Textbook Review

For those of you in the operations research side of the medical care world, you may recognize an interesting textbook by Peter Mears title Quality Improvement Tools and Techniques. The book is a good reference tool, but is a little difficult to slug through. It has so many graphs, outlines, quotations, that there is little room for text. The book gives classic B-school tools such as: a fishbone diagram, deployment charts, focus groups, benchmarking and customer needs mapping. For those with little statistical background, the book also explains in a simple, concise fashion how to construct pie and bar charts, histograms, radar charts, pareto diagrams and control charts. The book is somewhat out of date in that it does not give detailed explanations of how to perform these actions in a statistical program such as Excel.

Quality

Quality is a key component of customer (or patient) satisfaction with any service or product. In medical care, measuring quality is even more difficult than in other fields. There are three types of quality:

• Perceived Quality: This is the customer’s (patient’s) personal belief as to the quality they receive.
• Actual Quality: This is often measured by some quantitative metric (e.g.: defects per 100, number of breakdowns, ease of use). In the medical world, finding relevant metrics to measure performance is difficult. Often we can measure the amount of medical errors per 100 patients a physician makes, but this will not measure superior physician quality. Peer review is one way to measure actual quality, but since this is often done in a non-quantitative way, even most medical professionals are uncertain of quality of care they give.
• Expected Quality: This is the quality level a customer expects. This is often influenced by marketing and word-of-mouth information. An example of differences in expected quality would be that someone with top notch health insurance coverage would likely expect a professional, sleek, expensive office setting in the San Diego area. If the same person had no health insurance and decided to go to Tijuana for medical care, their expected quality of care would likely be lower.

Taguchi Methods

Dr. Genichi Taguchi is a Japanese statistician and Deming Prize winner who has introduced a novel quality control system. Below I point out some of the highlights.

1. Quality is measure by the total loss to society. What is the total loss to society? It contains 2 parts. First there is the cost to manufacture or provide the good to the consumer. Second, there is the cost of inferior quality. In the healthcare setting, simply reducing financial costs will be unsatisfying under the Taguchi methodology if quality of care is not at the same time maintained or improved.
2. Continuous Quality Improvement and Cost Reduction are necessary. Did you hear that economists? Most economists analyze a problem in a fairly static setting. Technology parameters are taken as given and economists are able to derive an optimal solution for a given problem. This answer is less satisfying if you know that your parameter assumptions are relevant only in the very short run. Economists such as Schumpter and his notion of creative destruction are able to incorporate a ‘continuous improvement’ framework in their economic analysis.
3. Quality improvement involves reducing variation. It is important to have a quality product all the time. This is done by reducing variation (e.g.: 6σ methodologies). This precept is very difficult to apply to medical care because of patient heterogeneity.
4. Product and Process Design have a strong impact on quality. In service sectors, often product and process design are one and the same.

• Mears, Peter (1995) “Quality Improvement Tools and Techniques” McGraw-Hill Trade, 326 pages.

The following is a timeline which summarizes the genesis and evolution of government provided health insurance in the United States.

Major Foreign Events:

• 1883: Otto von Bismark, then Chancellor of Germany passes a compulsory health insurance bill for factory and mine workers
• 1911: Germany extends compulsory insurance coverage to almost all employees
• 1911: David Lloyd George, Chancellor of the Exchequer in Great Britain convinces Parliament to pass the National Health Insurance Act which provides: 1) a cash payment in the event of maternity or disability, 2) medical services if a workers should fall ill. The London correspondent for JAMA reports that British physicians incomes rose between 20-50% in prosperous areas and doubled in poor areas after the Nat’l Health Act.

Domestic Events:

• 1906: John Commons, an economist at the U. of Wisconsin founds the American Association for Labor Legislation (AALL) to lobby for health care reform
• 1917: War Risk Insurance Act - extends medical and hospital care to veterans
• 1934: FDR creates Committee on Economic Security which advises the passage of government administered health insurance.
• 1935: Under FDR, Social Security Act passes.
• 1938: At the National Health Conference, FDR makes “the first definite affirmation by an American chief executive of the ultimate responsibility of the government for the health of its citizens”.
• 1943: Wagner-Murray-Dingell bill proposed (not passed) which aims for compulsory national health insurance
• 1946: Hill-Burton Hospital Survey and Construction Act
• 1957: Forand Bill aiming for medicare bill introduced
• 1960: Kerr-Mills bill passed, provides medical care for medically indigent
• 1961: King-Anderson bill proposed (would have covered 14m recipients of social security over 65, predecessor to Medicare);
• 1961: National Council of Senior Citizens - lobbying group for nationalized health insurance, AFL-CIO helps found
• 1965: “MEDICARE” put into law, Mills bill passes, “Three layer cake”
1. Title XVIII, Part A - Hospital Insurance: Provided all persons over 65 eligilbe for limited stay at hospital, based on King-Anderson
2. Title XVIII, Part B - Supplementary Medical Insurance: Voluntary, for physicians’ and home health services,
3. Title XIX, Medicaid - gives states options of how to care for medically needy, expansion of Kerr-Mills bill
• 1971: Price Inflation - Physician charges rose 39% after Medicare compared with 15% in the 5 years before Medicare
• 1972: Totally disabled included as eligible for Medicare benefits
• 1974: Certificate of Need (CON) program adopted
• 1981: Omnibus Budget Reconciliation Act - limits placed on inpatient, outpatient reimbursements.
• 1982: Tax Equity and Fiscal Responsibility Act (TEFRA) - changes hospital reimbursement from cost+% to DRG

From “The Genesis and Development of Medicare” chapter by Ronald Hamowy in American Health Care: Government, Market Processes and the Public Interest, edited by Roger D. Feldman

Conventional Wisdom holds that financial aid helps poor students afford higher education.  This is certainly true.  However, does financial aid truly help the entire distribution of poor families in the United States.   A study by Hansen and Weisbrod in their 1969 book Benefits, Costs and Finance of Public Higher Education seeks to analyze how financial aid is distributed among different segments of society.  They focus on the California.  In 1965, the average income of families with children enrolled in the University of California system was $12,000.  In the California State College system the average was $10,000 and the average for families without children in either system was $7,900.  The average amount of state taxes paid by each group was $350, $260 and $182 respectively. 

When Hansen and Weisbrod calculated the net taxes paid, discounting the benefits received from higher education financial aid, families in the UC system receive a net subsidy of (+$1,350), families in the Cal State system received a subsidy of (+$1,140) and those without children in either system still owed the tax (- $182).  This does not seem to be distributionally fair.

When we look at medical school admission today, 50.8% of entrants in private schools and 44.0% of public school entrants come from families which earn over $100,000.  Medical School financial aid is thus targeted almost exclusively towards the rich.  While financial helps the few poor students who wish to become doctors, in general the financial aid is a subsidy to the rich.

If one really wants to help young Americans get an education, a grant to people who are 18 years old would be an improvement.  This could either 1) help them afford an education, 2) give them some start-up capital to being a business, or 3) save some money for the future (including going back to college later).  This would be a more efficient way to allocate aid for college since it would not distort college tuition prices and would allow individuals to decide how to best maximize their welfare. 

Much of the background for my analysis was found in Health Care Economics by Paul J. Feldstein, 6th edition; Thompson Delmar Learning, 2005.

The American Medical Association (AMA) is a national physicians organization founded in 1847 by Nathan Smith Davis.  While, the AMA exists explicitly to serve the interests of physicians, politicians often seek advice from the AMA when setting health care policy.  Conventional wisdom is that the AMA is dedicated to providing the best care for patients.  The mission statement on the AMA website states:

The American Medical Association helps doctors help patients by uniting physicians nationwide to work on the most important professional and public health issues.

But is the AMA interested in quality of care or simply increasing physician profit-mostly through erecting barriers to entry into the profession?

There are a few examples which make clear that the AMA is dedication mostly to the interests of its members-doctors.

• The AMA claims that the difficultly of entering the medical profession is to ensure that incompetent doctors do not practice.  If this was the motivation of the AMA, one would expect to see the AMA favor re-examination and re-licensure of physicians.  Some physicians have been trained 30 to 40 years ago.  The AMA has never proposed physician re-examination.
• In the 1970s, Congress enacted the professional standards review organization (PSROs) legislation in an attempt to develop physician peer review to maintain quality.  If the AMA is most interested in patient quality, this seems like a sensible bill to support.  The AMA opposed the legislation. 
• For years the AMA had banned advertising under their “Principles of Medical Ethics.  The major reason for this restriction was to prevent physicians from competing on price or informing the public regarding quality measures.  In 1982, the FTC ruled against the AMA and stated that:
• “prices of physician services have been stabilized, fixed, or otherwise interfered with; competition between medical doctors in the provision of such services has been hindered, restrained, foreclosed and frustrated; and consumers have been deprived of information pertinent to the selection of a physician and of the benefits of competition.”
• On the their website, the AMA states that their advocacy efforts are directed a variety of objectives.  Let us list their advocacy agenda and see how each one will benefit physician directly:
1. Medical liability reform - This will lower the cost of practicing medicine for physicians.
2. Medicare Physician Payment Reform - In essence, the AMA is asking Congress to give more generous payments to doctors who serve Medicare patients.
3. Expanding Coverage for the uninsured and increasing access to care - While at first this objective seems noble, it will also increase the demand for physician services as consumers become price insenitive with third parties paying doctors’ bills.
4. Improving the health of the Public - Commendable.
5. Patient safety and quality improvement in health care - Commendable
6. Managed Care Reform - The physicians wish to advise patients which procedures are necessary regardless of the cost.  Managed Care takes into the cost of each procedure and thus may limit a physician’s choice to advise expensive medical options.
7. Regulatory Relief - Similar to point one, this will lower physician costs.

Further, there are three major barriers to entry in the medical profession which the AMA in essence controls.  The first is licensure.  The AMA sets the requirements for a license to practice medicine and can suspend or revoke a license once it has been granted.  Secondly, the AMA’s Council on Medical Education approves the number of medical schools in the US.  By not approving additional medical schools, the AMA can reduce the supply of physician care.  If fact, between 1905 and 1944, the number of medical schools in the US decreased from 162 to 69.  Finally, the AMA has increased the length of medical training, thus making it more financially difficult for prospective students to enter the medical field.  With fewer doctors, there is less competition and thus prices (and physician profits) will increase.

While, this post has not been kind to the AMA, I do not wish to state that the AMA sole goal is maximize profits of its members at the expense of patient health.  I simply hope that the public realize that the AMA is not simply a benevolent, consumer driven organization, but one who vigorously defends the interests of its members.  One should think twice as to whether AMA policy truly helps patients or simply helps member physicians.

 

Much of the background for my analysis was found in Health Care Economics by Paul J. Feldstein, 6th edition; Thompson Delmar Learning, 2005.

In the 1950’s and early 1960’s, the United States maintained a fairly constant ratio of 141 physicians/100,000 people. In the 60’s, however, politicians began to worry that the supply of doctors would decrease in the near future. In 1963, Congress passes the Health Professions Educational Assistance Act (HPEA) in 1963. Senator Yarborough stated that the reasons for passing the bill were that “it was when we were trying to give more American boys and girls a chance to a medical education so that we would not have to drain the help of other foreign countries.” Later he states, “to me it is just shocking that we do not give American boys and girls a chance to obtain a medical education so that they can serve their own people.”

How has this bill effected the number of physicians in the United States? In 1980, the ratio of physicians per 100,000 citizens increased to 200 from 141 in 1960. In 1990 the ratio increased again to 230 and in 2001 the ratio reached 285, double what it was in 1960.

With the increase in physicians, we would expect to see that prices would decrease due to increased competition. This has not been the case. Besides the HPEA, additional causes for the increase in the physician to population ratio have not been clearly identified. Some possible suspects are:

• the increased supply of physicians is simply a response to increased demand for health care,

• an aging of the population–thus increasing demand,

• an increase in the returns to becoming a physician, or

• supplier-induced demand may be keeping physicians salaries constant despite an increase in competition.