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Sunday, March 20, 2011

The tail wagging the dog

Participating in the practice of medicine requires that one get used to disconnects, situations which simply make no sense. If you become too concerned about these situations, one becomes simply paralyzed. Thus, we create complex filters which allow us to champion strong views about certain values while being completely oblivious to the inconsistencies in our world view.

In today's New York Times, there is a story by Emily Ramshaw about the state of Texas and the realization that they might be having a problem with over use of neonatal ICU (NICU) beds. Ms. Ramshaw reported that Dr. Frank Mazza, vice president and chief safety officer of Seton Family Hospitals, detailed how Seton Hospitals prohibited elective C-sections before 39 weeks in 2005. This move resulted in a dramatic drop in NICU admissions accompanied by a 96% drop in revenue from the NICU. Considering that the NICU is a major profit center for many hospitals, I doubt this type of move would be welcomed as a matter of course elsewhere. While we would hope that our health care institutions would always take a financial haircut when faced with this situation, it is more likely that the more likely course would be business as usual and continued assessment until the problem dropped off the radar.

While this particular episode can be viewed as a small win, there is a bigger picture which is not so uplifting. NICU growth throughout the country is not likely driven by patient need but by margin exploitation. This is not an isolated phenomena and limited to NICUs. It touches every specialty and permeates through both inpatient and out patient medicine. The provision of medical services is not driven by what the public wants or needs but by whatever margins happen to be favorably set by an artificial and arbitrary pricing structure.

I live in a medical world which exists mostly in the outpatient setting. Our services are in great demand and our operation cannot even come close to addressing all of the calls we get for appointments. Any reasonable business would collect data on who is calling and what type of service they are seeking, presumably to adjust their provider base to accommodate particular problems  where there is great public demand. In health care, we do not do this and I suspect there are at least two reasons. First, demand has been so high that we have had not reason to do "market research". Second, and perhaps more importantly, we are not particularly interested in what the public wants from us. We are more interested in filling our appointments with people who will be billed for high margin services.

In my clinic I have asked that simple question; Who is calling us and why? We do not know. I suspect if we knew, we might have to expand our ability to provide low or negative margin services for those who want appointments. The fact that we don't know protects us to some degree from being pressured into expanding into services which might erode our bottom line. Ignorance is bliss...sort of.

In true market based economies, providers of services are rewarded for knowing what the public wants and identifying where shortages exist. First to exploit such opportunities can charge premiums which provides an impetus for others to enter these markets. Overpriced services stimulate entry of other players which ultimately drives prices down, making services more affordable to everyone. Demand and supply are coordinated by price, but in order to do so, price needs to be able to move to send appropriate signals to both providers and consumers.

In health care, price is basically fixed. If the price is fixed too high, it prompts providers to pile into these markets, create demand where it might not exist, and deploy technology and services where the real beneficiaries are the health system and not the patient. Where prices are set too low, services become scarce but because information collection is so poor, it is difficult to impossible to know what is actually scarce. Thus you end up with health systems marketing high end services which may be of little or no value to patients while simultaneously being unable to meet the bulk of the demand for services that patients actually want and need.

What it boils down to is the only mechanism which has been demonstrated to allow for a reasonable match between consumer needs and supply is the price coordinated market economy. Schemes based upon administrative pricing always fail because they send incorrect information to producers and consumers. The incorrect prices will ultimately be discovered but only after they have caused much harm to the public by those chasing high margins or fleeing low margins.

Before there is a hue and cry about the money grubbing physicians and hospitals and their margin seeking behavior, realize that ultimately this is not about a choice, it is about survival. Principled institutions which stick to money losing approaches ultimately cease to exist. That does no one any good. This is not about good and bad people or good and bad institutions. It is about bad rules which prompt people and institutions to do activities which do not serve the public.

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