Friday, May 02, 2008

Power to the Consumer


Have you been to a doctor recently? Or taken a family member such as a child, a spouse or a parent to the doctor? Have you been admitted to an emergency room or hospital?

Your experience might have included long waits to see a physician, reams of insurance forms and a struggle with figuring out insurance co-payments and deductibles. All that came before you got the good or bad news about the medical condition that prompted the trip in the first place.

If you did not feel sick yourself before, the whole experience might have given you a whole new pain in the neck.

Health care system reform is debated about every four years. This presidential election year is no exception. During the campaign the focus is usually on how many people are uninsured and what to do about it. A few nasty remarks are exchanged back and forth between the candidates about socialized medicine. Following the president’s inauguration in January attention turns to the federal government’s budget and health care costs and how to reduce them. Then nothing happens.

I submit to you that the health care industry is sorely in need of reform and the people who are best suited for the job are reading this post.

My argument is that health care should be considered like any other industry - suppliers, customers and competitors. Three points jump out immediately.

First, medicine has modernized, but the delivery system has not. Those of you who have visited a physician lately….where were the patient records? In filing cabinets over-flowing with manila folders flagged by color coded tabs?

Can you imagine what banking would be like if commercial banks were still keeping track of our savings account balances on paper? Banks use computers to compile data and software applications to monitor accuracy. More software applications make all that data available immediately to every bank employee and the account holder.

I can pay for my groceries at the grocery store and before I make it to the door, I can look on my smart phone to see the debit run through my checking account.

I go to the doctor, a week later my test results are hanging by a yellow sticky to a tattered card board file folder that may or may not be filed in the right place. Few get to read the files, least of all the patient. Indeed, historically doctors have preferred that you not see your test results.

This brings me to the second point in our industry analysis. Health care buyers - you and me - have NO power relative to suppliers - doctors and hospitals. Switching costs are high in part because the patient does not have easy access to the vital information in those manila folders. Usually patients must pay to get copies sent to a new physician and there is no guarantee that the new doctor will have the information when needed.

Indeed, patients do not even have full information about the health care providers they choose. Think about your last major purchase. Mine was the smart phone I mentioned above. I did an Internet search for reviews, compared prices and sought out comments from people I saw using the newest phones. It took six weeks to decide on one model and I spent $190.00.

I go to the doctor and I know little more than the office address and that my insurance plan will cover some of charges. For some patients the charges often turn out to be in the thousands of dollars.

The third industry characteristic I want to mention relates to structure. In economic terms, the health care industry is highly fragmented with many physicians, hospitals and clinics that offer highly diversified services. There are significant barriers to entry for newcomers, for example, admission to medical school. Regulatory oversight is localized in state health departments and medical examining boards.

In other words, health care professions still operate much like the guilds of the Middle Ages. Of course, on the seamier side of guild development were the “conjurations” - binding oaths sworn among artisans to support one another in adversity and back one another in business ventures.

No physician makes a conjuration today, but protectionism is built into our health care system nonetheless. You need only try to balance the numerous advertisements for malpractice attorneys with the paucity of information about negligent physicians to become suspicious that health care buyers like you and me are missing out on some vital information.

State departments of health offer information on state disciplinary actions but not federal actions against physicians. Malpractice settlements remain sealed in most states.

It is a precarious mix found in no other consumer-related industry - powerless buyers facing high switching costs with numerous suppliers held accountable by a peer group that is still shielded from public scrutiny.

So what is the solution? See the next post for a route to reform and a few stock ideas to go along the way.

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