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Readers Write: HIMSS, Ice Cream, and the Law of Diminishing Returns (LoDR)

February 24, 2016 Readers Write 10 Comments

HIMSS, Ice Cream, and the Law of Diminishing Returns (LoDR)
By Mike Lucey

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“Clearly the third scoop has fewer calories than the first and second. It is simply the law of diminishing returns.” This perverse application of the LoDR only returns a derisive, “You are pathetic” from my wife when used to justify the purchase of a large ice cream sundae. But I carry on and get the nuts on top — they are healthy.

It’s not that the LoDR doesn’t apply, just that I apply it to the wrong side of the counter. The medium at $2.75 (two scoops) and the large at $3.25 (three scoops) delivers less value to the ice cream lady. Extended (five or six scoops?), it would reach the breaking point where the ice cream would cost more to scoop then it would return in cash.

I wonder if some in our industry are confused as to which side of the counter they are on? More importantly, that the LoDR will flip the counter when we are not looking. Are we effectively and consistently asking the question, “Am I getting more than giving, or giving more than getting as I continue down this project path?”

Back in my days in financial services (maybe because our product was money), every project was systemically graded for current value. “Current” being the critical word. Not graded against the expected value we assigned at the start, but against the current costs, current value, and (here’s the kicker) current alternatives.

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The Boston Globe recently published an article citing a Health Policy Commission study of the disparate cost of care in Boston-area hospitals. Using maternity services as an example, the study found large differences in what hospitals charge.

For us in the healthcare IT industry, it is notable that four of the five top hospitals are actively using or have recently installed Epic  with a big price tag (three Partners hospitals, one UMass). This correlation raises the question: how much IT cost flows through the system, and are there effective checks against these rising costs? Did LoDR flip the counter in these cases?

To Epic’s credit, there is a concerted effort on their part to control costs that are often embedded in questionable customization. In other words, the folks at Epic are applying the concern of LoDR against the impulse of the client to work toward the elusive “best” at an ever-growing expense.

As we head toward HIMSS, our annual festival of IT goodies, we get to see a whole new set of “current” alternatives. Can we review the new stuff through the filter of LoDR? Stuff that is truly new for me, does it get me more then I need to give? And the stuff that is newer than what I have, does it keep me on (or get me back on) the right side of the counter?

And for me the ultimate question: who’s giving away free ice cream? Because free ice cream has no calories. Everyone knows that.

Mike Lucey is president of Community Hospital Advisors of Reading, MA.

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Currently there are "10 comments" on this Article:

  1. I was really confused till I realized he’s hitched his horse to Paragon. Bravo for confusing correlation and causation. I’m not sure I’d want this article representing me and my company.

  2. Mike, you seem to be drawing conclusions about a new Epic site that isn’t even rolled out to Mass General yet and drawing a conclusion.

    Seems like this may be even a bit of a set up.

    How did Partners compare cost wise prior to their Epic decision?

    Or, would that data not serve your purpose?

    By the way, what is your purpose? Who do you work for?

  3. Mr. H – clearly a McKesson Paragon shill using your blog to slam another vendor… is this consistent with your goals? Seems off the mark.

  4. My understanding is the initial Epic roll out of the Partners hospitals and practices has gone rather well, with MGH to follow soon. It is the correlation (not causation) of large IT projects and higher prices presented in the Globe article that raised the question for me of how well we monitor projects. I believe more consistent and grandular monitoring during projects can control costs. As I mention, Epic seems to be taking proactive steps to encourge just such controls by offering a standard build method that limits cost creep from low value customization. A laudable position for a vendor to take and perhaps a healthy trend.

  5. This is such a Trump-like maneuver. “I’m not saying it’s Epic’s fault, I’m just saying it raises questions.” Perhaps you’d like to see Judy’s long form birth certificate?

    You’ve taken a snapshot of data at one point in time and suggested a growing problem and even a culprit. And you’re taking advantage of the recent publicity of Partners’ Epic budget woes. It’s unfair to say that monitoring would help reduce these costs since you don’t even know if they have changed over time. MGH and BWH have consistently been top-ranked hospitals, so wouldn’t it make sense that they charge more for what they perceive as higher quality of care? And probably have been doing so for years. But we can’t know that based on the one graph you’ve supplied.

    This article contributed nothing except to fan the anti-Epic flames.

  6. I would first like to tackle the Lord of Deez Rings statement, I mean Law of Diminishing Returns. I’m struggling to understand where these diminishing returns comes into play. Are you suggesting that women should have fewer babies? I do believe that is the actual law of diminishing returns, as there is a certain point where the value you gain (monetary and otherwise from love and such things) from having an additional child is not as great as the previous child. This is why the youngest child generally tends to be the screw up in the family. However, this is not politically correct, so I suggest we investigate alternate theories.

    If you are arguing for lower costs among hospitals for patients who are pregnant, that actually does not have anything to do with the diminishing returns theory as that only controls how much profit is made versus growth of profit. Where diminishing returns comes into play, is when you hire staff or buy equipment. For example, if you are starting a hospital and you hire your first OB doctor, you will immediately see a return on investment as you will see an increase of patients who deliver babies. Then let’s say that OB doctor encourages his buddy to also join the hospital and deliver babies, you will now be able to deliver even more babies for that same 18K profit. Now, let’s say that your department administrator has caught on to this idea of hiring more doctors and making more money, and they hire an additional doctor. However, they don’t account for the fact that there is only a single of room in the hospital that can deliver babies, so the 3rd doctor does not make as big of an impact as the second doctor. While there is still GROWTH and PROFIT, there is a diminishing return, because there is not as MUCH GROWTH (a little bit like the Chinese economy).

    Thirdly, (and in my opinion) most importantly, I would like to address the Ice Cream analogy. We must first preface this with some assumptions. The first being that the first scoop is the bottom scoop, and subsequent scoops are foisted above the seemingly solid initial scoop. From a structural engineering perspective, the first scoop must be large enough to sustain all the larger scoops. So inherently, the 2nd and 3rd scoops will be smaller than the first scoop. We must conclude that the second and third and (gasp) fourth scoop would cost less because you as a consumer are consuming fewer resources.

  7. Oliver,
    Thank God someone has a sense of humor! Warped as ours may be.

    We are not alone. I have recently spent time with a great group of Epic folks. Professional, intelligent and also in possession of good humor. (Emotional, not iced)

    Mike L

  8. I’d like to comment on the statement “…control costs that are often embedded in questionable customization.”

    My organization learned this lesson long ago, long enough to forget the lesson, even.

    Customization is a trap and one that the victims enter with the best of intentions. The customers want what they want and the customer is always right, right? The IT department exists to serve and especially if they have the technical ability and capacity, why not?

    Except that the customers don’t care who solves their problems, only that they get solved. And once solved, they don’t revisit those concerns. If the customer gets a solution via an IT customization, IT is on the hook for those customizations forever!

    Now consider that the health organization doesn’t own the application. They license it from a software vendor. That software vendor keeps issuing new versions and before long, they expect the customers to install those new versions. Integrating the new versions with the custom code can become a mountain to climb for IT, one too high to scale eventually. Yet if you fail to climb the mountain you risk losing support from the vendor and you certainly lose the benefit of new functionality in the new version.

    Larry Ellison spoke to this about 10 years ago. He took some flack for this and no surprise, given that Ellison is an arrogant loudmouth. Yet he was correct on this issue. Lots of customers over-customize 3rd party applications. The customizations become a perpetual burden and most are advanced with little business or clinical justification.

    Understand, it’s not about saying No. Some customizations are perfectly legitimate and justified. It’s about carefully picking the best ones to action.

    And the rest? They need to go to the vendor, as product enhancement requests. In fact ideally they all do. Only the ones that the vendor turns down (again ideally) ought to go ahead as in-house customizations. A vendor-delivered enhancement is the best outcome because all customers benefit and the vendor assumes full responsibility for the code.







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