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Tuesday, July 26, 2016

Health care costs, mandates, and the changing health care workforce

Health care delivery is both already expensive and also saddled with unsustainable cost increases. The reasons for this are multiple. Just to name a select few, health care historically has operated under the assumption that improvement (or perceived improvement) is worth it, no matter what the cost. In addition, health care is very labor intensive and the labor is very expensive. In addition, it is about to get even more expensive.

I have little doubt that Hillary Clinton will be elected the next president of the US. I also have no regret that the next president will not be Donald Trump. I will derive some degree of satisfaction when the first person looks at him after the election and addresses him as a "loser" and I hope the habit continues for a long time. However, I have some great reservations regarding some of the planks of the Democratic Party Platform, relating to generous paid leave provisions.

For those us who need to balance budgets, legally mandating that employees can take generous time off with paid leave means figuring out how to pay them. For expensive people, this can get very expensive and we have lots of expensive labor in health care delivery. Increasing labor costs will not decrease the cost of delivery services. In fact, the effect is quite the opposite! How will I figure out how to pay the salaries of $100K+ professionals who are not at work? How many people on paid leave can we afford at any given time?

I have little doubt that these mandates will be established but I have to ask, how is this going to work? How are we going to find a way to delivery health care services at steeply lower costs when mandates drive up the cost of the biggest part of our overhead (labor)? I see there are only five options.

Option 1 is to pay everyone less money.
Option 2 is to hire less expensive labor, that is substitute nurses for doctors, health techs for nurses, etc.
Option 3 is to stop hiring people and automate
Option 4 is to stop offering services which are too expensive to deliver
Option 5 is really a hybrid of all the above which is to increase efficiencies and generate more value per unit of labor paid for.  However, there is no way that one can garner efficiency gains from people who are on paid leave.

I believe the pressures to cull the workforce and eliminate workers, especially expensive workers will be huge. Couple this with changing payment patterns and I believe physicians will be in the cross hairs. Physicians bring lots of unmeasured value into care delivery now but the thing that is measured is money. We measure little else. Up to the current time, fee for service has been mostly dependent upon MD's to drop bills. For health systems, doctors are needed for cash flow because doctors can submit bills and allow facilities to operate. When bundled payments go directly to health systems (as proposed under MACRA) and doctors are primarily salaried and are no longer required for billing, health systems will view MD's primarily as the most expensive part of their workforce. Where can costs be cut? Why are we paying these guys so much?

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