How to Fix Healthcare Delivery

June 17, 2008 • Commentary
This article appeared on The American on June 17, 2008.

Imagine a system in which doctors answered to corporate management and corporate management answered to patients.

As an economist who has studied healthcare, I am familiar with the statistical evidence that America’s system is inefficient. However, my father’s recent hospitalization and death gave me a new perspective. What I saw in healthcare delivery was a beautifully muscled, finely tuned, highly motivated chicken with its head cut off.

Due to mismanagement and lack of continuity: perhaps, his life was shortened; probably, his suffering was exacerbated; and certainly, tens of thousands of dollars in costs were needlessly incurred and passed on to Medicare and supplemental health insurance.

Over the years, my father benefited greatly from American innovations in medical treatment. However, scientific understanding in healthcare has now advanced far beyond the management capabilities of the medical community.

Our system is confounded by complex patients, meaning those with ailments affecting more than one part of the body. These are the patients who incur the greatest healthcare costs. They include patients with diabetes — and patients like my father. He was hospitalized with a broken hip, but he was also on medications for his heart, undergoing treatment for cancer, and vulnerable to poor circulation in his legs. The fantasy that prevention will be a panacea to lower health costs does not jibe with the reality that even state‐​of‐​the‐​art prevention does not stop people from growing old.

Electronic medical records represent another false panacea. Paper records are a symptom, not the cause, of fragmentation and mismanagement. A dysfunctional process will not be turned around simply with a new computer system. Information technology can be used successfully only after procedures have been rationalized and reorganized.

The autonomous, self‐​directed doctors produced by our medical schools are not suited to treating complex patients. Instead, what we need are team players, implementing consistent corporate policies. Independent skilled craftsmen, flying by the seat of their pants, can add a deck to your house. That will not work for building a skyscraper.

My father first entered the hospital on January 11. Over the next two weeks, he was in eight different units. With each move, the person in charge of his care changed. The problems that were allowed to slip through the cracks ultimately proved more damaging than the problems for which he was treated.

When a corporation attempts to build a new headquarters or a new information system, a project manager is appointed to oversee the effort. Similarly, when a complex patient enters the healthcare delivery system, he or she needs a single case manager. This case manager will improve communication with the patient and family, ensure coordination among specialists, and overcome potential gaps in responsibility.

Our system for compensating doctors is flawed. Reimbursement for procedures works fine for a patient with a single ailment, but it tends to backfire in the case of complex patients. For the latter, incentives should promote quality care, based on standards and benchmarks.

I have in mind a system in which doctors have to answer to corporate management and corporate management has to answer to patients. The goal would be to obtain consistent, high‐​quality outcomes.

Doctors would be well compensated for following standard corporate guidelines, for proposing useful improvements to those guidelines, and for good results that come from deliberately deviating from guidelines. They would be penalized for not living up to guidelines or for bad results that come from deliberately deviating from guidelines.

Many reformers, including New America Foundation scholar Shannon Brownlee, author of Overtreated, see a potential for government to solve the problems of fragmentation, inconsistency, and mismanagement in healthcare delivery. I am skeptical.

For example, Brownlee and others advocate pay for performance, or “P4P.” This system would compensate doctors on the basis of guidelines set by government. But government is not well positioned to make this work. Indeed, a recent attempt at P4P in the United Kingdom saw physician pay rise by 20 percent, with very little improvement in quality.

Any compensation system, whether administered by corporations or by government, sets up a game between managers and employees. The manager tries to get the largest possible change in employee behavior for the smallest possible increase in compensation. The employee’s goal is the opposite. Government tends to be a loser in this game, because it lacks the flexibility to adapt and because concentrated employee interest groups have veto power.

Corporate compensation schemes are far from perfect. However, under the pressure of market competition, the private sector is more likely than government to continuously adapt payment structures in order to achieve better alignment between doctor compensation and patient interests.

Today, over 85 percent of personal healthcare spending is paid for either by government or by private health insurance. My father’s care was driven by Medicare reimbursement rules, not by his interests. In order for market incentives to work, consumers must be responsible for more of their own medical bills, through much higher co‐​payments and deductibles than they currently face.

We can have a system that insulates families from having to worry about health expenses. Or, we can have a system that adopts effective management approaches to meet the needs of complex patients. We cannot have both.

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