HOW AND WHY TO IMPLEMENT NEW HEALTH CARE PRODUCTS

The answer: tame the financial and bureaucratic tsunamis

November 10th, 2008

As long as I can remember there have been arguments about the costs of health care being too high and some of the hospitals being inefficient. However, with the expansion of the economy, the costs of all sectors of the economy grow. The costs alone are only part of the issue. In economics we need to evaluate what we have received by means of costs and resources. The question is about opportunity costs: what we have received by using the resources. There are many appropriate methods to solve the question, like the familiar cost-benefit, cost-effectiveness, and cost-utility analyses, and the production function methods to evaluate the critical level of increasing resources versus for example the health level of the population.

In Finland, for example, major re-engineering processes in the health care field have been initiated, like new health care laws (e.g. 1966, 1972, and 1993, and starting in 2010) to improve the health of the population. Their purposes and results have been good for people. Despite the increasing bureaucracy, and the stress on preventive care, to treat sick people has always been and still is an important task of the entire health care system.

Already in the 1950´s and especially the 1960´s the theory of human capital was advanced, and the opportunity to invest in people e.g. by means of education and health care was emphasized. This theory also stresses that each person can invest in her/himself, e.g. by exercising, eating healthy food, educating her/his self. This kind of thinking must not lead to the result that if a person becomes ill, it is her/his own fault. Nor should this kind of thinking lead to deepening cynicism.

Resources are meant to fulfil preset defined targets. In health care the target is “more health” at the national level. In fact, we worry about things like efficiency, effectiveness, cost burdens, priority setting and so on. This is because of international comparisons between health care systems and because of the ethical considerations concerning sick and elderly people. As soon as we start to talk about costs instead of investment in health care, we are in a crisis. I’m very concerned about two things. 1. The difficulty of system integration (public and private) and 2. Human lenses: are we seriously taking care of each other.

There is a large amount of scientific and practical literature about the assessment of health care systems and technologies. So, I recommend to you, who are interested in evaluation to take a look at health economics and the assessment units at many universities. Of course, start out with an internet search using some key words like: health economics, technology assessment and cost-benefit analysis. Then continue to the basic courses which universities provide on health economics and research units that are studying valuation methods.

The entire discussion should move from the burdens of systems to the positive thinking of the system. System thinking is a good tool to describe the effective parts of complicated system. Thus we can understand better how different parts interact. This means that participants are ready to share important information with other partners; it means that we are ready for critical appraisal and to understand the context. It is not necessary to have hazy networks even though they are some kind of basis of system thinking. More important is to control the change which occurs sometimes suddenly and sometimes meaningfully. When the amount of information has expanded exponentially, the new system, or let’s say, systematic activities can help us through the changes. In other words, we need to predict the future. Then we can put the features into their functional contexts.

At times when the economy is in a financial crisis, the inputs should be directed to health care and private companies. The question concerns new medical technologies. It has been seen in the United States that the development and diffusion of new medical technologies, devices and software is a very significant contributor to the rapid growth in health care leading to actual cost savings. This is not a paradox, but instead a clear picture of how even the downturn in the economy can be changed into an upward trend.

One can wonder, how on earth we can talk about health care and business at the same time. The answer is simple, although the interpretation may be complicated. The answer is: the public sector and the private sector both bring their own excellence to handle health care delivery. We need co-operation between them, but we do not want to increase bureaucracy even if we need political consideration and direction.

The individual medical technology firms bring considerable help to the whole health care system by means of patient-oriented products. Let’s think, for example, of a very old product, like X-ray imaging. Who made it? Originally, one company way back when. Who produces MRI scanners? Again, the companies. Who makes pharmaceutical products? Of course, the drug companies. And so on and so forth. Just think!

At the core of medical technology (e.g. imaging technology, information technology) are two potential benefits: to greatly improve diagnostics while, at the same time, offering much greater flexibility in its availability and in the method of its delivery by means of digital data and imaging technologies. These are the practical gatekeepers to control and reduce health costs while improving quality and accessibility to treatment. In combination with other medical disciplines (e.g. surgery) imaging also offers the potential to radically improve patient treatment through integrated image-guided therapy.

The medical imaging sector and digital data sector are examples of markets which are moving from an equipment focus to an information management focus. The key technologies have been developed to capture, store, retrieve, transmit and display the images generated. While the potential for applying these technologies to solve major challenges in the diagnostic component of health care services has been clearly identified, the shift from technology push to market pull is incomplete and fragmented. Integration and standard setting are the two greatest challenges currently being addressed.

The integration challenge involves fitting existing technologies which have been developed piecemeal into an integrated set of cost-effective solutions for the emerging market.

I want to emphasize one of the obvious economic practical, but political decisions, namely, that in Finland the current GNP share of private companies is 45%. It should be increased to 65%. This seems perhaps an extraordinary goal, but for entrepreneurs it is an enthusiastic passion.

I’m very delighted that so many politicians, especially ministries, are working toward this goal. They are rainmakers creating an environment, where entrepreneurs can feel that they have a significant role in making the country visible also internationally. This can dramatically move the economy to achieve comparative advantages with respect to other industrialized countries. Without taking seriously what private companies can do to improve the economic crisis, we move toward a deep stagflation.

The unpleasant issue is that at the same time as the economy in any country starts to crumble, the fingers point to the public health and social care system. The crisis allows politicians to find the most vulnerable areas in the economy and thus to decrease the finances in the health care field (including social work). This is a very short-sighted policy. There is no quick solution to improve the economy, but also there is no reason to organize new forums to make strategies. The only way forward is to start to implement the existing products, to create possibilities to business and to improve the health care system. It is a waste of money to trust that totally new groups of people from various organizations, including the public and private sectors, could suddenly help to expand the economy.

The forums of people surely create an enthusiastic environment and inspiration, which can at best lead to financial assistance to firms, but they do not solve the big problems including the companies’ deep liquidity needs. The main focus in these forums is to help start-up companies, which is a very nice goal. But: these forums must not be in any way bureaucratized organizations.

I realize that the old, almost fundamentalist doctrines, like Milton Friedman’s and John Maynard Keynes’ theories, do not seem to be relevant. However, just as mathematics is unchanged in its basic theories, so are the economic theories. I don’t mean novel models of leadership and qualitative approaches or long tail theories. I mean the fundamental theories about the human behavior in the market. We cannot forget welfare economics and Arrow’s theorems, not even the Pareto principle, if we want to understand the action in the public and private health care sectors.

According to health economics, those nations whose domestic economy, education and socioeconomic status are strong are providing better access to health care. To interpret this in everyday life, politicians should see where the biggest problems are and start to evaluate the system. In the near future countries are going to be valued according to their ability to care for their people, how they can increase wealth by keeping the population healthy and how to create possibilities for firms to expand also internationally. In spite of the interdependency of countries, each individual country will build its own wealth and find its comparative advantages to trade aboard.

We are told that health care is inefficient and that physicians and other professionals and even patients are frustrated. This is all true, but we have to keep in our mind the following realities: First: health care is for us, for our own wellbeing, and helps to sustain economic growth; second, health care is expanding fast as measured by all possible measures. However, it is also true that a lot of activity is directed to making heath care systems more efficient with new technology. The question follows: Isn’t it obvious that technology increases the cost of health care? The answer is: Yes and no. The investments in new technologies have to be worthwhile and especially IT (information technology) firms have to offer value-added products to improve health care system logistics and the quality of services. Health care professionals are very qualified to discern good products and identify proper needs, i.e. what the health care system really needs.

I want to highlight one most important issue: the doctors and nurses are not treating people ineffectively. They follow ethical considerations. It is very wrong to blame the health care personnel. If the hospitals are acting ineffectively, the reason is more likely in management, which on the other hand has to follow the reforms the governments are pushing continuously to the municipalities in order to pay for the usage of treatment modalities.

The IT firms in the health care sector need to answer the visible demand and not create demand on their own. Medical technology is valuable if the benefits of medical advances exceed the costs. Professors of economics, David Cutler (Harvard University) and Mark McClellan (Stanford University), concluded after analyzing technological change, that medical spending as a whole is worth the increased cost of care. At the aggregate level, health has improved as medical spending has increased. These studies were based on new medical devices. A still bigger part of medical technology is the variety of electronic medical records (EMR). Every physician faces the challenge of using some EMR and an array of other databases. Many studies have shown that willingness to use new EMR systems is too low. This means that the ROI (return on investment) is also low. How to get end users to utilize these new software solutions is one of the educational tasks of all health care institutions.

Many studies have also shown that EMR systems can actually lower many administrative and management costs, freeing time to strengthen patient-doctor relationships, i.e. time costs and transaction costs decrease. This means that opportunity costs also decrease, which is one of the most important reasons for adopting EMR and related software in health care. By making all hidden costs visible we can start to reengineer the overall system and employ appropriate IT solutions. It is not enough to simply articulate the clinical benefits new medical technology offers to patients. The only guarantee for realizing a return on your investment requires adoption by all parties: the purchaser, payer, provider, and consumer.

Efficient production and distribution are no longer enough to differentiate one company from its competitors. The essence is the company’s capability to handle information, especially in the EMR market. EMRs are like huge storages used to save and store information. Nowadays they are the most widespread way to get information as such, but to handle that information is not necessarily simple. The problem is not lack of information, but instead the process that manages information: searching and archiving, combining the information of different sources and identifying the necessary data from the available information. In other words there is a huge gap between the data information monsters and the user interface to handle that data. There is an answer to that problem. I ask you kindly to become familiar with the products Onesys is offering. This white paper, as you can see, serves also as a marketing paper for the Onesys Navigator. Thank you!

Minneapolis, MN, USA, November 10th, 2008

Pirjo Koivukangas, CEO

Ph.D. (Economics and Business Administration)

Docent in Health Economics, University of Oulu, Finland

Columnist

Back