More on risk

I found that Megan McArdle presents yet another view on attempts to domesticate risk...
http://www.theatlantic.com/business/archive/2011/11/the-limits-of-risk-engineering/248357/

Trying to plug innovative ideas into legacy structures

We are in the midst of reworking our processes associated with the flow of patients in ambulatory practice. We have the laudable goal of making the process more functional and better at actually meeting patient goals. It is unquestionably the right thing to do. However, the devil is always in the details.

We have examined how we interface with patients, what information we need to collect for financial reasons and what information we need to collect for compliance reasons. The key driver of this is the Federally mandated meaningful use of EeMR. As an afterthought, we are also considering what information we need to collect for diagnostic and management issues particular to specific encounters. 

When assessed prospectively, the amount of information that needs to be collected and inputed in a structured way in the ideal world is mind boggling. The question is whether this task actually be accomplished in the very brief scheduled encounter times which are part of outpatient practice? However, perhaps the more relevant question is why we would even try to do this in the first place.

Within the context of re-examining our work flows, we seem to be examining virtually all assumptions except one; the encounter based model where everything must and should be done within a ridiculously brief encounter. While I may have major disagreements with our soon to be former CMS Chief, I completely agree with Don Berwick in that our encounter based model of delivering medical care is a problem.

There is absolutely no reason that virtually all information which is now extracted by asking patients in the office could not be done prior to the visit, and I am not talking about five minutes ahead of time. Who knows better than the patient what medications they are actually taking and what better place for them to address this question than at home in front of the very pill bottles that their medications come from? Why should we wait for them to come to the office, charge costly personnel with the task of trying to sort this out until severe time constraints, and then input what could have been inputed by the patient, more accurately, and at lower cost?

The same goes for virtually any piece of information where the ultimately source of the information is the patient. New complaint? Old complaint with ongoing symptoms? In each case, relying on a member of the medical team to ask the right questions, listen effectively, remember what is important, and record this accurately, all within severe time constraints is simply a formula for error generation. For most patients and their needs, off loading these tasks and information collection to a time where the tasks can be done with fewer time constraints and by someone more vested in getting the right information loaded simply makes sense.

Until we re-examine the utility of using brief encounters as the underlying architecture of ambulatory care delivery, all the problems of information collection, data entry, and ultimately effective problem solving will remain sub-optimally addressed.

The downside of socializing risks

Much has been made of governmental interventions with socialized financial risks while the gains of these same interventions appear to have been garnered by specific private parties (Wall Street vs. Main Street). However, state interventions which result in socializing risks are not limited to the financial sector. They essential permeate every state activity and create moral hazards at each turn.

There are two elements to life which are invariant and unchanging. First, everything changes. Second, risk is everywhere. Despite all of our technological progress, human existence is precarious and touched by risk constantly. Basically, every human institution has developed as a consequence of attempts to blunt and mitigate risk. Initial efforts required were to mitigate the risks of injury by the elements (freezing in winter), starving, being devoured by wild animals, or killed by enemies. In order to address risk, people can make efforts as single individuals, organize into groups voluntarily, or form organizations where membership and participation are compulsory. The latter essentially represent state or governmental entities which have the power to compel activity.

Fast forward to our modern era and the modern state. The modern era has brought us unprecedented private and state initiatives which were put in place to basically to mitigate personal risk. The development o the modern insurance industry was an essential innovation which was required for expansion of the modern economy. Many different strategies and products were deployed. However, innovations by private entities are always imperfect.and history is punctuated by repeated individual and institutional failures, often within financial institutions but certainly not limited to this domain.

Enter the state. The state has always play a role in socializing certain risks. There is a reasonable consensus that the risk of invasion should be socialized in the form a common defense organized by the state. The specifics may be problematic. The state's role in socializing risk has basically exploded in the 20th century with the creation of entities to protect against a host of risks; the risk of surviving into advances age,  the risk of illness, the risk of disability, and the risk of unemployment, the risk of making bad investments, and the risk of making unwise decisions in general.

The idea to increasingly move risk mitigation to states is seductive. It is simple. Why charge many different entities with risk mitigation when you can put all responsibility in one place? While it might appear attractive and simple, nothing could be farther from the truth. One entity means a singular approach which has as much chance of  being the wrong approach as it does the right approach. In addition, placing risk mitigation in the hands of the state consistently results in application of actuarial models which are biased toward under funding with the knowledge that states are back stopped by what appears to be the unlimited deep pockets of the taxpayer. Once you get people hooked on the promise it is easier to hike taxes and borrow from future generations.

What could be more seductive than a promise to mitigate the risk of the cost of illness or the risk of outliving your savings? The lessons of these entitlement programs are very stark. Every actuarial estimate regarding the cost of these programs (Medicare, Medicaid, and Social Security) were off, not subtly but off by orders of magnitude. Private entities who make such bad bets (for example in  pensions) go broke. The same may be true of states but the displacements that result are so much more tragic.

One product of all this activity is the creation of the belief that states are the most effective entities which can mitigate risk. There is little empiric evidence that this is the case. Perhaps the worst hazards associated with this belief system are the moral hazards where embracing the idea that state risk mitigation activities insulate people and entities from risky behaviors, thus influencing behaviors in such a way which increase the likelihood of the very things we all want to avoid. Risks will always be with us and the greatest tool to mitigate risks is personal awareness that our activities can either put us at or mitigate risk. If we believe that state programs can insulate from our own stupidity, we tend to act stupidly.

Meaningful insights from OWS are like French military victories

I do not know where to start in terms of this video from the John Stewart Program. It is absolutely a must watch and chock full of all sorts of ironies. 

http://www.thedailyshow.com/watch/wed-november-16-2011/occupy-wall-street-divided

If there was ever any question regarding the complete lack of coherent message of the OWS, this video puts that question to rest. I particularly thought the man who attempted to make a distinction between private property (other people's stuff) and personal property (his iPad2) was particularly incoherent and devoid of insight. 

When there are no more options

If there was ever hard evidence that people are the drivers of wealth generation, current day Detroit is it. It also provides evidence that manana faith based economics paves a road to financial catastrophe. Detroit is showing where Greece will end up down the road.
http://www.freep.com/article/20111116/COL33/111160318/Stephen-Henderson-Detroit-s-clock-striking-midnight

Stephen Henderson's article in the the Detroit Free Press  "Detroit's clock is striking midnight" is a sobering account of the end game for a city which has failed to come to grips with a culture which made promises it could not keep. Detroit now finds itself incapable to funding the most basic of services and even if they completely stopped delivering services to current residents and succeeded in maintaining their tax base (not a likely proposition), they could not meet their pension and health care obligations to their retirees.

Detroit represents a microcosm of where we are heading nationally. Private entities recognized long ago that their financial survival depended upon moving their employees to defined contribution retirement programs. Those entities that failed to act are not longer around. State entities have been insulated thus far from these pressures but governmental entities that make bad bets can also fail. These failures have been isolated and have been small cities (with the exception of NYC near failure in the 1980's). That is about to change. It would make sense for the state of Michigan to intervene, but the state does not have the resources to step in  and guarantee all the entities that will line up if that window is opened.

The federal government has been trying through a variety of mechanisms to take the pressure of states such as California, Illinois, and New York using underwriting of bonds to forestall the inevitable. If states used this backstopping to to create a window of opportunity to get their respective houses in order, it might have dampened the blow. However, all this has accomplished is to allow states to avoid having to come to grips with their pension and entitlement pathology.

The lesson is clear from Detroit. Promises that you cannot afford + no growth environment + changing demographics smaller workforce = financial calamity.

Another blog highlighting the problems with command and control pricing

http://healthaffairs.org/blog/2011/11/15/a-better-way-to-approach-medicares-impossible-task/

Untended consequences of administrative payment schemes: A tale of two specialities

Rheumatologists and Orthopedists both deal with human muscles, bones, and joints. That is where all similarities end. One specialty has huge margins, is highly lucrative, and has become hyper-specialized. The other has negative margins, is financially a mess, remains the realm of the generalist, taking on whatever is  thrown at them, generally whatever other physicians do not want to deal with. How did this happen? It is a simple answer (but not so simple solution) - administratively set prices which value one specialties activities much differently than another.

For orthopedics, lucrative reimbursement for focused, value-added interventions combined with strategic incompetence in assuming any long term responsibility for caring for chronically ill people is a winner for building empires. This model has allowed for hyper-specialization. Orthopedic surgeons  tend to focus on one joint or segment of an extremity (wrist, ankle, elbow) making it relatively easy to deflect unwanted business. Payments and business models may be so lucrative that you have the margins to underwrite the hiring of non-proceduralists who can screen a larger patient population and cull those who can be shunted to the operative engine, being careful to not to assume care for anyone who requires any high risk drugs such as immunosuppressives or biological agents such as TNF blockers.

In contrast, Rheumatology is the realm of the chronically ill and medically managed. a low margin activity because of the random financial violence created by administrative pricing. Rheumatologists are called upon to care for everything ranging from gout, to fibromyalgia, vasculitis, myositis, RA, Behcet's syndrome, systemic lupus, or chronic depression.  Rheumatologists are called upon to treat any inflammatory disorder of any organ system where focused and procedural specialists have perfected the art of strategic incompetence, unwilling to cultivate and maintain particular, but low margin expertise, required to care for patients who have organ specific disease affecting the organ of their interest. Better to simply dump this responsibility on the unfortunate Rheumatologist.  Also be sure to berate your local rheumatologist when they fail to willingly accept all the low margin work dumped on them. 

Without sufficient margins, there are insufficient funds to build an infrastructure with any semblance to the infrastructure that supports orthopedics. This includes sufficient incentives for physicians to enter the field in the first place. Thus, shortages of Rheumatologists prevents the development of specialization and the inefficiencies that may come with this, aggravating the financial stresses even more. Why is it acceptable for one set of specialists to have focused expertise and deflect difficult to manage (and coincidentally low margin activities) to a more poorly paid specialist who are financially punished for maintaining remarkably broad expertise? It is justified on the basis of the financial rewards, created through an entirely artificial world of administratively set value.

Where it might make sense for leaders in medicine to take this on, recognizing the dysfunctional and unjust nature of how value is arbitrarily assigned. Such a road is a highly risky road. Why take on such a difficult, long run challenge (to fundamentally change the rules of the game) with only possible returns.  It has been much easier and less risky to figure out how to exploit the rules in the short term, even though it has created bizarre and indefensible holes in the health care delivery system. No wonder why it is increasingly difficult to find Rheumatology expertise? Rheumatology is not alone in this fate. Where we find insured patients with medical needs and no one to deliver them, you have likely found the mischief created by administratively set prices, sending misinformation about what patients actually need and where value to patients lies.

Administrative prices and economic triangles as creators of new information asymmetries

Much has been made of Kenneth Arrow's famous critique of health care economics and his observation that information asymmetry made the delivery of health care different from other information. While I cannot disagree with Arrow that information asymmetries create challenges for consumers of health care, I believe there are elements of the payment system which actually worsen this situation.

Within a market system, the role of prices is to convey information. Pricing is a remarkable information system which merges both conscious and unconscious individual and group preferences. Prices derived from market mechanisms are amazing in terms of the information they reveal. While each of us may consciously believe we have certain preferences, our cognitive unconscious may play an even more important role is the expression of our actual preferences and value trade-offs. The expression "Put your money where your mouth is" is a commonly accepted understanding of this.  Money is a synthesizer of conscious and unconscious preferences.  Thus market price information is valuable in that it tends to reveal real preferences in a format that virtually everyone understands.

When Arrow wrote his analysis, the world of medicine in the US was very different from what the current state is. Most medical encounters involved people who were acutely ill whose questions were rather straight forward. Why am I sick, will I get better, and can you do something for me? The time frame was measured in days or weeks, not years or decades. The resources available to patients was vanishing small (Merck Manual) and the way that physicians practiced invoked the mantle of more the magician than scientist.

Furthermore, in the early 1960's medicine still focused around the two way exchange of physician and patient and the role of third party payers was nowhere near what it is today. Physicians knew more than patients but in reality they did not know too much and for the most part, health care encounters consumed a trivial amount of overall household resources. There were exceptions but there are outlier circumstances in all realms of life where events result in huge and unexpected financial impact. That is why we have insurance.

There are information asymmetries which occur is all elements of exchange. Frank Knight highlighted this in the early portion of the 20th Century when he viewed that risk and uncertainty were drivers of all sorts of transactions, where parties contract with other parties in order to manage risk and uncertainty. I beleive that there is no reason to believe that health care information asymmetries are inherently any more than exists in the interactions of humans in other realms.

Yes, medicine has made incredible strides in the past 100 years, perhaps temporarily outstripping the capacity of the general public to fully comprehend the impact on them and their options when dealing with illness and health business. It was Arthur C. Clark who said "Any sufficiently advanced technology is indistinguishable from magic". Ultimately, the magic trick becomes common knowledge and few are impressed or baffled. The microwave was magical when first available. Now it is used without a moments thought and units can be purchased for less than a tank of gas.

As a practicing physician, I am constantly amazed how little we can predict reproducibly and how little we actually know. There may be a perceived asymmetry of knowledge but the differential of what is known between physician and patient is likely less than one might believe. Generally, physicians (and other health care providers) know substantially less about what is really important to patients their patients and patients, particularly educated ones with chronic problems, know immeasurably more of what is important than any of their treating agents.

The information asymmetry still exists, but in an entirely different form. Instead of a two-way transaction, we now have a three way transaction. Each of the parties has information that is not shared with the other parties, sometimes intentionally but often quite by accident. Each party has different goals and different priorities. In a situation where market prices were actual information tools and could convey information regarding preferences of the various parties involved, perhaps they could serve to work toward shared goals and efficient allocation of scarce resources. However, administratively set prices in health care are simply accounting tools and not information tools.

Thus, we lose the use of perhaps the most important information tool available in a price coordinated economy. We no longer just have information asymmetries. We end up with information voids. Physicians have little or no idea of what patients really value since patients are for the most part not asked to value their preferences in the format which we all understand.

Marketers of health care services game the system and are driven to respond to a payment system devoid of real patient preferences. They move to where the margins are, whether what they do delivers the most value to patients. Payers are driven by pressures from their biggest customers and those who can exert political pressure. Without a dynamic pricing system, the feedback loop which operates in other vibrant elements of the economy is not present. Without information that comes from market based prices, resources are allocated poorly, productivity fails to increase (or falls), and scarcities are worsened.

Our present circumstances are all too predictable based upon what we have done to the pricing mechanism in health care and its impact on information exchange.

The ongoing saga in Europe

I simply do not get what is going on in Europe. I get that the Greeks are broke and I understand that there is no easy way for them to dig themselves out of the hole they have dug. From what I can glean from the the many pieces written on the situation is that someone is going to take a haircut. The initial plans were that bondholders,  including many banks as well as small investors, were going to take a modest haircut but as things unwound, the losses they were to face were much greater than what was first imagined.

The latest deal proposes that bondholders will lose about half of their investment, with questions still being whether this is still not sufficient to make the deal work. Even at this substantial discount, the long term outcome is workable only if the Greece imposes an austerity program which will be onerous and long in duration.

Here lies the rub. If the Greeks agree to this (which they may or may not), how can any agreement be binding an the next government which may come to power in the coming years (or months)? While there is a great desire to come to some sort of agreement because there is a belief that this will bring some sort of closure, nothing could be farther from the truth. Greece will require ongoing infusions of capital and with each agreement comes only the opening of the next round of negotiations and posturing.

This is like budget negotiations in the US. The sequence is negotiation, agreement, money transfer, and then failure to meet negotiated goals, followed by the cycle all over again. The only way this can work is if the sequence is altered to negotiation, agreement,  meet negotiated goals, and then money transfer. It will never happen.

Drugs and markets: A tale of two stories

Health care delivery in the US is experiencing yet another mismatch of supply and demand. This time it has happened within the realm of cancer treatment. As noted in this week's NEJM:

For the first time in the United States, some essential chemotherapy drugs are in short supply. Most are generic drugs that have been used for years in childhood leukemia and curable cancers — vincristine, methotrexate, leucovorin, cytarabine, doxorubicin, bleomycin, and paclitaxel.1 The shortages have caused serious concerns about safety, cost, and availability of lifesaving treatments. In a survey from the Institute for Safe Medication Practices, 25% of clinicians indicated that an error had occurred at their site because of drug shortages. (http://www.nejm.org/doi/full/10.1056/NEJMp1109772?query=O). 

 The reason for this shortage is not hard to determine.The authors go one to draw a simple conclusion.

The main cause of drug shortages is economic. If manufacturers don't make enough profit, they won't make generic drugs.........The second economic cause of shortages is that oncologists have less incentive to administer generics than brand-name drugs.

The regulated medical marketplace is heavily weighted to the regulated aspects and very light on the market aspects. Price fixing, particularly fixing margins to 6% for chemo drugs administered created a perverse incentive to administer the most expensive drugs one can practically get away with. A 6% mark up of an expensive drug yields more income that the same percentage mark up of an inexpensive one. With the such substantial incentives for physicians to administer expensive drugs, what in the upside for pharmaceutical firm to continue manufacturing low or no margin drugs when they can invest their resources to produce a better return on their investments.

Before the medical community cries foul, indicting the pharmaceutical industry for failing to produce drugs  because of limited margins, we should first look at ourselves. The medical community also directs resources primarily to generate financial returns. It is an existential thing. Those entities that fail to do so also fail to exist in the long term. Survival is not required. Entities whose business is based upon not making money have short life spans.

In contrast to the non-market for chemotherapy drugs where there are profound shortages, there is a separate universe where there are no drug shortages. The CDC reported that the number of deaths from overdose involving prescription opiates has reached record levels. (http://cdc.gov/mmwr/preview/mmwrhtml/mm60e1101a1.htm?s_cid=mm60e1101a1)  Here is a world where major efforts have been undertaken to limit use  the use of these agents and yet there is no evidence of drug shortages. It is quite the contrary. One of many things that the state cannot control is the price of street drugs. This should not be taken as an endorsement of  drug culture or illicit drug use. However, it is evidence of the power of markets and market pricing.

When shortages are present, it is more often the mark of dysfunctional regulatory states. If we want to make sure that cancer patients have access to affordable life saving drugs, we need to stop tinkering, stop making more rules, and let the power of markets fix the problems wrought by regulatory demons.