Making Health Care Better

This is the fundamental problem of healthcare in America. And this is the reason why top down regulation won’t work. Regulation will work with assembly lines where every car is the same with no variability. It won’t work when the widget is a unique person with unique health problems in their own unique life situation treated by a revolving door of unique doctors. I urge you to read the whole article:

But there is a fundamental difference between Toyota and healthcare. As Toyota built better cars than its competition for less money, it won new customers. Some rivals matched its successes (as Honda did); some lost market share (as Detroit did). No such dynamic exists in health care. William Lewis, a former director of the McKinsey Global Institute who studies productivity, says that the economic benefits from the various quality movements have been quite large but that they are also largely in the past. Most industries have incorporated Deming’s big ideas and are now making only incremental progress. “However, there is one big exception,” Lewis adds. “You guessed it: health care.”

Why? In part, it is the faith that patients have in their doctors. When people are buying a car, they often consult Consumer Reports or Road & Track. When they are choosing a place to have surgery, they ask their doctor to recommend a surgeon and go to the hospital where that surgeon works. Hospitals that provide less than top-quality care are rarely punished in the way that General Motors and Ford have been.

Even more important than how we choose our health care, though, is how we pay for it. One of Deming’s principles is that improving quality also tends to reduce costs. That is not always the case in health care; expensive treatments — implantable cardiac defibrillators, for instance — can bring enormous benefits. But Deming’s principle holds more often than you might think. When in doubt about the best procedure, doctors tend to do more — more tests, more procedures, more surgery. So if a hospital does a rigorous analysis of what actually works, it is likely to discover a fair amount of waste.

But in our current health care system, there is no virtuous cycle of innovation, success and expansion. When Intermountain standardized lung care for premature babies, it not only cut the number who went on a ventilator by more than 75 percent; it also reduced costs by hundreds of thousands of dollars a year. Perversely, Intermountain’s revenues were reduced by even more. Altogether, Intermountain lost $329,000. Thanks to the fee-for-service system, the hospital had been making money off substandard care. And by improving care — by reducing the number of babies on ventilators — it lost money. As James tartly said, “We got screwed pretty badly on that.” The story is not all that unusual at Intermountain, either. That is why a hospital cannot do as Toyota did and squeeze its rivals by offering better, less-expensive care.

For all of its focus on efficiency, Intermountain, too, can be tempted by the dark side of the fee-for-service system. In one committee meeting, I listened to a debate about how much the hospital should charge patients for a certain medical device. Intermountain previously had negotiated a price reduction from the manufacturer that saved thousands of dollars on each device. But the hospital was still charging patients the old price, and the insurers, including Medicare, were still paying. That was what their reimbursement charts said they would pay.

A few people in the meeting were clearly bothered by this. They asked the finance executive, participating by speakerphone, if anything could be done. One committee member argued that Intermountain (which is nonprofit) should not overcharge for a treatment, even if it helped the hospital cover its overall expenses. The finance executive replied, apologetically, that changing the reimbursement rate would cost Intermountain millions of dollars and that there did not seem to be any way to make up for the loss. The meeting then moved on to another topic.

Making Health Care Better