August 16, 2017

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Health costs rise as tech prices plummet — but why?

GALIT RODAN / THE CANADIAN PRESS FILES</p><p>Bed control specialists in the patient flow department at a Toronto hospital use technology to manage patients.</p>

GALIT RODAN / THE CANADIAN PRESS FILES

Bed control specialists in the patient flow department at a Toronto hospital use technology to manage patients.

This is part one of a two-part series.

I have just had my hip replaced, one of approximately 1,500 similar procedures to be performed in Manitoba this year. Aside from the nervousness I experienced since my hips are close to where I normally keep my brains, the experience afforded me an opportunity to reflect on the state of health-care costs.

First, let me state that the treatment was exemplary. Many people in the Canadian health-care system will assert the same thing. In general, once one gains entry to the system, service is good.

To be sure, sufficient examples of failure signal not everyone has this experience. Wait times are too long in diagnostics and treatment for any case not deemed to be an emergency.

Manitoba Health data indicate the wait time for a hip replacement is 24 weeks and reflects the typical experience for Manitobans once diagnosed and accepted for the procedure. Most would think this is too long.

According to the Canadian Institute for Health Information, my hip replacement cost the system about $11,400, and I spent two days in the hospital, a little less than the average of three days. The costs of a hip replacement have been increasing at around 7.5 per cent per year, three times the rate of inflation. At the same time, the mean time in hospital has fallen fast from 4.6 days in 2010 to about three days now.

So, the time in hospital has dropped by about 35 per cent, but costs have increased nonetheless. What’s up with that?

This illustrates what the eminent economist William Baumol has termed the "cost disease" that marks many labour-intensive services such as health care, police and social work. Using an observation of Joan Robinson, a contemporary of John Maynard Keynes: if the average productivity of the economy grows at a certain rate, there will be sectors that show much higher increases, while others lag.

In economics, the typical measure of productivity is output per worker. High-productivity sectors invest in technology, replacing workers with machines. Car manufacturing and computers are typical and include rapid increases in features and falling prices (when adjusted for quality).

Labour-intensive sectors such as music concerts, education and health care typically require high levels of direct service. One can "replicate" a symphony or jazz concert through recordings, but the actual experience of the performance still requires live musicians, physical facilities and all the support systems.

In health care, surgical procedures with hospital stays require a wide range of labour services from admission to pre-surgical preparation, surgery, recovery, convalescence/therapy and then discharge. Each step requires skilled professional support.

Let’s examine my hip replacement in more detail. I am a frequent flyer in orthopedics. This was my second hip replacement. I had subsequently experienced a complication with the first replacement (femur break) when, against advice, I went skating with the grandchildren and was taken out by a low-flying, out-of-control five-year-old. The pain from the break was excruciating, but nothing like the month-long drone of "I told you so" from my wife.

As I lay on the gurney in the pre-op room for my latest visit, I was shocked when the nurse arrived toting a three-inch binder of 200-plus sheets that detailed all aspects of the previous and current procedures. This binder followed me to surgery, then to recovery, and then to the nursing station in the ward. At each stage, information on my condition, such as the routine readings of blood pressure, involved a technician or nurse physically measuring vitals and then noting the results on a clipboard.

In my shuffles around the ward to gain strength, I witnessed nurses and technicians physically entering information in paper logs and occasionally computerized databases. Early one morning, I stopped by the nursing station and asked the staff how much time they spent on paperwork or physically entering information on their activities and patient status. The consensus was 40 per cent.

Surely this represents an opportunity for innovation leading to increased productivity and lower costs. I imagined a situation where each patient’s wristband had a bar code. Scanning the bar code would allow the monitoring devices to wirelessly transmit patient status, eliminating the manual charting.

Bar codes are in use in certain parts of the hospital, such as in the pre/post-operative blood lab. The lab technician who performed my post-op blood work stated, with some pride, that this simple innovation had doubled her throughput of daily tests.

Finance ministers everywhere are doing a wonderful rendition of the queen in Alice in Wonderland — shouting "off with their heads!" Managers are being frog-marched out of many of our institutions to curtail costs.

But as my experience shows, opportunities for increased productivity and saving may lie in spending money on improved systems. The adage in business that one cannot cost-cut to profit applies in health, as well.

In a subsequent article to be published on Friday, I explore the challenges of productivity and cost control in health care and the counterintuitive idea of investing to reduce costs.

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

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