Reducing healthcare costs

It is widely known that health care costs for the same treatment or procedure or test can vary by multiples across the United States. Atul Gawande's latest essay looks at ways to bend the health care cost curve by getting hospital chains to emulate commoditized fast food chains in managing consistency in cost and quality over a wide range of services when provided at locations spread out across the country.

He points to the success of Cheesecake Factory in providing over 300 dinner items with similar, standardized quality to 80 million customers each year at the same cost (for each item) across all its 160 odd American restaurants. He contrasts their success - in providing food with great variety and quality at affordable cost - with America's health care services market,

Our costs are soaring, the service is typically mediocre, and the quality is unreliable. Every clinician has his or her own way of doing things, and the rates of failure and complication (not to mention the costs) for a given service routinely vary by a factor of two or three, even within the same hospital.

In simple terms, Gawande's question is that if restaurant chefs can be trained to deliver standardized food quality across the country, then what is it that prevents doctors (in different hospitals) from delivering standardized care with consistency in quality and cost. He tells the story of Cheesecake Factory, 

If a restaurant were to stock too much, it could end up throwing away hundreds of thousands of dollars’ worth of food. If a restaurant stocks too little, it will have to tell customers that their favorite dish is not available, and they may never come back... The company’s target last year was at least 97.5-per-cent efficiency: the managers aimed at throwing away no more than 2.5 per cent of the groceries they bought, without running out. This seemed to me an absurd target. Achieving it would require knowing in advance almost exactly how many customers would be coming in and what they were going to want, then insuring that the cooks didn’t spill or toss or waste anything. Yet this is precisely what the organization has learned to do.

The chain-restaurant industry has produced a field of computer analytics known as "guest forecasting"... They have forecasting models based on historical data—the trend of the past six weeks and also the trend of the previous year. The predictability of the business has become astounding. The company has even learned how to make adjustments for the weather or for scheduled events like playoff games that keep people at home... Every six months, the Cheesecake Factory puts out a new menu. This means that everyone who works in its restaurants expects to learn something new twice a year. The March, 2012, Cheesecake Factory menu included thirteen new items. The teaching process is now finely honed: from start to finish, rollout takes just seven weeks.

The difficulty with creating Cheesecake Factories among hospital chains is with standardizing treatment regimes and universalizing best practices in diagnosis. Doctors and patients, atleast some of them, are certain to resist micro-managed commoditized treatment protocols. Gawande writes about the vast diversity in joint-replacement surgeries - different makes of artificial joints, different kinds of anesthesia, different regimens for post-surgical pain control and physical therapy - and about the efforts of Dr John Wright at Boston's Brigham and Women's Hospital in standardizing knee replacement surgery protocols.

Dr Wright gathered a group of people from every specialty involved—surgery, anesthesia, nursing, physical therapy—to formulate a single default way of doing knee replacements... they studied what the best people were doing, figured out how to standardize it, and then tried to get everyone to follow suit. They came up with a plan for anesthesia based on research studies—including giving certain pain medications before the patient entered the operating room and using spinal anesthesia plus an injection of local anesthetic to block the main nerve to the knee. They settled on a postoperative regimen, too... 

Wright had persuaded the surgeons to accept changes in the operation itself; there was now, for instance, a limit as to which prostheses they could use. Each of our nine knee-replacement surgeons had his preferred type and brand. Knee surgeons are as particular about their implants as professional tennis players are about their racquets. But the hardware is easily the biggest cost of the operation—the average retail price is around eight thousand dollars, and some cost twice that, with no solid evidence of real differences in results...

The surgeons now use a single manufacturer for seventy-five per cent of their implants, giving the hospital bargaining power that has helped slash its knee-implant costs by half. And the start-to-finish standardization has led to vastly better outcomes. The distance patients can walk two days after surgery has increased from fifty-three to eighty-five feet. Nine out of ten could stand, walk, and climb at least a few stairs independently by the time of discharge. The amount of narcotic pain medications they required fell by a third. They could also leave the hospital nearly a full day earlier on average (which saved some two thousand dollars per patient).

Gawande also draws attention to how the University of Michigan Health System standardized blood transfusions to patients, reducing the need for transfusions by thirty-one per cent and expenses by two hundred thousand dollars a month. However, their implementation on scale, country-wide and across specialties, is a massive challenge. Even where standards and treatment protocols were standardized, it has been difficult to get doctors to adhere to them.

Given the low-hanging fruits, it is appropriate that, despite all the attendant challenges and systemic resistance, some basic level of protocols based standardization should be made mandatory. Only some cutting edge discretion should be given to the individual doctors. However, such standardization and analytics is possible only if data collection is made a central focus in all health care activities. In medical care, this means electronic patient and hospital record management.