Saturday, July 25, 2009

Harvard's Dr. Michael Porter explains how to cut medical costs and simultaneously get better health outcomes.

The problem with Medical costs is that we pay for and measure medical processes rather that outcomes. When we ask if someone got good medical care we take a protocol and a checklist and see if everything on the list for given symptoms was tested for and the care provided.

The current system does not consider and pay for the results, only for the number of separate procedures applied to any case. So if someone got every possible procedure,their insurance is considered good, even if the patient had a relapse or died. That fragments the treatment by various specialties and encourages more procedures, without measuring or maximizing the effectiveness of the treatment for the patient.

The result of this fragmented care is to increase the cost of specialist treatments without ever measuring or determining how well the full set of treatments works for the patient. The current system also locks the specialists into older checklists and hinders the adoption of newer procedures, protocols and technologies. At the current time patient outcomes are not even subject to effective measurement schemes. There is no incentive for medical care suppliers or insurance companies to measure patient outcomes, just the quantity of procedures applied to each patient.

The solution is to measure and pay for outcomes. Then let the providers determine what sets of tests and procedures achieve the best outcomes. The providers are then measured by the effectiveness of medical care for the patients instead of how many different procedures they apply to each patients. Once patient outcomes are effectively measured and payments are made on that basis, then the medical care suppliers will quickly apply the most effective and lowest cost set of protocols and procedures to achieve those results. It's been known since the late 19th and the early 20th centuries that organizations will improve processes that are measured but will not improve those which are not measured. America's current health system simply does not take advantage of that age-old management knowledge.

Here is Dr. Michael Porter explaining how this works.

This process is built into Barack Obama's and the Democrat's proposed revised health care system. Money is to be spent in revising the medical records system to measure patient health and satisfaction outcomes.

Then a second critical element of the revised system is the public option. The public option is designed to place a competing system based on those outcomes next to the results offered by private insurers. Without the public option the the private insurers will tacitly collude to keep health delivery costs unnecessarily high. That keeps their revenues high without forcing them to spend money adopting new imaginative cost saving techniques. The public option is absolutely necessary to force the shift to measuring and paying for outcomes instead of continuing the current system of paying for individual procedures applied. With out the pubic option competition private insurers have no incentive to lower the revenue they can charge for individual procedures as the currently do. No profit-oriented businessmen will want to have to lower their revenue to meet effective competition.

If you believe in the free market then this system is assured of reducing the overall cost of health care and at the same time providing improved health care outcomes. it's just like the way Detroit found that the costs of including safety devices in automobiles was both much lower than they had predicted and at the same time increased the profitability of the autos sold. We can count on it happening again. But only with an overall health care system installed. Currently there is no system, and America is the only industrial nation in the world that permits the extremely negative results of the lack of any overall well-designed health care system.

While the insurers don't want to have to compete for their revenue, their flexibility and imagination will be a real advantage in that competition. The result will be a major advantage for patients as they get better and more innovative health care delivered to them, while also lowering the overall cost of the system to the nation. The thing is, like when Detroit was forced to install seat belts and safety improvement, they could not plan in advance for how effective their efforts would be. They achieved the installation of those improvements at roughly a tenth of the costs they had anticipated in advance. That's how the free market works.

Interestingly the improved results and lower costs will be a direct result of the proper use of the free market system of fair and well-measured competition.

The following video describes measuring medical outcomes.

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