It’s your child…NOT a Tata Nano car…

Thanks to the WSJ for catapulting me back into the blogosphere…..

The Henry Ford of Heart Surgery
In India, a Factory Model for Hospitals Is Cutting Costs and Yielding Profits

This analogy definitely requires a comment or two. The above linked article was presented by Geeta Anand in the Wall Street Journal a couple a days ago describing a doctor performing open heart surgery on an 11 year old while at the same time his “..assistant reads aloud a proposed agreement for him to build a new hospital in the Cayman Islands that would primarily serve Americans in search of lower-cost medical care.” Well, I don’t know about you folks but this new breed of business savy physicians hammering out private equity financed business expansion and M&A deals in the midst of supposedly highly complex surgery on someone’s precious child, has me quite disturbed. Are you a highly qualified professional offering a unique skill which commands premium pricing and thus deserves you dedicating your entire focus and skill on your patient?; or, are you a mechanic/tradesman sort of individual performing a simple routine (and thus commodity) mechanical task on your customer?; maybe you were chewing gum at the same time too. But of course, no problem. India has a sophisticated tort system allowing patients appropriate remedy in the the event that ink from the lucrative deal spills into the surgical field. Then again, how much remedy should we expect from a “on average” $2000 procedure. After all a Tato Nano car also costs about same price and is also built on assembly lines. And Cayman Islands? Beautiful Caribbean off-shore banking center otherwise known for off balance sheet entities, money laundering, etc etc? Is this a coincidence? Bizarre.

And I quote:

“By driving huge volumes, even of procedures as sophisticated, delicate and dangerous as heart surgery, Dr. Shetty has managed to drive down the cost of health care in his nation of one billion.”

Wow, it doesn’t get more mea culpa than this. The author, Geeta Anand, recognizes that economies of scale are required to lower overall health care costs, but then goes on to at least imply support for driving utilization to achieve these economies of scale. Imagine the end result of this process in the U.S.A. Sorry Mr. Jones, you don’t need the surgery but we are just trying to use economies of scale and extract cost concessions from suppliers! Consolidation of health care providers due to the economic necessity of providers in evolving highly competitive markets as which happened during the Managed Care movement in the U.S. in the mid 90′s is a far more appropriate driver of economies of scale. Let’s not forget our patients don’t WANT to be utilizers. They should only be utilizers if they NEED the surgery; and that is not entirely clear. Quoting mortality/complication rates is insufficient as no one is saying they are not good talented surgeons. I’m sure each and every one is excellent. Let’s instead see the criteria by which it was decided the patient actually requires the surgery and compare to those criteria at Cleveland Clinic or at Children’s Hospital in Boston.

And I quote:

“Narayana’s 42 cardiac surgeons performed 3,174 cardiac bypass surgeries in 2008, more than double the 1,367 the Cleveland Clinic, a U.S. leader, did in the same year. His surgeons operated on 2,777 pediatric patients, more than double the 1,026 surgeries performed at Children’s Hospital Boston.’

But performing potentially unnecessary surgery (i.e. driving large volumes of utilization) on patients and claiming a great low mortality/complication rate is a bit disingenuous, not to mention the supposed support provided by Dr. Jack Lewin, chief executive of the American College of Cardiology. Of course, the more procedures one performs of a certain type the more skilled they will be at it. It doesn’t take a cardiovascular surgeon to figure that out, let alone the chief executive of the ACC.

Earlier this year I penned this post (not while performing surgery…I think I was chewing gum though..)

What conflicts of interest? Trust me I’m a Doctor.

Ah …famous last words; the basis for the prestige of the entire medical profession. The Hippocratic Oath and the promise to put patient first and do no harm. But, how much harm can be done if we treat the patient reasonably well and make a few extra bucks on the side. After all, we all want to live like investment bankers no?

Well, unfortunately, the medical profession practices in Asia Pacific risks destroying this foundation of trust if it doesn’t proactively take steps to self-regulate its conflicts of interests.

According to Wikepedia…

Physician self-referral

Physician self-referral is the practice of a physician referring a patient to a medical facility in which he/she has a financial interest, be it ownership, investment, or a structured compensation arrangement. Critics of the practice allege an inherent conflict of interest, given the physician’s position to benefit from the referral. They suggest that such arrangements may encourage over-utilization of services, in turn driving up health care costs. In addition, they believe that it would create a captive referral system, which limits competition by other providers. (see physician self-referral)

Others respond to these concerns by stating that while problems exist, they are not widespread. Further, these observers contend that, in many cases, physician investors are responding to a demonstrated need which would otherwise not be met, particularly in a medically underserved area.

In the good ole U.S. of A, the response was the Stark Law named for United States congressman Pete Stark who sponsored the initial bill. Again, according to Wikepedia…

Legislation

Congress included a provision in the Omnibus Budget Reconciliation Act of 1989 (OBRA 1989) which barred self-referrals for clinical laboratory services under the Medicare program, effective January 1, 1992. This provision is known as “Stark I”. The law included a series of exceptions to the ban in order to accommodate legitimate business arrangements. A number of observers recommended extending the ban to other services and programs. The Omnibus Budget Reconciliation Act of 1993 (OBRA 1993) expanded the restriction to a range of additional health services and applied it to both Medicare and Medicaid; this legislation, known as “Stark II,” also contained clarifications and modifications to the exceptions in the original law. Minor technical corrections to these provisions were included in the Social Security Amendments of 1994.

Well through personal experience, I and most others are well aware that these conflicts of interests have not been addressed in Asia and although Asians in general still hold their venerable physicians in high regard, it is only a matter of time before this issue will need to be addressed. Usually the issue will be forced to the forefront when the payers (insurance companies and governments) start to realize the important utilization drivers and decide to do something about it. Unfortunately or fortunately, depending on perspective, the patients do not typically have the domain knowledge to know any better though access to healthcare information on the internet is changing this factor. If the doctor says you need it then you need it.

However, this misalignment of incentives, does drive the use of investigations and treatments which produce the highest margin for the physician rather than what is absolutely minimally necessary for the patient. Typically in the practice of medicine, minimally necessary is a good thing. This practice has driven the use of expensive new generation antibiotics at the expense of equally effective older generation antibiotics, thus stimulating resistant strains of bacteria to the newer generations. It also leads to false positives on investigations which submit patients to additional invasive testing that they may not necessarily require.

I don’t question the ethics and motives of our Asian physician colleagues, I simply wish for the profession to recognize the opportunity for abuse and the possibility that these misalignment in incentives will distort the practice of medicine and unnecessarily raise a question of trust for the patient who already is anxious visiting the physician and doesn’t want to be second guessing his doctor’s motives in ordering tests or prescribing drugs.

The question is how far do we go? click for IOM report

Tej Deol, M.D.

Vertical Integration business plan appeals to private equity.

And I quote again…

“The group is fueling its expansion plans through private equity, having raised $90 million last year. The money is funding four more “health cities” under construction around India. Over the next five years, Dr. Shetty’s company plans to take the number of total hospital beds to 30,000 from about 3,000, which would make it by far the largest private-hospital group in India.”

and

“Mr. Parashivappa says he can’t himself pay for the surgery, but it is covered by a farmers’ insurance plan that Dr. Shetty began several years ago in partnership with the state of Karnataka, which includes Bangalore.”

So Dr. Shetty, is the payor, the provider, and the owner of the facility. He owns the entire value chain and is squeezing his suppliers to extract cost concessions. He decides who gets the surgery, where he gets it, and who pays for it. Hmmm. He does it in a country where there is little if not no accountability, limited patient protection by courts, rampant corruption, and a largely uneducated population. It’s brilliant execution and if I was Private Equity I would be jumping all over this model. The returns will be extravagant.

But again, in line with my previous article describing “Delhi’s Ministry of Health”, there appears to be a rush of individuals willing to profit off a vastly illiterate population.

Don’t get me wrong. I support free markets. I support entrepreneurial individuals like Dr. Shetty making a good and even great buck from the risks they take to build these businesses in very challenging environments. I believe there will be ultimate benefits to society as more and more hospitals are built and more and more services become readily available.

“At his flagship, 1,000-bed Narayana Hrudayalaya Hospital, surgeons operate at a capacity virtually unheard of in the U.S., where the average hospital has 160 beds, according to the American Hospital Association.”

“Next door to Narayana, Dr. Shetty built a 1,400-bed cancer hospital and a 300-bed eye hospital, which share the same laboratories and blood bank as the heart institute.”

But I also believe the government (and I don’t mean Delhi Municipal Government) and professional organizations must step up, provide protections for patients, and set guidelines so these potential conflicts of interests don’t become abused. As for our educated American health care tourist friends…caveat emptor.

Tej Deol, M.D.