Fryer's Blog in the Mountains

Failure of Private Sector to Control Health Care Costs

Today's the all hands on deck meeting in Washington on health care.   I have to chuckle when I see that one group proposes that the private sector can save us.  If the private sector did their jobs (insurance companies), we wouldn't be having this meeting.   Insurance companies are large enough to actually do something, but they haven't.  Joe does a good job explaining this.  

The bottom line is no major group in the process has shown any leadership in controlling costs (outside of Medicare and the VA system, both government agencies).  Very puzzling until you follow the money.  

Who actually is paying the bill?

For 70% of people with insurance, it's the employer.   Doctor's treat patients and order tests.   The insurance companies pay for them.  The insurance companies raise their rates and charge more to the employers.  Who then absorb most of the increase and pass some of the cost to the employee.   Since the employers outsource health care to the insurance company, they lose their ability to control costs.

The doctor's can also fix this problem, but haven't.  There are many solutions out there to improve efficiency in delivering health care.  But most clinics won't do them because they feel it will lower their top line revenue.  They just cannot make the connection between being efficient and being profitable.  It reminds me of the car companies in the 70's.  In order to make money they sold you the undercoating instead of zinc dipping the sheet metal.

Let's just hope that something happens in Washington to put us on the correct path.  Or that the insurance companies wake up and start using their power to make the system more efficient.

Health Care Reform: Are Clinics Focused on Money or Patients?

Our new company is focused on patient treatment optimization.  And that makes some physician owned clinics very unhappy.  Why?   Because patient visits for a particular patient decrease by 40%.   And they are focused on maximizing revenue per patient.   But by being more efficient, a clinic's total revenue actually increase, because they can see more patients in a day.

Unfortunately for many patients, their physicians sometimes choose to do what is more profitable than the best cause of treatment.   Take radiation therapy for prostate cancer for example.    There are two approaches here.  The first is branchytherapy.  This requires one visit where radioactive seeds are implanted by the cancer.  The second is EBRT (external beam radiation therapy) where the patient has 25-45 visits and treatments by external x-ray radiation.   Which do you think is more profitable to the clinic?   Why are many physicians building EBRT clinics?   Yet the outcomes are similar for both treatments.

One of our investors questioned our use of "optimization" because it would alienate those physicians focused on patient dollar yield.  I say, good, we don't want them as customers.  There are a lot of clinics and physicians who are concerned foremost about the well being of their patients, and those are the people we work with.