Speaking Notes

February 24, 2010

PADM 5791

Dr. Neubauer

Selected aspects of Chapter 6 -- Health Care Cost Containment

• CNN special reports -- IS OUR GOVERNMENT BROKEN?
• CAN OUR GOVERNMENT COPE WITH GREAT COMPLEXITIES?
• CAN OUR GOVERNMENT PRODUCE COHERENT POLITICS with the potential to actually solve difficult problems?
• Can imperfect policies be translated into "doable" PROGRAMS?
• ARE GOVERNMENT AGENCIES ABLE TO EFFECTIVELY IMPLEMENT PROGRAMS?

http://www.cnn.com/2010/POLITICS/02/23/poll.government.trust/index.html?iref=allsearch

26% trust federal government most of the time or always

33% trust state government most of the time or always

around 50% trust their local governments most of the time or always

CNN Video -- Fixing our Broken Government

http://www.youtube.com/watch?v=VEME01m77K0

But trust how, or to do what? This is unclear from news story.

SOME INTERESTING INFORMATION IN CHAPTER 6

• A large percentage of medical care spending in the United States is "consumed" by a relatively few persons who need very expensive kinds of care.
• The US has relatively high rates of medical errors (which often lead to need for costly additional medical care).
• Medical care expenditures are in the neighborhood of 20% of GNP.
• Many employers now face INTERNATIONAL COMPETITION and high costs of medical insurance for employees become a competitive issue for them.
• The search for business processes that are less labor intensive leads to rising unemployment rates.
• As unemployment increases the number of people eligible for Medicaid increases.
• RATIONING of care among those dependent upon Medicaid takes two forms -- decreasing the rolls and decreasing the range and quantity of services available.

BOTTOM LINE -- MARKETS ALONE DON'T WORK, REGULATION ALONE DOES NOT WORK, AND THE COMBINATION OF REGULATIONS AND MARKETS IS VERY COMPLEX AND DOES NOT APPEAR TO WORK.

What we seek is HIGH ACCESS to QUALITY MEDICAL CARE for EVERYONE at affordable COSTS.

The conclusion of chapter 6 highlights the four major cost drivers.

• The stakeholders are able to influence political decisions in ways such that decisions are not likely to be workable at the expense of any of the major stakeholders.
• Solutions intended to produce cost containment are likely to negatively effect someone's existing quality of care. The existing system (more or less) WORKS for many Americans. There is a natural human preference for the known over the unknown.
• Demographics are not on the side of cost containment.
• Technological advances (including new drugs) often serve to lengthen life but generally do not cure any illnesses. Long-term dependence upon medical devices and drugs is costly especially for conditions such as AIDS.

The production of most goods and services are determined by SUPPLY AND DEMAND. This does not work well because the PROVIDERS tend to control both supply and demand and because the "CUSTOMERS" do not usually directly bear the burden of the costs, as in most other markets.

Improving ACCESS tends to drive costs up.

MARKET COMPETITION which works quite well in most markets tends not to work well in medical care markets. The bottom line is that we have a problem with telling people they must suffer and die because they cannot afford medical care.

So we introduce REGULATION and find that regulation NEITHER REDUCES THE NEED FOR MEDICAL CARE nor INCREASES THE SUPPLY OF MEDICAL SERVICES.

Regulation tends to produce "tons" of paperwork that costs both the government and providers a lot of money to produce. The experiences of the former Soviet Union are evidence that CENTRAL REGULATION OF ENTIRE INDUSTRIES is impossible. No one (or group) of people is smart enough to call all the shots.

SO WE INTRODUCE MODERN INFORMATION TECHNOLOGIES. We begin making mistakes faster. THE BOTTLENECK IS THE LIMITED CAPACITIES OF INDIVIDUAL HUMAN BRAINS AND THE INABLILITY TO SCALE UP HUMAN COGNITION through organization structures, committee meetings and the like.

So, markets don't work. Regulation does not work. Information technology does not yet provide artificial intelligence we can trust in.

So we COMBINE REGULATION WITH MARKETS and automate whatever we can automate and we find ourselves in this situation . . .

• the system absorbs the change and adapts to a new "attractor" (pattern of behaviors)
• often, fraud and abuse of the system increases
• providers either "buy off" regulators or keep them in the dark by hording information
• providers avoid "telling on" each other
• patients receive often unneeded (and potentially dangerous) services
• providers sometimes diagnosis patients for their fiscal potential (wrong DRGs)
• patients avoid the preventive care that could save much money in the long run
• competition frequently kicks in in dysfunctional ways
• larger and larger percentages of gross domestic produce (GDP) get pulled into medical services and prescriptions
• PPS tends to cause fewer hospital admissions and in combination with prepayment based on DRG to a preference for surgery over other means of treatment. The expected result is a boom in outpatient surgery proceedures.

CONCLUSION OF THE CHAPTER

• "Politics" is not on our side.
• It appears impossible to have both manageable costs and universal access.
• Demographics are not on our side right now.
• Technology cuts both ways.

BIG QUESTIONS

• Can we "increment" our way forward and out of the present crisis?
• For how long is a crisis condition sustainable?
• Given that something eventually "has to give" at a systemic level, what will be the nature and the scope of the adjustment into a new "attractor?"

TERMS

• GDP -- gross domestic product (in a year)
• DRG creep
• The Roemer effect
• The capture theory of regulation
• HSA's -- local health systems agencies
• CON -- certificate of need
• PSRO (professional standards review organizations) and PRO (peer review organizations)
• managed care
• HMO's -- health maintenance organizations
• PPO's -- preferred provider organizations
• capitation
• DRG -- diagnostic related group
• PPS - prospective payment system