Wednesday, August 10, 2011

Closing? I don't care.

A recent headline in my local newspaper* at first had me wondering at the news sense of the editor:  "Post Office patrons not shocked by possible closings."  What kind of story is this?  A non-reaction to a possible event?  It certainly did not meet the "man bites dog" standard.

But then I read further, and I found that there is a real story here, and a warning for people in health care: You are not as essential as you think.  There are disruptive forces in these fields that can make you obsolete.

The purpose of this story was to document community reaction about the possible closing of some neighborhood post offices, arising from the business problems faced by the USPS.  Here are some of the comments:

Jim Rectra isn’t surprised by the news. The Waltham man said he lives about a mile from the West Newton post office, but uses the service sparingly. “I don’t use the post office that much,” Rectra said. “I try to do everything online.”

At the Lower Falls office on Washington Street, Molly Grant wasn’t disappointed to learn the location might shut its doors. Grant, a Weston resident, said she’s not thrilled with the service at Lower Falls. “I really only come for the convenience,” she said.

Even Barney Frank, the US Congressman, said:  "This one is one where it’s not my opinion that counts, but people in the neighborhood.”  Barney never admits that his opinion doesn't count and never misses a chance to fight for his constituents, but that's only when he is pretty sure of winning the issue and garnering votes thereby.  Here, he knows that neither is likely.

What has happened, clearly, is that the public's perceived need for these facilities and their services has diminished greatly.  Whether it is on-line purchases of postage or bypassing postage altogether by using email, Skype, and other social media, the infusion of new choices has relegated the local post office to the status of the Model T.  Boy, it's nice to see one, but I don't think I need one.

Clay Christensen has reached similar conclusions about general hospitals.  Disruptive forces are at work that should compel hospital administrators to rethink their business model.  This is especially the case for academic medical centers, which are burdened by even more significant overhead costs than a regular general hospital.

I have discussed this before, when I noted:

The lessons here for high fixed cost academic medical centers are clear. Academic medical centers face all of the problems of two stressed industries -- academia and medicine. The future will belong to the efficient. Hospitals that are driven by their senior faculty and hopeful junior faculty to expand buildings and research facilities, that invest in high-cost but unproven clinical equipment, that do not engage in front-line driven process improvement, that fight transparency of clinical outcomes -- and that plan to depend on private and government reimbursements, government grants, and philanthropy to pay for all this -- will not do well. Those that limit capital investment in inflexible fixed assets, that focus on higher quality and reducing waste, that endorse transparency, that invest in the science of health care delivery as much as basic science, and that develop and implement treatment modes that take care to the patient rather than requiring physical visits by patients, will do well.

* Newton Tab, Vol. 34, No. 15, August 10-16, 2011. Page 1.  The online edition is here, with a different headline.


Alliance4Health said...

Still looking for the first "hospital" without walls model to rise up..

Often safer and less expensive to stay in a high end hotel with 24/7 private duty nursing then in a hospital.

Anonymous said...

One wonders what would happen if they used all those lobbying dollars, squandered in an (ultimately futile) attempt to maintain the status quo, for drastically streamlining their operations instead. Not to mention the millions spend on expanding, not reducing, the bricks and mortar presence.
I begin to wonder exactly what it will take for the industry to see the handwriting on the wall. Give the public a viable alternative to the now-universally unpleasant experience of dealing with the modern medical system, and the beds and offices will empty out overnight.
Good for you, Paul, for yet again being ahead of the curve, even if you currently seem like a lone voice in the wilderness.


Dhaya said...

From Facebook:

I stopped going to my GP when she said to me "the best way to get a hold of me is leave a message at reception or fax me". Now I belong to One Medical Group, an online savvy concierge practice with a cheap monthly fee.

Barry Carol said...

It’s interesting to note that healthcare and education are the two sectors of our economy with the most government involvement either as a direct payer for services or provider of financial aid in the form of loans and grants to individuals to help them pay for tuition and fees devote the least attention to costs in managing their operations. Both prices and costs rose faster than general inflation in each sector for many years. More market discipline and, in the case of healthcare, price and quality transparency would be good things for the economy though probably not for the employees and providers who benefit from the status quo.

As for unneeded post offices, we should let the USPS close as many as it thinks it needs to. People who object can petition their state, county or local government to provide sufficient subsidies to keep them open and express their willingness to pay higher taxes that would be necessary to make that happen.

Ian M said...

The problem the USPS faces is its funding. Plenty of these 'neighborhood residents' are probably unaware that no portion of their tax bill goes towards the Postal Service, it is all funded by postage. It's a nice little arrangement put forth by Ronald Reagan, wherein the USPS must derive all revenue and operating expenses from postage, yet must gain Congressional approval for every rate hike. In other words, every time a stamp increases by a penny or two, the USPS has probably asked for three or four cents, to manage their business more efficiently. Of course, people complain about the penny...

The lesson here is simple: be a big, private business. That way, like say, UPS, you can receive more federal funding than your government competitor, and you can charge whatever you like for your services. I wonder how these neighbor hood residents will feel when postage IS like the health care system, and every year the cost of shipping increases by 10-12% on average.

To mail a letter from Boston to providence costs 44 cents and takes 1 day with the USPS. To mail the same letter "Next Day" with UPS costs $19.64. And the Post Office is broken...

Of course, judging by the climate lately, they'll just be saying how glad they are that the government got it's hands off of their mail.

Barry Carol said...

The USPS moved to its current business model in 1970, ten years before President Reagan was elected. At that time, the price of a first class stamp was raised from six cents per ounce to eight cents to give it an initial revenue boost sufficient to cover the prior government subsidy. A first class stamp now costs $0.44 for the first ounce and 20 cents for each additional ounce. The increase from $0.08 per ounce in 1970 to $0.44 today is roughly in line with the increase in the Consumer Price Index over the past 41 years. I think that’s a respectable performance and far better than the explosive price growth in both healthcare and education.

New technology, especially online bill payment and e-mail communication drove first class mail volume down by 20% since 2006. As a high fixed cost operation, the USPS has shed both facilities and employees but it hasn’t been sufficient to stem the red ink. It will need to cut costs more, especially uneconomic smaller post offices and, perhaps, Saturday mail delivery and raise rates as well. On the positive side, the cost of first class mail is still significantly cheaper in the U.S. than in most other developed countries. Unfortunately, the same can’t be said for healthcare.