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  • Real Medical Innovation, and Closed Systems

    Posted by Carl from Chicago on November 21st, 2009 (All posts by )

    One of the biggest follies in the health care legislation is assuming that America is a “captive system” or a “closed system”. In these sorts of models (probably Hawaii is a good example) you can implement change and individuals don’t have a lot of choices and thus fees or taxes can be used to subsidize wholesale change.

    The truth is much more complex; individuals are intelligent, many choices exist, and people respond to incentives. In addition, companies and even entire countries take different approaches to profit from opportunities that arise from these sorts of captive assumptions.

    This article from the Wall Street Journal titled “The Henry Ford of Heart Surgery” analyzes a company in India that is pioneering economies of scale in heart surgery by 1) building huge facilities, 2) focusing on reducing all costs throughout the system from medical equipment to sutures, 3) hiring surgeons and having them perform the same types of complex surgery over and over to become experts on that specific task and 4) changing the hours of use and of doctors so that expensive medical equipment has a higher utilization rate which reduces the average cost / use.

    This medical complex is already larger and performs more surgeries than their equivalent leaders in the US. The mortality rates also appear in line, although this is a difficult item to measure “apples to apples” (because it depends on how sick people are when they enter the facility).

    Individual doctors at this facility also have performed the particular, complex and unique surgeries more times than their equivalents elsewhere; often surgeons do many types of surgeries rather than focusing on a single type because there aren’t enough patients with the exact same malady. As surgeons do the same procedure over and over, they get better at it and outcomes improve.

    There is a GIANT productivity gap between services and manufacturing in the United States and around the world. Manufacturing often measures defects using 6 sigma, meaning one error for every 300,000 or so events; from my encounters with the medical system, I would say one error for every hundred or so events would be more probable (and this is optimistic). Not only are error rates higher, but utilization rates are poorer – giant facilities that are closed at night and on weekends, leaving expensive equipment idled. Huge overheads of staff and lavish offices and inefficient billing and tracking mechanisms exist (which often get squeezed out of cost-conscious manufacturers), and the absence of standardized procedures and methods is commonplace.

    The funny thing is that hospitals and most of the service industry have been this way for so long that they don’t even realize that there IS a gap. Per an interview in the article:

    My only issue with it comes from the fact that if you pursue wholesale volumes, you may give up something – which is usually quality

    If you said this to a manufacturing expert they’d stare at you blankly; moving up to large scale production in a consistent and controlled manner will increase quality relative to doing something in small-batch scale in an independent manner. At least the article had the common sense to talk to others.

    But Jack Lewin, chief executive of the American College of Cardiology says Dr. Shetty has done just the opposite – used high volumes to improve quality… surgeon Colin John, for example, has performed nearly 4,000 complex pediatric procedures known as Tetraology of Fallot in his 30-year career. The procedure normally repairs four different heart abnormalities at once. Many surgeons in other countries would never reach that number of any type of cardiac surgery in their lifetimes.

    As far as machinery, the article notes that expensive pieces of equipment are used 15-20 times a day, at least 5 times more than in an American hospital.

    The company described in the article is planning on opening a large hospital in the Cayman Islands, an hour’s flight from Miami, intending to attract Americans looking for elective procedures or self-insured. There is a large profit in this sort of activity, assuming it is well planned-for and efficiently run.

    Our debate on the medical bill is stifled by having the wrong goal – universal access. This sort of access to our small-scale and inefficient medical sector will just cause costs to soar and break the public purse.

    Not that it would ever happen, but a better model would be to break down the current inefficient small-scale model and build an efficient public model from the ground up, probably based on the VA model but also consolidating procedures, utilizing equipment more efficiently, and cutting costs throughout the system. In parallel, a private system would rise up for those who want to opt out for more customized or personalized care.

    The reality is that you can’t mandate what people do for their children, or in life-or-death situations. Public schools exist everywhere, but many / most people with opportunities to avoid it don’t send their kids to those schools where the schools are poor. People move when neighborhoods get bad; you can’t mandate that people live in Detroit or Cleveland (the city proper); thus problems there compound and spiral.

    If the government really takes everything over then there will be giant opportunities for offshoring medical care – don’t want to wait in line? Leave. And if the system wants to tax everyone as a percentage of income to pay for medical insurance, then the wealthy will have a huge incentive to leave since the actual cost of medical bills (ignoring the subsidization of others) is far lower than what they’d pay if a 10% surcharge was put on their income all the way up.

    It is sad that America, a nation of invention and entrepreneurs, is being passed up by others in the area of structural medical innovation. Certainly government intervention on a large scale will only make the problem drastically worse.

    Cross posted at LITGM

     

    9 Responses to “Real Medical Innovation, and Closed Systems”

    1. Michael Kennedy Says:

      I agree with this completely. A current book that would be worth reading is The Innovator’s Prescription which discusses similar ideas. In 1995, when I was at Dartmouth, there was great interest in the methodology of improving quality of care in cardiac surgery (And other areas). They had done a study in which a group of hospitals in New England had agreed to study their own processes, including having staff members from other hospitals observe each other. They analyzed process and, as a result, were able to reduce morbidity by a factor of three.

      I returned to California with the intention of working on quality improvement projects with hospitals, insurers and HMOs. I found no interest. Most assumed that improved quality meant higher cost, ignoring the example of Toyota.

      The current health reform legislation is written by tax lawyers and has no possible benefit to quality or improved efficiency. It is more in the line of “Floggings will continue until morale improves.”

      I do think, if this passes, we will see the evolution described above. A flight to quality will occur, both local in the form of cash only practices, and in technology with off-shore specialty surgery clinics. Some years ago, an Egyptian anesthesiologist friend of mine wanted to start a hernia clinic on Ibiza for Arabs. He would talk to the patients and I would do the surgery. I probably should have done it.

    2. Carl from Chicago Says:

      Your comment means a lot considering that you are a respected doctor and I am just a businessman who likes to write about general topics. I appreciate it.

    3. Harry Angstrom Says:

      [Sock puppetry deleted by Jonathan.]

    4. david foster Says:

      HA…what do you mean by “soaring percentage?” Do you actually think India’s malnutrition rate is *higher* than it was 10 or 20 or 30 years ago?

      Links?

    5. Michael Kennedy Says:

      I don’t know how many people will go to India for high tech treatment but I can see them going to Cayman Islands or Mexico, Many years ago, a friend of mine decided to give up his ENT practice and move to Palm Springs to do facial plastic surgery. He wasn’t all that well trained and there was some doubt about how well it would work. Well, he worked a deal with the resort hotels there to give cheap rates to his post-op patients in the off season. The whole thing took off and women would go there to have plastic surgery and then recuperate in the luxury hotel where their friends wouldn’t see them. It was one of the first of the resort medical travel concepts.

      Heart surgery is a bit different than facelifts but I can see total hip replacements and other elective procedures as part of a package deal. The busiest hip replacement surgeon in Orange County, CA, I understand, has dropped Medicare and does his work for cash. There are other orthopedists who have done the same thing. Some entrepreneur will set up a rehab program in a resort area outside the country and do quite well. The heart hospital concept is already an active alternative. Moving it if necessary won’t be that hard with the Obamacare alternative to stimulate referrals.

    6. Nicholas Says:

      Fascinating, thanks for this post. If only we in developed countries could have a free enough financial/medical system to promote innovation like this.

    7. Marty Says:

      Great post and comments. There is already quite a traffic to India for cosmetic surgery not coverred by most insurance, in the patient’s interest of saving $$.

      Two thoughts:

      1. Procedures not normally covered by insurance have seen much lower price rises than othe rmedical care—the difference being price sensitivity by the patients/customers. So, of course, the health care bills in Congress do away with HSAs. Mustn’t let the inmates have any options.

      2. The idea that standardization might degrade rather than enhance quality suggests a person viewing medicine as art rather than science. This may flatter some egos but is inconsistent with trying to provide high quality and affordable care to a large market. There is room for some artists at the cutting edge, where genius should count in developing new things, but the vast majority of care is properly doing things that have been done millions of times before, and that’s not art, that’s production.

    8. Jonathan Says:

      Great post. While I agree with many conservatives that the current medical legislation will be terrible if passed, I suspect that the outcome will not be as bad as many people fear, because as you point out the USA is no longer a closed system. I hope that this is true in finance as well. The difference in medicine is that, unlike in finance, countries aren’t trying to create an international regulatory cartel (not that a regulatory cartel will necessarily work in finance, but the regulators have a good chance of making it much harder to do business). And of course the people who are most hurt by any top-down medical “reform” will be the people who are too poor to buy their own services — the very group that the medical scheme is supposedly designed to help.

    9. ElamBend Says:

      I can see the Carib islands becoming destinations for complicated treatments and cruise ships for less complicated. Why pay a tax for botox when you can take a one-day cruise and get it discount.
      This monstrous bill will only hurt the poor and unresourceful, supposedly those it is meant to help.