American Medicine – Perverse Incentives… Hold the Mayo

In a recent Op. Ed. in the Wall Street Journal, John Goodman, president of the National Center for Policy Analysis compares the American healthcare system to the American education system:

Our public-school system and our health-care system may seem as different as night and day. Yet both systems share something in common: Mediocrity is the rule and excellence, where it exists, is distributed randomly.

In both cases the reason is the same. There is no systematic reward for excellence and no penalty for mediocrity. As a result, excellence tends to be the result of the energy and enthusiasm of a few individuals, who usually receive no financial reward for their efforts

As a physician who has railed against the systemic problems for years, these two opening paragraphs were like the sound of sweet music.  Daily I live in a world where I strive for excellence despite the payment system that discourages such behavior.   To finally hear someone stand up and point out the king\’s lack of clothes is most gratifying.

He goes on by siting a study that suggests that if everyone in the US would go to the Mayo clinic, they would save 25% of their cost, and if everyone went to Intermountain Healthcare in Salt Lake City, they would save one-third.

Of course, not everyone can get treatment at Mayo or Intermountain. But why are these examples of efficient, high-quality care not being replicated all across the country? The answer is that high-quality, low-cost care is not financially rewarding. Indeed, the opposite is true. Hospitals and doctors can make more money providing inefficient, mediocre care.

This seems similar to the previous suggestion that integrated systems like the Cleveland Clinic are the best way to deliver care.  So what does Mr. Goodman suggest as the root of this problem?

One would be hard-pressed to find a lawyer in the U.S. today who does not keep client records electronically. Ditto for accountants, architects, engineers and virtually every other profession. Yet although the computer is ubiquitous and studies show that electronic medical record systems have the capacity to improve quality and greatly reduce medical errors, no more than one in five physicians or one in four hospitals have such systems.

Why has the practice of medicine (as opposed to the science of medicine) changed so little in the modern era? The reason is because of the way we pay for medical care, particularly the way we pay doctors. At last count, there were about 7,500 specific tasks Medicare pays for. Telephone consultations are not among them. Nor are email consultations or electronic record keeping. What is true of Medicare is also true of Blue Cross and most employer plans.

While I don\’t disagree with this assessment (and would welcome being paid for e-mail and phone calls), I also think that the lack of enough capital to pay for these systems is also a problem.  In offices where the office visit is the primary source of revenue (predominantly primary care), the margins are so small that any investment to make the process more efficient would cause great strain on the practice.

Mr. Goodman takes an interesting angle on the US healthcare market:

Things are made worse by the fact that patients do not usually pay for health care with money; they typically pay with their time instead. As in Canada and most other developed countries, health care in the U.S. is mainly rationed by waiting, not by price.

When the doctor\’s time is rationed by waiting, the primary care physician\’s practice is usually fully booked, unless the practice is new or located in a rural area. As a result, there is very little incentive to compete for patients the way other professionals compete for clients. Because time — not money — is the currency we use to pay for care, the physician does not benefit very much from patient-pleasing improvements and is not harmed very much by an increase in patient irritations. Bottom line: When doctors and hospitals do not compete on the basis of price, they do not compete at all.

His suggestion is not, however, to go to a single-payer system so that the costs can be better controlled.  This would, in fact, would inhibit the very innovations that are necessary for change (as Dr. Crippen would presumably concur).   It is a very interesting concept that he brings up: the rationing of medicine by waiting.  This is the case in the US, and from what I hear the UK and Canada are driven even more this way.  If you wait in other businesses, you take your care elsewhere.  If you wait in medicine, you must have a good doctor.

There are examples within the system where the usual payment system is bypassed and competition has resulted in efficiency and improved service (lasik eye surgery is a good example).  But can this entrepreneurial approach be applied to the system as a whole?

A possible way out of this morass is to start with government. Under the current system, Medicare and Medicaid stifle entrepreneurial activity and financially punish efforts to lower costs or improve quality. Why can\’t these agencies reward improvements instead? Suppose an entrepreneur offered to replicate the Mayo Clinic in other parts of the country — potentially saving Medicare 25% of costs and improving quality of care along the way. Medicare should be willing to pay, say, 12.5% more than its standard rates in order to achieve twice that amount in lower total costs. That would leave the entrepreneur with a 12.5% profit — an amount that one would hope would encourage other entrepreneurs to enter the market with even better ideas.

Once government agencies jump-start the entrepreneurial process in this way, private insurers are likely to follow suit. In this way, government could promote entrepreneurship, instead of stifling it.

While I applaud the overall approach to the problem, I think there is an important component missing.  It seems the main reason Mr. Goodman gives for innovation is to become more efficient (i.e. to save money).  The primary focus of any reform, however, should be in that of value as opposed to savings.  Saving money is a laudable goal as long as it does not happen at the expense of medical quality.  But efficient bad care is still bad care.  Any system that does not address the issue of quality misses half of the equation.

So what do you think?  Does healthcare reform require more or less government intervention?  Should quality be rewarded?  If so, how do you avoid the pitfalls so many fear from P4P?  The issue is coming to a crisis point, and I doubt that any good solutions will come from politicians or bureaucrats.  While articles like Mr. Goodman\’s elevate the debate, the best solutions will, in my opinion, come from those with the most at stake: physicians and patients.