I recently came across a fascinating book by two of America’s leading economists, George Akerlof and Robert Shiller, “Phishing for Phools: The Economics of Manipulation & Deception”.
The main focus of the work is the incredible ability and relentless intent of the free markets to spawn manipulation and deception, while also producing enormous wealth and innovation. Some of the words used in the book need to be understood here:
“phish”: to get someone to do things that are in the interest of the “phisherman” but not in the interest of the target
“phool”: someone who is successfully phished
“phishermen”: businesses that are trying to get the phool to buy something that may not be in the best interest of the buyer
My thoughts immediately went to the healthcare industry with its impressive economic metrics (as of June 2015):
U.S. market size in sales dollars per year: $1.7 Trillion
Patient care segment sales: $1.01 Trillion
Inpatient skilled nursing services & rehabilitation: $74.8 Billion
Dental non-surgical intervention services: $49.6 Billion
Contributions, gifts & grants by Govt.: $44.9 Billion
Appropriations from General Govt.: $40.2 Billion
Other: $389 Billion
While these numbers are impressive now, consider the CAGR (cumulative annual growth rate) of over 8.5% for the industry currently forecast through 2020. Please keep in mind that we are only talking about the US healthcare market. The global market, in which most of the pharmaceutical and medical device manufacturers play, is much bigger.
So, who is phishing in this industry and who are the phools? In the U.S. market, I believe that by and large, physicians are the phools and the hospitals are the phishermen. Consider the following facts:
Hospitals have been and are on a physician buying binge (only about 32% of the physicians are now independent)
Hospitals are over-paying physicians (example: $1 million a year for a specialist that would earn about $475,000 in the same market) to buy them out with the expectation that the hospital will recoup its “investment” through higher revenue and economies of scale and standardization (how will higher revenue produce lower healthcare cost: 2 + 2 = 3?)
Buying of physicians has now shifted mostly from specialists to primary care providers (PCP) as it is the PCPs that drive the referrals, lab tests, and other revenue streams for the hospitals
Fees for most procedures at large group practices (fully or partially owned by a hospital) are greater than those at smaller practices
Over 23% of hospitals are operating at a loss
Another 65% of the hospitals are just breaking even or making a margin under 5%
With all the focus on reducing healthcare costs in the US and the various mechanisms devised to achieve this goal (ACOs, value-based reimbursements, and the ACA) should we expect the costs to actually come down as we are being told? I am an optimist by nature but in this case I say baloney.
I believe that there are some very crafty phishermen at work doing some serious phishing in the US healthcare market. And while the patients as consumers of the services of this industry ultimately foot the bill (out of pocket, premiums, and taxes) the real phools are the physicians. I say this because when the tide turns (as it must and it surely will within the next 5-10 years) and hospitals jump on a different “strategy” for profits maximization, it will be the physicians that are left on the sidelines when they are asked to “get off the bus”. The patients will adjust since without them (and their illnesses) the industry would not exist. But the physicians need to think carefully about what they are being told by the phishermen in order to give up not only their clinical autonomy today but also their long-term financial rewards.
Below are just a few examples of what happens to a physician that is an employee of a hospital:
Pressure to produce (yes, hospitals use fancy words in the contract to make it look like “production” is not the basis for physician compensation – but it is. Has to be.)
A specific brand of knee must be used in a knee replacement regardless of the physician’s concerns about its safety or value to the patient (standardization or profits maximization?)
Use of designated labs and specialists – that maximize hospital’s bottom line
“Standardized” care to maximize use of services that drive the hospital revenue
Sending a patient to a location farther away than to a closer one that may be a competitor of the hospital. An independent physician would not want to do this unless it is in the best interest of the patient
There are many other examples but that is not the point here. The real questions are rather basic and can be summarized as follows:
What is the impact on the physician’s clinical autonomy when employed by a hospital?
If patient care can be standardized, can it then not be outsourced?
If hospitals are paying a premium to buy out physicians, how will they break-even and generate a profit for their investors while at the same time bringing “costs” down? (One entity’s cost is another entity’s revenue)
If patient care standardization takes hold in a big way, where will the innovations come from?
I have spent most of my career in the corporate world and have seen & experienced many examples of ERP systems (Enterprise Resource Planning) that cost tens of millions of dollars to just implement. These systems promised standardized business processes and many corporate phools fell for the trick. The smart ones did not get phished by asking themselves one simple question:
What is our core competence?
These smart businesses avoided falling prey to the phisherman by not “standardizing” their core competence. Your core competence as a business is what differentiates you in the marketplace, whether visible to the target user or not. It is your secret sauce. Does Coca-Cola give out its formula for coke so it can be produced by its vendors in a “standardized” way to lower its cost of goods sold?
You should never ever want to “standardize” your core competence based on an external standard. And if the hospitals are “standardizing” patient care, then they are either phoolish themselves or this is not their core competence. And if it is the latter, then what is their core competence: profit maximization? And if they are standardizing internally, then their standard, if valuable, will become a “best practice” and unless protected by patent or intellectual property laws, will soon become a standard for their competitors to use. So what is the hospital going to do? Keep secret a “best practice” that saves lives only at their locations? What about the Hippocratic oath that their employed physicians took?
I have quite a few friends and family members that are physicians. They worked very hard to earn their M.D. and they care too deeply about patient care to be used as victims of unscrupulous phishermen. If physicians lose their clinical autonomy, we all lose as patients. If they lose their just financial rewards over a lifetime of work (not just a bloated payout for a short time) they and their loved one lose out. If physicians make the “choice” of becoming hospital employees solely to avoid the administrative overhead imposed by the complexities of an arcane process crafted by the insurance industry and the downward pressure on “unbalanced reimbursements” (hospitals get paid more for the same procedure and patient than a physician in an outpatient setting – think lobbying) which threatens their livelihood, then we all lose.
I sincerely hope that our physicians realize that they have a choice in the matter to protect their clinical autonomy as well as enjoy the financial fruits of their labors. I hope they would make the choice to stay independent for all our sakes. I hope they will reach out to those of us with the knowledge, capabilities, and sincere desire to look after their best interest with the same degree of dedication as they show to take care of our physical well-being.