Monday, November 28, 2011

Meaning of Quality in HC

Paul Borawski asks us to “raise our voices for quality” in November, and eleven other months.  The implication is that such actions would make various processes “better.”  What does that mean for healthcare? 

The healthcare gurus talk about quality as if it is some mysterious aspect that transcends price or adherence to standards—something we must have and so we cannot talk about price, for example, without fear of losing quality.  In most industries, the definition of quality is determined by the customer, and price is usually an important consideration.  Adherence to standards is also important, but that is assumed, particularly in healthcare or other highly regulated industries.  States grant licenses to providers and to institutions (hospitals, surgery centers, etc.)  Medicare grants authority to institutions to perform and charge for certain procedures.  Patients, in general, trust those regulatory mechanisms to ensure a certain standard of care.  Price is not an issue.

The issue of trust was also mentioned in a subsequent ASQ piece from Coca-Cola.  Part of their definition of quality is a product consumers can trust.  Dependable, consistent.  This is what made Holiday Inns successful, and in HC, we depend on regulatory agencies to ensure trust. 

Those regulatory agencies (e.g. Medicare) typically delegate their authority to proxy organizations, like the Joint Commission or DNVHealthcare.  Does it work?  Well, partly.  The accreditation organizations ensure that healthcare organizations comply with their standards, including a consistent standard of care.  But again, price is not a factor.  Also, individual providers are not involved in the accreditation process.  The state medical boards that regulate providers only take action in cases of grievous or flagrant abuse of ethical standards.  Doing a poor job is allowed, and price is not an issue.

The biggest problem with US healthcare today is that it costs too much.  Quality is good, but the price is too high.  In any other industry, price would be part of the definition of quality for goods and services.  For some things—commodities—price is the defining characteristic.  For example things like paper clips or gasoline are purchased by price.  It’s really tough to sell a “better” paper clip.  Oil companies struggle to convince us that their gasoline is somehow better, but most people don’t really believe it.  Customers vote with their feet or pocketbooks, and they buy the cheapest product that meets their needs.  Except for healthcare.

Prices in healthcare are fixed by Medicare and other payers.  Patients don’t have a lot of skin in the price game and don’t usually have much choice about where they get healthcare.  Most healthcare in the US is provided in a monopolistic environment—strong local hospitals have a monopoly on healthcare services in their region.  The price may not be exactly secret, but it is also not public.  I know exactly how much I’m paying for gasoline when I pull up to the pump, but not when I enter the hospital. 

Why would a hospital (or physician) want to lower their prices?  Why would you want to charge less than you could be paid?  They wouldn’t.  And don’t.  Patients don’t know or care how much they’re paying and wouldn’t opt for a lower cost alternative if they had a choice.  There are exceptions to this rule, of course.  Those without insurance come to mind, but they are a dwindling group.  Those with high deductible insurance also have skin in the price game, but they are also a small group.   The other area where price matters is elective procedures, such as plastic surgery.  Insurance doesn’t pay, so patients do shop by price. 

For the vast majority of healthcare services, however, price is not an issue, and this is a major reason for the high cost of healthcare in the US.  We could fix that by price competition.  If we define quality as meaning price, then quality would improve as prices come down.

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