[From Hospitals & Health Networks Daily, September 20, 2011]

There is fire in the valley and smoke in the mountains. A plague is on the land and danger is afoot.

That may be — maybe — the good news.

Health care is more unstable than it has been at any time in living memory. That’s pretty scary, but that instability may turn out to be its most important asset in this moment, as the whole industry becomes open to profound change.

As long as I can remember, thoughtful analysts have been saying, “We need to do this differently. This is not working.” In this century, the voices became louder and more insistent, and they spread. But health care has been very slow to evolve in any fundamental way. Even health care reform, when it came through extraordinary political pain and maneuver, was more a way to bolster business as usual, a way to shore up revenue streams and patch holes in the fee-for-service business model, than it was any fundamental restructuring.

Now the ground under our feet is liquefying.

The Bad: The Economy

Political rhetoric screaming “Jobs! Jobs! Jobs!” continues to be matched at every level by political action to slash government-dependent jobs, cut funding and limit actions that might actually produce more jobs any time soon. More and more “medically indigent” people are streaming through our doors, and the number and percentage of uninsured still are rising a year after passage of health care reform.

The health care sector of the economy is slowing down. Health care architects and planners are heading to the airport for another trip to Brazil or Dubai or Shanghai, places that are building while capital projects have slowed, suspended and stopped in the United States. The latest job reports show that health care, for the past three years the stable haven of job growth in the troubled economy, has stopped hiring. The looming Medicare cutbacks are troubling executive conference rooms and board meetings across the country.

The worst anxiety is the instability. There is no light yet at the end of this tunnel. No one knows when the economy will turn around, or how much worse it will get before it gets better.

The Ugly: The Politics of the Slowdown

State governments are slashing Medicaid and indigent care budgets, depriving health care institutions of lifelines that help them offset the costs of caring for the poor.

The anti-government and anti-tax mood in the land spills inevitably into health care, which gets so much of its funding through federal, state and local governments.

The ugliest of this is again the instability: It is hard to say when this might get better, whether it might get worse, or how fast, or how bad it might get. It is easy in this atmosphere to write doomsday scenarios.

The Good: A Time to Experiment

Wait, really? Is there something good in this mess? Actually, there is. It is the very instability that is the source of the fear.

Every problem holds the germ of its own solution. We cannot know exactly how health care will change in the coming few years, but we can know that it will change, because it is not possible for it to stay as it is. It is also far more malleable to our attempts to change it for the better than it has ever been.

If we are smart and fast and aggressive and have a clear vision, there is a better chance than ever that we can help it change not chaotically but in ways that will make it better and cheaper for everyone. That’s our job, and this is our chance.

Our Shaky Equilibrium

Systems get stuck. In economic game theory, the technical term for this particular way of getting stuck is a “Nash equilibrium,” named for the mathematician who formulated it, John Nash (portrayed in the 2001 film A Beautiful Mind). Systems consist of a number of different interacting players. In the health care system, for instance, there are hospitals and health systems; doctors and physician groups; and other providers, health plans, employers, government payers, politicians, pharmaceutical companies, various suppliers and manufacturers.

In any system, each player seeks what is best for him-, her- or itself, to survive and grow and do what he, she or it is there to do. But we can’t think about them in isolation, because each player thinks about, and acts on, what he or she thinks the other players’ strategies will be. Each player fights to a position that is the best he or she can do with the information acquired, against the strategies of the other players as they are understood.

Imagine the players in a 3-D landscape, each climbing a peak of fitness, the taller the better. The place that represents “the best they can do” is called their “local optimum,” fitness peaks from which every direction is down. There is no strategy that will take them farther up without first taking them back down into the trough, no way to do better without doing a lot worse for a long time.

But this is not their best possible position. They may well be able to imagine a much better situation for themselves, they may be able to see another peak that is higher, but they have no way to get to it without hurting themselves. So they are doing “good enough” to stay where they are, but they are stuck there. And the players’ local optimum, their stuckness, is locked into the local optima of the other players around them, because each player is watching the others and reacting to their strategies.

So doctors being paid fee-for-service may know that their patients need and deserve more of their time and attention, and the insurance companies less of their time and attention, but if they do this unilaterally, they will make less money and likely be driven out of business. Insurance companies may know that there are less expensive ways to fund health care, but they are paid a percentage of the health care market. If they truly drive their customers to better, cheaper health care, they cost themselves a chunk of their market.

Hospitals are in the same position as doctors: They have to take the “good enough” funding that they can get, and keep begging for more, because to do anything seriously different would so undermine their position that they might have to close their doors, and what good would that do?

This position holds as long as the status quo does, even as it may slowly become less tenable for every player. A Nash equilibrium changes only if something causes the ground under everyone’s feet to shift.

That is what is happening right now.

A Window of Opportunity

For a concatenation of reasons, reasons that neither start nor end with Obamacare, players across health care are feeling the earth move under their feet.

Talk, as I have been talking, to surgeons, hospital executives, health plan administrators, nurses, insurance brokers, employers wrestling with health care costs, health care architects, pharmaceutical companies, device manufacturers, vendors, the people who actually make up this vast rolling chaotic system — and every sector tells the same story: It’s not working for them anymore. They no longer anticipate that the future will resemble the past, or get any better without some big change. Their business models have come loose from their moorings, and the new and safer harbor has not yet been located.

The fact that much of the industry shares this perception is of profound importance. The risk of attempting to stay where they are has come to seem very great, in fact impossibly so: They must change or die. The resistance to change has disappeared — if only they can see what to change to, what course to set that will bring them safely to a new situation.

The health care system is approaching a state of liquefaction. New coalitions of players can form, break and re-form in new relationships, to find better footing for their members. Providers may ally directly with employers, for instance. Broad coalitions of providers may organize ACO-like virtual organizations to offer services to employers or government payers. Health plans may reorganize themselves to directly provide health care services to select covered populations. Disease management organizations may spring up to serve as organizers of services with different incentives.

The resistance to experiment, the defaulting to status quo, is evaporating.

This is temporary. Before too long the system will resolidify in new forms that represent a better solution in one way or another for some or most of its most powerful players. Once it does, it once again will be in a Nash equilibrium, difficult for any player or coalition of players to change.

The time span is short, the speed accelerating. Given the pace of change of a huge, politically embedded system like health care, this is probably a unique opportunity in our professional lives. Once the system re-concretes, it is not likely that we will have another such opportunity any time soon.

We in health care deal in contracts and budgets and programs and percentages, but these numbers and documents represent real life and death, real suffering and poverty. If you hope, in your life, to do good in the world, now’s the time.

Lindsey Dunn of Becker’s ASC Review reports on what I had to say to the Ambulatory Surgeons meeting in Chicago the other day:

In a keynote address to attendees at the 9th Annual Orthopedic, Spine and Pain Management-Driven ASC Conference in Chicago on June 10, Joe Flower, a healthcare futurist, discussed trends in healthcare delivery and where he sees the industry moving in the next 10 years.

Mr. Flower said healthcare is currently at a key turning point in its history, and as the industry works to improve quality and lower cost, a number of new healthcare business models will emerge.

Significant changes with or without reform

While the Patient Protection and Affordable Care Act has drawn a great deal of attention to the need of significant changes in the healthcare delivery system to control growing healthcare costs, Mr. Flower said healthcare delivery as we know it will transform even if the PPACA doesn’t survive constitutional challenges.

According to Mr. Flower, the survival of the PPACA will rest in the decision of Supreme Court Justice Anthony Kennedy. Challenges to the PPACA have already reached the Circuit Court of Appeals and if any of the three-judge panels reviewing reform cases overturn the law, the issue would move to the Supreme Court, where Justice Anthony Kennedy, known for being the Court’s moderate Justice, is likely to deliver the swing vote.

With or without an individual mandate, societal changes — most notably the aging of Baby Boomers — will force healthcare payors along with providers to develop new approaches to healthcare delivery to deal with rising costs, said Mr. Flower.

One group particularly driving efforts toward new delivery models are employers. “Across the country, employers have driven down the cost of healthcare by significant percentages by getting involved in the lives of employees,” says Mr. Flower. For example, Boeing has reduced its costs for employees with certain chronic diseases by 20 percent and Safeway reduced its healthcare costs by 14 percent through its CIGNA Choice Fund. Other employers, such as Utah-based Questar have contracted directly with health systems to oversee employee care, said Mr. Flower.

Many states are also working vigorously to lower healthcare costs and this is expected to continue. Massachusetts, for example, beat the federal government in instituting an individual mandate, and Vermont is currently attempting to develop a single-payor program.

The end of fee-for-service

Most new business models introduced by payors, employers and states will move away from the fee-for-service model toward pay-for-performance and bundled or capitated models, all of which redistribute risk among payors, providers and consumers. Consumers and providers will take on more risk, which will lead to different behaviors for both groups and among payors. Some of the new behaviors Mr. Flower expects include:

Consumer behaviors

• Consumer shopping. Healthcare consumers, who will take on more financial responsibilities for care, will shop for providers that provide the best care for the least money.

Consumers will delay expensive surgery. Consumers may do nothing or may choose medical management, which Mr. Flower describes as “ibuprofen and yoga,” over surgery. “[Your] competition does not have to be better, it just has to be cheaper and good enough,” he says.

Doctor’s orders count for less. Mr. Flower believes as patients become more informed consumers, they may view their doctors’ opinions with less reverence than they’ve done in the past.

• Payor behaviors. Increased use of comparative effectiveness research. Mr. Flower said payors, both private and Medicare/Medicaid, will lean on comparative effectiveness research to justify not paying for certain procedures. He noted that comparative effectiveness research funding has increased from $300 million to $1 billion since President Obama has taken office.

Paying for outcomes and quality. Fee-for-service will decrease as payors move to pay-for-performance models. Mr. Flower pointed out this could actually be an advantage for providers that can provide good outcomes.

More aggressive advice. Payors will increasingly talk to consumers about healthcare options before they come to providers for care. Mr. Flower expects the use of health coaches — provided by insurers, employer or even hired by patients directly — to help patients navigate the healthcare space to increase.

• Health system behaviors: Consolidate and diversify. Advanced, integrated health systems will acquire additional providers along the continuum of care, leading to increased consolidation. “Weaker hospitals will not be able to stand this onslaught,” said Mr. Flower.

Accept greater financial risk. Because risk provides greater financial rewards, integrated systems will increasingly enter into bundled and capitated contracts to oversee care from primary care outward.

Focus on systemic cost savings. In order to lower costs and profit more under capitated models, systems will focus on driving out services that create significant costs. To do this, systems will 1) rebuild inefficient processes through Six Sigma, Lean and other techniques 2) better coordinate care to avoid duplicate treatments and ensure right-level treatments, 3) avoid unnecessary treatments, 4) reduce primary care provided in the ER and 5) better control chronic diseases to reduce ER services and admissions related to unmanaged chronic conditions.

What it means for ASCs

Although ASC reimbursements are currently significantly lower than hospitals and a chief bragging point of ASCs, as health systems drive costs out of their systems, they will offer increasingly lower bids to payors in order to win contracts. This means the gap between hospital and ASC rates will narrow.

Where ASC can compete

However, Mr. Flower says several areas exist where ASCs can prosper under new delivery models:

• Bundling. ASCs will be able to compete with hospitals by offering bundled care. These bundles could feature a single price for facility, anesthesia and physician fees and include warranties for guaranteed outcomes and timing.
• Safety. ASCs can compete with hospitals on safety, making the case that surgery centers are safer sites of care for surgical procedures.
• Surgical management. ASCs may also benefit by partnering with hospitals to provide outpatient surgical care efficiently. “[Health systems] are promising to do things they may not be able to deliver,” said Mr. Flower. If hospitals are unable to meet efficiency goals they’ve promised to payors, “[ASCs'] strongest rivals could become their best customers.”

Under the headline, “Medicare Plan for Payments Irks Hospitals,” today’s New York Times details the opposition stirred up by the government’s “value-based purchasing” initiative.  If you’re buying anything (and the US federal government is the largest purchaser of healthcare in the world), on what basis other than value would you want to buy?

The measure at issue is “Medicare spending per beneficiary” during hospitalization, and in the 3 days before and 90 days after. The hospitals and hospital associations that are complaining have, mostly, two beefs: “Our patients are sicker,” and “We can’t be responsible for what happens, and what tests and procedures doctors order, outside our walls.”

The government’s response to the first is that the system will be adjusted for older populations, more acuity, and other variables. The response to the second is more complex, but it amounts to: “Work it out.”

And there is good reason for this. In studies going back two decades, the Dartmouth Group has shown wide disparities in Medicare payments per beneficiary between regions and between hospitals. A recent Institute of Medicine study took the Dartmouth stats and, in response to all the talk from hospitals that “our patients are sicker,” or “but we have to pay for teaching and research,” re-worked them to back out all those confounding factors. The Dartmouth Group’s study showed that the most expensive areas spent three times as much as the least expensive. After the IOM backed out the confounding factors, the data still showed that the more expensive areas spent twice as much.  And the expense does not vary so much with inner-city status or number of illegal aliens as it does with whether health care in a given area is well-organized and coordinated or unorganized and fractured. It’s a really easy pattern to see if you stare at the maps of expense long enough, and know a lot about different healthcare markets.

Lack of care coordination is at the core of the mess healthcare is in, coordination between various parts of the healthcare system locally, on the ground, and coordination between the healthcare providers and the patients’ life. As Atul Gawande put it in his commencement address at Harvard Medical School last week, “It’s like no one’s in charge — because no one is.”

A reasonable response to a hospital or health system that claims, “Our patients are sicker,” is actually, “How did they get that way? What have you attempted to do about it?” That’s reasonable to ask because some organizations of various types, from hospitals to medical groups to employers to unions to state Medicaid administrators, have actually found ways to reduce the burden of sickness, even in very poor populations, for the people who show up in their system, even before they show up — and have saved money, even in cases where they are not getting reimbursed for it.

If an executive for a health system complains, “We don’t have any control over what those doctors do!” it is reasonable to ask, “Why not? What have you tried? What have you not done?” It is reasonable to ask because there are organizations that have been increasingly successful in working tightly with doctors, even doctors who do not work for them. There are many different ways of coordinating care, in hundreds of examples in scores of different contexts around the country, in cities and suburbs, in tribes and in Medicaid populations, for well-employed groups and retired folks on Medicare. No one model for coordinating care works for every market, every physician population, and every patient population, but the models are out there. It’s difficult, sometimes very difficult. It can be expensive, and it’s always time consuming. But other people are doing it, why not you?

Why not you? Let’s be clear: These extra costs do not represent some technical glitch in the reporting system. This is not an accounting argument. These extra costs mean real people with extra sickness, extra suffering, and extra unnecessary deaths. You don’t have to call in your house ethicist on this question. It’s a moral question, but it’s not a hard one. If you are in charge of some piece of the healthcare system, and you are not doing everything you possibly can to coordinate care in order to reduce costs, to reduce suffering and unnecessary death, what’s the moral accounting, for you, personally?

[Note to the reader: Anything that is in italics and square brackets (such as this note) is addressed to you, personally. Yes, you. Try it on, see if it fits.]

Healthcare has, right now, the greatest opportunity we have seen in our lifetimes to make a big change, to rebuild itself in a hundred ways to become better for everyone, and cheaper—to get cheaper by getting better. We’re not talking “bending the cost curve,” cutting a few points off the inflation chart. We’re not talking a little cheaper, a little less per capita, a few percentage points off the cut of GDP that healthcare sucks up. We’re talking way cheaper. Half the cost. You know, like in normal countries.

We’re not talking a little better, skipping a few unnecessary tests, cutting the percentage of surgical infections a few points. No. Don’t even think about it. We’re talking way better. Save the children, help the people who should know better, nobody dies before their time, no unnecessary suffering. Seriously.

I don’t know how high you want to aim, but personally, I think we should aim at least as high as the cutting-edge programs and facilities that are already out there, in the system as it exists today, cutting real healthcare expenses of real people, even “frequent fliers,” by 10, 20, even 30 percent, while making them healthier, much healthier. At least. To me, that’s a wimpy goal, just doing as well as some other people are already doing. Because these programs are just getting off the ground. They’re in the first few iterations. The stretch goal, the goal we can take seriously, is to cut real costs by 50 percent, by making people healthier. There is at least that much potential out there.

All the Ways the System Doesn’t Work

You want a little convincing? Here’s an easy little exercise: You know how the system actually works. [Note: Yes, you do. You’ve been around the block, right?] Pull up an empty notes page on the laptop, iPad, Blackberry, iPhone, whatever, and just start writing a list of all the frustrations you can think of, the thousand and one ways that the system does not drive toward the best health at the least cost for the people it serves—the missed handoffs, the wrong person/wrong drug mistakes, the lack of engagement with the patient’s life, all that. [Note: My guess? You can come up with a better and longer list than I can. Every person I talk to who actually works in health care has buckets of this stuff for me, every time I talk to them.]

Now do a little imagination exercise: Go down that list, stop at each item, and imagine some way in which the system eliminated it. Imagine that there was some systemic change that made it nearly impossible to give the wrong person the wrong drug, some change that meant that everybody got good health coaching, nobody ever got an operation that actually won’t help them, whatever is the inverse of each frustration on the list. Imagine what each of those changes would mean to the effectiveness and cost of healthcare.

Now imagine that somebody, somewhere, has done just that. Somebody is solving that problem, in ways that can be duplicated where you are. Because that is what I am seeing happen all across healthcare, and it’s a breathtaking story.

A Word about Systems

Do you know how many people died in car crashes in the United States in 2010? 32,000. That’s the lowest number since 1949. That’s impressive, but wait: It’s far more impressive than it sounds at first, because people in the United States drove about 10 times as many vehicle miles in 2010 as they did in 1949. In other words, if you drove a car or truck in 2010, you were 10 times more likely to live through each mile you drove than your father or grandfather was 60 years ago.

Why? Are we better drivers? Nah. Seatbelts, airbags, tougher DUI laws, breathalyzers, graduated licensing for teenagers, anti-lock braking systems, better highway designs, crash barriers, rumble strips, median barriers, steel-belted radial tires that don’t blow out, crumple zones, better bumpers…system tweaks that work, that make it 10 times as hard for even a terrible driver to kill himself or you.

It’s the system, not the individuals. We have only started on the thinnest little wedge of that kind of thinking about healthcare. That kind of thinking will take us way beyond “evidence-based medicine” to what is coming to be called “evidence-based health.” Evidence-based medicine does everything necessary to stabilize diabetic shock patients, gets their blood sugar under control, gives them the right prescriptions and sends them home. Evidence-based health goes home with them, if necessary, does whatever it takes to find out why they were in shock in the first place, what it takes to make sure that they fill the prescriptions, eat better, get good advice and don’t end up back in the ER in a month.

The Reform Is Not the Change

The federal healthcare reform law is a catalyst, and enabler, and an accelerator of the change we are going through. It is not the change itself, and is not even the cause of it, because the change is driven by much larger economic and demographic factors, especially by the crushing cost of healthcare. If the reform law were to go away, the change would not go away.

Here’s why the change is actually happening: As all these factors have come together, everybody in the business has come to believe that their usual way of doing business is crumbling under them. Doctors, hospitals, home health agencies, insurers, employers—everyone is desperate to find a new footing. And no one has found a certain footing yet.

Eight Methods for Screwing This Up

So this is, as the sportscasters say, our game to lose. It’s our change to screw up. And we can screw it up, big time. In case you are interested in helping that happen, here are eight ways to go about it:

Pretending it’s not there. Denial. A few tweaks. Business as usual. Same-old. Flavor of the week. Hey, it’s not my problem. I can squeak through to retirement anyway. [Note: Hello.]

Pretending it’s there and we know exactly what it is. We know its address and its measurements, the forms to fill out and the boxes to tick off. It’s all execution. Trust me, I’ve done this before. [Note: Actually, you haven’t. Nobody has.]

Fending off risk. Going for the safe choice. Pulling up the drawbridge. Hunkering down. We can’t afford to extend ourselves in this budget cycle. If we try that, it’ll just piss off the doctors. Better wait until this whole thing settles out. [Note: Let us know how that works out for you. From here, it looks like the waters are rising really fast.]

Grabbing an answer. Downloading a package. Not recognizing the edge of panic in your voice when you say reassuringly, “This is what works. This is the solution.” [Note: When the problem is not simple or static, the solution is not unitary.]

Mistaking it for an opportunity for empire. Building ACOs as regional monopolies to push up our compensation and grab market share. [Note: Consider this. How would your answer change if the question was not “How do we grow the enterprise and make our careers safer?” but instead was truly (truly now—be brutally honest, at least with yourself) “How do we help the people we serve better? How do we ease the suffering? How can we do that for more people? Cheaper? Earlier?”]

Making it a turf war. Grabbing territory. Knocking out the other guy.

Pretending it’s not a turf war, and losing it. Standing by while the other guy eviscerates your hold on the market. [Note: Of course people are going to treat it like a turf war. When everyone’s livelihood is threatened and their value is challenged, that’s what they do. That doesn’t mean you have to. In some games, the only way to win is to not play.]

Gaming the system. Figuring the angles. Making “What’s in it for me? What’s in it for us?” the only questions worth asking. [Note: Here’s the invitation: Play a bigger game. The author Harriet Rubin said a marvelous thing. She said, “Freedom is a bigger game than power. Power is about what you can control. Freedom is about what you can unleash.”]

Consider This

“Since death alone is certain, and the time of death is uncertain, what shall I do?” Yes, I’m quoting somebody. Never mind who. No, don’t write it down. Don’t Facebook it, Tweet it, stick it in Evernote, e-mail it to someone. In fact, don’t even think about it. Don’t think it through, generate options, prioritize. Stop. Just sit with it, just for this one moment: “Since death alone is certain, and the time of death is uncertain, what shall I do?”

Whoever you are, however you have defined yourself so far, you have your hands on some portion of this great rambling chaotic sacred Grand Guignol parade we call healthcare. You have some influence. You can nudge it, poke and prod it, re-shape it, help it grow, make new connections, try new skills. Healthcare is where we bring our suffering, and our tricks to defeat suffering.

We can do this. It is as if the sky has opened up, a break in the pattern; there is an urgency, a swiftness to events, a tide, a moment, a momentum. Let’s roll.

First published in the May 19, 2011 Hospitals and Health Networks Daily, from the American Hospital Association.

It’s a backbone-brilliant concept that actually produces better healthcare, and better health, for significantly less money—and a concept that America may be too politically hypnotized to ever put into wide practice. “Evidence-based” means it’s about what really works, “health” because that’s the goal.

Dr. Pauline Chen, in her blog on the NY Times website, profiles the emerging concept of “evidence-based health.”

“Medicine” is not the goal, it’s a tool. “Evidence-based medicine” doesn’t get you there. “Evidence-based health” hooks up advanced “medical home”-style primary practices with community health, behavior health, and other staff right in their office, to help patients do what they need to do to get healthier. Most interventions in chronic disease fail for reasons that have nothing to do with medicine. To make them work, you have to get out there in the community and deal with what gets in the way of health. This concept re-brands and sharpens the ideas of “community determinants of health” and the “healthy city/healthy community” initiatives that derive from Dr. Len Duhl, ideas that I’ve been talking about for 20 years, and connects them directly to the medical world.

According to a new poll, half of all Americans say they are “confused” about healthcare reform. And boy howdy, are they right!

Take a look at this new Kaiser Family Fund poll: http://www.kff.org/kaiserpolls/upload/8156-C.pdf

Scan down to Slide 9: Almost a quarter of all Americans think that ObamaCare has been already been repealed. More than a quarter aren’t sure. Barely half are paying attention enough to realize that it’s still law.

What about the idea that the reform law is wildly unpopular, and most people want it repealed? Slide 4 shows that 39% want it repealed, and 50% want it kept or expanded. But take a look at slides 7 and 8. The only major provision of the law that a majority of Americans want repealed is the individual mandate—the part that says you have to buy healthcare insurance or be fined. Even those who want the law repealed agree, except that a majority also think it’s unfair to make the wealthy pay a heftier Medicare tax.

Think about that: Even those who will tell pollsters that they want the law repealed say that, well, yes, they think it’s a good idea to give tax credits to small business to help them give health insurance to their employees. And to close the Medicare “doughnut hole.” And to subsidize low and moderate income Americans to buy health insurance. Or to provide voluntary long-term care insurance (the CLASS Act). And to tell insurance companies that they have to take all comers (“guaranteed issue”).

So 39% want health care reform repealed, but 30% want it expanded. And a majority across the spectrum want insurance companies to be forced to sign up all comers, but they don’t want to be forced to sign up if they don’t feel like it.

What are we to make of this?

1. What most Americans think about healthcare reform is somehow not exactly what you would hear on Fox News or on the red side of the House of Representatives.
2. Most Americans aren’t exactly paying attention anyway.
3. If Americans have a strong suit, it’s not arithmetic.

I had a great discussion not long ago with a naive believer in “free markets”—naïve in his fairly unexplored belief that the market provides a better solution to pretty much any problem than government does. Over lunch, after a talk I gave, this fellow objected to my description of the need for the government to set the right parameters for the healthcare market through regulation. Wouldn’t the free market do that better, he asked?

I thought a moment and asked him, “We’re sitting in a hotel ballroom. There is electricity all around us, in the wall plugs, in the lights overhead. How safe do you think we are from an electrical fire? How likely do you think it is that this hotel, over its lifetime, will burst into flame from electrical fire?” Not very likely, he said. “Can you recall hearing of such a thing happening, in recent years?” Um, no. “Electrical fires used to happen a lot, say, 80 years ago. I used to do this work, when I was in construction. I was barely out of high school, and didn’t know much about it when I started, but I am sure my work turned out quite safe. Let me suggest that the reasons hotels don’t burn down from electrical fires is government regulation that makes installing electricity that rarely fails, and fails safely when it does, a no-brainer. It’s all according to safety codes, the wires are color-coded, and checking your results is easy and fast. You don’t need skills, particularly, to do it in a fail-safe manner. You just follow the rules.”

Why, he asked, don’t we just wait until there is a fire, then sue the people who installed faulty wiring? “Well, what if there was a fire right now. Imagine that the insurance inspectors were somehow able to pinpoint the cause to an electrical fault—which would take some doing. But suppose they could. So the insurance company sues the general contractor who built the place 30 years ago, if it’s still in business. The general contractor turns around and sues the electrical subcontractor. The electrical contractor counter-sues, saying that it’s your fault because one of your guys must have moved the electrical box after my guys installed it when you re-framed for that doorway…and on and on. To get a tort result you have to be able to pin down the fault to a particular action, and pin that action on a particular person, in a court of law, arguing against lawyers who are trying to prove the opposite. Most mistakes or bad designs or cheap materials are never caught, many failures happen years later or in ways that don’t trace back to the original problem, and most failures can never rise to the level of proof required in a courtroom. So lawsuits are a woefully ineffective way to make people do better work. If you do shoddy work, most of the time you can get way with it–and there will always be huge incentives to do it as cheaply as possible. As an electrical contractor, you can only afford to do it right if everyone does it right. The same incentives apply to a device manufacturer, a pharmaceutical company, a health insurer, or anyone else in healthcare. You can’t afford to do it right if your competition can get away with doing it wrong.”

In the end, the right kind of regulation is good for business, as well as for the public.

This article 1st appeared on September 20, 2010 in HHN Magazine online site.

They are coming in fast under the radar, out of peripheral vision, in the magician’s other hand—and they will change everything. New ideas, surprising networks, stealth business models that may change health care profoundly, are bubbling up in pilot programs, experiments and full-on corporate transformations. There is something here that does not yet have a name, that no one is yet calling a movement, that no one is yet seeing as revolutionary.

While we have been mesmerized by federal health care reform, government intervention on behalf of the uninsured and government attempts to “bend the cost curve” to shave a few percentage points off medical inflation, things have been happening in the private sector for people who are already insured that result in outright medical deflation, drops in costs of 20 percent or more, all while giving people more care, not less.

Help me out here. This picture is just forming, the Ouija board is still in motion, but I think what we may have here is some truly big news about the future.

The Difference Is Integration

First, consider the huge regional differences in health care costs. Think about what it means that it costs twice as much for patients in the last six months of life to be involved with Cedars-Sinai in Los Angeles, UCLA Medical Center or New York University Medical Center than it does for them to be involved with Mayo Clinic in Minnesota or the Cleveland Clinic; or that Medicare spends half as much per patient per year in Temple, Texas, as in McAllen or Harlingen or Brownsville, Texas; or why Medicare spending per patient per year in the top and bottom quintiles of hospital catchment areas differ by 60 percent.

These are vast differences—and the more expensive areas show no better outcomes than the less expensive ones; in fact, for some conditions they show worse outcomes.

I’ll tell you what I think I see: The areas that spend more do not differ from the areas that spend less in any pattern of urban vs. rural, or rich vs. poor, or by education level, or by state. That’s not the pattern. Here’s the pattern: They vary with the way the health care delivery market is organized. The more expensive areas are highly competitive provider markets, with lots of competing services, higher numbers of specialists, more hospitals and hospital-based services per capita, and more investor-owned (mostly physician-owned) hospitals, clinics and labs.

The less expensive areas tend to be dominated or heavily influenced by health systems that in one way or another operate in a more integrated fashion: Mayo, the Cleveland Clinic, the Bozeman Clinic, Group Health of Puget Sound, Virginia Mason in Seattle, Intermountain Health Care in Salt Lake, Geisinger in northeastern Pennsylvania.

At the gross level, it appears that getting better health care for less has something to do with the right kind of integration.

Next, consider this: By different estimates, some 70 to 75 percent of all health care costs derive from chronic conditions. And the great majority of the costs of those conditions are in one way or another avoidable. The conditions are based at least in part on behavior, which can be influenced. And proper treatment can control the conditions far more cheaply than treatment of the acute phase. Consider the success of Kaiser of Northern California, for instance, in dropping heart attacks by 24 percent in the past decade through an aggressive cardiovascular health program.

Now look at these three different models, coming at the problem from three somewhat different angles:

The Boeing Experiment

Recently Boeing released the results of a 30-month test of what it called the Boeing Intensive Outpatient Care Program. Boeing’s health plan is self-funded, so any stray dollar saved in medical costs goes straight to the bottom line. Boeing has an aging population of highly trained and highly paid engineers. Not only are medical costs important to Boeing, so are absenteeism, productivity, turnover and disability retirement. Employee health means a lot to the company’s profitability and survival.

Boeing and Regence Blue Cross Blue Shield, which administers the self-funded plan, asked some 1,500 Boeing employees with multiple health problems (such as asthma, diabetes or high blood pressure) whether they would like to participate in a special program. About half said “no,” and they were considered a control group for comparison. Half said “yes,” and for them Boeing put a crew on it.

Teams of clinicians from local multispecialty groups gave the employees health risk assessments; helped them form goals; and gave them new prescriptions, health improvement plans, coaching, classes—whatever it would take to lose the weight, bring the blood pressure under control, deal with the back pain, whatever the problems were. After 30 months, this “medical home” team model and intensive focus showed results: The experimental group not only showed marked improvement in health metrics, but even counting the cost of all the extra work and attention, its medical costs were 20 percent lower than those of the control group. Twenty percent savings on your “frequent fliers”—that’s a big number.

CIGNA Choice Fund

Every year end for several years now, CIGNA has released the results of participation in its Choice Fund consumer-directed health plan (CDHP). In January of this year, for instance, CIGNA reported that employees enrolled in the CIGNA Choice Fund, compared with those enrolled in their more traditional plans, incurred 14 percent lower medical costs. People with specific chronic conditions did even better—15 percent lower for diabetes patients, 21 percent lower for people with joint and back pain and 27 percent lower for people with high blood pressure.

And this is key: The employees did not save money by skipping medical care. People on both types of plans were equally compliant with treatment regimens. The difference in cost seems to spring from better management of the chronic conditions and more careful use of preference-sensitive services.

The business press regularly reports the results as proof that CDHPs lower health care costs and improve employees’ health—but that’s getting the story wrong. The CDHP alone is not what works. What works is using the employees’ “skin in the game” as the basis for a comprehensive program of incentives and massive clinical and information support aimed at behavior change, education, preventive measures and control of chronic syndromes. The programs vary from market to market, even from one employer to another, and often involve contracts with specific health care providers to deal with specific types of problems. Employers pay a small amount extra per year for the extra support, expecting that they will be able to recoup the extra payment in lower costs over time.

The rough shape of the CIGNA program is not all that different from the Boeing experiment: a malleable, intensive, ad-hoc partnership between providers, employers and a health plan, aimed at driving down the costs of health care for specific employee populations.

In a related type of business partnership, CIGNA, Geisinger, BCBS of Rhode Island and some other plans have begun hiring and paying the salaries of nurses to work directly in the offices of primary care physicians to track the care of people with chronic problems. It’s a good business proposition for the health plans: Getting a covered patient with diabetes or heart disease to take better care of himself or herself can save millions of dollars in emergency, intensive care and rehab costs down the line. Geisinger goes further, identifying the dollars saved and sharing those dollars 50-50 with the physicians and their office staffs. Their most recent figures show an 18 percent drop in hospital admissions and a 7 percent drop in overall medical costs for patients covered by such practices.

HealthMapsRx

HealthMapsRx, like the other projects, is a partnership with employers to improve the health of employees. But the partners, this time, are networks of community pharmacists trained to be “health coaches” for employees of local businesses with chronic health problems. The pharmacist gives the employee’s physician a report after every visit and refers any problems that need attention to the appropriate clinician.

A year-long test, the Diabetes Ten-City Challenge, concluded in 2009, showed that even simple coaching could save an average of 7 percent of total health care costs (counting the costs of the program). The pharmacists helped the employees track their blood sugar, blood pressure and cholesterol and manage their disease through exercise, nutrition and changes in lifestyle. And it seems to work: The employees improved on every metric from blood sugar scores to body mass index and eye exams.

That’s a lot of success on the cheap. Pharmacists are well-deployed throughout the community and feel a lot more available than doctors and nurses—and the cost is zero to the employee and minimal to the employer.

The HealthMapsRx diabetes program is now expanding nationwide, supported by GlaxoSmithKline and the American Pharmacists Association, which is running similar programs for asthma, cardiovascular disease, high cholesterol and osteoporosis.

A Pattern Emerges

Think about the pattern that emerges from these examples: networked partnerships between employers and health plans, employers and providers, health plans and providers, employers and pharmacists—all different ways of paying professionals to improve the health of employees with chronic conditions. They are not generalized health-promotion programs trying to get all employees to stop smoking or lose weight. All are “population health” programs but targeted and customized to the specific problems of individual employees. And all, in one way or another, put money on the line: They expend actual dollars in hopes of getting a strong return on investment in improved health, lowered hospital admissions and reduced medical costs. And they do it without anything that could be called “rationing.”

For 20 years I have said that there is a strong business opportunity in making people healthier—because poor health is expensive. Any business model that would reap a strong ROI by investing in health would require three things:

1. An entity (like the employer) whose bottom line depends on lowering medical expenses for some class of people.
2. Some “skin in the game” for the individuals covered—which can be turned into fine-grained incentives for them to participate in improving their health.
3. An entity (for instance, a health plan) with a lot of expertise in managing population health, a real incentive to drive down medical costs, and the willingness to “put a crew on it” to find what works and what doesn’t.

It appears that finally, here and there, some employers and some health plans are waking up to the possibilities of what could be the most reliably profitable business proposition available to them: investing in the health of their employees and “covered lives.”

The reform act has some incentives for pilot projects for “accountable care organizations,” loosely defined as “something kind of like whatever it is that Mayo is doing,” organizations in which the professionals feel they are accountable for the health of the people they care for, rather than getting paid solely to do more procedures and tests.

That’s what we’re seeing here. For it to be real in health care, it needs an acronym. How about AHHSMNEHMOKSACOBM? That’s an “ad-hoc hybrid semi-Mayo not-exactly-HMO kinda-sorta accountable care organization business model.”

Too unwieldy? VACO works for me: “virtual accountable care organization”—”virtual” in that the professionals doing the work are not all drawing the same paycheck, and the relationships among the entities are contractual, changeable and subject to rebuilding to get better results.

We’re going to see a lot of this. VACOs will start out as an option for large, self-funded employers (as in the Boeing experiment), then will be replicated and mass-marketed by aggressive health plans to medium and small employers and government agencies. The shift will likely be quicker than we are used to in health care because VACOs now offer a tested model that leads directly to higher profits for private employers over a relatively short term.

VACOs will likely be built into the health plan exchanges as they are deployed in 2014 and after, soon becoming a standard option in all health plans and a major way of competing among health plans. As VACOs show good results in the private market, health plans will find ways of offering them under Medicare. The success and cost differences eventually will be so large that employers will stop offering other alternatives, and Medicare will offer sharp incentives for participating in a VACO; using every resource at our command to help people be healthy will have become the standard model of health coverage.

Push is absolutely coming to shove over the next few years in health care, most specifically in the fight over burgeoning health care costs. Our whole system is straining already under the pressure. “Adapt or die” is rapidly changing status from buzz slogan to operating mandate for employers and the health care industry. Any business model that reliably can drive down health care costs without depriving people of anything, while making them healthier, will show such rapid growth that it will eventually crowd out all the old usual ways of working.

[By Joe Flower, from the May 17, 2010, issue of H&HN Weekly]

The country seems to have shifted in less than 18 months from a
slogan of “Yes We Can!” to “Oh, well…” and a shrug, then back to “Cool!
I think. What was that, really?” Hopes for a true rebirth of health
care turned into the Year of Screaming Inanely, then took that long
slide from what we might hope for to what we might settle for. Yet
suddenly it seems like things are popping up all over the place, like
mushrooms on a forest floor in springtime. New projects and initiatives
are emerging from little companies, big companies, garage startups,
info-giants and mega-industrial combines.

It looks just as if, frustrated by a glacial and refractory
legislative process, Americans and American companies have taken
matters into their own hands, not with torches and pitchforks, but
devices and codes and business models, all trying to figure out some
way they can help make health care better, faster and cheaper. It is as
if Rosie the Riveter of the World War II poster were once again flexing
a muscle and saying, “We can do it!”

Better for Less

“Better, faster and cheaper?” The glib management saw is: “Quality,
cost and speed—choose two.” The received wisdom is that you can do
things at high quality and low cost, but it will take a long time. If
you want high quality at high speed, it will cost a bundle. If you want
low cost and high speed, you can’t have quality.

But health care does not fit that wisdom at all. In health care
“speed” translates to “accessibility,” in terms of coverage,
availability of services and convenience, as well as sheer rapid
response.

And uniquely in health care, the management saw is wrong: You can
have all three. The Dartmouth Center studies repeatedly show that
efficiency and effectiveness go together in health care. There is no
clinical advantage to making the process more clunky, difficult and
expensive. And more is not better in health care—doing more tests and
more procedures actually correlates not just with added cost, but with
worse outcomes. Efficiency, convenience and low cost are
therapeutically effective.

This is the giant prize at the center of the labyrinth of changing
health care: We could do it better for less. Much better, for much
less. And more and more companies are heading straight for that prize.

Retail Clinics

Let me give you a few examples. They sometimes are big, bold
actions, and sometimes are things that seem like details from the
outside, but could turn out to be very large.

CVS/Caremark, for instance. The CVS pharmacy chain has been growing
very quickly over the last 15 years, swallowing up Revco, Arbor,
Eckard, Sav-On, Osco and Longs, ballooning from 1,400 stores to over
7,000. In 2006, it bought MinuteClinic, a chain of retail clinics, and
began expanding it to almost 600 locations today. In 2007, CVS merged
with the massive pharmacy benefit manager Caremark, with some 64,000
participating pharmacies, to become CVS/Caremark. The combined
organization is now the largest provider of prescription medicines in
the nation.

The interesting detail? CVS/Caremark has decided to use its massive
market footprint to do something about chronic disease, starting with
diabetes. It goes beyond the more usual passive education programs to
aggressively get out and work with patients by, for instance, sending a
nurse to your house to show you how to test your glucose level, how to
use insulin and how to regulate your diet to keep the disease in check.

And the PBM side of the company is working with the pharmacy part so
you can walk into any MinuteClinic to get the same advice, or get your
A1c score tested, any time that is convenient, instead of having to
make an appointment at a doctor’s office. There is likely a convincing
business model to such services, but these kinds of direct patient
services are much harder to pull off than another PBM deal or opening
another store. They are the kind of thing a company has to want to do.

A Leader in Efficiency

GE Healthcare, with 46,000 employees, headquartered in the United
Kingdom, is one of the largest vendors of medical equipment in the
world, owning (to take one example) 80 percent of all the anesthesia
machines in the United States and 60 percent of the machines in the
world. Like all of General Electric, the world’s largest corporation,
GE Healthcare is highly focused on quality, and the processes by which
it continually hones its products and abilities.

But GE Healthcare has come to realize that this mindset, so natural
within GE, is not shared by its customers, who often think quite
differently, and have quite different concerns and incentives. Within
the past year, it set out on a major program involving all its major
executives, down to the manager level, especially in the service
division, which interacts with the customers on-site every day for
years on end, to better understand the customer—how the industry works,
how it makes its money, how it gets things done, why quality and
efficiency in processes are only beginning to be understood across much
of health care.

They are doing this, GE executives tell me, not only to work with
their customers better, but also partly to influence their customers,
to educate them to the way GE thinks about quality and efficiency. I
asked one GE Healthcare executive how this would help sales. If it were
really able to help its customers be more efficient, wouldn’t they be
more efficient, among other things, in using GE machines—and so
actually buy fewer units?

“That may happen,” he told me, “but we see that health care simply
has to change, and it will change, to be more lean and efficient. If we
help lead that charge, we will be identified in the customers’ minds
with a whole new way of working more efficiently, with less variation,
and better quality.”

New Approaches to Storing Health Records

Personal health records make up one big mushroom patch. Google
Health, for instance, provides a place where patients can keep their
health records. But here again, the revolutionary force is down in the
details. Besides plain old record storage, Google Health also provides
what may become a de facto standard for personal health records, making the CCR standard it has adopted into the MP3 of health records.

Equally important, both Microsoft’s HealthVault and Google Health
work like Apple’s iPhone: They provide an open platform with an API—an
application programming interface—for which anyone can design apps.
MDLiveCare, the see-a-real-doctor-online-right-now site I mentioned in
a previous column, is an app integrated with Google Health, as
OnlineCare is with HealthVault.

Similarly, SalesForce.com has invested in (and provided its
Force.com platform for) PracticeFusion, a free medical practice suite.
Its ChartShare allows any authorized provider to view and interact with
the patient’s chart—and its sibling, PatientFusion, gives the patient a
look at the chart arranged in one convenient interface. All of this
software is free.

The business models are all over the map. Like many things Google
does, Google Health does not really have a business model, except
Google’s belief (so far well-founded) that the more it can provide
storage and search and interface for every bit of information on the
planet, the more it will prosper. Google Health does not plop
advertising on your chart, and does not sell your information to
anyone. PracticeFusion supports itself through advertising and through
selling impersonal, statistical information about disease trends.
MDLiveCare asks for your credit card information.

Mostly, these companies seem to be in a kind of land rush. They see
health information as a nowhere-near-mature field, and they are staking
out the territory with little or no focus on profit for now.

New Platforms

If we want to imagine the true power of these patient interfaces, we
have to look even beyond today’s Internet browser-driven information
world to the new platforms arising right now: the smart phone and the
whatever we will call the generic version of the iPad. The iPhone is
not just a product, it is a platform. Though Apple is suing its
imitators, the platform will be imitated, copied, expanded and made
cheaper. The core of it is not the device, it is the combination of
cheap or free apps on a relatively open platform for which anyone can
design.

The growth of this model has been explosive: More than 140,000 apps
are now available for the iPhone alone; people have downloaded more
than 3 billion of them. There is already a website dedicated just to
reviewing medical apps (iMedicalApp.com, of course), including patient
scheduler apps, charge capture apps, medical calculators and patient
trackers.

The recently launched iPad will likely be another platform—similar,
but bigger and even easier to use, big enough to share, intuitive
enough for the non-tech-savvy, on which anyone can build any app,
especially including patient health care interfaces of every flavor.
Like the iPhone, it will launch a flood of imitators as well, and
manufacturers are already developing medical applications and
accessories for it.

Real Value

None of these things will “fix” health care. But collectively they
route around its problems and head more directly toward the real value
we are looking for—the health of the patient, at the highest possible
quality and the least possible cost. Insurance reform can make health
care more available for more people. But collectively, these
innovations do what insurance reform could never do—actually make
health care better, faster, cheaper.

Cartoonist Walt Kelley’s character Pogo famously pronounced: “We
have met the enemy and he is us.” But Buddhist teacher Pema Chodron
much less famously pointed out that there is a corollary to Pogo’s
pronouncement: “I have met the friend and he is me.” In health care we
have for a long time been our own worst enemies, each defending our own
turf and way of doing things, often caught in a welter of mixed
incentives that would cross an investment banker’s eyes. In these
disruptive innovations, we can see the million ways we have of becoming
our own best friends.