Another take on the health care cost mess

kevin | Decision Making | Wednesday, April 2nd, 2008

There is something about health care . . . I’m like a moth to the flame. I confess fully and freely that I have no special knowledge, though I know people who do. All I know is what I read and what I experience. If you don’t follow the fun, the salient facts are that . . .

It’s really expensive.
Costs grow ahead of every index you can find.
Outcomes, that’s a word they like to use in the biz, have no relationship to cost.
Outcomes in the US trail those in other countries that spend less.

You get the idea.

The consultants at McKinsey are much smarter than me about these things. Someone sent me an email they’re circulating with this picture in it.

I think it pretty much says what I just said. There’s a lot of money sloshing around. And this may come as a shock, where there is a lot of money, there is probably waste, greed, graft, slop, and more. No real news there.

In other industries, prices go down. Or if prices don’t go down, what you get for the price goes up. Why is that?

Learning Curve. Fancy talk for the idea that as a company makes more of something, or does more of something, it gets better at doing it. So costs are driven down, quality is driven up, more features are added. All good.

Competition. When something gets big enough, others notice and want a piece. It’s true in biological systems. It’s true in economic systems. When competitors pile in, adaption occurs. The target gets smarter or dies. Other competitors get smarter and more clever. Prices go down.

Innovation. You can see that these factors are related to each other. As players in a system get bigger and bigger, they become less adaptive to change. They become beholden to the way things are. In business, that means that big companies focus on big customers and big stockholders. They move further and further up the value chain in search of new profits. That always leaves room underneath for people with very different ideas and cost structures to attack.

Pop quiz. How many of those things can you see happening in American Health Care? It’s a trick question actually. Those things do happen on the edges. Laser eye surgery is one. Plastic surgery is another. Pretty much any kind of procedure or practice that is not paid for by insurance and that is not controlled by big institutional players.

Others say that the important thing is that consumers can make their own decisions based on high quality information. Why? How? Because they’re using their own money.

So, depending on your point of view, the answer is . . .

More power to the users through better information and control of the payment stream because you’re a believer in markets. 2) Legislative and legal action to break the stranglehold of large institutions because you believe in innovation and entrepreneurs.

They’re not mutually exclusive, but they’re also not the same. Right now, neither happens. The system is gamed to prevent entrepreneurial behaviors, read that risk taking, at the center of the health care plate. And why wouldn’t it be. Look at the money involved. And giving consumers power is a pipe dream. Given how badly organized health care information technology is in this country, it’s a miracle for a trained professional to get useful information, yet alone a consumer. And if they got it, if you and I got it, what would we do with it?

If it were up to me, I’d start on the entrepreneurial side.

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Tags: McKinsey, Health Care, Health Care Costs, Payments, Providers, Payers, Payees, Consumer Directed