(by Joe Flower, from TheHealthCareBlog.com)

We can actually say what a better healthcare system would look like, if we look at healthcare in the United States as a complex adaptive system stuck in a Nash equilibrium.

The ideal reformed healthcare system would be universal, possible, understandable, cheaper, better, market savvy, incremental, and self-reinforcing.

  1. Universal: Giving everyone secure access to the system.
  2. Possible: Politically possible and financially workable.
  3. Understandable: Simple enough for people to understand, simple enough to sell politically.
  4. Cheaper: Aimed at (and with mechanisms for) lowering the cost of healthcare – for each of us as individuals and for all of us as a nation
  5. Better: Aimed at (and with mechanisms for) improving the quality of healthcare for each and for all
  6. Market savvy: Using smart market mechanisms to achieve these goals
  7. Incremental: Able to arise piecemeal, and improve as time goes on
  8. Self-reinforcing: Each element of the system rewarding improvement in each other element

Universal: Is healthcare a right? Getting good and timely medical care stands between you and death or a life of misery. So it is certainly a necessity, arguably one of the three “inalienable rights” set out in the Declaration of Independence, not arbitrarily afforded to some and not to others by race, class, age, location, or other division.

Unlike other necessities like food, clothing, and shelter, you can’t find it in a dumpster or under a bridge – and access to it has become so expensive, arbitrary, and fraught with pitfalls that a substantial portion of the population cannot afford it at all. Healthcare must be available to all, at a price that is not life-crippling. And whatever the financing mechanism, it must take all comers, without resort to the current health plan industry practices of arbitrary rescission and medical underwriting.

Think of healthcare as a system stuck in a Nash equilibrium. It is hard to imagine any truly workable system in which a substantial fraction of the end users cannot afford entrance to the system – but end up using it anyway when they can no longer avoid it. Such random lack of access distorts all the priorities and incentives within the system – by, for instance, making preventive efforts for a substantial portion of the population unprofitable (and therefore impossible) for any organization to provide.

This is why the system must be universal to work. This is why those who say, “Just let the government get out of the way, and charity will provide for those who cannot pay,” cannot show a single example of a modern, medically sophisticated society that has done such a thing. This is a solution that asks a specific group of people – the rich who can afford to give to charities on a large scale – to be individual moral heroes, to their own financial detriment. As we have seen, this not a sound foundation for any system design.

If getting access to healthcare were optional, a partial solution might make sense. If it is a life-and-death problem for all people who are owners and operators of human bodies and can steer those bodies into emergency rooms, then any true solution has to be wall-to-wall. This is borne out by recent studies showing that it’s not enough for you to have healthcare insurance: Your access to healthcare and your markers of health status are better if more people in your area have healthcare insurance. Full financing of healthcare is necessary to support the systemic infrastructure behind your personal treatment.

It must look preferable to most Americans, and attractive or at least survivable to all the major stakeholders, including hospitals, clinicians, employers, health plans, and pharmaceutical companies. This means, among other things, that any reform that simply destroys the health plan industry is unlikely in the extreme. Any part of the system that is designed out of a reform will turn all its energies to the obstruction of that reform – and will likely succeed.

Besides, such ideas as, on the one hand, “Single payer is the only way to universal healthcare,” or “Getting health plans out of the way is the only way to cut the cost of healthcare,” or on the other hand, “Privately-funded healthcare is always more efficient than government-funded,” simply have no evidence behind them in the real world. Canada’s purely government-funded healthcare costs roughly half what ours does (and, for all its problems, gets higher marks from both its citizens and its doctors). So does France’s. But then so do the mixed universal systems in Switzerland and Germany. And so does the purely private universal system in the Netherlands. The single payer vs. private payer vs. mixed payer debate is not going to give us the answer to universal, efficient, effective health care. The answer lies elsewhere, in the system’s organizing details.

Understandable: To be politically possible, it has to be something that you can sell, something people can understand, at least in its main elements, in one pass. Social Security is understandable. Medicare in its main elements is understandable. I doubt anyone understands Medicare Part D, even the people who wrote it.

A healthcare reform that works will have explanatory power. The inner workings of today‘s system are opaque to almost everyone, so its machinations are experienced as random, capricious, and often thoughtlessly cruel – and deeply at odds with our common, popular image of what healthcare should be.

Workable healthcare reform also must be seen by most people to be at least roughly fair. Nothing will satisfy the extremes, the “taxation is theft” group and the “eat the rich” crowd, but there is a capacious middle ground that most Americans would see as fair to rich and poor alike.

Workable healthcare reform must aim not just at reducing the rate of healthcare inflation, but at making healthcare cheaper – not just by a little, by a lot. The reason the system is perceived to be in crisis, and the reason that it is politically difficult to extend coverage to all, is because it is so expensive.

How much cheaper could it be? Various studies of places and facilities that give more procedures, tests, and consultations without better outcomes consistently show some 30% or more waste in our system – waste that could likely be eliminated even before we employ drastic new management and market techniques to refine our processes further. A glance at other medically competent economies shows that they consistently pay about half per capita what the U.S. does, usually with better outcomes, almost universally with better patient satisfaction.

But you can’t get to cheaper healthcare just by cutting reimbursements. The providers are all stuck in a kind of “gerbil economy,” running as fast as they can, trying to get ahead in an impossible race with costs, responding to the incentives of the market as they are presented to them. Here again, the answer lies elsewhere – in the nature of competition itself.

Finally, one of the common answers to the question, “Why does our system cost so much more?” is “Because we do so much cutting-edge research.” That answer is debatable: France and Germany, for instance, are no slouches in the research department. But if it is true, we must ask: Why is so much of the cost of basic research folded into the cost of patient care? As a manifest social good, at least as important as, say, defense spending, shouldn’t medical research be separated out from the patient care budget and more directly and fully subsidized as a good on its own?

Better: It must aim at (and have mechanisms for) improving the quality of healthcare for each and for all. Healthcare in the United States has lagged behind other industries in the use of both new technologies and new management techniques. Any reform must encourage, subsidize, and perhaps mandate a number of such process-improving infrastructure improvements as digitization and automation, evidence-based medicine, and the regular collection and reporting of properly-framed outcomes. You can’t manage your processes until you know what they are, and you can’t track them in a milieu as complex as healthcare until you digitize.

At the same time, repeated studies (and especially recent studies of checklists in the Emergency Department and the surgical suite) show that many of the quality problems in healthcare stem from clinicians failing to follow such widely acknowledged, simple practices as proper handwashing, full inventories of surgical tools, and use of perioperative antibiotics. In other industries in which safety is an issue (like, say, aircraft maintenance), anyone consistently ignoring basic safety guidelines (like, say, how tight to make the engine mounting bolts) is summarily fired. Largely because healthcare is so resistant to standardization, patient safety is too often treated like a matter of personal c
linical style, rather than an absolute requirement.

These quality improvement measures are the application of systems thinking on the sub-system level. Each hospital, for instance, and each local medical market, are themselves complex adaptive systems, subject to the same kinds of feedback loops as the larger system. In this sense, change is fractal, self-similar at different scales.

Market savvy:
It must use smart market mechanisms to achieve these goals, not because of some ideology about the wonders of the elusive “free market,” but because of the nature of systems. A top-down regulatory regime steps into the production process, prescribing methods and limits – and in every system is persistently and successfully gamed by the players in the system, who institute “work-arounds,” who “teach to the test,” and design hospital procedures to the minutiae of JCAHO checklists. Market mechanisms describe the goal and the payoff, as FedEx promises to get it there by 10:30 tomorrow morning for $24.35, and leave the methods to the provider (Route it through Memphis? Anchorage? Azusa?).

The analogous goals in healthcare would be expressed in results for an established price. Not just “a head transplant” (just as you don’t pay a body shop for just “a new fender”) but “a head transplant that works at least as well as the old one, with no infections or other adverse sequelae, at the advertised price.”

Smart market mechanisms in healthcare might include bundling common procedures into full products (such as mitral valve replacement, from diagnosis to rehab; a subscribed diabetes management protocol, soup to nuts; or an uncomplicated birth); building such products around teams that work together over time and continually and formally seek to better their outcomes; posting prices; banning discounts; offering warranties on common procedures; mandating full transparency through something like a “Healthcare SEC” (Outcomes, prices, quality markers, and patient satisfaction for providers; full prices, package components, complaint rate, percentage and number of rescissions, percentage of reimbursement denials, and medical loss ratio for payers).

Such market mechanisms provide the three systemic necessities for a market:

  1. Decision-makers are allowed to choose between alternatives (You can buy any care you want, if you can afford it.).
  2. There are alternatives to choose among (There exist Saabs, Hummers, and Priuses, new and used, from private and corporate sellers)
  3. The information decision-makers need to make an intelligent choice is available (Consumer Reports, car magazines, web sites about cars, the Blue Book price ratings, EPA reports on mileage, J.D. Powers ratings, and on and on).

These three systemic necessities have been functionally restricted, or non-existent, in healthcare as it has been organized in the U.S. That lack has been a major element in keeping the system in its Nash equilibrium stasis.

Incremental: It must be able to arise piecemeal, and improve as time goes on. The defining characteristic of a mature, optimized system in a Nash equilibrium (such as the current healthcare system) is that no player can gain by trying a different strategy: No innovation goes unpunished. Some outside force is required to break a system out of this stalemate by providing pockets of funding, regulatory exceptions, new information, or a change in the rules to allow new strategies to take hold. Such outside forces will revert the system to a more fluid state, encouraging innovations in all sectors as the system struggles toward a new, better optimization.

Self-reinforcing: Similarly, each piece of the system must encourage improvement in every other piece. Suppose, for instance, that a health plan could succeed, not by squeezing providers into near-bankruptcy, but by using their market power to encourage and reward higher quality at lower cost. Suppose providers offered bundled products that allowed health plans to choose the ones that cost least for the highest quality. Suppose a device manufacturer could achieve greater market share by designing systems that were better than the competition – and cost half as much. This is, in fact, the path out of the stasis of the Nash equilibrium, as each part of the system, given new inputs and incentives, adjusts to the others in ways that improve the system, rather than in ways that deprecate it.

If these seem overly idealized, that is in fact what we are talking about here: Standards and goals against which we can measure any actual reforms. If they seem difficult to achieve, they are. But a systemically smart reform will reward incremental steps toward these goals, and the system can continue to reform itself toward them over time.

In the current situation, all players spend enormous amounts of time, effort and money pushing against the system. Witness the huge size of hospital Accounts Receivable departments, organized largely to argue with insurance companies, or the 1900 people employed by Los Angeles County just to fill out Medicaid forms, with the goal of 2 forms per day per employee. If the basic rules and interactions of the system shift, we might well imagine tremendous amounts of energy and funding freed up in “virtuous cycles” of innovation. It is reasonable to imagine that, years into these cycles, we would find that all the money for caring for all Americans actually existed, untapped, within the system as it was before reform.

It is reasonably possible to imagine that we could re-shape U.S. healthcare for higher quality and universal coverage at half the cost of today’s system – but only if the rules and incentives are re-designed with deep understanding of the nature of complex adaptive systems.