$1 Office Visits

Today’s Managing Health Care Costs Indicator is $1

I’m a fan of Planet Money, an NPR project that includes podcasts, a blog, and co-reporting with This American Life and other journalistic endeavors.  The “Managing Health Care Costs Indicator” is clearly modeled on (or shamelessly stolen from) Planet Money.

Reporter Adam Davidson has an article in the January-February Atlantic Monthly (and some related reporting on Morning Edition last week) about Greenville, South Carolina. He investigates how manufacturing has changed in the US over the last 20 years.  It’s an amazing picture in terms of quality and cost – American manufacturers make exceptionally high quality goods, and make them at costs that are often not a lot more than the cost of manufacturing in China where wages are a tiny fraction of those here. 

The new American manufacturing is great for consumers (we get high quality American made replacement fuel injectors for cars for under $200 each), and it’s pretty good for highly skilled workers, who can make better than a living wage.   But it’s not a pretty picture for unskilled workers though, who will lose their jobs the moment that a robotic arm costs less than twice a worker’s annual income

American manufacturing companies watch every penny of resources they spend – because they know that the brutal market will insist on cost-effectiveness.   Standard Motor Products, the subject of Davidson’s reporting, must watch every penny, which means firing its unskilled workers when it becomes more cost effective to invest in a robotic arm, or when the work could be done in China or Mexico or Poland for much lower cost including transportation.  If Standard Auto Parts didn’t do this, it would be out of business.  Quickly.

From Davidson’s article:

Across America, many factory floors look radically different than they did 20 years ago: far fewer people, far more high-tech machines, and entirely different demands on the workers who remain. The still-unfolding story of manufacturing’s transformation is, in many respects, that of our economic age

…

A few decades ago, “turning machines” like these were operated by hand; a machinist would spin one dial to move the cutting tool large distances and another dial for smaller, more precise positioning. A good machinist didn’t need a lot of book smarts, just a steady, confident hand and lots of experience. Today, the computer moves the cutting tool and the operator needs to know how to talk to the computer

…

To keep the business of the giant auto-parts retailers, Standard has to constantly lower costs while maintaining quality. High quality is impossible without good raw materials, which Standard has to buy at market rates. The massive global conglomerates, like Bosch, might be able to command discounts when buying, say, specially formulated metals; but Standard has to pay the prevailing price, and for years now, that price has been rising. That places an even higher imperative on reducing the cost of labor. If Standard paid unskilled workers like Maddie more or hired more of them, Larry says, the company would have to charge its customers more or accept lower profits. Either way, Standard would collapse fairly soon

I keep on thinking about how this relates to health care.  At first I though that no one was thinking about health care like the CEO of Standard Motor Parts. 

But it turns out I’m wrong.  The NYTimes had a blog last week about the $1 office visit (often delivered virtually) in India.  We have little or no price sensitivity for the cost of health care in the US –so we deliver exceptionally expensive health care services.   In India, there is little insurance, income is low and most people have to pay out of pocket for health care. That’s a recipe for extreme price sensitivity – and that price sensitivity leads to innovation – and slashed prices -- in care delivery. 

The inexpensive and virtual visit in India represents much better care than the alternative.  In the US, though, such a visit would be profoundly disruptive.  We’ve had a hard time embracing disruptive innovation in the US with the current health care financing system.   There are no such barriers elsewhere in the world.

Office visits are a service – they are not a product like Standard Motors’ fuel injectors that can be manufactured and assembled anywhere in the world.  We won’t see those $1 office visits from India in Manhattan anytime soon.  But we are likely to see models that are far less physician-centric, and offer far better value to patients. 

We can continue to learn from the developing world about how to more effectively use resources.

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Rationing Health Around The World

The World, a public radio show cohosted by the BBC and the Boston NPR station, had a four part series on rationing health care  around the world last week.  The radio shows as well as the web material help demonstrate how hard it is to distribute scarce health resources. 

The series starts in South Africa, where committees in hospitals determine who gets dialysis and who doesn’t.  These committees started by considering “social worth,” but have moved to prioritizing those who would be good candidates for kidney transplants, and who could therefore get off dialysis quickly.  If you’re a drinker, or if you’re overweight – well, dialysis could save your life, but it won’t. 

The series moves on to the UK, lauded by health policy experts around the world, where the National Institute for Clinical Excellence (NICE) assesses comparative effectiveness and determines how much the National Health Service (NHS) will spend to save a quality adjusted life year (QALY).  Right now the number is south of $50,000.  If a new drug might help you but would cost more, it isn’t covered.  NICE has been successful at pressuring drug companies to lower prices in exchange for access to the NHS market – but its authority to do so expires in 2012.  It’s hard to feel good about denying a drug that could save someone’s life.

Next stop is Zambia, which can’t afford HIV drugs for all the HIV patients.  The country has long had poor governance, and has a shortage of health personnel and medicines.  The main method of rationing in Zambia is the queue.  People have to wait a half day for a brief clinician appointment, and another half day for the pharmacist to fill a prescription. Those who cannot wait – perhaps because they are employed or have young children – go without life saving medications.

The final installment is a visit to India, where a resourceful pediatrician faced a shortage of ventilators during an influenza epidemic.  She fashioned homemade continuous positive airway pressure machines from a few dollars of readily available supplies, and saved  many dozens of lives.  This is an example where disruptive innovation made an enormous difference.  The homemade machines weren’t nearly as good as ventilators for these critically ill children.  But the makeshift machines were better than nothing, and the physician improved them “on the fly” during the epidemic.

These stories point out that rationing is painful – and it’s not restricted to poor countries.   We already ration care in the US by rationing access.  It’s not easy for a Medicaid patient to find a dentist or a specialist in many states, as Medicaid pays very low rates.  We might give FDA approval to a $90 a month medicine for cancer, but few eligible patients who don’t have generous insurance coverage will benefit from these medicines.  In Arizona, Medicaid beneficiaries are dying because the state will not fund evidence-based transplantations. 

We’ll be having more distributive justice conversations in the US, because we won’t be able to afford uniform access to all health care innovations as they are currently priced.  The best way to minimize the number of times we refuse to offer useful therapy to patients is to lower the cost of interventions, but we’ll still face a demand for more health care than we can afford.

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