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Systemic and intractable problems - Part 2, the medical system

Many of the problems we face are very hard core. Do we declare our problems unresolvable and drag them into the future to continue living with them? Will we survive festering problems that we ignore? This is a four part series, with a researched and out of the box look at working smarter with four problems:

  1. Part 1: Resolving systemic problems with assistance, in the educational system
  2. Part 2: Resolving systemic problems from the medical system
  3. Part 3: Resolving systemic and societal problems in the inner cities
  4. Part 4: Resolving systemic and societal homeless problems

Resolving systemic problems from the medical system

I often refer to the US medical community as a preferred trading circle.1

The providers, suppliers, and insurers, have little reason to consider the patient, or even the doctors and nurses. The patient will pay what they determine the patient will pay. There is no competitive pressure on prices. A rapidly growing portion goes to administration, which is one of the main drivers of annual price increases.

Generally you can't find out the cost of services in advance, and hospitals don't post any such thing. They won't tell you that there will be six physicians involved and each one will bill separately. They won't tell you that a physician in training will accompany the attending physician, and will get paid. They won't tell you the amount of supplies you will need, or about the 1000% markup on these supplies. They just decide what they feel is best and decide what you will pay.

You can't find out very well what the insurance company will pay. They often say they will pay something over the phone, then later will disallow it for any number of reasons. For example, a preventive routine covered colonoscopy may turn into a patient paid ordeal if they remove a polyp while they are in there. Or if the doctor miscodes the procedure on the medical form, when it is routinely covered by most insurance, but has to be coded differently to get paid by your insurance.

The suppliers of medical devices (I used to work in this industry), charge whatever they want, and their prices are ridiculously high compared to similar over the counter consumer products. We would give equipment away just to lock in the consumables business in a contract. These contracts almost always got renewed because people don't like change and learning new things. That business targeted doubling the business in 5 years, which is a 15% annual inflation rate. That is part of what drove inflation in the medical field. Why double it in 5 years? Just greed. Finally they decided the business wasn't making enough money and sold it.

Physicians and nurses are just as upset with the system as patients. They make in salaries what the system decides they will, and they have no leverage. Many nurses have abandoned the field because of low pay. Many doctors retire early, or become specialists who command higher salaries.

While ACA has done much to limit to 4%, the double-digit (10 to 20%) price increases which happened every year since 1980, and has encouraged efficiencies in the system, it hasn't yet conquered the systemic problems that put prices out of the control of consumers or doctors.

To correct these problems, the same approach could be used as for higher education. It has to become consumer oriented. Institutions would not be reimbursed directly, and would have to compete to deliver services in a consumer oriented environment, not a system oriented environment. Procedures should have set prices, except in extenuating circumstances. Currently they stack the deck against consumers by requiring them to only participate in certain medical groups that are in their "system." Competition is nil.

By making each of these institutions compete with each other to deliver services to consumers, they will have to compete on price and quality products and services.

The system is ripe for change in so many areas. Fifty-two percent of health care costs are spent on just 5% of the people. Essentially chronic illness, such as diabetes, requires regular care. In many places they have centralized that care and made it more efficient to reduce costs.

Another problem is that the administrative side of the business has blossomed. From a business point of view, it's a cost center, yet unlike most business cost centers, it is not being controlled by best practices and efficiency.

Part of the reason problems in the medical system are such intractable problems is that, just like everyone else, medical groups and doctors hate change. They also believe they are the supreme authority and don't like being challenged. For around 80% of them, especially those who are well established, they won't accept anything new, even if it works better, because they have their familiar way of doing things. These methods are generally some version of "Standard of Care," and they know what results to expect. Their business is built on that. And any excursion outside of Standard of Care could expose them to legal action by patients. Candidly, some improvements and efficiencies that some offices and clinics could make, they won't because profits would suffer.

Another problem is physician education. People think that physicians are well versed in different diseases, and understand them well. At least 50% of them know general diagnostics and typical treatments but are interested in patients, not medical science, and too often their over-riding concern is how many patients they can get through in a day because supporting their business financial solvency requires large numbers. They know what medications to give, and they are overly dependent on pharmaceutical companies to educate them on treatments. They rely on specialists for depth. Fortunately most of their patients (around 80%) have symptoms that are going to get better on their own anyway. They simply don't have the time to do more. Yet much gets referred to specialists that could be handled by general practioners.

Medicare is another area that needs better efficiency. Remarkably, Medicare spends only 3% of revenue on administration. Yet private companies that have 35% administrative costs, can take over for Medicare, give better plans, and make a profit, for a 0 to $50.00 premium a month. Private health insurance puts a lot of resources into fraud prevention, cost control, and corruption.

Entrenched inefficiency and resistance to change in medical groups, and non-sense laws, only change when they are forced to change, or through retirement.

Entrenched inefficiency supports huge profits and stock prices

Unbelievably, the pharmaceutical lobby convinced Congress to not allow Medicare to negotiate for medicine prices. The US is the only country with such an outrageous law.

Doctors and hospitals don't want interference even if it is good for them and keeps their costs down, and they scream loud and long about it. Some of it is simply political. Since 2007, we are in a constrained cost environment with well under 4% inflation. However, health care and hospital stocks have shot up more than 300% since ACA began, that's more than any other sector, by far. Yet insurance companies have mercilessly gouged some people, probably to amplify their screaming about government interference. Some ACA payments have skyrocketed depending on where people are located. Those who are gouged scream loudly, making the interference seem unfair, when hospitals are actually raking in record profits.

Insurance companies are screaming that they may increase prices in 2016. However, the biggest health insurers have outperformed the record setting stock market, after Obamacare became law. Profits and revenue are growing at around a 7% rate.

Supposedly mergers and acquisitions in the medical care field should make prices lower by increased efficiency and increased bargaining power. In reality, it has done the opposite. "A number of health economists have studied consolidation in the health care industry. ...the data over decades indicates that's not usually the case. 'After consolidation, prices hospitals charge for services have gone up in the range of 3 percent to 56 percent,' according to an October 2013 Robert Wood Johnson Foundation report that examined studies looking at hospital mergers between 1990 and 2008. "Studies that examine consolidation among hospitals that are geographically close to one another consistently find that consolidation leads to price increases of 40 percent or more."2

As long as patients have no say in the medical system, they continue to be gouged with hot pokers by profiteers. As I wrote in my previous article on the educational system, the systems approach to costs has to be abandoned in favor of patient control. Systemic and intractable problems - Part 1 - Resolving systemic problems with assistance, in the educational system.

Fear mongering about research

Well, they whine, ACA will put a stop to medical research, and pharmaceutical research, so high profits are necessary, even though the rest of the world doesn't pay these high prices. In contrast, the French medical system is commonly rated #1 in the world, with both a public system and doctors in private practice. The public system has partial support through government taxes, and through a single payer insurance system.

The US medical system is rated #37, in good company with Dominica, Costa Rica, [USA], Slovenia, and Cuba. We in the US only have to think we are #1 to keep up the illusion of needing more money. We are expected to be importing a lung cancer vaccine and other medications from Cuba. We pay more for medical care per individual than any other nation.

"France has for some time delivered some of the best five-year [cancer] survival rates in the world, ranking in the top five alongside Australia, Canada, Japan and the US. ...The target of all patients being seen by multidisciplinary teams is now met in more than 90% of clinics." This multidisciplinary team approach, which has been shown in the US to be highly effective, only happens in some clinics in the US.

"America's share of global research spending fell 6 percent in five years, while Japan and China surged." - US News. The losses were only partly from some loss of NIH government funding, and were mostly from the private sector, which has been profit taking and hoarding, rather than reinvesting in medical care.

Physicians and hospitals do very little medical research. Biomedical scientists do most of the research at NIH, teaching hospitals connected to universities, and through funding provided by NIH, DARPA, biotech companies making advances in genomic and other treatments, and pharmaceutical companies which create medications. Note how much of this is actually government funded.

"In the United States, the most recent data from 2003 suggest that about 94 billion dollars were provided for biomedical research in the United States. The National Institutes of Health and pharmaceutical companies collectively contribute 26.4 billion dollars and 27.0 billion dollars, respectively, which constitute 28% and 29% of the total, respectively. Other significant contributors include biotechnology companies (17.9 billion dollars, 19% of total), medical device companies (9.2 billion dollars, 10% of total), other federal sources, and state and local governments. Foundations and charities, led by the Bill and Melinda Gates Foundation, contributed about 3% of the funding."

The idea that ACA, or any other medical plan, would have any impact on medical research is just fear mongering and patently ridiculous. Pharmaceutical company profit margins are around an eye popping 42%, higher than almost any other business. Yes, their research costs are high and plagued with failures, but the idea that research would suffer if Medicare negotiated drug prices is absurd. It's just profit taking on a grand scale, at the expense of the needy who can barely afford it.

This isn't meant to demonize the pharmaceutical industry. They and companies who offer their medications often have many medications at high discounts. Profiteering on some medications sometimes occurs through distributors who hijack the distribution and raise prices by a thousand or more percent.

The fat cat atmosphere may actually be harming US pharmaceutical leadership, in which the US has typically supplied half of the funds to world medical research. The rest of the world is catching up and may quickly go around us. "America also experienced a drop in its share of life science patents, with its share of high value patents filed by American inventors dropping from 73% to 59% from 1981 and 2011." - Time.

The US medical system is a case in point of the tail wagging the dog. Investor and business income are the priority. I talk about this at some length in my article, Oversimplified Formula Of Economic Problems. This has to end by making the medical system financially responsive to its customers.

I explain the mechanisms to use to make a system financially customer centric in Systemic and intractable problems - Part 1 - Resolving systemic problems with assistance, in the educational system.

References

A cure for health care inefficiency? The value and geography of venture capital in the digital health sector - Brookings Institute

U.S. Medical Research Spending Drops While Asia Makes Gains.

Medical Research - Wikipedia

Pharmaceutical industry gets high on fat profits

Why the U.S. Is Losing Its Edge on Medical Research - Time Inc.

Oversimplified Formula Of Economic Problems - Dorian Cole on NationsAgenda.com

Systemic and intractable problems - Part 1 - Resolving systemic problems with assistance, in the educational system - Dorian Cole on NationsAgenda.com

Agnes Buzyn:protecting France's AAA rating for cancer care

A Comparison of Hospital Administrative Costs in Eight Nations: U.S. Costs Exceed All Others by Far - Commonwealth Fund

Excess Administrative Costs - NIH, The Healthcare Imperative: Lowering Costs and Improving Outcomes: Workshop Series Summary.

Why U.S. hospital administrative costs are among the highest in the world: 7 things to know - Beckers Hospital Review

U.S. Drug Companies Should Keep A Close Eye On Cuba And Iran - Forbes

Notes

*1 "Preferred trading circle," a term I use often, was a term used by an economics professor and author of a book on economics, at University of Missouri, Columbia, MO. I can't remember his name or the book title. A "preferred trading circle" happens especially in third world countries. What they accomplish is to permanently disengage the employable to ignore a huge pool of poor and unemployed, while keeping the wealthier class and businesses engaged. They are a major problem in third world countries because most people have no way to get into them. We have them in the US as well.

*2 7 factors that help make U.S. health care system expensive, inefficient - Journal Sentinel