Opinionated @ CFE

Want to drop healthcare costs? Focus on the expensive patients first


The New Yorker has a fascinating look into how one man, Jeffrey Bremmer, has saved hospitals millions of dollars by finding health care “hot spots”. The approach he takes is a lot like what New York did in the 90s to reduce crime: they identified the areas that cost the most and focused resources there. While that’s now becoming a standard practice for police departments nationwide, the same approach just isn’t catching on in the medical world.

On the one hand, insurers and hospitals would love to find ways to acutely reduce their costs. The classic wisdom in business is that 90% of your costs come from 10% of your clients, and medical is proving not too much different. In some cases, 30% of total medical costs come from a scant 1% of total patients who just aren’t getting the kind of care they need. That increases costs and decreases the quality of care system-wide. Finding those high-cost patients and treating them can save lots of money for them and plenty for their customers in the form of reduced costs.

On the other hand, you’re also killing off your future business stream. What if people got so healthy that hospitals had to close en masse and insurers became less influential? It’s not so hard to imagine. The article points out the case of Denmark where half of the nation’s hospitals closed down after similar measures and half of those still open may close within a couple of decades. There are also some anecdotal stories of doctors aggressively talking patients into care they don’t really need just to keep the books looking good. It’s a perverse situation where there’s an incentive to keep us unhealthy.

What we have right now is a series of competing priorities. Insurers and hospitals want to reduce their costs, but not at the expensive of revenue streams or their own existence. It has largely resulted in so much lip service to reform while aggressively pursuing policies that guarantee they’ll stay in business. The recently passed health care bill is a shining example of their lobbying influence; now everyone is mandated to purchase their product and only at the cost of a few minor concessions. They found a way to reduce their costs and preserve their revenue, but none of us is really better off for it.

That’s where the article’s conclusion hits things dead-on. If a medical company decided to embrace a future where there are significantly lower revenues, would they have good odds of being one of the last men standing? Considering they’d be offering a superior product at a superior price, you could bank on it. This creates an amazing business opportunity that also happens to be a social good. All the more impressive is that it can be done free market style instead of via various government mandates that we can’t afford to pay for anyway. The real question is if someone will take this approach before it’s too late.

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