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Why Is There A Problem With Health Care Quality?



March 24th, 2011

Editor’s Note: In addition to John Goodman (photo and bio above), this post was coauthored by Gerald Musgrave and Devon Herrick.

Go to the web site of the Detroit Medical Center (DMC) and you will learn that DMC facilities rank among the “nation’s best hospitals” by U.S. News & World Report and that they have won other awards. The DMC has some of the “best” heart doctors; it is “tops” in cancer care; and it ranks among the “nation’s safest hospitals.” Three of its hospitals, for example, meet Leapfrog standards (only one other Michigan hospital system does so, you will be told) and two have received Leapfrog’s “top hospital” award (no other Michigan hospital, the site says, made the list).

Lest you doubt that the Detroit Medical Center is competing for patients based on quality, the site informs you that the DMC “is dedicated to staying ahead of the crowd when it comes to the quality of our care.” The language clearly implies you’re risking your life if you patronize a competitor. “If you want a hospital with walking trails or a day spa, go someplace else,” the site advises. “Just don’t expect the latest in patient safety technology. Because 100-percent medication scanning is only at DMC.”

Several questions naturally arise. Why aren’t more U.S. hospitals competing for patients in the same way the DMC does? Why isn’t the DMC competing even more aggressively? Some hospitals in India, Thailand and Singapore, for example, disclose their infection, mortality and readmission rates and compare them to such U.S. entities as the Cleveland Clinic and the Mayo Clinic. Clearly the DMC is competing on the time price of care. It even has a 72 hour guarantee on MRI scans (yes, they’re available on Saturdays and Sundays). But why doesn’t it also compete on the money price of care by posting fees patients can expect to pay?

How We Pay for the Three Dimensions of Care. Think of health care as having three dimensions: a quantity dimension (e.g., the units of service third-party payers typically pay for, such as office visits, diagnostic tests, etc.), a quality dimension (e.g., such factors as lower infection, mortality, and readmission rates, etc.) and an amenities dimension. By increasing the quality of care and the amenities surrounding that care, providers can make their basic services more attractive to patients, provided they have an incentive to do so.

As in the market for other goods and services, people pay for care with both time and money. What makes health care unusual, is that for most patients, the time price of care is a greater burden than the money price of care – since third-party payers pay all or almost all of the provider’s fee. For primary care, emergency room care, ancillary services and increasingly for many traditional hospital services, time is the principal “currency” patients use to purchase health care the United States, just as it is in other developed countries.

Market Equilibrium. In a third-party payment system, the provider’s fee, including the money price paid by the patient, tends to be set by an entity outside the doctor-patient relationship. For a given unit of service and a given total fee, that leaves a time price, quality and amenities. Of these three variables, however, only two are typically visible or inferable. The quality variable is normally hidden. As patients respond to what is visible and move back and forth among providers, there will be a tendency toward uniform wait times and uniform amenities. (Think of these as the market clearing time price and the market clearing level of amenities.) Or, if there is a trade-off between waiting and amenities, the rate of substitution will tend to be uniform.

There are no natural equilibrating forces bringing about uniform quality of care, however. As long as quality differences remain invisible, they can persist without affecting the patients’ demand for care. This is consistent with the findings that the quality of care varies considerably from provider to provider and facility to facility, as well as the discovery that variations in the quality of care delivered are unrelated to the kind of insurance people have or even whether they are insured at all. (Note, however, that most measures of quality are measures of inputs, not outputs; that at least one study finds there is little relationship between these inputs and such outputs as reduced mortality; and some have questioned whether even hospital mortality rates are reliable indicators of quality.)

Effects on Quality of Care. Lack of quality competition is in part the result of certain characteristics of health care quality. What we call “core quality” is not a variable at all. It is the result of other decisions made by the providers. Since the vagaries of medical practice are many and since the decision calculus of doctors will often differ, this allows for considerable quality differences. Beyond this core level, quality improvement is a decision variable and improvements are costly. However, since it is difficult and costly for patients to secure quality data on their own, information about quality typically comes only from the providers.

Such communications are unlikely, however, unless providers by means of quality improvements are able to shift demand (and, therefore, revenue), sufficient to pay for those improvements. In general, this is not the case.

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5 Trackbacks for “Why Is There A Problem With Health Care Quality?”

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6 Responses to “Why Is There A Problem With Health Care Quality?”

  1. Dan Jones Says:

    In a free market economy, isn’t reputation the primary quality metric? Consumers are jaded about marketing hype. If you need an orthopedist, you ask your primary doc, or your friends and relatives, “Who’s the best hip surgeon in the neighborhood?” As a small-town family physician, I asked every new patient how they heard about the practice (why they came). My number one source of new business was “word of mouth,” which far out-ranked any marketing efforts (newspaper ads, billboards, etc.).
    Two factors diminish the effectiveness of reputation in our current system:
    1. Physician selection is often restricted by insurance affiliations. You can’t see the best doc if he or she isn’t in-network with your insurer (unless you can afford to pay inflated fees completely out-of-pocket). This problem can be dispatched by banning contracting between physicians and insurers. That would free patients to select any provider they choose, and would allow patients to pay more out-of-pocket for greater perceived quality. This simple measure would, of course, also remove the single greatest driver of healthcare inflation: the consumer-payer disconnect.
    2. The pervasive culture of secrecy and elitism in healthcare. Doctors, legislation and policies have long fostered the perception that physicians have such esoteric knowledge that they are above quality comparisons; and even if there are quality differences, non-physicians are too ignorant to evaluate them. This cultural attitude has allowed doctors to avoid quality concerns or even the requirement to explain their decisions.
    In general, our society has become more open. Most meetings of public officials are now subject to “sunshine laws,” and you can read consumer evaluations of products and sellers on Amazon.com. In healthcare, the trend has perhaps been the opposite. For example, the Health Insurance Portability and Accountability Act (HIPAA) of 1996 gives virtually everyone in the healthcare system additional cause for paranoia and additional justification for secrecy.
    Also, our increasingly urban and mobile populace seems less able to rely on “local reputation” for quality assessments than their small-town forbears. This problem can probably be solved by innovation in social media and online physician services, although the current climate of over-regulation and revenue-control greatly hampers such innovation.
    (The elitist attitude in healthcare also fosters dependency on physicians, another major cost driver. For example, the Durham-Humphrey amendment of 1951 makes it quite explicit that all patients are too ignorant to manage their own healthcare, by mandating a physician consultation to obtain the great majority of medications.)
    In summary: a) The only valid and efficient evaluators of quality are the consumers of goods and services.
    b) The only proven efficient method of applying quality indicators is for consumers to “vote with their feet” according to their quality perceptions.
    c) The current system is rigged, both by convention and law, to discourage consumers from evaluating quality; and to prevent them from voting with their feet.
    Dan Jones, MD http://www.JonesPlan.BlogSpot.com

  2. JoeBarnett Says:

    Quality is in the eye of the beholder. For example, a patient might prefer a hospital with a higher mortality rate — if it is willing to perform a high-risk surgery that other hospitals avoid. The lobby of MD Anderson in Houston is a soaring attrium outfitted like a luxury hotel — if I were paying for my care there, I might prefer the atmosphere of a Motel 6. Regardless of who is paying, for an elective surgery I might choose the hospital with a big screen TV and premium cable channels — to avoid the depressive boredom of confinement to a bed. How is a government commission going to make such judgments for me?

  3. Richard Walker Says:

    It strikes me although it’s true that there must be an incentive for quality, providing higher quality care with supporting and reinforcing amenities improves the patient’s perception of the care he/she is receiving. Obviously, a poor payment and incentive structure severely limits the potential of providing better quality, but as more hospitals, like DMC, succeed in providing it, patients may gravitate more and more toward it. If you build it, they will come….up to a point.

  4. R Lande Says:

    I think everyone would agree that healthcare quality is difficult to measure, but we must find ways to do it so that we can reward and publicize higher quality.
    However I would disagree with the statement that “time is the principal currency patients use to purchase health care the US”. This statement is only true for a lucky minority of Americans who have good insurance with minimal restrictions on which providers they can see.
    For many other Americans, they either have no insurance, high deductible insurance, or insurance which pushes them to certain in-network providers. Therefore the typical healthcare consumer has a lot of none time-based issues to consider. Sometimes you have to figure out whether to use that highly recommended but out-of-network surgeon, who operates at an in-network hospital with out-of-network anesthesiologists. Complicated to say the least.
    In response to an earlier letter writer- I believe the best comparison to healthcare shopping is not to buying a product at a big-box retailer, but instead to choosing an plumber or mechanic. You need the service. Quality matters but is hard to be sure of. Prices vary and are hard to predict in advance.

  5. Brian R Williams Says:

    Competition is the key. No central plan or egalitarian dream will ever be able to increase health care quality, any more than the Soviets were able to dictate how much wheat to grow. And John Goodman is one of the only people I know talking about this.

  6. Devon Herrick Says:

    Firms choose to invest in the type of competition that maximizes profits. At your local big box retailer, that competition is on product selection, convenience and price. At a high-end specialty store, the competition may be on status, amenities and (perceived) quality. Most hospitals compete in their own convoluted way. They want insured patients to believe the quality is high (often through billboard advertising and in glossy local magazines). Hospitals compete to attract insured patients with amenities. They compete to attract doctors who can refer and admit patients. Lately hospital systems compete by absorbing or merging with smaller hospitals to increase bargaining power with insurers. But in the presence of third-party payment, hospitals have little reason to compete on efficiency and price. And they have little reason to invest in quality-enhancing activities that do not generate revenue.

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