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Why?

Well it’s annual renewal time for the boutique consulting firm I run. This year’s premium increase is a hearty 11.6 percent. This comes on top of increases in recent years of 13.3 percent, 26.3 percent increase and 11 percent. Thanks to the magic of compounding that means our premium costs have risen by more than 77 percent over four years! And we were not starting from a low base either.

When I wrote about last year’s increase, I asked Wal-Mart for some help. Maybe they will come through.

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The parts that made me chuckle were the reactions from those who thought Wal-Mart was on their side:

The National Retail Federation, the industry’s main lobby, said it was “flabbergasted” by Wal-Mart’s move. “We have been one of the foremost opponents to employer mandate,” said Neil Trautwein, vice president with the Washington-based trade group. “We are surprised and disappointed by Wal-Mart’s choice to embrace an employer mandate in exchange for a promise of cost savings.”

Mr. Trautwein said an employer mandate is “the single most destructive thing you could do to the health-care system shy of a single-payer system,” under which the government handles health-care administration. The mandate “would quite possibly cut off the economic recovery we all desperately need,” he said.

And this:

The U.S. Chamber of Commerce said most of its members oppose an employer mandate, and it doesn’t think Wal-Mart’s stance will change that. “The kind that the groups in this letter support is the worst incarnation, the most dangerous policy,” said James Gelfand, senior manager of health policy for the group, which represents three million businesses.

Those quotes are pretty lively –much more so than what you typically see from sober minded groups like the Chamber of Commerce!

There’s not much analysis of the reasons behind Wal-Mart’s new approach in the Journal article, and not much in the Journal’s Health Blog either. Comments on the blog post and article are fairly inane as well.

Here are a few reasons that could explain Wal-Mart’s stance, from most to least obvious:

• Wal-Mart figures it will be pressured into offering health insurance anyway, so wants to make sure that it’s on a level playing field with smaller competitors that might otherwise escape without offering insurance
• Wal-Mart’s customers are hard hit by health care costs. Even those without health problems are worried about health care costs, which limits their propensity to spend money at Wal-Mart. If customers have health insurance from their employees they can spend more freely on other goods
• Wal-Mart sees a big growth opportunity in the provision of health care services and/or health insurance and the company wants to make sure there is a big market for its offering

I really hope the last point is true.

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The suggestions include:

• Telling the triage nurse the patient’s condition is worsening or that the patient has “an emergency medical condition that should be evaluated right away”
• Drop the name of a hospital big shot (that’s what the house guest does and what one of the ER docs recommends)
• Page the patient advocate or hospital administrator

I’m not that comfortable with these suggestions. In particular, if everyone acted this way it would make things much, much worse than they already are. The first suggestion is especially troublesome if it means exaggerating the patient’s condition. On the other hand, I know the helpless feeling of being in an emergency room and not feeling like your making any progress moving toward the front of the line. Some of the comments on the CNN article are from triage nurses who basically say, “trust us,” but I’m not really buying that either.

In my experience, the best option is to try to avoid going to the emergency room unless it can’t be avoided. If possible, that means going to see one’s own doctor or meeting him or her at the hospital. Not every doctor can or will do it, and it won’t always work, but it’s worth a try. Although I’m not a big fan of concierge medicine, this is the type of situation where it could be worth it for the patient.

In some communities –though not where I live– urgent care clinics or MinuteClinics are a realistic alternative and a better experience. Finally, some hospitals’ emergency rooms are less busy than others. Sometimes those are found in community hospitals rather than big academic medical centers. If it’s going to be a 3 or 4 hour wait, driving an extra 15 or 20 minutes for a better experience can easily be worth it.

When I visited Singapore, some hospitals were putting video cameras in their emergency room waiting areas so people could see for themselves what the crowding was like before coming in.

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• Southwest Airlines vs. legacy carriers like US Airways
• Home Depot vs. regional players such as Grossman’s and Hechinger’s. More recently Lowe’s against Home Depot itself
• Microsoft vs. IBM. More recently Google vs. Microsoft
• Walmart vs. Kmart
• Toyota vs. GM

Now it’s certainly also the case that at least in the retail examples, players like Home Depot and Walmart had a negative impact on smaller, mom and pop players. Yet some of the smaller players have survived and even thrived under pressure from the big guys, by providing better, more convenient service and understanding their local markets better. At least consumers have voted with their pocketbooks and made decisions that were in their own interests.

Healthcare services, though, are a different story. In Neighborhood rivals; Boston hospitals’ suburban expansion sets up a showdown between dueling outpatient centers the Boston Globe reports that academic medical centers (mainly Partners Healthcare) are expanding into the suburbs and how that is harming various parties. The article quotes a number of parties complaining: community physicians, community hospitals, local officials, and state legislators. The only people presenting a sympathetic view of Partners are Partners itself –and me.

David Williams, a consultant who has studied suburban expansion of teaching hospitals, said that Partners is drawing controversy mainly because it’s the most successful hospital system and able to afford more expansion in the midst of a deep recession. Founded by Mass. General and Brigham and Women’s Hospital in 1994, Partners has grown to eight hospitals backed by an endowment of more than $4 billion.

“They believe - and with some justification behind it - that they are a premier academically based system. It’s part of their mission to reach a broader audience,’’ said Williams, who wrote a report on teaching hospital expansion for the Massachusetts Medical Society. Partners, he said, is doing “what most people would do in their shoes.’’

I’ll be the first to point out that healthcare is not the same as the industry examples I provide. In particular: third-parties including the government foot much of the bill, Partners is more expensive than community players without necessarily having higher service or quality, and healthcare is a “service” people don’t always choose to have. Supply of anything –including healthcare– tends to induce more demand, and since that demand is paid for by employers and the public it will drive our already high per capita costs up even more.

And yet, I’d still like to see some of the same principles apply in this argument as they do in my examples. In particular, I’d like to see community hospitals do a better job competing on cost, quality, local knowledge, community mission and convenience so that the public can enjoy some advantages of competition.

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On Wednesday, National Coordinator for Health IT David Blumenthal said the federal government would pay special attention to individual physicians and small group practices as it works to implement the health IT provisions of the federal economic stimulus package, CongressDaily reports.

Blumenthal testified before the House Small Business Regulations and Healthcare Subcommittee along with pediatricians, optometrists and other health care providers concerned about being left out of federal health IT incentive programs.

Most physicians still practice in groups of 4 or fewer, so obviously this is an important segment to take into consideration. However, it’s reasonable to ask whether we should seek to preserve these small practices and why. After all, maybe they should go the way of the dodo bird, and just merge into larger organizations.

There are arguments for physicians to practice in larger groups, and this has led to an ongoing consolidation of practices. For example:

• Larger practices can spread administrative overhead  and capital costs over a broader base of activities
• Larger practices are better positioned to negotiate with payers
• Larger practices can provide more timely access to providers –by balancing capacity across more people
• Larger practices can produce enough data to do internal quality improvement programs
• Larger practices make it possible for physicians to take vacations and generally have a more reasonable lifestyle

However, there are also some downsides of larger practices. In particular they can be impersonal for patients –kind of like a factory.

Personally I prefer to see physicians who are solo practitioners or practice in small groups, especially those that don’t try to get me to see mid-level providers.

What I’d really like to see occur is for physicians to figure out how to lower the minimum efficient scale of their practices, so that small practices can provide a broader scope of activities, such as medical homes, and not get left behind in the information age. This can be done through the deployment of information tools that are geared to smaller practices, the intelligent use of outsourcing, and collaboration with larger groups for negotiating power and specialized services.

The management consulting field is one where new technology and business practices have lowered the minimum efficient scale. When I started in consulting more than 20 years ago we needed an office of at least 30 people to make it worthwhile. A “real” office needed a library (preferably with a librarian for advanced searches), report production department, phone system, copying machine and so on. But now with the Internet and associated services it’s quite possible to achieve better results with just a few consulting staff and no dedicated administrative personnel. In fact, smaller firms tend to have more reliable service providers (for things like email and file servers) than the big firms that do things in house in a more costly, less flexible manner.

Physicians should strive for something similar and ONCHIT should support them.

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The findings reveal that Americans don’t really understand that there is a huge cost difference between brand and generic medications. That’s an interesting finding that I would not necessarily have expected.

But there’s another key finding that’s also interesting:

Nearly one-third of Americans do not know or believe that generics have the same active ingredients and effectiveness as brand name drugs.

I’m definitely a supporter of generics from a public policy standpoint. The price differential is so great that we really need to be using generics. And when I need a prescription I allow the pharmacist to substitute a generic.

However, in this case it’s possible that public’s hunch may be equally on target as the expert’s view. I’ve done consulting work for the manufacturing operations of big pharma companies. I’ve toured their facilities and have also toured those of generics manufacturers. I’ve seen that big pharma often struggles to meet its specs, even when it has plenty of resources to apply. If that means scrapping product that isn’t quite right they’ll do it.

Meanwhile there’s a reason Wal-Mart can sell generics for $4. And the reason is that generic manufacturers focus ruthlessly on cost, whereas big pharma is much more focused on security of supply and is less worried about manufacturing cost.

I’m not saying that all products made by big pharma are high quality and those made by generic companies are low quality, but I do worry about quality when there is such an imperative for generic companies to keep costs as low as possible. And while the public’s view may not be based on firsthand experience –and is counter to what the experts say00 it doesn’t mean it’s wrong.

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