Tag: hospitals

It’s [Still] The Prices, Stupid

On By sethhardyIn Uncategorized1 Comment

Inefficient markets create price differentials for identical goods. These price differentials frequently occur among markets dominated by oligopolies. Taking advantage of market pricing inefficiencies is known as arbitrage. Commodity traders frequently arbitrage by buying low and selling high. In inefficient markets for perishable goods, such as airline tickets, hotel rooms, or medical imaging, there is no opportunity to re-sell these goods. Thus consumers of these goods, such as health insurance companies, will attempt to buy at the lowest possible price to maximize value. Today we see many apps and websites, such as Expedia, that engage in improving these markets in airline and hotel industries. Stroll Health is one company attempting to scale this behavior to medicine.

Our current Hospital Outpatient Department (HOPD) payment schedule is one example of an inefficient market where identical CPT codes are priced very differently based on whether they are provided in a grandfathered hospital outpatient department or a freestanding outpatient medical center. Hospital accountants will justify this higher payment schedule by attributing social expenses such as police and training programs. Other HOPD supporters will claim they deliver relative value through higher quality (outcomes) that justifies (often disproportionally) higher prices. Yet increasingly “illusions about value: that we know what it means and can measure it, that the same things matter to all patients” are being voiced.

If the value numerator (outcomes) in healthcare is increasingly viewed as subjective and difficult to measure, we are left with no choice but to default to quantifiable metrics such as price and access. Policy discussions along the dimensions of price and access tend to make academicians anxious, as they fear “commoditization” of healthcare; but ironically the academic bastions of board certification and Maintenance of Certification have already made healthcare fungible, fungibility being one of requirements of a commodity. While commoditization continues to be used inappropriately in the medical field, it is time to accept that much of what physicians do is best differentiated by price and access, certainly not geography.

Hospitals, with support from organized medicine, are clinging to geographic HOPD structures in-order to boost their revenues. This strategy is not sustainable long term as markets and prices tend to be efficient. Sticky prices tend to equilibrate. Arbitrage often disappears.

Future healthcare strategy, or the creation of sustainable competitive advantage, must focus on customers; that is the needs of patients, providers, and payers. Access to compassionate and meaningful patient centered care, with respect for patients’ or their employers’ financial wellbeing is what the marketplace craves. The current trend of consolidation and monopolistic pricing practices from hospital systems may fail if patients become willing to travel or new competition enters a market. Thus, hospitals and medical societies who wrap their strategies around unsustainable market inefficiencies will face difficult futures as customers increasingly find value exclusively in price and access to services.

Yet as networks become increasingly narrow, access as an operational priority will fall away. Strategy will be distilled to price. To paraphrase political strategist James Carville “It’s the [prices], stupid.” Healthcare leadership can no longer ignore fundamental economics or our national mood of economically motivated political populism. Leaders who cling to grandfather’s HOPD business model will find themselves struggling as the working middle class becomes increasingly price sensitive in all markets. As the healthcare economy consumes a disproportionate amount of blue-collar employers’ and employees’ income, the sustainable strategy is to provide a fair price. Finally, because of narrow networks and limited substitution effect, any paranoia regarding perfect competition and a “race to the bottom” in healthcare is not likely to happen.

2017 was a hard year for retailers who could not match Amazon’s strategy of aggressive prices and ubiquitous access.   There is nothing special about hospitals and organized medicine that differentiates them from the failing brick and mortar retail sector. One hundred seven year old retailer L.L. Bean understood the central tenant of business, whether dealing in boots or biopsies, when he stated, “Sell good merchandise at a reasonable profit, treat your customers like human beings, and they will always come back for more.”

A Duty to Scan

On By sethhardyIn healthcare, veterans3 Comments

Imagine a Veteran’s Hospital where taxpayers have provided tens of millions of dollars of CT and MRI equipment. Imagine that hospital has a 8-12 week backlog of veterans who would benefit from these exams and salaried radiologists ready to interpret the images and pass that knowledge back to the organization’s customers.

Continue to imagine there is a bottleneck; the technologists needed to move veterans through the scanners are not available. Does that Veteran’s Hospital have a duty to hire as many technologists as possible and maximize the capacity of those scanners? Does the hospital have a duty to scan, and is it negligent not to do so? If a principle mission of the Veteran’s Hospital is responsible stewardship of taxpayer resources, the answer is yes. Let me explain.

Currently our Veterans Administration has the ability to outsource clinical duties to private hospitals when demand cannot be met internally. However, when they do so in Radiology, taxpayers must reimburse a small piece of the investment that the private hospital made in their own scanner. This is known as the technical component of the fee and that private hospital will send a bill to the taxpayer that includes it. If the scanner at the VA were being run at peak capacity this technical component paid to the private hospital would be justifiable. However, if there is idle capacity in the hardware at the Veteran’s Hospital, taxpayers are effectively buying something that they have already purchased.

Stewardship of taxpayer resources would suggest there is a duty to scan within the VA system and that outsourcing of imaging is only appropriate when that VA equipment is being run on weekends and second shifts. It is critical to have an administration and Human Resources department that understands this duty.

Veterans Affairs Mission Statement: Set and Fixed in Metal

On By sethhardyIn healthcare, veterans1 Comment

I took a course in marketing recently. The first lesson taught was the importance of knowing who you are as an organization. This knowledge, distilled into a mission statement, can serve as the central piece of what should be ongoing internal and external dialogues. If you do not know who you are, you are going to have difficulty with your employees and customers. But this knowledge alone is not enough. When you are not transparent about your needs, values, and intentions it is difficult to partner with anyone, be they the person at the counter, in the next office, or on the other side of your bed.

Most hospitals market poorly; this is often a product of not clearly defining, adhering to, or effectively translating their missions. Perhaps it is not surprising that our largest heath care system, the Veterans Administration, often struggles with marketing. Here is the VA mission statement as imbedded in a recent job posting.

Untitled

So, the VA’s mission goes back to the days of President Lincoln. While he may have been our greatest president and one of our greatest leaders, I am sure he knew nothing about modern medicine. Furthermore, the statement relegates women to the role of grieving spouse in a military where only men go into battle.

Thankfully, orphans of veterans are significantly less prevalent today than in Lincoln’s time. The vast majority of our veterans return alive; but the wounded are missing limbs and carry psychological scars that are not easy to diagnose or treat. These injuries greatly impact their families and children in a way Lincoln could not have imagined.

The job posting which carries this mission statement tries to make up for its inherent sexism with the tag line about caring for “the men and women who are America’s Veterans” but succeeds only in making it more awkward and wordy. Our military’s and country’s current values of equal opportunity and modern health care are not supported by this mission statement. How many outstanding healthcare workers and potential employees might be discouraged by its implied lack of sensitivity, or worse, awareness? It is time for our Veterans Administration to update their mission statement. In the process of doing so, they may clarify, inform, and unify their sense of purpose and identity. Distilling this awareness into a clear and concise mission statement may in turn elevate the organization and enhance communication between their employees, within the American culture, and with their veteran customers.