When Entrepreneurship Hurts Health Care

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McAllen, Texas, and El Paso have a lot in common. Both are poor, both are 80 percent Hispanic, and both metropolitan areas are home to just over 700,000 people. But they are separated by nearly 800 miles of blacktop, and by one other very important measure: McAllen is the second-most expensive city for medicine in the United States, trailing only Miami in costs. Medicare spent $15,000 per McAllen enrollee in 2006 -- $3,000 more than the average personal income there. In El Paso, by contrast, Medicare spends just $7,500, slightly less than the national average.

These statistics come courtesy of Atul Gawande, a doctor and journalist, who explored McAllen's high cost of health care in last week's New Yorker. The explanation is surprisingly arbitrary. The difference appears to have little to do with either the patient populations or the quality of care, which are comparable in each city. Rather, the culprit is an "across-the-board overuse of medicine." A look at Medicare and private insurance data found that, "compared with patients in El Paso and nationwide, patients in McAllen got more of pretty much everything -- more diagnostic testing, more hospital treatment, more surgery, more home care." But more care does not equal better care. In fact, says Gawande, citing a couple studies, "where medicine is concerned, it may actually be worse."

Gawande traces this overuse of medicine to what one hospital administrator called an "entrepreneurial spirit" in McAllen. Doctors there, Gawande writes, are "innovative and aggressive in finding ways to increase revenues from patient care." In the late '90s, some home health care agencies began to reward doctors who steered business their way; now many area practitioners expect a cut. The hospital administrator even says that a handful of doctors have demanded hundreds of thousands of dollars in kickbacks in exchange for admitting patients to his hospital. "About fifteen years ago, it seems, something began to change in McAllen," Gawande concludes. "A few leaders of local institutions took profit growth to be a legitimate ethic in the practice of medicine. Not all the doctors accepted this. But they failed to discourage those who did."

McAllen is hardly alone; it's merely the most extreme example, and the result is "untenably fragmented, quantity-driven" health care delivery system. "As economists have often pointed out, we pay doctors for quantity, not quality. As they point out less often, we also pay them as individuals, rather than as members of a team working together for their patients," writes Gawande. "Both practices have made for serious problems." Gawande doesn't take a position on specifically how to wean us from the current model. But he clearly likes the model supplied by the Mayo Clinic, one of the best health care systems in the country and also one of the cheapest. Decades ago, Mayo cemented a collaborative culture in part by paying doctors a salary, rather than allowing them to charge their own fees.

Interestingly, Gawande also takes no position on the aspect of the health care debate that evokes the most passion: whether the government ought to run an insurance plan that competes with the private sector and keeps insurers honest. (Or whether the government should simply nationalize the health insurance industry.) The argument, he says, misses the point. "The lesson of the high-quality, low-cost communities is that someone has to be accountable for the totality of care," he writes. "Changing who pays the doctor will make no...difference."

It's probably a coincidence, but a few days after Gawande's article came out, President Obama cited Mayo's low costs in his weekly address. If you have the time to read an 8,000-word story, you can find it here, along with an audio interview with the author.

Last updated: Jun 8, 2009




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