[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.

By Joe Flower