Tuesday, February 23, 2010

Healthcare ... cost or value?

Dear Colleagues

The problem with the dialog about healthcare in the United States is that there is a lack of clarity about the financial analysis and economics. This is something that Community Analytics (CA) addresses very well.

Good health is a very important value. Quality of life is good when health is good, and deteriorates markedly with illness and any form of debilitation. Job opportunities reduce when health deteriorates. The "value" of good health is enormous.

Health science has improved over the past decades in an amazing way. The health sector is in a position to intervene in all sorts of ways to improve the health status of an individual. These interventions have a cost, and there is a price. Because of the complex structure of the health sector, the underlying cost very rapidly becomes difficult to ascertain because a transaction price is now a mix of both cost and profit. Nothing wrong with profit ... but it should be at a level that is reasonable.

Reasonable is subjective ... but there are some financial or economic calculations that can help. Risk and reward go hand in hand. Return on investment is another useful metric. Remuneration per hour or day is useful. Too many people in the healthcare industry are underpaid and doing valuable work ... and too many people are overpaid. Few of the financial and economic facts about the healthcare industry are presented anywhere in an easy and understandable and complete way. Argument and opinion are more accessible than the data that would drive a good analysis.

And the customers of the healthcare industry. Some get amazing care ... some get far too little care. The best possible outcomes are constrained by financial and economic considerations at both the customer side and the supplier side. In New York, as this is being written, St. Vincent's Hospital is in financial difficulties and may well close. The basic reason is that it has to serve many customers through its emergency rooms that need care and cannot pay. This is a bad outcome for a healthcare system that has the science and professional capacity to be amazing and a financial and economic structure that makes the national health outcome third rate.

The CA approach to financial and economic analysis can be used to improve data about the value and cost dimensions of the health sector from the perspective of the society as a whole. The methodology will show that on the face of it some of the reform going through Washington is valuable, but more important, CA will also show how this value diminishes in practice unless there is data to monitor how things change!

Peter Burgess

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