By John Goodman

 

Manufacturing and service companies around the world have demonstrated the cost benefits of improving product quality and production efficiency.  So why haven’t nearly two decades of work on improving health care quality had a measurable effect on health care costs?

The explanation lies in the cost structure of the typical health care setting.  Its management and organization create a rigid cost structure that is relatively insensitive to small changes in patient volume, resource use, or the severity of patients’ health conditions.  This fixed-cost dilemma leaves most health care costs insensitive to changes in volume and utilization, so clinical quality improvements typically create additional capacity rather than bottom-line savings…

Because of these cost behaviors, quality-improvement efforts that reduce lengths of stay or readmissions or increase radiology throughput do not create substantive bottom-line savings.  They generally create capacity to treat additional patients. Similarly, efforts to expand the access of disadvantaged populations to primary care under the assumption that such access will be paid for through avoiding use of high-cost care sites — such as emergency departments — do not generate cost savings.  The cost of staffing and equipping an emergency department does not change if there are small reductions in utilization. Indeed, improved access will increase health care costs if new physicians and staff are hired to serve new patients in primary care practices.