August 16, 2017

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Curing the 'cost disease' in health care

This is part two of a two-part series.

 

Hip replacements have experienced rapid technological advancement. Surgeons predict that within the next few years, some patients may be treated on an outpatient basis — in at 8 a.m., out in the evening. The surgical procedure, actual replacement unit and improved rehabilitation have combined to restore function quickly.

The surgery time is quick — about 90 minutes — with most of the time in preparation and then transfer to recovery. The time from incision to closing is about 20 minutes. Surgical teams have experimented and cut procedure time through a process that Kenneth Arrow, the Nobel laureate in economics, termed "learning by doing."

Yet, as I noted in part one of this series, published Thursday, while the surgical time and hospital stays fall, costs keep rising faster than the rate of inflation. The clue must lie in the other aspects of the procedure, from intake to discharge and follow-up.

The number of people involved in hospital procedures is remarkable. During the day orthopedic wards are abuzz with technicians, nurses, aides, therapists and even the occasional physician. As I noted on Thursday, much of this time appears spent in managing information, a high proportion of which seems to be paper-based. The numbers of people seem high to me

But my impression that a lot of people are involved in managing orthopedic patients is just that — an impression. I have no way of knowing whether there are "too many" people involved in orthopedic care. Furthermore, the ministers of finance and health have no way of knowing this. When they issue edicts to trim managerial staff, it is an act of desperation to control what they see as runaway costs. Yet the "productive sectors," as economist William Baumol termed them, such as the industries that produce cars and computers, appear to increase productivity and cost-cut in a seamless and continuous way. What makes an orthopedic ward so different?

To understand this, we need to revisit the ideas behind the cost disease in health care. The obsessive investment in technology supports the shrinking number of workers, who are usually paid commensurately higher. But these wage levels invariably translate across to other sectors that do not exhibit the high productivity growth, especially when unionized, as is commonplace in publicly provided services.

But that is not enough to understand how to control galloping health costs in Canada. Cutting wages in health will not work, for obvious reasons.

Here are five ideas that may clarify how to control health costs:

First, it is critical to use evidence to guide practice. All major surgery will usually involve a course of blood thinners for a time to mitigate the risk of blood clots. A serious surgery I experienced a decade ago required me to use needles to inject blood thinners into my abdomen for a month. When I inquired whether this would be done with my recent hip surgery, the response was that pills were cheaper and more effective. Evidence guided practice. Cost control means the application of credible evidence to guide practice.

Second, rather than mandating system-wide use of bar codes and handheld devices to replace paper, the health system needs to implement an incremental and pilot process. Governments have a miserable record of implementing big systems — think of the gun registry. Starting small experiments to prove innovations makes a lot of sense.

Third, create cost centres that have specific performance goals. An orthopedic ward can be such a cost centre, and using what economists call "activity based costing" can identify all the resources needed to treat patients and to operate the unit as a whole. Aligning costs with outcomes creates the basis for value-for-money analysis, which can show the way to improved practice.

Fourth, managers of such costs centres need incentive-based pay. A key element of private-sector compensation is performance pay. Too often, public-sector managers are compensated based on the size of the organization and not for meeting performance targets. To be sure, performance-based pay can become unhinged when the outcome measures do not align with the interests of the organization and its clients. Nevertheless, the core idea of performance pay for managers remains sound.

Finally, and this is most important: people matter. The lab technician I wrote about on Thursday, who had sung the praises of bar codes, took pride in her increased productivity — she owned the innovation because it reinforced her contribution to health care. Danger exists when grand plans and edicts direct change and forget those who must implement the scheme. Consolidation of acute care within the Winnipeg Regional Health Authority may make sense on paper, but unless all staff within the health system embrace the change, those who feel left behind will throw sand in the gears. Generals need to both feed their armies and make sure the foot soldiers follow.

Leaders always want to implement and receive credit for the bold move. The reality is that managing health-care costs and getting results requires the coordination of many incremental changes over a longer time than the political cycle.

Gregory Mason is an associate professor in the department of economics at the University of Manitoba.

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