Contingency Planning

Jarringly, both of the following statements may be correct: 1) the Coronavirus is dramatically less threatening to most people than it has been portrayed as being, with a Case Fatality Rate (CFR) that will ultimately be understood as having been lower than those of ordinary flus and 2) the pandemic is catastrophically overwhelming our medical system, which is widely understood to be the best in the world.  Thinking about the interplay between these seemingly conflicting propositions can begin to help us look for better ways to move forward after the immediate crisis passes.

The hypothesis that the virus has a low CFR, with its deaths concentrated almost exclusively among the very elderly and those with life-threatening pre-existing conditions, is being advanced with increasing frequency. This (https://www.wsj.com/articles/is-the-coronavirus-as-deadly-as-they-say-11585088464?mod=opinion_lead_pos5) oped from today’s WSJ, written by two professors of medicine at Stanford, suggests that the virus is already so widespread – with the vast majority of those who have it totally asymptomatic – that its actual CFR rate may be as low as .01%. Even if their numbers are off by two orders of magnitude (which seems most unlikely to me), the disease is vastly less threatening than it has generally been portrayed as being.

Even so, the crisis now underway in our medical system (and in our economy) is all too real. The sudden influx of terribly ill patients is more than many hospitals can handle, especially in regional hotspots like New York and New Orleans; there are shortages of vital equipment – particularly critical care beds, ventilators and protective gear – so that people who should have been likely to survive with proper care may not get it, and altogether too many doctors, nurses and other hospital personnel are themselves falling ill with the disease (https://www.bostonherald.com/2020/03/24/boston-hospital-workers-test-positive-for-coronavirus-as-nurses-call-for-more-help/ ). Meanwhile, many unrelated surgeries – even for life-threatening conditions – are now being delayed by the onslaught of pandemic patients.   

How could a pandemic that kills mostly the very elderly and the already-seriously-ill, and in numbers that look like they’ll end up being modest in comparison with typical flu strains, bring not only our medical system, but much of the world, to a standstill?

It is the terrifying prospect of the cresting of the wave of Coronavirus-related needs that have already soaked up more than all of our critical care capacity, and the fear of the wave’s unknown size and potential harms that have justified the lockdowns and the voluntary social distancing that are presently crippling our economy and those of other nations. Fear is a powerful force, now acting on people everywhere, upsetting what had previously been seen as a more predictable world. 

***

One of the key takeaways from this horrifying situation is that because of the single-minded pursuit of cost-conscious efficiencies we have too often ignored the possibility of unexpected contingencies – what Taleb described in another context as black swan events and Rumsfeld called “unknown unknowns”.  

A variant of this lesson first struck me while thinking about the effect on businesses of the recent trade war with China, when it became clear that many just-in-time supply chains, particularly the ones that rely on production in nations that might see themselves, or that we might see, as our adversaries, are subject to sudden, unpredictable disruptions with significant unexpected costs. Those thoughts have been brought into even sharper focus by the realization in the present healthcare crisis that many of the medicines sold by our pharmaceutical companies – which presumably are vital to the ongoing health maintenance of millions of Americans – are also subject to disruption, whether from tariff  wars or – as now – pandemic-related trade cessations. Supply chains are too brittle.  

Similarly, the now all-too-apparent shortages in our critical care medical system speak to an under-emphasis on crisis planning and, undoubtedly, an unwillingness to invest in usually-redundant equipment and hospitals. Former hospitals, closed due to the consolidation of healthcare systems in recent years, are now being reopened to accommodate the emergency’s needs.  Meanwhile, all kinds of non-medical-product manufacturers are rushing into ventilator production – these are very good things, but too late, doubtless, to save some.

***.  

Our hospital systems will need to figure out how to build more redundancies into their business models. In all likelihood, no hospital administrator ever got a bonus for asking his superiors to build ICU capacity in excess of foreseeable demand – but as we now know, the unforeseeable does happen. The challenge will be to figure out how to pay for such additional capacity profitably, with or without the implicit support of the regulators who dictate Medicare copayments and the insurers who pay most patients’ bills. To be effective, this will require rethinking the payment and pricing models for medical services.

And here, in my view is the heart of the issue: the way we – or at least most of us – pay for medical services – either through insurers or the Medicare system – dictates how much hospitals (and most doctors and other healthcare service providers) can charge for their work; the insulation of the consumer/patient from almost all of the payments for services rendered means that a) consumers are almost entirely cost-indifferent and b) providers are prevented from charging full prices for premium quality or particularly expensive-to-deliver services. The relentless focus on cost containment, managed on a macro basis by the government and the insurance companies, means that healthcare providers cannot rationally plan for unusual contingencies (and sharply differentiated service levels) and price their products accordingly. Ironically, it also means that the market offers little in the way of price/quality/delivery tradeoffs of the sorts that arise naturally in other product categories.

These issues are too big to be dealt with here, but I do think that they’re at the root of why our healthcare system is unable to cope with the present surge in demand.

***

I humbly suggest that those among us who think the answer is a fully socialized healthcare system – a.k.a., Medicare for All – think again. Handing our medical system lock, stock and barrel over to the government was never a good idea. The countries with such systems are uniformly in worse shape than we are in terms of critical care capacity because they perennially struggle to meet current demands (which are, by definition, infinite if the services are “free”) while underinvesting in future capital needs and new therapies.

Also note that the companies that are now rush-producing needed medical equipment, and other companies that are working around the clock to find Coronavirus vaccines and a cure, are overwhelmingly for-profit entities; indeed, the latter are the very same pharmaceutical companies that let’s-control-costs-socializers love to hate.

Finally, the case can be made – has been made (https://www.city-journal.org/government-regulation-exacerbated-covid-19-crisis) – that the same medical regulatory bodies that we want to assume are always right, the FDA and the CDC, are indirectly responsible for the severity of our current pandemic problems because of mistakes they made months ago. Nobody’s perfect, so having an all-powerful regulatory bureaucracy is inherently dangerous.

As Chairman Mao said: “The policy of letting a hundred flowers bloom and a hundred schools of thought contend is designed to promote the flourishing of the arts and the progress of science”.

(Bet you never thought I’d be quoting Mao, did you? Happy to do so when he was praising a diverse marketplace of ideas.)

With luck (and good hygiene) the crest of the wave now crashing through our medical system will come soon, then recede quickly. Once the immediate crisis is over, we should do a better job of planning for the next one. At the risk of sounding flip: perhaps a low-CFR pandemic is the wakeup call we needed to prepare ourselves for the dire possibility of a high-CFR one – and that may spur us to consider fundamental changes in how we pay for and use our medical system.

M. H. Johnston

P.S. On a lighter note, nature never ceases being beautiful.

In recent days, I have been blowing off cooped-up steam by kayaking on the now-power-boatless river and estuaries. Yesterday, I came quite close to a nesting swan; she was lovely, if a little discomfited by my proximity.

P.P.S.: (3/26/20) This https://www.wsj.com/articles/new-yorks-ailing-hospitals-11585179029?mod=opinion_lead_pos2 editorial in today’s WSJ neatly illustrates some of the broader points I wrote in the above post about the deleterious effects of government-induced cost pressures on hospital capacity. It’s well worth a read.

9 comments to Contingency Planning

  • Anonymous  says:

    https://en.wikipedia.org/wiki/Hundred_Flowers_Campaign

  • DP  says:

    Mark, I agree with the thrust of your comments. But sitting outside the US, one does not have the impression that the US healthcare system is the best in the world any longer. On a number of criteria it falls short. Undoubtedly much of the best innovation occurs in the US and it is possible to get as good care as anywhere in the world. But as a system, I’m not so sure. I also am not sure that the single-payer model or “socialized” medicine has always performed more poorly with respect to critical care. Germany effectively has a single payer model. Look at the figures for its ICU beds and ventilators, which are very high. It also has a very low death rate. As you note, these rates are not reliable for comparisons, but the fact is that Germans are not in crisis the way some other countries are. Perhaps there is something at work here that goes beyond single-payer versus insurance/government payer? We should try and answer that.

    • M Johnston  says:

      The comparison of the American and German healthcare systems: these are deep waters. I’ve read things that cut both ways. Indeed, I’ve recently read (but have lost the reference) that the American system has far more per capita critical care capacity, directly contradicting whatever data you’re relying on. As to comparisons of outcomes, there too, I’ve read articles cutting both ways, and can’t claim personal expertise. My bias is to think the freer and profit-motivated a system, the better the results. And that you can trust the Germans to be more efficient at operating even a poorly designed system than anyone else.

      As ever, I appreciate your feedback.

  • AT  says:

    Mark: lovely photo. Thanks. And good column, as always.

  • AT  says:

    DP and Mark: my last experience of the German healthcare system is over 20 years old (a visit to the ER at the Charite Hospital in Berlin). That said, I found it to be spartan by American standards, but extremely efficient and effective. And economical for the patient: as a U.S. citizen, I paid about 30DM for an emergency stitching job. I had the same impression from a five-year stint living in Munich in the latter half of the 1980s. I think Mark nails it: “[Y]ou can trust the Germans to be more efficient at operating even a poorly designed system than anyone else.”

  • Douglas McCaig  says:

    Mark, I trust that over time the Mortality rates will become clearer and I, too suspect not as deadly (I hope). By reference from the Flu, the CDC reports and estimates: 38-54 million will be sick. 17-25 million resulting doctor’s visits, 400-700,000 hospital visits, and 23-60,000 deaths. Similarly, it is a ghost town where I am for small business and small business owners. How despondent and frustrated will these people become? Prime earning males (25-74 years) Males kill themselves at a rate of 3:1 over women according to CDC. Totals — Men and Women in that group are roughly 30,000. Surprisingly whites are 15 x more likely to kill themselves than blacks and about 10 x more likely to kill themselves than Hispanics. Small point is that if the country doesn’t SAFELY get back to work, I can envision a great deal of despair and resulting hopelessness that could have a measured impact on these statistics as well – not to mention stock traders offing themselves. Let’s hope reason prevails over hysteria. Nice swan.

  • Dan Deadwyler  says:
  • Anonymous  says:

    My comment was cancelled, but it was pretty downbeat anyway.

  • Dan Deadwyler  says:

    My comment was cancelled, but it was pretty downbeat anyway.

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