Everyone now views with alarm the relentless rise of healthcare costs in the U.S. Medicare, in particular, has been projected to consume 100% of the discretionary spending in the federal budget in our lifetime. No need for budget debate; it will all go to Medicare. Unfortunately, the current discussion focuses on Medicare as the insurance plan for the 65+ population. Costs to health insurance companies would be less if we provided less care to individual patients, so most cost reduction schemes seek to reduce the care provided. For Medicaid, we will reduce eligibility, so there are fewer people in the pool. For Medicare (and others), we’ll have an expert panel to decide what therapies will be covered and which will be excluded—similar conceptually to the British NICE panel. (See article in The Atlantic on “My Drug Problem.”) Still, we are left with high-cost individual healthcare services. It still costs more to have hip replacement in the U.S. than anywhere else in the world. This, of course, is the basis for the Medical Tourism industry.
Suppose, instead, we pointed our weapons at the cost of individual healthcare services by invoking price competition. We’ll still provide a hip replacement (THR) to anyone who needs it, but we’re taking bids. Yes, it’s more complex than ordering copy paper, but those are solvable problems. They have been solved in other realms and can be solved in healthcare.
What would you do on the other side? Your hospital has been doing THRs forever, but you just lost your bid to a hospital in the next town, because you charge too much. In most industries, the instinctive response would be to look for ways to reduce your cost. This would lead you to a process engineer who would use LEAN techniques to identify waste in your current processes. Estimates of waste in healthcare vary from 20% to 50% of costs, so there are enormous opportunities here. There are other tools and techniques, and there is value also in an overall Management System to organize those tools and ensure they are used effectively. (Disclosure: I’m one of the authors of this book.) These tools are not entirely new to healthcare, but price competition is a new concept.
So too is the concept of an overall management system, such as ISO 9001 to manage improvement efforts and ensure they are focused on common objectives.