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Sunday, August 1, 2010

Our koala health care economy

Koalas are interesting animals. They have adapted to survive in a very narrow ecological niche, consuming only eucalyptus leaves. This food source is a poor nutritional source, low in protein and energy and rich in toxins. Over time reliance on this solitary, non-optimal low energy food has resulted in a shrinking brain which has lost almost half of its former size. The koala is the product of compromise.

I see elements of the koala in health care financing at multiple levels. Within an academic medical center we have multiple missions including research, teaching and training, and patient care. Like all activities, these require an energy source, that being primarily human creativity and money. Track the funds that flow into an institution like my own and you find that the vast majority comes from a single source, the federal government. This cash flow comes in many forms including federal grants from the NIH, NSF, or the Veteran's Administration, direct payments from Medicare or Medicaid (indirectly through states), GME payments to support resident education, and federal grants and loan guarantees to support the education of a host of health care professionals. Federal monies are the eucalyptus leaves of the health care economy.

There is no question that the infusion of federal monies changed the health care environment and in the short term were a driver for dynamic change, much of it positive. However, because the growth and expansion based upon federal monies is not sustainable, it has created an economy which is unhealthy in terms of its increasing dependence upon a "food" supply which is both constricting in terms of what it can support and gradually more toxic in terms of poisoning other aspects of general operations.

The koala responded to sole dependence on a poor energy source with scaling back on what required energy, it its case its brain. Successful adaption meant re-allocation of energy to digestion and detoxification. I would suspect that at some point in the past the koala ancestors had a more varied diet but they evolved toward greater and greater reliance on what appeared to be an abundant but poor quality eucalyptus diet.

It now appears that the health care dependence on federal diets is looking more like eucalyptus leaves. While at one point in time this energy source was robust and supported missions with sufficient margins, it is not looking increasingly like a low energy source. Patient care supported by federal monies must be underwritten by subsidies from private insurers. The scramble for federal research dollars is looking more and more like a giant zero sum game with institutions making large bets vying for indirect dollars to offset operating costs. The entirety of graduate medical education is supported by GME dollars or VA monies to support resident salaries in a hospital based format. All of these pools are either shrinking or growing at a pace not capable of supporting these missions as presently configured.

Like eucalyptus leaves, these monies are also increasingly toxic. The regulations which accompany these monies require more and more oversight and reporting. This takes time, money, and people. Perhaps the most pernicious element of this scenario is the fact that the regulations are constructed in such a way that the more federal money you take, the more difficult it becomes to use other financial sources. Furthermore, the regulatory environment is capable of transforming other revenue sources, which may be of higher quality and less toxic,  into eucalyptus like sources.

Ultimately, we need to be able to hedge our bets. Where are the financial resources going to come from to support all of these various important care, teaching, and research missions? I don't know. However, I do know that the more dependent we become on any given source, particular on a single source, the more at risk we become for a really bad outcome. We need to learn to liberalize the diets which feed this machine.

The koala spends its days eating constantly to derive sufficient energy to survive.


  1. While it's true that reliance on a single source of funding for medical education, research, and patient care is problematic, I do not think that this is the fundamental problem facing academic medical centers. The problem you describe is one of who allocates resources.

    I think the more fundamental problem is that resources are scarce. They will not become less scarce if other agencies (public or private) become involved in the allocating of funds. They will simply be shifted around. It's not as if the state, county, or city governments have the desire or the funds to 'pick up the slack' where the federal government has neglected its responsibilities. They, too, are stuck with the problem of a dwindling supply of 'food' that needs to be allocated to across many different priorities, only some of which have anything to do with academic medical centers.

    As for the possibility of private sector funding, that could work, but only if the research mission of academic medical centers radically changes and our nation's premier research institutions become 'contract workers' for the specific short-term projects for which they are hired by companies.

  2. Thank you for your comments. Alas, resources are always scarce. It is said that economics is the study of the allocation of scarce resources. The fact that resources are scarce in academic medical centers should not come as a surprise and this fact should not and cannot serve as a justification for such an unhealthy lack of differentiation in terms of sources of funds.

    The questions should be where to obtain a differentiated source of funding and by which mechanisms should these resources be allcoated. Since I am confident that the present model is not sustainable, an additional question is how can we create real innovation that allows other models to be tried?

  3. Chauncey McHargue M.D.August 4, 2010 at 5:18 PM

    I think the answer to your last question and the implementation of any alternative model lies outside of academic medicine generally. My only offering to this would be the suggestion of an overarching foundation that is endowed by private philanthropists and foundations, the pharmaceutical industry and government with an independent board representing those interests that with greater pooled resources could allocate funding to extant medically oriented foundations (e.g The Derm Foundation) or academic institutions. While this leverages the financial resources involved it does little to expand them unless there is a broadened sense of community of purpose which may well materialize. It balances competing prerogatives as to how and where monies should be spent but would unquestionably engender some, perhaps healthy or at least educational conflict, in making such decisions. And it would take advantage of the existing narrow expertise of foundations and institutions already in place as to how best to allocate resources, albeit in a competitive environment which will not be to the liking of many with narrow parochial interests and an inherent sense of entitlement if established funding patterns are broken to their detriment.

  4. Since I am only a resident, my perspective and my knowledge of the details of funding mechanisms for medical education, research, and delivery of health care are admittedly limited. I do not know the ins and outs of the various agencies and funding streams. I'm just trying to better understand the points being made. Although I have not yet had the opportunity to read all of the posts by The Medical Contrarian, I have been very impressed by the no-nonsense down-to-earth analysis of many issues.

    In the case of this post, I'm confused as to whether the concern is that the federal government is running out of money to fund these endeavors (and that we need more non-federal agencies that will apparently not run out of money to help out), or whether the federal government is simply distributing the money ineffectively (be it by spending too much on overhead and bureaucracy or simply by chasing goals that are unlikely to be achieved).

    Dr. McHague's suggestion of a board funded by private and federal organizations that ultimately decides how funds are allocated certainly addresses both possibilities. On the one hand, funds come from multiple sources, and on the other, there is input from each of these sources in deciding what's important to spend the money on.

    I am skeptical, however, whether a single organization (even if funded by a wide variety of private philanthropists, foundations, government, and pharmaceutical industry) can avoid becoming similarly bloated, ossified, and subject to the same problems as the current system (or as the federal government as a whole).

    Perhaps this is the very point of The Medical Contrarian. Any system (including the current one) can enable valuable and groundbreaking innovations. But any system will also become ineffective in the long run. Thus, even if a system such as that suggested by Dr. McHague does ultimately run into problems, it could be effective for some period of time.

  5. My apologies to Dr. McHargue for the incorrect spelling of his name.