Imagine that you and I run a small primary care practice together. We have a certain amount of care quality that we're able to obtain for a certain amount of costs. Let's combine all the elements of quality together into a single quality score. Cost is a tricky variable in healthcare, as we have to distinguish between the cost of the patient, and the cost of the system, independent who pays for the care. We can all agree there is some trade off here between cost and quality. Now we can position our practice in the following graph. As we think about the care we want to provide, we do some benchmarking with other doctors in our region. The first doctor we compare ourselves with is Captain Ronnie Jackson. Dr. Jackson is the personal physician to the president, 24-hour access, no waiting, right in your house. Yes, the care provided by Dr. Jackson, I imagine, is better than what we are providing in our practice, but surprise, surprise, he's also, on a per patient basis, a lot more expensive. The second doctor we compare ourselves with is the local urgent care clinic down the street. Yes, they have convenient opening hours, but we provide better care. However, these guys are a lot cheaper than we are, mostly because they're entirely run by nurse practitioner. But then we run into a fourth practice, the practice of Dr Smart. Dr Smart is providing better care than we do and she is more efficient. Yes, she's not providing presidential level care, nor does she have the efficiency of the urgent care center, but my god, she is good. The academic term for this, is that she Pareto dominates us. Now to stay with academic terms for a moment. We define the line of all practices that are not pareto dominated as the efficient frontier. Yes, there exists a trade off between cost and quality, but this is your lead group that has nobody providing better care at lower cost. Sadly, our practice is not on the efficient frontier. We can visualize our inefficiency as the distance between us and the frontier. This inefficiency has two consequences for us. First the good news, we have reason to believe that we can improve our care quality while also cutting costs. We can become a better practice, win, win. Second, to move to the upper right, we have to over come some of our inefficiencies. So this will require us to do some work. So what do such inefficiencies look like? As I was designing this module, my youngest son got sick, fever, vomit, sore throat, yuck. However, after 20 years of parenting, my wife and I are confident in making some basic care decisions. And we knew that this one was not an Case. But the potential influenza with maybe a strep throat. So I took my son to the neurosurgeon care center. Five minutes of a drive, no wait, great nurse practitioner. Well, that was the good news of the story. But it took the front desk about 20 minutes typing on the computer to check us in. The check-in person showed me the paperwork and the consent form afterwards. It had my son's last name misspelled, so all over again. I kid you not, the second time around, the first name was misspelled. We did it for a third time over again. After three iterations we finally had the form right, we saw the nurse, and everything was good. Except the shock I got when I looked at the Tamiflu prescription. It had the exact same typos in my name, as had the first print out at the reception. Now we have a mismatch between a patient name and a medical record. I had similar medical record histories in my own care. Even after 15 years of trying, I haven't been able to reconcile these misspellings of these multiple records. We refer to stories like this as waste. Waste is the consumption of inputs and resources that does not help the patient. As you saw in my little story, waste is very concrete. Unlike my earlier definition of inefficiency which was just some weird academic concept, waste is very tangible. Task or services were delivered taking too much time, making mistakes, or requiring multiple iterations, all of this is waste. A recent report by the Institute of Medicine tried to quantify waste in healthcare. It looked at things such as unnecessary services, inefficient delivery, administrative costs, high prices, and other things. Now I'm in no position to judge these numbers, whether or not they're good estimates, but let's just agree this is a huge problem. So second form of inefficiency lies in variability. Variability can come in multiple forms. I find it helpful to distinguish between variability that comes from the patient population, and variability that comes from the healthcare community. Consider the healthcare community first. Many studies have found a large variation in the way care is delivered across states, across hospitals and across doctors. For example, when comparing Medicare data across regions, it is has been shown that patients in some regions spend almost twice as long in the hospital, as similar patients do in other regions. Healthcare aims to be evidence based, but oftentimes habits, norms, or personal incentives seem to carry more weight than science. The second form of provider variability takes the form of medical errors. Some things we do are hit or miss. They do a serve in tennis 100 times, same player, same racket, same technique. I might get 70 into the right court. Thankfully, medicine is not a much of a miss as tennis, but mistakes do happen. Some of them have grave consequences, with a 1999 IOMS met with thousands of death being a really scary number. Most of them have a consequence, however, that is less grave, but there's still a burden to patients and to the health care system alike. On the patient's side, the demand for care is changing over time. Some parts of this variation is predictable, like the flu season. Other parts are entirely random. Just spent a couple of weeks looking at the emergency room traffic and you just get crazy. Finally, the biggest source of variation in health care is the patient him or herself. As we will discuss in the coming lecture care is coproduced, and the health of the ptient is determined by patient decisions and by provider decisions alike. So even if the provider had a perfectly evidence based process that you followed every time, outcomes will vary. Medication adherence is poor, and some patients are just doing worse than we expected for other medical reasons that are unknown to us. The third system inhibitor is inflexibility. One of the reasons why the mobility company Uber has been doing so well is their ability to adjust the driving capacity to the changing customer demand. If demand is high, prices go up, and so more drivers join the market. Uber causes search pricing, if demand is low, prices come down. Unlike cabs, Uber drivers don't pay for pricing medallions. And so they can just do something else rather than all competing for the same few customers. We define flexibility as the ability of a system to respond to variability. Flexibility allows us to better match supply with demand in a world of variability. One way to build flexibility is to understand the variability in care demand. For example, if you look at the emergency room, we know that Mondays are busier than Sundays. We see many bike accidents on the first day of spring. And unfortunately, we see an increase in crime and gunshots when the weather is nice. The sooner you can predict this extra demand for care, the better you can staff to respond to it. This is referred to as volume flexibility. Another form of flexibility relates to having hospital resources be able to perform multiple tasks. Finding a doctor in a case of an emergency might be easy, but a neurologist is of little use when you've broke your leg. As the medical profession has specialized evermore, it has inherently become inflexible. Being able to use care providers, equipment, or hospital beds for different purposes creates another form of flexibility. We call that mix flexibility. So inflexibility prevents our operation to effectively respond to variability, and hence, we'll call it our third system inhibitor. So these are the three system inhibitors, waste, variability, and inflexibility. They're keeping us from providing better care. The costs of these forces are beyond what you and I can imagine. We're talking about hundreds of billions of dollars. But you know what? I couldn't care less about that money. The real costs are much bigger than that. These numbers don't include the anxiety of a patient who does not have access to care. You don't improve the frustrations that the patients have when they get asked to spell their name for the seventh time in a visit. And they don't improve the cost of burning out our healthcare workforce. The promise of healthcare operation is this, we can improve care by fighting the evil effects of waste, variability, and inflexibility. Actually, let me reword this, you can improve care by fighting these effects. And when you do so, you can either make patients better off. It's the same level of efficiency, or you can improve the efficiency holding the level of care quality constant. Or ideally, you do both, that is what I meant when I talked about making care better.