Saturday, March 21, 2015


Medicine is forever in a flux. There are innovations, new products, new diseases, new therapies that create and disrupt the ebb and flow of this profession. But through it all, medicine continues to prosper with better alignment of resources and improving the overall human health. The life span of humans has progressively increased over the past six decades. Man is enjoying better health then did his grandfather. A woman far exceeds that comparison because of reduced maternal mortality related to birth and enjoys four more years of life then her male counterpart.

Porter’s Five Forces in business seem to apply well to the current model of medicine. 

a. Primary Care Physicians (MD,DO)
b. Specialists (MD,DO)
c. Non MDs

Assuming that the current business model of medicine is the practice of medicine and ingrained within this model are the competing forces of the Primary Care Physician and the Specialists. All are gathered to compete for the individual patient to provide a service. These forces although typically are unified in purpose, also compete as rivals for the patient to provide that care. They compete with the latest and greatest options as a means of product differentiation, that they can apply to achieve the larger patient load. For example, the dentist advertising the clear braces, or the Radiation Facility its Proton Beam Therapy unit or the surgeon advertising his adeptness at Robotic Surgery. Outpatient facilities compete between themselves and against the hospitals for the patients. The non MDs including the Physican Assistants, Nurse Practitioners, RFNAs, are all examples of healthcare givers who are eating up the distance between true medical knowledge and experience and gaining freedoms of providing independent care to the patients through lobbying and political fiat - for cheap. These are the inherent forces of rivalry that exist today. 

The rivalry that exists within the current model exposes inefficiencies and this constant tug from the buyer and supplier should lead to price discounting with more products availability as a cause of the competition. Alas with the intervening governmental and non governmental insurers, the price discounting has been tempered by mandates and regulations that seem to protect intermediaries more than the buyers (patients). Additionally the forces of new entrants makes it interesting by keeping the levers of commerce constantly in motion. These levers however add to the cackle of the intermediaries.


The Buyers are the Patients. In the days gone by, the patient was remarkably innocent to the workings of medicine and at most times in history believed in the potions and magic of the physician and the snake oilmen. Some got better while others did not. That was the way of the past. There was a certain faith in the alchemy of medicine and in it’s practitioner. Times have changed. The patient is now more informed about diseases, less exposed to financial risk if he or she is insured and thus less concerned about the costs.

 Although the information on costs and appropriate therapy is available, it is not easily comprehensible by the patient, both by the complexity of the information and/or by the sheer fear of knowing. The amount of information in the form of data is overwhelming to any one person and more and more is being piled on.

Currently families and Advocacy Groups fulfill the needs of the patient by navigating the complex medical jungle. Even within the advocacy groups a certain ignorance lives, because asymmetry of information remains. The "well-informed patient" will have the power of negotiation at price discounting on a one on one basis. Unfortunately the term "well informed" lives within the limits of the acquired information and one-on-one is the least exercised version in this complex. The bargaining power however will also determine the ability of being able to rationally ascertain quality. The focused Decision Making guarantees a successful outcome. It is a forced responsibility at both ends of the spectrum, between the Buyer-Patient and the Supplier-Physician/Nurse. The ultimate benefit will be in the hands of the Buyer-Patient. The media unfortunately berates the idea of fiscal responsibility for the patient, infantilizing their existence and in so doing prevent the "skin in the game" of a social contract.

Other stakeholders with significant influence on the Buyer-Patient are the governmental and non-governmental insurers. Both unfortunately have competing arguments that limit their function. The non-governmental insurers are concerned with their own shareholders’ profitability. Their decision making is based on the profit margins accrued as a result of the balance between Revenues and Expenses, which cause them to continually raise the premiums and or add hurdles to decrease provision of services to their clients, the Buyer-Patients. There subtle agency issues of bonuses that insinuate themselves into the arguments and most times rule at the end of the day. The governmental insurers have a different, albeit under a different lens, purpose; the desire to limit the expense and control 17.9% of the GDP. They use their influence through attacking over utility of services, which is at times a noble cause and at other times a fallacy of thought. However in their zeal to balance the budget (an oxymoron)  demonize all services that are deemed expensive. The push of the costs and the pull of the voters force the governmental agencies into a firestorm of marginalizing one entity in favor of the other an altered perspective through their lens. Thus bureaucracy holds a huge sway in the marketplace and distorts the markets and their freedom to exercise caution, benefit, self-control and innovation. 

a. Insurers
b. Government
c. Pharmaceutical Companies
d. Biotechnology Companies
e. Medical Device Manufacturers
f. EMR makers
g. App makers and other Wearable technologies
h. Attorneys

Physicians are bearing the burdens of this costs as most of the ire is directed at them. But, what of the physicians? Lets look through their lists quickly:

Total allowable billing is $2.9 Trillion in total healthcare as of 2014. However only about $77 Billion were direct payments to the physicians for their care and the cost of keeping their medical practices operated by CMS alone, which expensed a total of $1.04 trillion in 2012. Of the $150 billion billed by physicians and other providers, 49.7% was never collected. It costs the physicians 3.3 statements per patient before being paid at a labor cost of $12 per statement. There is an automatic 11% denial of all reimbursements for service rendered, which creates a $300 billion windfall for the insurers. Physicians are governed by the Medical Revenue Cycle as no other business in the world! There is a 40% of cost in providing the doctors their reimbursement as a part of this Revenue Cycle. The suppliers therefore have a large stake in collecting their fees. These include the government, insurers, pharma and device makers. Of these four large supplier groups, the latter two actually provide service. Modern medicine is in the folds of a large-scale disruption. These disruptive forces are varied and all have influence over the patient-physician interaction. One of these influencers of medical care includes the FDA and the media outlets who determine, marketing and or manufacturing need. The evolving pressure ensues through scientific studies, radio and television advertising and via the print media. These pressures change the behavior of both, physicians and patient, over time and at every turn of the screw. A discord between the "buyer's" desire and his or her need creates forces of demand and denial.

Listed in the supplier category are also the Hardware manufacturers, Pharmaceutical Companies, Software creators, Monitoring Device manufacturers, Curators, EMR and EHR advocates. The Hardware Manufacturers are the innovators that create Defibrillators, Pacemakers, Artificial joints, catheters, hearing devices, viewing devices, Biomedical monitoring Devices like Heart Monitors and EKG machines etc. and personal monitoring devices that are the rage of today. Their pitch is the same; every new device is tantamount to better health, all things being equal. Both the buyer and the supplier are equally influenced in their decision making as a result. Some suppliers are influenced through financial pressures and others through contractual obligations. The free market forces albeit active are subdued under the influence of the larger cult of regulations and thus never are able to set the correct pricing or the need.

The Pharmaceutical companies produce the drugs and bring them to the market at an exorbitant cost (Recent estimates are between $800 million to almost $ 1.8 billion. At times the drug fails and a one-trick-pony company’s dreams ends in a single day. Other times it works and the company can go on to become a behemoth enterprise. Proving benefit of the drug is foremost in a company’s mind and that translates directly into future profitability and solvency for the company. Given the expense and the future earnings potential for a favorable drug, there are large scale statistical-force-manipulation of the data to achieve positive results. Unfortunately John Ionnides, MD has taken the "critical studies" to task and found them wanting in over 50%. In other words, a majority of the "impact" studies cannot be validated and are not reproducible!

The Supply-Demand model of healthcare is climbing the hill of uncertainty due to the limitation of the finite dollars, even during the Quantitative Easing or QE and the printing and supplying of more dollars to provide liquidity to the demand chain. As the value of the dollar recedes, the cost of healthcare in those dollars increases. This increase is levied by the "someone else pays mentality," "availability of transformative innovations," " an aging population," and "increasing burdens of the metabolic-chronic disease from lack of self-control in the land of plenty," terminologies and an over supply of desire.

There is also a constant tug of war between the Brand Labels and the Generics. Patent loss, continually erodes the bottom-line for the brand label drug companies and simultaneously enhance the profitability for the generic drug companies, but sometime that results in a cost of product integrity (Ranbaxy of India and the New England Compounding Center company of Massachusetts debacle). Large biotechnology companies like Amgen, Genzyme(Sanofi-Aventis), Genentech (Roche), Biogen, Celgene and others are the innovators in medical care through molecular research and by creating biologics (inhibitors and enhancers of gene and protein function) as treatment remedies. There is a continuing consolidation through Mergers and Acquisitions occurring between the Pharmaceutical companies and the Biotechnology companies to continue innovation or consolidation of resources at a faster pace. New innovators take the open space and are often gobbled up by the larger predatory ones due to the steep price of new entrants in the marketplace, while the predators are looking for their own survival due to a dried up pipelines and or the loss of R and D accrued at the cost of Stock buybacks to keep their shareholders happy.

There is a new breed availing itself of this dynamic marketplace and they are the curators of the data. Their main purpose is to store data in various formats. Like the libraries of the past, the digital age has spawned large databases housed in various servers.  There is a price for obtaining the data. The data mining folk are busy extracting information from the data, albeit at times the results are colored with the premise of selection bias. This bias has a tremendous impact on patient care. The seemingly perfect potion or pill based on selected bias or population medicine causes more harm than any good. These purveyors play a pivotal role in masking, enhancing premises that color thinking of the supplier, sometime to the detriment of the buyers.

The legal system  influences every aspect of the medical care system. Lawyers are involved in Medical malpractice, they team up as Lobbyists for self enrichment and sustenance, as Regulators and creators of new Regulations to bolster their own needs. The field enriches itself through the pervasiveness of the litigious mind-set of the populace with the continuing precept that more regulation is better and "zero-tolerance" for error or any unfortunate "event." The forget that to err is human and to err is universal. It is through error that we learn and progress.

The EMR (Electronic Medial Records) and EHR Electronic Health Records) advocates are the ones who have helped foster the software and hardware services to a new hype in medicine. The implied view is to help improve patient care but at $40,000.00 a clip and no evidence that patient care or cost reduction has been achieved,  the uncertainty remains. The costs have risen due to the ICD coding embedded in the EMR software for each complaint the patient might have. Notwithstanding the lack of formal evidence, the influence to force this digital climate upon the physician is here and now when implemented stands as a huge barrier between the physician and the patient. The cost of the EMR program envisioned by the government has cost the tax-payer $300 Billion and it will cost an additional $9 Billion for maintenance. meanwhile the physician incurs the annual costs of service contracts, software enhancements and computer outage risks. The EMRs will work only when they become an invisible background and actually increase efficiency of the care rendered! Until then they are nothing more than a shiny piece of gadget that collects information for the insurers and the government entities and stands in between the buyer and supplier as a deterrent.

a. Homeopathy
b. Acupuncture
c. Reiki Therapy
d. Alternate Medicine
e. Over the Counter Medicines

Addressing the needs of the skeptical mind, there are forces that carve a niche for themselves in the medical care field. The driving force here is the alternative form of healthcare remedies. The homeopathic medicines, Herbals and the vitamin industrial complex (here the pharmaceutical industry is also a force supplying ingestible medical products not needing FDA approval) is in full dress rehearsal touting the wild and wily benefits of various extracts from plants, fruits and vegetables-some might be helpful, but most are hype.

 Other Substitutions include the various fields of Acupuncture, Reiki therapy etc. These do provide service to the Buyer-Patient at a different level and feature the “Alternative Medicine” route. Their function seems to be attributed mostly through the placebo effect of an energized mind. Meanwhile under the shadows of marketing, the constant tug of war continues between the Allopathic and the Alternate Medical proponents. The influence created by the dynamics of advertising between the two industries brings to bear on both the Buyer and Supplier forces.

a. Medical Students
c. Obamacare

The entry barriers in the field of professional medical care, is extremely high. The cost is prohibitive for the Suppliers, where licensing, regulatory demands and constant evolution is more a need then a want. The physician for instance has to bear a cost of medical education that can run between $250,000 to $500,000. Even after they graduate, they have to apply and maintain a license.

The various medical Organizations that have taken seats of power in the governance of the physician activities create more and more guidelines, eventually turning them into mandates. Initially for instance, the physicians were encouraged to certify themselves from their specialty Boards, Now realizing the financial bonanza, the American Boards of Medical Specialties, have crafted a 10-year recertification requirements and within that a Maintenance of Certification that requires a biannual cost to the individual physician. These costs are not trivial. Every two years the physicians are forced to spend $2000.00 and a two to four week of rote learning, with no patient benefit as proof, to pass the tests. Not only does that take away time from patient care, but it has not shown to have any benefit in caring for the patient. The Boards themselves have a financial incentive to stay in the game as their hired staff gets large salaries to the tune of $1,000,000 annually, lofty condominiums in ritzy neighborhoods supplied by Mercedes Benz limousines, to drive them around and bonuses to fly first class just to advance their own financial agenda. ABIM now has net assets worth over $50+ million an increase of over 300% in under a decade. Meanwhile the Insurers continue to reduce reimbursements to the physicians, especially the ones who have taken assignments to accept insurance payments directly and the doctor works harder and harder to keep his or her doors open, squeezed at both ends. Seems that the puppeteers are having a field day at the Fair.

There are consequences...

Mergers and Acquisitions in Biotechnology and Pharmaceutical Industry curbs innovation. Some products are shelved arbitrarily, some promoted for more research. The end result is a smaller pie. 
Since the exit barriers are extremely low but unfortunately the cost borne by the Entrants is enormous. A failure is a shuttered door with losses in hundreds if not thousands of employees seeking unemployment. Short term benefits succumb clear thinking of Innovation. Innovation brings together new approaches and ideas and creates a milieu for new efficiencies. It also announces itself as a substitution at times. Innovation in product, a creative new methodology or even at gaining a new understanding of an old product or service is the hallmark of future success and sustainability.

The PPACA (Patient Protection and Affordable Care Act)  signed into law is a new entrant in the market place. The cost of bringing this mandate into fruition is expected to climb over $2.9 Trillion.

There are hidden taxes, penalties and a large numbers of new regulations embedded within the Act. The Entry barrier was low since the government was the entrant, although challenged at the state level and at the Supreme Court level where the measure was approved with a 5 to 4 vote. The state level issue has yet to be resolved, with challenges remaining related to economic downturn, fiscal restraints and the burgeoning rolls of the indigent population under Medicaid. The full and direct influence of this mandate is yet to be felt by the nation as the healthcare costs continue to outstrip the GDP. Litigation at The Supreme Court of the United States via the King v. Burwell still has the potential to throw the whole scheme into disarray at a further cost to the tax payers.

Porter’s Five Forces in Medical Care are vibrant and meaningful in their influence over the care rendered to the patient.

In essence as all transactions ultimately relate to the desire and need of the buyer. The patient is the buyer in Medical Care and he or she should decide what is the best form. Times have changed from a one-on-one interaction of the past where only two forces existed; the patient/buyer and the physician/supplier. There were no intermediaries in the profession. The business net has been cast and the forces of business are at the gate. These forces exist to mature the system into the very essence of it being a business and to that effect, the once patient-physician relationship is also filtered through many lenses before the eye catches a glint of the other eye. The patient once viewed as an afflicted soul from nature’s wrath is now viewed through the lens of currency. There is a certain shame in that, but then I digress.

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