Tag: healthcare economics

The knowledge worker is dead, long live the strategic worker.

On By sethhardyIn healthcare, strategyLeave a comment

We are in the midst of a secular shift in labor which is being driven by both rising interest rates and technology.  As I’ve already shared, physicians are not immune to either of these forces.  Envision has recently filed for bankruptcy and ChatGPT is going to have a profound impact on radiologist certification and value (coauthor Lincoln Berland).  The era of the “knowledge worker”, promoted by the 1960’s leadership guru Peter Drucker, is likely dead.  As physicians are largely knowledge workers (radiologists particularly so) is time to reinforce how we can create value.  My niece is a perfect case study.    

When I finished high school in 1990, public school superintendents trumpeted their college acceptance rates (with no follow-up on how many actually finished).  The message was if you didn’t go to college then you were a second-class member, you didn’t belong, you were a failure.  Today, not a moment too soon, this perception is changing.  

My niece Libby, for whom the traditional classroom was never attractive, has been fortunate enough to have the option to obtain her EMT certification during her last two years of high school.  She will graduate with a tangible skill which is desperately in need within our communities, a strategic long-term win-win deal for taxpayers.  During a recent practical ride-along with a local EMT squad she helped pick a woman off the floor and place her broken arm in a sling.  The feedback of “Oh, this is the first time I haven’t been in pain in hours,” is invaluable to a student like Libby.  For someone like myself who tries to help faceless patients at the edge of K-space and immunotherapy, it is also a lesson in humility.

As Libby graduates, she reached out to me to learn where she could buy a stethoscope.  Having two that haven’t been touched in 20 years, I offered her the one given to me at my medical school matriculation.  It will be infinitely more useful in her hands than it ever was in mine.  

This tangible tool being passed through the generations is also a signpost for our changing labor markets.  It will anchor Libby to a sustainable career by physically attaching her to the human beings who need her help.  Because of this tangible tether, she cannot be outsourced to AI nor is she at risk of being seen as too expensive as the cost of capital rises and some white-collar knowledge workers can no longer generate marginal value.  Her EMT certification is a gateway to future certifications as a medic or registered nurse, levering her value in our community for the taxpayers who have helped educate her.  Her certification is more valuable today than some bachelor degrees being handed out four years into the future. 

The labor teaching our children, responding to emergencies in our communities, fixing our plumbing and building homes, supplying our food, and working in recently onshored factories will be in demand.  Their jobs won’t be static, but will be there.  The rest of us, like Libby’s college bound twin, need to embrace the fact that the knowledge worker is dead.  We must become more strategic in our approach to our future careers.  We need to understand value, and iteratively ask ourselves whether we are delivering value.  In other words, we need to develop the professional sustainability skills that Libby is launching with.  

The knowledge worker is dead, long live the strategic worker.  There are several ways to be strategic in our workplaces, and one is our human networks.  Tangible tethers to other humans, like the stethoscope or a physical product delivered to a neighbor, will be difficult for either technology or rising capital costs to displace.  Strategic workers will recognize this fact and actively strengthen those networks.  

Current gaps in breast cancer screening

On By sethhardyIn UncategorizedLeave a comment

This Letter to the Editor of the Journal of the American College of Radiology was rejected for publication in the Spring of 2020, shortly after Dr. Monticcillo’s article appeared on line, and is offered on this blog. The author has not renewed his membership in the American College of Radiology in 2021.

I am grateful for Dr. Monticciolo’s recent work entitled “Current Guidelines and Gaps in Breast Cancer Screening”, and especially for discussing the challenges among low socioeconomic (SES) and black populations. Dr. Monticillo’s point that the elimination of cost sharing “helped mainly those already insured” is a critical economic issue.[1]  

Scandinavian studies lend evidence to the value of image based breast cancer screening, particularly given their frugality. Some use single-view screening, while more recent data uses two-view exams.[2] The lower cost of their techniques creates great value for those populations, and raises the possibility access to any form of imaging has the greatest benefit while technical factors may be less significant.  

I disagree that cost and access “need[s] to be addressed at the primary care level”.  Low SES communities, by definition, do not have the resources to increase access.  This is an issue that radiologists must own or risk forfeiting our leadership position. Without ownership, and actively working to break down barriers to care, radiologists cannot criticize the American Cancer Society or the United States Preventive Services Task Force.   

Furthermore, ACR advocacy for increased coverage of tomosynthesis will only help the insured,[3] not the most vulnerable populations described by Dr. Monticciolo. Half of the uninsured in our country are people of color.[4]Furthermore, in 2018, 11.5% of black and 19.0% of Hispanic populations were uninsured vs. 7.5% of whites.[5]  

While industry may believe that it needs tomosynthesis to increase accuracy (or perhaps to drive sales), the increased technical costs only widen the gaps between insured and low SES and/or black populations. The ACR must refrain from advocating for policies which may have the unintended effect of reinforcing structural racism.  

Leaders in breast cancer screening, the ACR, and our journal must address economic barriers and structural racism, or we will be displaced. As an industry we need to be mindful of the disparate impact which insurance and new technology have on our most at risk populations.

[1] Monticciolo D. Current guidelines and gaps in breast cancer screening. J AM Coll Radio. 2020 Oct;17(10):1269-1275..

[2] Tabár, L., Vitak, B., Chen, T.H.-H. et al. Swedish two-county trial: impact of mammographic screening on breast cancer mortality during 3 decades. Radiology. 2011; 260: 658–663

[3] Grosskreutz S. How we achieved universal 3D mammography coverage in Hawaii – and how you can, too. ACRpublicrelations November 6, 2019. https://voiceofradiologyblog.org/2019/11/06/how-we-achieved-universal-3d-mammography-coverage-in-hawaii-and-how-you-can-too/ accessed 7/13/20.

[4] Young CL. There are clear, race-based inequalities in health insurance and health outcomes. Brookings. February 19, 2020. https://www.brookings.edu/blog/usc-brookings-schaeffer-on-health-policy/2020/02/19/there-are-clear-race-based-inequalities-in-health-insurance-and-health-outcomes/ accessed 7/13/20.

[5] Artiga S, Orgera K, Damico A. Changes in health coverage by race and ethnicity since the ACA, 2010-2018. Kaiser Family Foundation. March 5, 2020. https://www.kff.org/disparities-policy/issue-brief/changes-in-health-coverage-by-race-and-ethnicity-since-the-aca-2010-2018/ accessed 7/13/20.

Beware of Rising Interest Rates

On By sethhardyIn healthcare, Uncategorized6 Comments

Interest rates are the most important economic influence on our economy; they reflect the value of money. Entities with excess money become lenders. Borrowers, such as hospitals or larger healthcare systems, exchange money from lenders based on this interest rate. During times of normal interest rates these rates include a premium based on the creditworthiness of the borrower, which is known as the risk premium.

In the past decade we have seen record low interest rates as central banks have used monetary policy to stimulate their economies. Most recently, and for the first time in history, some central banks have been using negative interest rates with the hopes of stimulating supply of money and economic activity.[1]

In low interest rate environments there are significant economic risks including:[2]

  • Hurting pensioners who are dependent on interest from savings
  • Encouraging speculative activities as there is cheap access to money
  • Indiscriminate lending by insurance companies, pensioners, and institutional investors who need income (aka “reach for yield”) and ignore risk premium
  • Increased assumption of debt by hospitals, firms, and governments

The last three items are important as we consider the economic health of the hospitals or radiology departments in which many of us work.

In an article on the debt crisis rolling from the real estate industry into other markets, The Economist notes, “there is plenty of evidence to suggest that rapid debt build-ups are the hallmarks of periods of indiscriminate lending that eventually end in tears.”[3] Should interest rates start to rise, rates of risky loans are likely to increase disproportionally as lenders become more discriminating thereby adding higher risk premiums on top of the already higher interest rates. Hospitals with debts that must be refinanced in the next few years may find themselves in a difficult position.

Furthermore increasing government regulation, uncertainty with the Accountable Care Act, or decreasing revenue from MACRA add to any pain of future interest rate increases as these additional burdens reduce operating revenue. Warren Buffet encapsulates this difficult dynamic when he states, “When the tide goes out you can tell who’s been skinny dipping.” The tide is already receding in our rural hospitals were 700 may be at risk for closing.[4]

On a national scale, in an uniquely American Shakespearean tragedy, one of our largest for profit hospital networks swallowed “a poison pill” as they struggle to refinance $2.2B in long-term debt due in 2018.[5] As Community Health Systems struggles to roll their debt forward, they plan on selling up to 25 hospitals[6] two of which have been in Easton and Sharon, Pennsylvania this past February.[7]

Case in Point

A medium-sized medical center in rural New England opened a new hospital in November of 2013, with the help of a $280m bond offering. At the time of the initial sale, these bonds received a middle-to-low investment grade rating from Fitch and Moody’s. The new hospital is aesthetically beautiful with a light-filled, spacious entrance, glass, tile, wood panels and a pagoda garden, featuring a waterfall and fountain. The floor plan is efficient, there are new computers and scanners, and the building is efficient to heat and cool. Yet, the annual cost to service this debt is approximately $20 million per year.[8]

Does $20 million per year buy you an improved business? Certainly the new building is a huge marketing asset. Yet does it help with management, cash flow, accounting, or organizational strategies? Probably not, most of these functions could be performed in a trailer with a dial-up modem.

Does $20 million per year buy you improved financial stability? The short-term trend for this institution is not good. In FY15 the hospital lost $24 million from operations. In 2016 they just broke even.

Does $20 million per year buy improved quality? Apparently not, the length of stay at this hospital has increased 11% over the past 4 years from 4.8 to 5.4 days.[9]

This hospital’s bond rating from Moody’s has dipped two steps below the “junk” threshold. Fitch has a negative outlook on the debt, which signals to investors that further downgrades are possible. When this hospital needs to roll their debt forward they may have to do so at higher rates, further compromising their cash flow and long term sustainability.

Takeaways

Radiology and Radiation Oncology are perhaps the most capital-intensive specialties in medicine. We are dependent on continuous investment in expensive equipment and IT infrastructure. Some debt is normal and can even be healthy. However, too much debt can be an unsustainable burden. The low interest rate environment of the past decade may have created scenarios where our hospitals or healthcare systems have taken on too much debt, risking their ability to deliver medicine into the future. As rates rise (or the proverbial tide recedes), a skinny-dipping hospital administrator is likely to expose him or herself. In the current environment of diminishing reimbursement and increasing regulation, the number of exposed administrators would be an especially gruesome event.

Ultimately, the choice of spending money on debt payments vs. patient care is tricky. From the perspective of a community and physician, there are significant risks to working in a highly indebted hospital. Finding a conservative, well-capitalized hospital in which to work is increasingly difficult.

A basic understanding of the financial and economic forces affecting our hospitals is essential as we plan and manage our careers. We need to be aware of our institution’s amount of debt, bond ratings (if they exist), and interest rate trends to appreciate the relative security and stability of our home institutions. A large amount of debt, or a low credit rating, may be a concern to a young physician choosing a future employer. Working at a veterans’ hospital may be attractive to physicians as the owner is the same organization that prints money. Thus, the parent organization of the Veterans Health Administration retains a nearly perfect credit rating.

[1] Bankers v mattresses. The Economist; November 28, 2015. http://www.economist.com/news/finance-and-economics/21679231-central-banks-are-still-testing-limits-how-low-interest-rates-can-go-bankers accessed November 30, 2015.

[2] Kliesen KL, Low Interest Rates Have Benefits… and Costs. Federal Reserve Bank of St. Louis. https://www.stlouisfed.org/publications/inside-the-vault/spring-2011/low-interest-rates-have-benefits-and-costs accessed November 18, 2015.

[3] Pulled Back In. The Economist; November 14, 2015. http://www.economist.com/news/briefing/21678215-world-entering-third-stage-rolling-debt-crisis-time-centred-emerging accessed November 16, 2015.

[4] Already troubled, rural hospitasl brace for effects of Obamacare repeal. CNN.com http://www.cnn.com/2017/01/17/health/rural-hospitals-aca-repeal-partner/ accessed February 22, 2017.

[5] Community Health Systems Adopts Poison Pill. Wall Street Journal https://www.wsj.com/articles/community-health-systems-adopts-poison-pill-1475532170 accessed February 22, 2017.

[6] CHS Stock Rallies After Chain Meets Guidance, Says It Will Sell a Total of 25 Hospitals, Modernhealthcare.com http://www.modernhealthcare.com/article/20170220/NEWS/170229996 accessed February 22, 2017.

[7] CHS to Sell 8 Hosptials to Steward Health Care. Beckershospitalreview.com http://www.beckershospitalreview.com/hospital-transactions-and-valuation/chs-to-sell-8-hospitals-to-steward-health-care.html accessed Februrary 22, 2017.

[8] MaineGeneral Health and Subsidiaries Annual Report http://emma.msrb.org/EP876101-EP678461-EP1080081.pdf accessed November 30, 2015.

[9] MaineGeneral Health Annual Financial Information for Period Ended June 30, 2016 http://emma.msrb.org/ER999130-ER781677-ER1182905.pdf accessed February 22, 2017.

MACRA’s Endgame

On By sethhardyIn healthcare, Uncategorized3 Comments

Students of economics and business know that one of the fundamental tenets of microeconomics is that firms will enter a marketplace until an equilibrium is reached whereby the economic profit in that market becomes zero. Once this happens, some firms will drop out of the market; others will innovate, reduce costs, and eak out an economic profit greater than zero. The cycle then repeats until a new equilibrium is reached, over, and over, and over. As these cycles move forward productivity increases and costs drop. Ultimately micro crosses over into macroeconomics. Consumption of goods increases and GDP rises.

So as we enter the era of MACRA and MIPS where are we headed as an industry? Are we going to suddenly violate the aforementioned economic laws? Of course not, MACRA is set-up to be budget neutral. In the short run, the winners in this competition take from the losers, but over time the losers will either consolidate with the winners, or elevate their game to match the winners. At that point, like a millennial soccer game, everyone is a winner and everyone’s reimbursement will reset back to the mean. A new equilibrium is reached.

So, although it may appear that CMS is offering a carrot to innovative practices and physicians to adapt the prescribed quality metrics, this appearance is an illusion. CMS is quietly coercing compliance to their metrics through fundamental economic principles.  This behavior from CMS would be somewhat justifiable if their metrics were linked to improving efficiency in the marketplace, but in most cases there is no evidence of this link.

Of course, when a new MACRA equilibrium is reached, we can expect CMS to further disrupt the system and add new hurdles; wash, rinse, repeat. Meanwhile, compliance with these hurdles will cost the industry a tremendous amount of money, to the point where they can no longer make an economic profit. CMS’s plan risks ultimate medicare market collapse.

So how long will the medical industry tolerate the government’s regulatory game before they wake up and a mutiny ensues? This is hard to predict. In my experience, physicians and hospital administrators tend not to be very economic or business savvy. Sooner or later as the losers get their act together and the equilibrium resets, the industry may realize CMS’s game.  If they don’t, they will follow CMS right over the cliff towards marketplace collapse.

I recall my Economics professor frequently quipping, “I can predict the future, I just can’t tell you when.”

Reviving a Classic Model in Medicine

On By sethhardyIn healthcare, Uncategorized, veterans3 Comments

In the mid 1970’s Dr. George Engel pioneered the biopsychosocial model of medicine. The model is pretty self-explanatory, yet I used to get lectures about it as a child while I was trying to eat Honey Nut Cheerios and watch Spider-Man. You see, my father trained under Dr. Engle at the University of Rochester and has practiced behavioral neurology since that time. So as in a scene from A River Runs Through It, I learned about Dr. Engel’s gospel at an early age.

I am haunted by the report that our federal Department of Health and Human Services (HHS) is considering handicapping metrics for physicians who work in difficult psychosocial communities.

Only a federal bureaucrat would commission a study to validate Dr. Engel’s four-decade-old work. A lay reader of Wikipedia can easily understand the impact upon HHS or Medicare biomedical metrics for physicians who choose to serve challenging psychosocial communities. Yet the New England Journal of Medicine and Harvard School of Public Health weigh in suggesting we need further study and more metrics with increasing fudge factors.

There is no need to complicate the debate over our nation’s healthcare crisis with more noisy commentary.  These proposed and increasingly complicated metrics will require employed non-clinical PhD or MPHs to decipher. Buried in the middle of the NEJM text is the only significant statement in the entire piece, “we need to make strides in addressing the underlying issues themselves.”

Caring for a diabetic in Detroit is very different than Grosse Point. The biology is the same, however the psychosocial challenges are completely different. As a medical student I was quite fortunate to have a Henry Ford Hospital primary care continuity clinic in Detroit. My patients had psychosocial challenges a kid from the Brahmin Boston suburbs could never imagine. For example, residents of Grosse Point or Hingham do not contract syphilis when their spouse comes home from prison. Nor do they have transportation barriers in seeing their physician or diabetes nurse.

Rather than HHS further complicating their already arcane metrics with fudge factors for physicians in challenging communities (requiring data wonks to interpret), why not keep it simple and address the whole patient?  We need to provide support for psychosocial barriers to health. This would take money away from healthcare programs that folks in Hingham and Gross Point enjoy but there is no need to further disenfranchise those Americans who are already struggling.

Our Veterans Healthcare Administration remains the most enlightened healthcare system I have seen regarding Dr. Engel’s model.   By imbedding psychologists and social workers within primary care clinics, those PCPs can provide warm hand-offs to qualified professionals to break psychosocial barriers to a veteran’s health. This is a model that should be duplicated elsewhere in the public and private sectors as it improves access and reduces downstream costs of chronic diseases such as smoking, substance abuse,  diabetes, and obesity.  Unfortunately, it appears that HHS, NEJM, and Harvard are moving in a different direction.

Medicine’s Trilemma

On By sethhardyIn healthcare4 Comments

This past year, The Economist published a series of Six Big Ideas that define economics today. One piece, entitled Two out of Three Ain’t Bad, discussed the macroeconomic concept of the trilemma.   The article begins:

Hillel the Elder, a first-century religious leader, was asked to summarize the Torah while standing on one leg. “That which is hateful to you, do not do to your fellow. That is the whole Torah; the rest is commentary,” he replied. Michael Klein, of Tufts University, has written that the insights of international macroeconomics (the study of trade, the balance-of-payments, exchange rates and so on) might be similarly distilled: “Governments face the policy trilemma; the rest is commentary.”

In the field of macroeconomics, policy makers must understand the complicated relationships between interest rates, exchange rates, and capital flows. The self-interested decisions made by countries impact the economies of others. Fortunately, medicine is much simpler.

In a previous posting, I discussed the operational priorities of cost, quality, timeliness, and flexibility. If we substitute the term “access” to represent a combination of timeliness and flexibility, we can construct a similar trilemma for medicine. This medical trilemma would consist of cost, quality, and access. It would look something like this:

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The key to a trilemma is that an operator must pick one side of the triangle to operate along. The operational priority at the third point cannot be directly influenced; it is a dependent variable that only responds to inputs from the chosen side of the trilemma.

A medical trilemma could unify and support discussions regarding operations in medicine. Much of the debate in health care today argues one of these points in isolation, which is reductionistic, noisy, and fails to produce sustainable solutions.

untitled

If viewed through the lens of the trilemma, it becomes clear that that we need to focus on costs and access. The increasing financial burden that Americans spend on healthcare is already unsustainable; it continues to consume up to an unhealthy 20% of GDP. Within families, difficult choices must be made with limited resources. On a national scale, this healthcare expense siphons money away from our schools, defense, and infrastructure. Costs must be contained, and there is increasing awareness within radiology that perhaps costs have been ignored for too long.

Regarding access, the demographics of the health care consumer are not favorable. By now we should all be familiar with the concept of our aging population and the fact that demand for healthcare is likely to outstrip supply in the coming decades. So where does that leave quality? I believe that quality will be the dependent variable left to float.

I am not suggesting we enact “death panels” or anything that inflammatory. I am simply suggesting that future gains in quality must be viewed through the lenses and operational priorities of cost and access. We must focus on operating along the base of the depicted trilemma given our current American demographic and financial tensions.

For example, many pharmaceutical companies are currently developing personalized medicine solutions regardless of expense. This strategy may not be sustainable in the long run. A $250,000 immunotherapy that yields a few additional weeks of sickness would not be supported by this trilemma.

Given the constraints in America today, two out of three is not bad. In the future, perhaps we will apply this model to other examples in medicine and decide what is important and what is noisy “commentary”.