic end of life care that is often unwanted by the patient anyway
•   better integrating care to create savings by managing comorbidities better and by doing follow up care in the most appropriate setting
•   by taking advantage of “big data” and related analytics to identify the best patients to target for engagement programs to prevent high cost episodes, and for identifying the most appropriate treatments, or the best candidates for interventions to deal with medication adherence problems.

C. More on Population Health Management (PHM):

     Creating Healthy Enrollees at Minimal Cost  

For Organizations at Risk, What tools are being Used in PHM

The CHF patients may be the easiest to think about, though there are others who encounter preventable admissions too. The CHF patient can have recurring problems of diet control (eg salt) that often lead to water retention and cardiac insufficiency. There may be several dozen of such people in a large plan. Programs tailored to the individuals can be designed to educate, train informal caregivers, home visit monitoring, technological monitoring and other interventions can be used. This sort of “custom” patient engagement for high risk populations can potentially yield a measure of control on high cost patients.The CHF patients may be the easiest to think about, though there are others who encounter preventable admissions too. The CHF patient can have recurring problems of diet control (eg salt) that often lead to water retention and cardiac insufficiency. There may be several dozen of such people in a large plan. Programs tailored to the individuals can be designed to educate, train informal caregivers, home visit monitoring, technological monitoring and other interventions can be used. This sort of “custom” patient engagement for high risk populations can potentially yield a measure of control on high cost patients

Medication adherence and Patient Engagement.

An area of engagement that looks very promising is promoting medication adherence. Guestimates suggest that up to 10% of health care spending is unnecessary due to poor patient compliance with prescribed medication. Messaging by providers to take medication via smart phones or beepers might help. The potential returns are huge– but the slow uptake on opportunities like this may be the result of the inability of pharmacies or provider organizations to recoup the savings that are generated.

The savings from this kind of engagement intervention would primarily reduced hospital stays. Yes, a capitated provider would be able to recoup investments in such a program of prompting and intervention. Of course, an insurer could also recoup such benefits. Voila, Aetna buys CVS!  Would be nice to sell insurance at a price 10% or more below competitors!

3. End of Life Integration & Patient Engagement to Avoid Spending on Unwanted Care

Providers are increasingly engaged with patients to plan for end of life care prior to the onset of terminal illnesses. This follows a trend in social attitudes about dying.

changing attitudes

End of life care is a big part of the cost and quality problems with the health system in america. Nobody should pretend that they don’t need to understand this stuff because they work in one setting or another, or in insurance or whatever. It is a huge mess. The preferences of patients about EOL care are sharply different than care patterns would suggest:

frontline facts

More Frontline Facts

Several key points about EOL patient engagement:

5.  Big Data, and Big Data Analytics

Big data is going to be transformational in health care. The use of Electronic Health Records (EHR) and other data to help understand how to best focus health products and services, and to help understand what is working and what isnt, are going to improve getting the most “bang for the buck” by health care managers.

Progress has been very limited to date, and the slow uptake of capitation payment in  has no doubt slowed the willingness of organizations to invest in a bewildering and array of confusing technologies. IBM Watson one of the largest big data vendors, for example, announced today (6/18/2018 Globe) that they were downsizing their “Big Data health practice” because they had lost customers, and their recent acquisition of Truven Analytics and others were not paying off in terms of new products.

To me, “big data analytics” means two things.

1. It means that health care organizations are now able to use more data than previously was available— standardized and digitized medical record data (as contrasted with manual charts) as well as claims, billing and eligibility data, which are also patient and provider specific.
2. Secondly, “big data” mans that managers are facing new circumstances that predispose them to make use of these data to better allocate and control resource use, quality of care, risk, and organizational sustainability. Having the data and having cause to want to use it are indeed two very separate things.
3. What do they want big data to do? Mainly, they want to to develop algorithms (predictive analytics) that can be used with big data to predict how Mrs. Jones is going to respond to 3 possible treatments, and help the doctor decide which to recommend.  And, they want to to algorithms that tell the organization how best to keep Mr. Smith, and all other CHF patients out of the hospital ( should we be visiting him at home, should we be sending him dietary reminders by mail/text, should we be paying for a home health aid every day?).

Many consulting organizations are trying to sell themselves by pressing the point that “big data” poses a situation full of highly sophisticated analytics, cloud based data management, artificial intelligence, and special software applications—-all well beyond most senior management teams— but well within the scope of practice of the consulting company! Hire us, and we’ll get you successfully into the world of “big data”.

The current situation is:

• Providers spend only about 2-4% on IT, and probably not very much of that is being spent on Big Data Analytics. Health care is notoriously under spending relation the importance of IT in other industries.
• Hospitals also indicate through their overall budgeting priorities that health IT is worth the investment; inadequate funding is not what limits most hospitals in getting tech projects funded. Rather, it is competing priorities for that funding. Nearly three-quarters — 73 percent — of hospitals reported this was an obstacle they are facing to acquiring technologyIt means that health care organizations are now able to access or generate more data than previously was available— standardized and digitized medical record data (as contrasted with manual charts) as well as claims, billing and eligibility data, fitbit data, and even home/environment sensor data.
•  “big data” means that HCO managers are facing new circumstances that predispose them to make use of these data to better allocate and control resource use, quality of care, risk, and organizational sustainability. Having the data and having cause to want to use it are indeed two very separate things.
• Bringing copious amounts of data into use is largely a matter of having software and data standards, and analytic methods of drawing conclusions in real time about how to deal with a situation (patient problem, or management problem)
• Fourth, it is a big opportunity to sell new services to HCOs, by convincing them that they need something that they don’t have skills to do for themselves

It seems that consultants are “selling” the idea that if managers employ big data properly, they will be able to continue to manage with a lite touch, just like the good old days. If only managers could keep taking long lunches, and let Watson and “big data” manage clinical operations and ensure solvency and competitiveness ! Yes, data is going to help in significant ways– but, we are hundreds of years away from the point where algorithms can run health care organizations (my prediction). Indeed, I think we are entering the generation of “managing clinical operations more firmly” than ever before (management is going replace doctor autonomy), and “big data” analysis will allow some key things to happen that couldn’t easily happen before.

1. Big data (more data and better analytic use of it) is going to permit managers in HC organizations to gain control over performance in ways that were never possible before. It is not about magical apps, that allow will inexperienced and ill equipped people become the masters of the EHR data. Forget it. It is about creating special data analytic shops inside organizations that can exploit the power of data and analytics to measure, and control the performance of the organization. It will change what managers have control over, how they operate, and it will shift the balance of power in organizations away from doctors.  Management of health care will be more like managing in other organizations.
2. Managers will be able to manage disease, care, and health better—and will have more control over it by making business policy about how these things work. They have almost no control over these things now. To manage they will use big data to define patient risk groups, and allocate staff to “manage the care” of patients within risk category. If things dont work so well, managers will take notice, take responsibility, and fix the problem. eg they will manage it.
3. Managers will begin to manage patients, and their access to the system including helping patients to keep themselves healthy. All of these patient engagement activities (scheduling, outbound messaging, alerts, reminders, etc.) will be supported by big data. Rather than being passive to patient initiated care, managers are going to be enabled to to get the organization to be more proactive in helping the patient stay healthy.
4. Managers will be able to manage performance better than before. Big data will enable better performance measures, development of benchmarks, real time monitoring of performance, and analytic drill down methods that allow the “drivers” of poor performance to be identified, and fixed. Tolerance of performance variations among business units, across providers, and over time will be removed— all variations will be noted quickly, and will be seen as opportunities for performance improvement. And, with more knowledge of underlying causal factors, and less tolerance for performance variations, managers will be able to take steps to change business process to bring performance to a higher level.
5. Managers will have more power to control the behavior of clinicians in the organization. Data and analytic shops inside the organization(reporting to managers) will level the asymmetric playing field, and the control enjoyed by doctors. Data will permit managers to have a new window and will gain deep understanding of care process patterns, relationships of process to organizational performance, and will generally remove the “mystery” of these things controlled by physicians. Probably physician incomes will suffer and certainly their autonomy, as managers assume full command over operations, enabled by the data and analytics needed to understand operations– as the CEOs do of other complicated businesses. Like the Gawande cheesecake factory-http://www.newyorker.com/magazine/2012/08/13/big-med

Many high tech activities are being marketed to health care organizations. But not a lot is being sold to date. But, all the vendors (from IBM-Watson, down to most EHR and IT vendors, to many start up AI and big data analytic shops have been trying hard tell Big Data Analytics to health clients, but to data the sales have not been that successful. The analytic pathway or maturity path of big data analytics looks like:

Presentation8

Some of the kinds of “business problems” that health care organizations “need” to solve with data and analytics include things like:

• Give Management program evaluation data to make better programmatic decisions about what is working, and what is not
• Identify the clinicians who are are most effective so that provider bonusing programs can be devised to reward performance
• Identify the future spending of groups of enrollees in order to prioritize those to “engage” for programming to better control HH behavior. (predictive analytics)
• Understand the likely impacts of 2 alternative courses of treatment for one patient (prescriptive analytics)
• How can I tailor the most effective messaging & reminders & media for delivering them to change the behavior of an engaged group or to an individual patient (machine learning prescriptive analytics)
• How can we control the way clinicans quickly and accurately assess, decide, and treat their patients? Is this to be done best via clinical support tools and maybe even AI ?

Much of this isnt rocket science, but consultant vendors are pressing for a Y2K scare tactic to cause health care organizations to start spending . The terms being used to “sell” big data analytics include concepts like “predictive analytics”, “machine learning, “prescriptive analytics”, and other labels that confuse clients. Much of it boils down to “modeling” of one sort or the other.  Predictive analytics encompasses a variety of statistical techniques from predictive modelling, machine learning, and data mining that analyze current and historical facts to make predictions about future or otherwise unknown events.[1][2]

In business, predictive models exploit patterns found in historical and transactional data to identify risks and opportunities. Models capture relationships among many factors to allow assessment of risk or potential associated with a particular set of conditions, guiding decision making for candidate transactions.[3]

The defining functional effect of these technical approaches is that predictive analytics provides a predictive score (probability) for each individual (customer, employee, healthcare patient, product SKU, vehicle, component, machine, or other organizational unit) in order to determine, inform, or influence organizational processes that pertain across large numbers of individuals, such as in marketing, credit risk assessment, fraud detection, manufacturing, healthcare, and government operations including law enforcement.

1.Future spending of individual (HSS, risk)

2.Likelihood of error in a submitted bill

3.Likelihood of patient making the appointment

4.Likelihood of treatment plan being successful

5.Credit risk (likelihood of paying the bill or making mortgage payments)

6.Difference in likelihood of AIC for a Type 2 diabetic being <7 in 3 months if Victoza is added to the med list

The implementation of Integrated Primary Care  may need to have a framework of patient types, or buckets, to guide the team and care planning processes. While, ideally, the care team and plan is highly personalized, that may be too complicated.

A “patient risk” grouping like this could be based on an initial and ongoing assessment. Each of the 54 groups would be assigned a basic care team configuration, and a care plan template —  which of course would need to be modified based on the peculiarities of the person. The kinds of patient engagement activities could also be included in the template for each group.

More sophisticated groupings by Deloitte are based on survey data of patients, aiming to incorporate behavioral categories, and may be useful in predicting adherence behaviors. The 6 patient groups are:

DELOITTE

D.   New Directions and Disruptions

Disruptive innovation in health care delivery is in the works. Never was an industry more prone to huge disruption in business models than this one: a huge target as 18% of the economy, highly customer unfriendly come-to-us model of service, and massive over pricing .

It now seems likely that the world 20 years hence will be different in important ways and some disruptive things will be happening (like Uber but for health care), largely aimed at using technology (rather than professional services) and allowing the patient to stay at home (not travel to a place where the provider is located).Some changes we will see

1.  Capitation (and partial cap) will be the way big integrated organizations will be paid for doing everything, as needed: expensive testing, procedures, sub acute care, specialist services, Urgent/emergency care, and IP room and board—-and managing their own financial risk by trying to keep every enrollee healthy (well).This will be a more difficult organization to manage, particularly to get control over clinical operations (and use guidelines of practice rather than physician autonomy). Managers will be more critical in sustaining these larger, vertically integrated organization. And keeping patients well and out of hospitals will be key to financial survival.
2. Technology Company invasion—- the 1/6th of the economy is a huge opportunity for market entry and disruption, particularly in areas amenable to technology, two clear invasions will happen (the second one is #3 below)— screened financial transactions, and drugs–Amazon is a firm specializing in transaction execution. They, and others will come to dominate these parts of health care: Insurance is a bunch of transactions. They will disappear when forced to compete with smart transactions management like Amazon, maybe Apple, Google, whoever. Amazon is also getting into drugs— which looks like everything else they already sell; an on line transaction, and quick delivery.
3. PCP operations —- technology mastery will matter more in bringing proven solutions to people than scientific pedigree of practitioners and still health care organizations dont get it yet!  This is going to have several consequences
4. there will be software for home computers (or smart phones) that passively keep and update patient history and critical measures from fitbit like monitoring devices — and can collect data on symptoms whenever the patient wants to enter data— for all practical purposes this software (web-wired to a mega computer somewhere with all the patient medical record data, all scientific literature and all the evidence on effectiveness and cost effectiveness) will be the PCP.  It will process the data, provide alerts, and recommended options, along with prices and expected outcomes.
5. yes there will be PCPs, but we wont need as many of them. The “smarts” that require a dozen years of school/application to accumulate in a human being, will be simply internalized in software. And these firms will employ academic and branded health partners, along with expert panels of professionals to guide software development and interpretation of evidence. No doubt, competing software products will form. And there will be forms selling “second opinions” (as there are now) for anyone who wants to talk to an advisor (and upload data). I personally saw a prototype of interactive patient software. it didnt have any data feed, of course, but it walked the “survey” through the logical set of questions and branches, to develop some options for proceeding with your “problem”.
6. as part of the home care, testing will move to home based telemetry “analyzers” that can use blood, urine, hair, other easy to harvest cells—-again, way more convenient that driving to the hospital
7. social media data and wellness– keeping populations well is not something that the health industry has competence to do. (nor an interest in doing, except as trying cure problems has a big revenue stream attached). Much as using social media messaging to get people to vote for Trump, so too can tailored messaging be used to get people to make healthier choices about their lifestyle (eating, risk taking, habits like smoking, drinking, etc.) and to improve their care seeking choices too.
8. nutrition integration— into healthcare. now “meal planning” for institutionalized patients is about the only use for nutritionists in health care. They are the only group that is well trained about the number one health risk in the burden of disease in america— dietary intake. Yet they, as professionals, are marginalized. There will be companies arising that develop learning tools for patients (videos showing healthy meal prep) and in-home training too. These services will be used by at risk providers to help produce wellness in their enrollees.

9.   drugs will be regulated differently— the FDA will get authority to regulate prices of new drugs. Ideally, they would also get the authority to prohibit  advertising and prohibit such companies from paying practicing physicians to do research on such drugs, or to advocate for new drugs. Drug companies violating these ethical boundaries would lose their patent. Ideally, doctors violating these boundaries would lose their license to practice. This whole system is corrupt and needs fixing.

10. Home-based Frail elder care — this is a huge problem for families, and for taxpayers— as persons too limited in their ability to conduct Activities of Daily Living (ADLs like dressing, bathing, toileting, etc) do Instrumental Activities of Daily Living (IADLs– like shopping, managing finances, housekeeping). When 2+ ADL issues arise along with some IADL people are technically qualified for nursing home placement. But usually they dont want to go and they are priced at $400 a day or more. Options for a part time or full time home aide are difficult to obtain, and very expensive. Often, families are force to “spend down” all assets, and enroll in Medicaid– who will pay for nursing home placement (and charge the patient half of their social security income). This industry will probably develop some new companies that sell services to keep patients at home. Probably based on healthy meal prep/delivery, home health aids, and AV technology. A combination of service (eg a one stop shop for families) for a fixed price per month (say $500) with some add-on things that most people dont need. This and other services could be expansion possibilities for home health agencies, but they are pretty focused on traditional health care services that are paid by Medicare.

citations for the patient experience section are here