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Saturday, July 31, 2010

Duty hours and what constitutes work

We are moving to dedicated use of an EeMR and electronic notes in a busy outpatient clinic setting. The pace is quick and the patients are very complicated, often on a host of immunosuppressive medications. The workflow is  still very awkward which results in us taking notes in the room and then later completing the actual note. In fact, the ratio of "work" done during the face to face encounter vs. after the patient has departed is one or greater. Appropriate management generally includes subsequent reading, synthesis of all data obtained during the actual visit as well as subsequently, discussion and reflection, and ongoing tweaking of the management plan. The question is, is that activity which happens after the patient leaves and perhaps even at home or somewhere off site actual work which counts toward duty hours?

The ACGME defines duty hours as:
All clinical and academic activities related to the program; i.e., patient care (both inpatient and outpatient), administrative duties relative to patient care, the provision for transfer of patient care, time spent in-house during call activities, and scheduled activities, such as conferences. Duty hours do not include reading and preparation time spent away from the duty site. 
There is a stark contradiction in this definition since it states in the first statement that duty hours are "All" clinical and academic activities related to the program while in the last statement it says it does not include reading and preparation time spent away from the site. This statement is based upon an archaic concept of what constitutes actual work and where it can and should be done. In the present world, "work" may not  necessarily linked to a specific place.

Let me throw out a hypothetical scenario. I have a patient who developed an unusual immunological reaction to an device that was implanted. As part of the resident's role in the care for this patient they took on the responsibility of researching the possible offending substances, contacting the manufacturer's representatives regarding the actual makeup of this and related devices, and the possible approaches to sort out the problem, all directed at solving this patient's problem. This actually takes many hours and of all the activities which will in fact provide value to the patient, these activities are most essential.

They do not appear to qualify as work that applies to duty hours. They involve much reading and preparation and do not happen on site. There are no CPT codes which apply. The patient is not physically present although there might be communications via phone or email. There is no financial value to the health care system in doing these activities despite any value they provide to the patient. There are no additional RVUs which would be credited to that particular physician.  By all objective measures of value, this does not appear to be work in virtually anyone's book.

This is crazy. Not that I want to make duty hour tracking any more difficult but I believe this (and other similar scenarios) underscore a fundamental problem with how we view work and value within the health care system. This is a throwback to the pre-market based systems of work and value which were held hundreds to thousands of years ago. These philosophical systems basically viewed that any activity which did not involve physical labor or producing something tangible did not constitute work. There was great distrust of merchants who were perceived as providing no value since they functioned as middle men, facilitating the distribution of things that other men made. There was little concept of creating value through cognitive work as opposed to producing tangible items or doing physical labor.

In the world at large we have moved beyond this narrow minded concept of work and value, that is except for medicine. We are stuck with the idea that worthwhile work is somehow confined to discrete and definable packets of physical activity. It permeates how we think about what constitutes work by trainees. It thoroughly has corrupted all metrics of physician productivity. RVU's are linked to discrete encounters and fail to account for value created cognitive work outside of specific face to face encounters.

While at first blush it might appear to be a trivial point to focus upon. However, this conceptual problem has resulted in real world consequences where what is valued financially in the work of health care is not necessarily what benefits patients. It results in a huge hole in the valuation of a particular set of activities which appear to be essential for the functioning of an integrated health care industry. What we need are the middle men of medicine, those who may not actually do things directly to patients but provide value by coordinating the activities of others. Just because Aristotle did not see the value of such activities it does not seem we should continue holding these views.  The legacy of this misunderstanding goes back centuries and is still accepted without much thought as to its origins.

Wednesday, July 28, 2010

Wikileaks, Military reports, and office notes

There was an interesting Op-Ed piece in the WSJ on the military reports leaked to the public through Wikileaks by Noah Shachtman. He describes the difference between what was recorded in these reports and what actually happened.

The vast difference between what actually happened at the Moba Khan compound in Helmand province and what the report says happened there should give caution to those who think they can discover the capital-T truth about the Afghanistan conflict through the Wikileaks war logs.
It should also give pause to those officers in military headquarters who rely on these updates. The military has a problem in how it talks to itself. These reports—ultra-compressed and focused solely on the bombs-and-bullets part of the war—are a symptom of that shaky reporting system.
He went on to say:

That's not to say Echo company hid the truth. It's that these reports from a harried commander at the farthest edge of the war zone are by nature clipped, compressed, clunky and incomplete. But they also made their way up the chain of command. At the Marines' provincial headquarters at Camp Leatherneck, this was one of the primary methods by which officers were kept apprised of Echo company's actions: number of rockets fired, number of enemies killed, number of bombs dropped. Next report.

In a counterinsurgency, such metrics often matter least. A counterinsurgency is a contest for the loyalties of the people. Munitions expenditures and body counts are, at most, tangentially relevant. More important is insurgent motivation, the mood of the local shopkeeper, and the local farmer's ability to bring his crops to market.
 I was struck by the how this sounded like the documentation we use in medicine. Not that anyone is shooting at us but like the soldiers, our primary job is not documentation and the documentation we do is under harried conditions. We record objective information which tends to be both objective and recordable, although often irrelevant to actual good medical decision making. It increasingly is serving as the basis for metrics to assess quality and safety, and decisions regarding allocation of scarce resources. Where the military fails to capture information crucial to the local shopkeeper or farmer, in medicine we tend to overlook information which is important to our patients.

While the military does a stellar job at assembling data to target its enemies and rearm its troops, it still has problems processing this other kind of information, which is the most crucial to the war effort. Even the top U.S. intelligence officer there thinks so. "Having focused the overwhelming majority of its collection efforts and analytical brainpower on insurgent groups," wrote Maj. Gen Michael Flynn in a report earlier this year, "the vast intelligence apparatus is unable to answer fundamental questions about the environment in which U.S. and allied forces operate and the people they seek to persuade."
Any time a signal gets compressed, information is lost. Think about the difference in sound quality between a live rock show and an MP3. Think about a news report of a political rally, and the feeling of actually being there.
In health care, what information we record tends to be similarly compressed and what is documented is primarily what is needed to justify the bill and stay out of legal trouble. We have serious troubles using medical records to talk to ourselves. Medical records are generally next to useless as communication tools and the electronic medical record is not improving this aspect of communication.  It is the body counts all over again.

Friday, July 23, 2010

At least we have transparency

Barriers to multidisciplinary clinics and care

There is a developing consensus that the products available in the current health care market are woefully inadequate when it comes to delivering integrated care. There are no shortage of policy wonks who weigh in in the subject and substantial revenues are slated to be deployed in the health care reform act for demonstration projects attempting to develop new products.

I do not think I am in a position to predict what will come as a product of all these effort, whether it will be better than what we have, or even whether we will be able to measure anything meaningful that will tell us unambiguously that it is better or worse. I know we will get spin and lots of it. I do have the benefit of being able to look back at the past and see what I think are the biggest mistakes in terms of creation of the wrong incentives.

Let me set the stage by asking a very basic question. Why such a focus on multidisciplinary endeavors? What is missing presently that will improve if we use a multidisciplinary approach? What is a multidisciplinary approach? I would argue that we have such a multidisciplinary approach now. Most patients I see with one or more chronic problems have many physicians caring for them. It is simply not a thoughtful and coordinated multidisciplinary approach.  What we are missing is thinking, reflection, and the communication required for optimal problem solving.

This is a consequence of a payment system which values reflection, judgment, communication, and coordination of care at zero. Health insurers do not want to pay for duplicative services and it makes sense that they not pay for more than one colonscopy or CAT scan. However, this is extended to E&M services which is where the multidisciplinary will thrive or fail. What is the consequence of refusing to pay for more than one service for thinking, reflection, and coordination? When the team cannot be financially rewarded for functioning as a team, the life expectancy of the team is likely to be very short.

The question then becomes, how do create a system which has financial rewards for the very things we say we value? I am not sure how this will be accomplished but I can be pretty sure how it will not be accomplished. It will not be accomplished by continuing to use our present administratively set pricing and service definition structure. It will also not likely be solved using the structure of demonstration projects done within health care entities which are constrained by regulatory straight jackets and have a vested interest in maintaining the status quo. True innovation will disrupt what we have now and will come from entities who have not made huge capital investments in infrastructure best exploited using the old rules. Digital photography did not come from Kodak. Desk top computing did not come from Cray. Innovative small cars did not come from GM.

EHR's, scribes, and the purpose of the record

Ever since I can remember I recall learning that one of the most important skill sets which follows from a good education is the ability to communicate using the written word. In virtually all realms of human endeavors, we place a premium on the ability to write and to write well. Why do we value this skill so highly? There are many different takes on this question but certain themes are consistent across authors. First, most organizations rely on effective written communication to operate. Assuming that coordinated human activity is important to accomplish a particular task or tasks, unambiguous communications (generally written since they are more enduring) are absolutely essential for the functioning of operating units. Writing is also an effective tool for organizing your thoughts when face with a problem which requires analysis. It is particularly important when one is trying to extend and test one's initial gut impressions.

It seems to me that these aspects of writing SHOULD be relevant to the practice of medicine. What we do as individual practitioners should be effectively communicated to other members of a greater team caring for the same patient and the written word is the gold standard for communication. Furthermore, physicians are by definition problem solvers, faced with a steady stream of patients who present with a constellation of signs, symptoms, and other data. The gold standard for reflection and analysis is to collect your thoughts, put them down and paper and organize them into a document that conveys as reasonable hypothesis and plan for analysis and treatment.

However, the written record in medicine has been completely high jacked. The elements which must be included are elements needed to justify billing. Everything else is secondary. Coordination of health care activity..what's that? Organization of thoughts..endangered species. Perhaps the best evidence of how unimportant written communication in the form of office notes have become is the task is increasingly being delegated to scribes. In my community, these are generally individuals with high school educations who operate off macro menus in EHRs. Thus they are essentially working off a medical mad-libs menu piecing together documents that are designed solely to contain verbiage that optimizes billing. Each note looks eerily like the previous one, filled with words but no actual information or analysis.

The origins of the present state are obviously in the past. Historically, physicians in the outpatient world operated by themselves. Their notes served their own purposes and even very brief notes may have been adequate to communicate back to themselves at a later date when the patient returned. Furthermore, medicine was simply less complex. There were fever options and the pace of practice was generally less hectic. Fast forward to the present and the world has changed but how we operate has not. We have tried to apply an old practice model to new circumstances where volume and acuity is increased. However, the model is neither functional nor scalable.

The problem is all about essential tasks and workflow. Part of that workflow is collection of data which includes information collected from patients as history and physical exam. After essential information is collected, it needs to be synthesized, an impression created followed by a plan for further evaluation and treatment. In the current state, all of this is jam packed into a time constrained slot which is the face to face encounter (appointment). It creates time pressures where none is really required. Our payment system has created artificial time constraints which prompted physicians to create useless notes. We have become so focused on the use of the medical record to maintain our revenue stream that we have missed its transition to a state where it actually serves no other useful purpose.

Ultimately, we need to change the workflow to encourage better analysis and communication of that analysis. We need to ask what data do we need to guide patients and their physicians to make the best decisions and how and where to collect this? Technology and scribes are fine for recording data. Premium value for physicians can only be justified by unique skills which require intelligence, drive, and years of training and experience. This generally falls into unique technical skills and problem solving skills. Those focused on the former may not require the same analysis and communication skills and their practices may not require dramatic changes in workflow. Medicine is pretty good in this value added realm. However, for those physicians who operate in the realm of solution shop and chronic care models, we need to change the workflows first to collect data first in a non-time constrained fashion and place highest value on our abilities to define and solve problems and communicate our analysis in precise terms using the written word. This is not something can be delegated to those with nominal training nor is it something that can (or should) be done is those fleeting moments before the next patient get roomed.

Wednesday, July 21, 2010

Paper, scissors, rock in the bond market

It seems that a last minute change in the financial reform bill just past has created what might be considered a small hiccup in the bond market. I am no fan of the bond rating agencies. Their behaviors in thew recent past played a central role in the real estate bubble which triggered the worst financial calamity in seventy years. Their ratings of mortgage backed securities, particularly the repackaged triple B rated bonds magically transformed into triple A rated CDOs , created an absolute mess.

Congress, in its desire to right the wrongs, added a measure to the reform bill at the eleventh hour which converted the bond ratings generated by Moody's, S&P, and Fitch, from an opinion (and not legally liable) to expert advice. Voila! Literally overnight the bond rating agencies go from having essentially no legal exposure to just being totally out there. Their response has been to put everything on hold.

I will not shed any tears for this incompetent triumvirate. They failed to serve any useful purpose and may have worsened the blowup in the mortgage bond market. However, there is a not so little problem. The functioning of the bond market requires the distribution of prospectuses and these documents are required to include ratings from these same bond rating agencies. No ratings, no complete prospectus. No complete prospectus, no new bond sales. Furthermore, the bond ratings are required for many investment entities to include specific paper in their portfolios.

So there we have it. In the midst of a fragile recovery (at best), the new financial reform legislation has frozen the bond market. I would have no problem if the rating agencies simply disappeared. Markets are pretty good and factoring in risk, unless they are lead astray by data derived from non-trustworthy sources such as... rating agencies. However the same entity which has overnight thrown the switch changing a product from one having no liability to infinite liability, has also previously mandated that the markets cannot function without this  same product.

Let recap:
1. New bonds require ratings
2. Ratings are fundamentally flawed
3. Rating agencies are now legally liable for their flawed products
4. Rating agencies are not willing to issue ratings if they are held to the new standard
5. No ratings, no new bonds

This can be easily fixed. Simply change nothing except lose the requirement for ratings. If the ratings agencies can actually create a useful product, they will survive.

Tuesday, July 20, 2010

Homeopathy and the right to health care

A recent piece in Der Spiegel highlights a problem with attempting to mix a state sponsored right to health care and consumer driven health care.,1518,706971,00.html
It seems that, despite a general European love affair with homeopathy, the scientific basis for this approach to treatment of disease is essentially non-existent. Over and over again, the results of studies is the same. There is no benefit that can be identified and the theoretical basis for effect is simply laughable. However, homeopathy is very popular. In a world of positive health care rights mandated by law, how should demand for such treatments be handled? Should they be paid for with public monies?

In a free society, humans have the right to make decisions regarding investment of their own resources. They can make what you or I might view as good decisions or bad decisions. It is their business based upon two basic assumptions. First, they have their own resources (time, money, talent) to invest and second, their decision is not a coerced one. I for one have been humbled more than once after judging someone else's decision unwise. It is not for me to be all knowing as to what someone else might be after when they invest their own resources.

In the Alice in Wonderland world of positive rights, this simple paradigm becomes hopelessly complex. The decision to invest resources moves from a personal decision made by individuals directing their own resources to a group (read political) decision allocating resources taken from individuals and thrown into a common pool. When trying to even develop a model for how best to allocate such resources, whose goals do we have in mind?  What is off the table in terms of possibilities and why? Who makes these calls and by what mechanism? Majority rules, super-majority rules, Philosopher kings?

What you end up with is passionate debates about the legal right to homeopathy and much more like this. Homeopathy has basically no scientific basis but should that mean that it should not be available to those who desire to purchase some element of it? Individuals should have the broadest realm where they can enter into agreements with others to further their own goals, whatever they might be. I strongly suspect they are making a poor investment  if they invest time and money in homeopathic approaches to their ailments but I cannot really know what their goals might be. I don't have to and my judgment of their decisions means little in a world where they are free to exercise their rights to make their own decisions, good or bad.

In a world where the decision was made to make health care a right, we will be forced to make blanket decisions which cannot be made without the state becoming the ultimate busybody. If homeopathy, with essentially not evidence to support its effectiveness, can become something paid for using resources extracted from skeptical taxpayers using the coercive force of the law, what is not within the bounds of possibility? What could taxpayer dollars end up supporting? If popular support or at least a highly vocal group demanding some specific good or service is all that is required, there are no limits.

Let me float some likely candidates:

1. Chelation therapy
2. Colonic irrigation
3. Biofield therapies
4. Expensive detoxification schemes
5. Sweat lodge therapy
6. Exorcism
7. Animal sacrifice
8. Here's one from "seven days in Tibet" by Brendon O'Neill
On one stall a young British man in a white coat (seriously - a white coat) was trying to convince an elderly gent, who could barely walk and who looked jaundiced to boot, that if he put his name on a mailing list he would ‘experience healing’ the next time the young man in the white coat climbed a mountain in Tibet and ‘projected positive energy’ to the world. 
We would have to come up with a CPT code for this. I am sure you can come up with more. Send in your suggestions of what could become a covered service!

Sunday, July 18, 2010

Innovation and changing behaviors in healthcare

This week I am on vacation and I have more time to think and reflect. I spent some time this morning perusing blogs and came upon two pieces from the current issue of Health Affairs which are sequential and remarkably enlightening, but not intentionally so. The first was:

How The Center For Medicare And Medicaid Innovation Should Test Accountable Care Organizations [Payment & Delivery]

The Patient Protection and Affordable Care Act establishes a national voluntary program for accountable care organizations (ACOs) by January 2012 under the auspices of the Centers for Medicare and Medicaid Services (CMS). The act also creates a Center for Medicare and Medicaid Innovation in the CMS. We propose that the CMS allow flexibility and tiers in ACOs based on their specific circumstances, such as the degree to which they are or are not fully integrated systems. Further, we propose that the CMS assume responsibility for ACO provisions and develop an ordered system for learning how to create and sustain ACOs. Key steps would include setting specific performance goals, developing skills and tools that facilitate change, establishing measurement and accountability mechanisms, and supporting leadership development.

Yes, such a simple task of creating a whole new system of practice as well as the feedback mechanisms which ultimately will be required to change human behavior.

The second article was:

How Medicare's Payment Cuts For Cancer Chemotherapy Drugs Changed Patterns Of Treatment [Web First]

The Medicare Prescription Drug, Improvement, and Modernization Act, enacted in 2003, substantially reduced payment rates for chemotherapy drugs administered on an outpatient basis starting in January 2005. We assessed how these reductions affected the likelihood and setting of chemotherapy treatment for Medicare beneficiaries with newly diagnosed lung cancer, as well as the types of agents they received. Contrary to concerns about access, we found that the changes actually increased the likelihood that lung cancer patients received chemotherapy. The type of chemotherapy agents administered also changed. Physicians switched from dispensing the drugs that experienced the largest cuts in profitability, carboplatin and paclitaxel, to other high-margin drugs, like docetaxel. We do not know what the effect was on cancer patients, but these changes may have offset some of the savings projected from passage of the legislation. The ultimate message is that payment reforms have real consequences and should be undertaken with caution.

In this case the government had no particular desire to change human behavior. They just wanted to save money. However, they changed the behavior of oncologists by altering the financial rewards for specific activities.   Offer to pay less for something and you are sending the signal that it is less valuable.Duh?  Thus, we have further evidence that markets are remarkably effective tools at changing human behavior, yet we still insist upon trying to create some new mechanism using untested tools.

Why are markets so good at this? It is because they are remarkably good at taking all types of information and distilling it down to a common language which virtually everyone understands. While the cost of any given good or service may not be affordable to everyone, the mechanism by which it is priced adds little to the cost of the item. I view the market pricing system as the original information superhighway. To replace this validated system the idea to create some command and control alternative, the inner workings of which are simply yet to be built and are likely to resemble some Soviet commissar's dream. This is not innovation despite any name assigned to it.  

The Big Short and health care

I just finished reading Michael Lewis' "The Big Short". It is well worth reading and of all the books I have read on the financial breakdown of 2008, it is the one that gets the best mix of forest and trees. My favorite books tell stories of specific people and circumstances which reveal principles which are generalizable to many other circumstances, particularly medicine and health care. This is one of those books.

One of my pet peeves is to hear colleagues within medicine who somehow believe that somehow the delivery of health care is fundamentally different from the delivery of other goods and services to humankind. The problem of this perspective is at least two-fold. First, it is imply wrong. Second, it serves as the premise to discard thousands of years of human experience to justify unwise policy decisions.

How does this all relate to a book on bad bets on sub-prime mortgages? The two are linked because the respective industries are the products of many of the same flaws, specifically:

1. Inability of leadership within the industry to effect real change and the lack of a global view
2. The inherent drive to game the system
3. Short term timelines
4. Wrong incentives

My first response to The Big Short was disbelief. How could anyone involved at any level view institutions and processes involved as durable? For any given person operating within this industry who had half a brain, it should have been obvious that this was utter madness. While maybe it is not surprising that a lowly loan originator might not be one to pull the switch to sound the alarm, someone at some level of leadership should have seen what was coming. How could anyone believe that making money by loaning money to those who could never pay it back was a viable business? Ultimately it was not anyone on the inside who recognized the madness. It was outsiders who figured out how to bet against this business model and brought it down, becoming very wealthy in the process.

The parallels to health care are many. In the financial world, the industry used the ratings agencies to game the system. In doing so, they implied value where none actually existed and thus altered investing decisions and capital allocations.Money was invested in housing stock that was not needed and scarce capital was mis- allocated. In health care, the gaming opportunities are derived from the CPT and RBRVS. They are our own rating agencies. Based upon how these entities decide what does and does not have value, physicians and health care entities allocate scarce resources to expand particular product lines. Unfortunately, this approach creates a disconnect between what brings value to physicians and health systems and what actually brings value to patients. Like the bond ratings, we game the value assignment process, both the political process used to assign values and the investment process which follows as a consequence of the artificial values assigned. One would think that the foolishness of using such an approach to define value would be obvious to anyone with any appreciation of universal failure of such approaches through history. Alas, remember that health care is different and based upon this we are instructed to ignore the entirety of human experience relating to allocation of scarce resources.

Many participants within the mortgage bond and CDO world realized that the premises underlying their industry were bogus and not sustainable. Similarly, there are many within the health care industry who realize that we are riding a train headed off the cliff. Where within the hierarchy are those most likely to sound the alarm. Too low in the hierarchy and no one will listen. Too high up and they will have too much to lose in the short term. Leadership within health care, like leadership within the mortgage bond business, will not be capable of inducing change.

Part of the problem with leadership is based upon who rises to such positions and what they are charged to do. Business leaders (and those who run health care are business leaders) are basically very practical people. However, practical people are not necessarily reflective people. To see the big picture,  one needs to step away from the practical at times and reflect upon the bigger picture. Some leaders in health care are capable of such reflection but that is not what they are paid to do. It is a secondary concern and only rarely will such thinking be rewarded. In the booming mortgage bond and derivative industry of the mid 2000s, no CEO who questioned the basic premises of their industry was rewarded. Similarly, leadership within health care must focus on how best to game the system as it now stands. No CEO with a huge fixed investment will want to put the model which that investment is based in jeopardy.

This leads me to the obvious question? How can one short health care? Should someone short health care? ObamaCare will attempt to decrease how much money will go to continue inflating the health care bubble, but the methods are all wrong. Over the short term, more money will pile in. The bubble will continue to grow. Gaming opportunities will abound. Where in health care are the equivalent of the overbuilt tracks of homes and condos in Las Vegas and south Florida? Much like the empty strip shopping centers in central Florida, who is borrowing money to overbuild health care facilities which no one will use? Short sellers have a bad rap but they are the canaries in the mine. They provide the early warning system that things are going where they should not go.

Those players in the Big Short who saw this coming may have seen it early on and made a financial killing, but they were ultimately devastated. It is always better to be the optimist but sometimes that is simply not possible. Too many optimists and you end up with bubbles that need to break, the earlier the better. I am now convinced that someone needs to short health care and break the bubble before it gets even larger.

Wednesday, July 7, 2010

Ivy League and Economically challenged

Donald Berwick's recess appointment allowed us to avoid some additional pointless Senate drama. From all accounts he is a smart, respected, and well intentioned person. The problem is he is suffers from what Hayek referred to as the "fatal conceit".  From CNSnews:

Berwick argued that purposely provided an inadequate supply of health-care—as Britain’s health-care system does—is superior to allowing the market to provide an excess. “In America, the best predictor of cost is supply; the more we make, the more we use—hospital beds, consultancy services, procedures, diagnostic tests,” Dr. Berwick wrote.  “… Here, you choose a harder path. You plan the supply; you aim a bit low; you prefer slightly too lit tle of a technology or a service to too much; then you search for care bottlenecks and try to relieve them.”  

Yes, you can try to plan the supply but if there is anything we should have learned in the 20th century it is that planned economies simply do not work. The conceit here is the belief that the problems which universally afflicted planned economies in the past (and I do mean universally - no exceptions) can be avoided by those of us in the present who are just that much smarter and insightful. 

The present system is indefensible. It is supply driven and wasteful and will bankrupt us. However, Dr. Berwick is delusional (and he is not alone) if he thinks he plan and can use a command and control system to execute a centrally driven system which will defeat an army of gamers who will exploit the many unanticipated weaknesses which will bedevil his plans. 

It is all about coordination of human efforts and allocation of scarce resources. Berwick's take on this?
Please don’t put your faith in market forces,” he said (italics in original).  “It’s a popular idea: that Adam Smith’s invisible hand would do a better job of designing care than leaders with plans can. I find little evidence that market forces relying on consumers choosing among an array of products, with competitors fighting it out, leads to the healthcare system you want and need. In the US, competition is a major reason for our duplicative, supply driven, fragmented care system.” 
His alternative... central planning by experts. To blame the dysfunctional system in place on market forces is laughable. The prices are all administratively fixed. You can't have free markets when the prices are fixed. It is duplicative and wasteful because the price signals, which are administratively fixed, are sending the signals to be wasteful and duplicative.

The solution to such pricing problems... The independent Payment Advisory Board! What a great idea. Create a board of experts selected via a political process to set prices on what may be an infinite number of items through a political process. What a great idea. Why did I not think of this myself? Perhaps because I have some actual working knowledge of economics and an appreciation of the catastrophic mistakes of history.  This idea is simply even more of the fatal conceit. It is so fundamentally flawed that it is difficult to critique. Do those who propose this idea realize that basically every single price set by the board will be wrong and they will have no idea in any real time which prices are so out of whack that they acutely disrupt service delivery?

The saving grace is that the prices are said to be restricted to Medicare. It is highly likely that they will be used as the framework for private payers. The NEJM of weighs in on this with a piece by Timothy Stoltzfus Jost, J.D.. In this he concludes:
In the long run, Congress may not be able to cap Medicare expenditures without addressing private expenditures as well. If the IPAB opens the door to rate setting for all payers, it may well be the most revolutionary innovation of the ACA.
Disruptive, yes. Innovative, hardly. Administrative prices and state driven price controls are ancient and resurface whenever mankind displays historical amnesia. It is sad this happens all to often. This time is different.  Here we go again.

Tuesday, July 6, 2010

Creative destruction and the end of Blockbuster

Last week, the NYSE announced that Blockbuster Video shares were to be suspended and delisted from the NYSE, as reported in the WSJ on July 1, 2020.

For those of us who grew up in the mid to late 20th century, we have an internal clock relating to technology change. We were the first television generation and witnessed steady improvements including increased screen size and color picture. Television may have disrupted radio to some degree but there always appeared to be plenty of room for both technologies. Cassette tapes and eight tracks helped up take music to where vinyl could not go, but they did not appear to threaten the existence of records. They were extending but not disruptive technologies.

However, something else is happening and the meteoritic rise and fall of Blockbuster is indicative of this new (or perhaps not so new) process. Using videotapes to distribute content to viewers was revolutionary. Using a rental network to facilitate this was also revolutionary and Blockbuster video was remarkably successful in deploying such a business model, swallowing up its competitors. Remarkably, the time frame for being able to exploit their model was incredibly short, peaking in the late 1990's and then losing money after 2002. The revolutionary technology at the center of the Blockbuster business plan became obsolete, being supplanted by online streaming, Redbox, and Netflix. Blockbuster's business model, as blockbuster as it might have appeared in the early 1990's, came and went.

Chart forBlockbuster Inc. (BBI)

This is actually an old story. Kodak film technology lasted for a century. Alfred Sloan's GM and Henry Ford's Ford had incredible runs before being displaced by competitors who could provide better and cheaper products. What is striking about Blockbuster is it appears that someone has sped up the clock. What used to take centuries now takes decades or less. We see this in the time lines for technology obsolescence. Yesterdays super computers and now today's commodity loss leaders. Yesterday's remarkable 20 MB thumb-drive for which people paid good money for has been replaced by the 1 GB thumb drive party favor.

I have to wonder about the timeline for obsolescence in medicine. We train physicians using basically the same model deployed basically a century ago after issuance of the Flexner Report. What part of what we do is timeless? What skills and knowledge which we acquire will be rendered obsolete before the end of our respective careers? Before the next decade? Before the end of the year?

The medical community has great fears as to the effect of  government driven health care reform. I would venture to guess that heavy handed state bureaucracy will serve more as a brake for change as opposed to a driver of revolutionary and disruptive change. State price controls and global budgets may cause a slow erosion of the power and wealth generating ability of current health entities but I suspect it will protect them from a Blockbuster flash in the pan phenomena. It will not matter whether what we know and do is obsolete, so long as what we do is still reimbursable. That will be driven by politics. What we view as the bane of our existence is in reality the savior of the current system.

Monday, July 5, 2010

California chicken

On Friday, California governor Arnold Schwarzenegger threw down the gauntlet, threatening to cut the pay of 200, 000 state workers to minimum wage until the state legislature passed a balanced state budget. This story has actually received remarkably little press. My own local paper picked up an AP piece, which appeared to be identical to what appeared in the Washington Post. I could not find anything in the NYT.

I browsed through some of the comments on the Yahoo news and Huffington Post. They tended to comment on the fact this was unfair, should be blamed on one political party or another (democrats - profligate spending; republicans - hindering adequate tax collection), blamed on public employee unions, blamed on immigrant demands on resources....the list goes on forever. I suspect they are all correct to some degree.

As luck would have it, I just finished reading Burton Folsom's book, "New Deal or Raw Deal". It is a re-examination of FDR's first two terms in office and how his politics changed the political landscape of the country. FDR developed a remarkable political machine based upon patronage on a scale never seen before. Yes, the leaders of major cities used these same tools for a hundred years before FDR deployed them but they did not have access to even a fraction of the financial resources which FDR could muster.

FDR basically ventured into virgin territory when it came to tapping into revenue streams which could be exploited and redirected into political patronage. He and his brain trust were remarkably good at this, as were subsequent politicians such as Lyndon Johnson and Richard Nixon. Folsom points out that in fact, even ideologically contrary George W. Bush took a page out on of FDR's playbook in the passage of the Medicare Prescription Drug benefit. Tax many who may not notice the incremental cost and bestow benefit on the few who you hope are beholden in the next election.

How does all relate to California? There is an endgame. This approach is not sustainable. Economics is the study of allocation of scarce resources. There are many possible approaches to the allocation problem. Ideally the one that should be optimal is one that expands the pool of resources the most over the largest segment of time. As I have written here repeatedly, I am a major proponent of market based allocation approaches. They are decentralized, allow individuals to allocate their resources where they believe they will provide the most return, and history supports this approach provides the biggest pie for distribution.

California state and local governments has absorbed a larger and larger share of dollars generated and has created an environment hostile to business, the very entities which create wealth. This has created a two-fold problem. First, it has not been compatible with growing the pool of resources. Second, it has converted a decentralized process (where resources reside in the hands of many small players) into a centralized process. The centralization of resources is good for those who want to use them to divvy up political patronage, but it runs into a problem. This approach causes the pool of resources to shrink while simultaneously creating an infinite demand for those same resources. Furthermore, as political competition for the shrinking pool of resources intensifies, the flaws of using a political approach to allocation become all too apparent.

Political allocation does not allocate resources where they can be used most effectively. It rewards those who are willing to be most ruthless in furthering their own ends. It does not allow one to hedge their bets and is prone to huge swings based upon changes in the statehouse or executive branch.  What we are seeing in California (as well as other states such as New York), is the endgame. As the beast seeks more and more money, its actions result in shrinking resources. Individual players (teachers, prison guards, administrators, health care workers) who have successfully fed off this passionately defend their stakes. The short term winners in each of these political fights is the group who plays the game of chicken with the most nerve. Short term wins are confused with actual success and durable systems. This is how political allocation schemes work. Over the longer haul, you end up with Greece, California, and similar bankrupt states. They make promises about the future financed by unworkable schemes that will be revealed after those who made the promises can be held accountable. Beyond this, when calamity falls, there is rarely sufficient memory to link the mistakes of the past to the event of the present.

At this point it appears that Arnold has some leverage, He has gotten a hold on those soft and tender parts and he is squeezing. The courts have supported him. My question is, does he know what to ask for?