Lean streets

Healthcare consumers and payers seem to want less of everything. Providers and suppliers need to adjust to this new world.

If you were raised on waste, it’s difficult to think lean. That could be one of the key challenges facing healthcare providers and suppliers today, says James Orlikoff, a Chicago-based consultant and senior consultant for the Center for Healthcare Governance.

Speaking at the “Dialogue on the New Healthcare Marketplace” seminar sponsored by Welch Allyn, Orlikoff said that the fee-for-service reimbursement system that has been part of our culture for so long encourages spending and, in many instances, waste. With our collective backs against the wall, from an economic point of view, we can’t afford such waste anymore.

The statistics bear repeating, said Orlikoff:

  • The United States spends somewhere between 17 and 18 percent of its gross domestic product on healthcare. The amount alone would make it the fourth largest economy in the world.
  • An estimated 30 percent of the medical procedures performed in this country add no clinical value, according to the Institute of Medicine. Nearly 4.4 million hospital admissions totaling $31 billion in hospital costs could be prevented annually. That’s 5 percent of our GDP, Orlikoff said.

“We’ve been rewarded for being wasteful,” he said. And it won’t be easy to turn the ship. “As George Orwell said, ‘It’s difficult to get someone to understand something if their salary depends on them not understanding it.’”

In many ways, it is the economy, not federal legislation, that is driving healthcare reform, Orlikoff said. The influx of baby boomers into the healthcare system alone would have destabilized just about any healthcare system. Add to that the current recession, unemployment levels and the downside of globalization.

  1. There’s another factor driving fundamental change in the U.S. healthcare system – our massive debt. “We’re talking about actual debt, not just unfunded liabilities, such as those associated with Medicare,” Orlikoff said. Countries that face crushing debt levels have three choices, none of them desirable, he said: default, which is all but unthinkable
  2. hyperinflation, whose adverse consequences are only slightly less than those of default
  3. massive belt-tightening, that is, spending less, raising taxes, cutting pensions and benefits, scaling back standards of living, and slowly digging one’s way out of deep dark hole we’re in.

“We’re in the early stages of doing that now,” said Orlikoff, referring to Option No. 3.

Turning the ship
Orlikoff believes a fresh, critical look at our healthcare system is sorely needed. When someone says, “We have the most expensive healthcare system in the world,” a typical rejoinder is, “Yes, but it’s the best,” he said. But when asked, “How do you know that?” the answer often is, “Because it’s the most expensive.”

The United States does indeed offer the best high-tech, high-acuity interventional care in the world, he pointed out. If you get hit by a truck, there’s no better place to be than the United States. But in the 1990s, when President Clinton tried – but failed – to implement healthcare reform, data showed that the U.S. did not provide the best healthcare, when measured by such indicators as chronic disease management, infant mortality, etc. What’s more, hospitals are the fourth leading cause of death in the United States, said Orlikoff, due to infections and errors.

The United States healthcare system is proof positive that throwing money at healthcare doesn’t always produce the most favorable outcomes, he said. In fact, data has shown that the best hospitals – that is, those with the best outcomes and lowest mortality rates – usually consumer fewer products, equipment and pharmaceuticals than others, he said.

Supply creates demand
But for years, providers have been financially rewarded for providing more care. “The way your customers make money is by doing more things – ordering more tests, doing more procedures,” Orlikoff told the audience, primarily manufacturers. That system has been good for vendors, because they sold more tests, more equipment, more consumables, more everything.

The problem is, supply tends to create its own demand, he said. The No. 1 predictor of how many surgeries are performed in a region, or the number of MRI scans performed, are the number of surgeons nearby, or the number of MRI machines. The most effective way to eliminate cost is to eliminate supply. But that’s a tough pill to swallow for providers and suppliers alike.

The stark reality today is that nobody can afford those systems any more, he said. After years of tinkering – think managed care, DRGs, etc. – costs are being shifted back to healthcare consumers themselves, in the form of higher deductibles or no employer-covered insurance at all. And they are responding accordingly.

“For years, we thought people would get healthcare regardless of the cost,” said Orlikoff. But it turns out they’re first paying their mortgages, feeding their kids and taking care of other obligations before going to the doctor. “As grandma used to say, ‘If the blood ain’t flowin’ and the bone ain’t showin’, we ain’t goin’,’” said Orlikoff. Grandma’s attitude was an attempt to control costs, a form of self-rationing of care. And that’s where we are today.

From volume to value
And that’s why as a country, we have to reorganize the system, he said. There must be a movement away from a volume-based system to a value-based system, that is, one that focuses on outcomes rather than procedures.

The government has proposed potential solutions, including accountable care organizations and bundled payment programs. And some physicians, seeing the writing on the wall, are joining hospitals in an attempt to align their efforts and reduce some of the “silos” that have characterized the U.S. healthcare system.

The movement to transparency in health care – that is, making information about hospitals’ and doctors’ outcomes and costs publicly available – is intended to guide people to seek out the most efficient providers of care.

Providers are responding as well. Many are attempting to wring costs out of the system by standardizing care. Developing protocols for such things as heart attack has been shown to lead to better outcomes. Standardization of care protocols often leads to standardization of pharmaceuticals and medical supplies too. “One way of being inefficient is doing things 30 different ways, which magnifies product costs, labor costs – all of which providers get reimbursed for,” said Orlikoff.

In response, suppliers will have to pursue new business and sales models, he said. If a supplier made money on a product in the fee-for-service environment, and now that supplier is touting that same product’s ability to help the hospital eliminate waste, expect some pushback, he said.

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