(From the July 7, 2009 Hospitals and Health Networks Weekly)

How can we tell what health care "reform" will mean for providers, really, on the ground?

Politicians, the "chattering class," and especially broadcasters
whose income depends on their ratings, tend to frame the debate in
terms of private vs. public, "choice" vs. "the nanny state," the "free
market" vs. "socialism." The realities, as they are embodied in
legislation, fleshed out in regulations and hashed out in the courts,
will be far more mixed, fine-grained and subtle. This is the United
States. We don't tend to do anything with massive, one-size-fits-all

No one central to the 2009 debate has been suggesting a truly
socialist system (which would look like the National Park Service, with
the government owning all providers and putting everyone on government
salary). Even a straight single-payer system (like Medicare for all) is
not getting much interest, or a blanket voucher system like the one
proposed last year, pre-election, by Dr. Ezekiel Emanuel, now President
Obama's White House health care policy adviser. We are in the land of
the politically possible, and that means a mixed and messy reform, with
the devil in the details, in the regulations and in the response of the

How do we evaluate the bits and pieces of reform? What would be the
markers that will help us plan our strategies for the coming years?
Let's take a look.

Public or Private Coverage?

If there is a public alternative, and the tax-free status of private
benefits is limited or ended, that public alternative will not be
merely the refuge of those who are now uninsured. Instead, we are
likely to see a large-scale movement to the public plan over the next
several years, with some employers simply canceling coverage and others
subsidizing employees' movement to the public plan. The movement might
well be so large as to spell the end of the private health plan market
as we know it today, with most plans losing most members and becoming
niche players.

Could health plans escape this fate? Yes, they could, but there are several big "ifs," such as:

  • if private benefits maintain their tax-free status;
  • if private plans are mandated to take all comers, ending medical underwriting even on individual plans;
  • if federal law and regulations crack down on the flagrant rescission of health plans on customers who incur big bills;
  • if they also crack down on the health plans' common failure to pay
    bills even when the plan member has obtained written prior
    authorization; and
  • if the law changes to hold health plans liable for interfering in
    medical decisions that result in a bad outcome (as they are often not
    liable under current ERISA rules).

With these changes, it is likely that health plans could regain the
trust of the marketplace and a good working relationship with
providers. If they become the executors of the public plan (as they are
for the Federal Employee Health Benefit Program, often held up as a
model for a "public option"), they may actually gain market share.

Under either of these scenarios—health plans withering away or being
reformed—providers can expect a better insurance relationship, fewer
unpaid bills and more rapid payment.

Implications of Universality

Any kind of universal coverage will be some kind of rescue for
providers. Both hospitals and doctors will be able to find ways to get
paid for serving the "medically indigent" most of the time.

At the same time (as we saw recently in Massachusetts), universal
coverage will bring about a severe shortage in the primary market. But
a shortage is also a market opportunity, one that will benefit
efficient models. Expect a tide of business for community clinics,
urgent care clinics, parish outreach programs, preventive care and
classes, as well as primary care practices that can add hours with the
help of nurse practitioners, physician assistants and other clinicians.

The two key questions are: Will the reform legislation and
regulations provide the income streams to support these wider models?
And will providers find ways to use digitization and new management
techniques to streamline their processes, so that these wider models
are efficient and practical?

How "Skinny"?

On the other hand, if we get to universal coverage through mandated
public or private "skinny" plans (narrow coverage with high deductibles
and high co-pays), with no special provisions for primary and
preventive care, we can expect little change on the ground, except for
a moderate alleviation of the "Accounts Receivable" line of the
quarterly report. The same trends of the past few years will continue
to grow: more people avoiding primary and preventive care, showing up
on our doorstep only as a last resort; more chronic disease; mounting
costs; more suffering; shortened lives.

Specialties or Primary?

If we see new or fattened income streams for primary care and
prevention, will those income streams be at the expense of specialists?
Specialists are already claiming that the sky will fall if their income
is restrained at all. Yet "doing too much," including overuse of
specialists and specialists' procedures, is the basic description of
the huge regional cost differences shown in the Dartmouth Group studies
for the past decade and more. And of course, the sky is already falling
on primary care.

Internecine squabbling of just this sort kept physicians from having
a strong voice in the reform debate during the Clinton years. This
time, the fighting over income has become political. It will extend
well beyond the votes in the Senate and House, and we have no way of
knowing its eventual outcome. But over the past few decades, the income
levels of different medical specialties have diverged radically, with
all primary disciplines occupying the bottom rungs—even while
comparative studies of different national systems have shown that
strong primary care is the basis of an efficient and effective,
lower-cost system. The reform year 2009 may prove to be a hinge point
in those long-term trends.

Many hospitals have built their strategic programs largely around
these relatively well-compensated and lightly regulated specialty
services. If primary care is fattened at the expense of specialties,
hospitals may have to rethink and rebalance those strategic priorities.

Who Sets the Rate?

Any public option will instantly be the second giant in the room,
after Medicare. Perhaps the single most important question for
providers will be: Where is the negotiating authority? Will the public
entity set rates, the way states do for Medicaid? Will there be an
advisory commission, along with complicated algorithms derived from
"prevailing rates," as there is for Medicare? (And what would the
"prevailing rate" be if the public option comes to own most of the

Will the "public option" be just a financing mechanism, a market
(like the Federal Employees Health Benefit Program), operated through
private plans, each of which negotiates rates with providers?

Will rates be made public? Will all health care providers in a given
region negotiate together, or does each provider negotiate separately?
Will the negotiation be on price alone? Or on both price and markers
for quality? Each of these possibilities suggests a different strategic

Clearly, if the rates are simply mandated in any blanket fashion,
and if they are set at today's Medicare or even Medicaid rates,
providers will suffer. But they will suffer so much and so
obviously—many would be bankrupt in six months—that it is hard to
imagine that so draconian a system would be implemented (or, being
implemented, would not soon be corrected).

On the other hand, if the negotiating mechanism allows for any kind
of real competition between providers for the best results at the
lowest price, we will witness a sea change among providers. For their
own survival, providers will constantly re-examine their processes to
find ways to do things better, faster and cheaper. We will enter an era
of rapid improvement and moderating, even dropping, costs, even while
providers thrive.

Where Are the Teeth in Comparative Effectiveness?

The ARRA (the American Recovery and Reinvestment Act of 2009, or
"stimulus bill"), increased annual spending on comparative
effectiveness from $300 million to $1 billion. Americans are great at
shopping—for everything but health care. It would be nice to know which
procedures and protocols actually work, in the real world, and which
aren't worth the money we lavish on them, especially since all analyses
of cost show a great deal of overutilization in the system—hundreds of
millions of dollars in unnecessary imaging, thousands of spinal fusion
operations for chronic back pain, mitral valve replacements in patients
too frail to support them, and on and on.

But comparative effectiveness studies, so far, have been mostly
advisory, and doctors whose favorite technique is declared superfluous
have a way of ignoring them. Reformers in the administration and
Congress have been asking an uncomfortable question: Whether through
private plans or public ones, why should we pay huge sums for
operations and other procedures that the most imminent worthies of the
medical profession have found to be unnecessary, unhelpful and not

This has been coded in the political discussion as "choice," and it
has bloggers and talk show hosts apoplectic. All Americans want
choice—they want to be able to choose their doctors, and participate
freely in medical decisions. But the proponents of "choice" don't
really mean that, since there are no plans that would deprive Americans
of that kind of choice. The "choice" they mean is the doctor's ability
to get paid for any therapy or procedure, no matter how invasive or
expensive, even if a study group of fellow physicians at the National
Institutes of Medicine has found that it is useless.

So the key question here is not whether we will see more
"comparative effectiveness" studies, but how the information will be
used. If it is encoded into evidence-based guidelines, and if these
guidelines become the basis of reimbursement, then the studies will
become a huge battleground, an ongoing circus of lobbying pressure and
lawsuits to skew studies one way or another, to re-interpret the
results, and to carve out exceptions and re-definitions. As a result,
we can expect instability in the market for some procedures, as some
major sources of income go "off the list" for the public option, or
Medicare, or both, and as private insurers follow the government's lead.

How Is the Digitization Market Run?

Most of health care is still run on paper; most of health care is
still in the process of digitizing. The ARRA allocated $2 billion to
build infrastructure and promised an estimated $34 billion in extra
reimbursements to encourage digitization. So there will be a surge in
the market for the enterprise hardware and software to digitize health

Great. But what are the rules? This could go two ways:

Option 1: The government tells competing software and hardware firms
to apply for certification of whole systems, a government imprimatur
much like the current FDA certification of devices. This would, by its
nature (and judging by the example of other FDA certifying processes),
be slow, cumbersome and expensive.

Option 2: The government sets standards, then gets out of the way.
Standard file formats that would allow one vendor's system to talk to
another's already exist, developed by the industry. Any system that
follows those standards and a few basic tests for reliability,
security, privacy and accountability should be allowed to enter the
market. Not meeting such standards, including complete data
transparency with all other health care data systems, would disqualify
the provider using the system from any kind of subsidy or additional
reimbursement meant to support digitization.

(This is the way computers and music players and smart phones work
now: Any player that can play an MP3 and any photo program that can
read JPGs and TIFFs can enter the market and compete for customers. I
can e-mail anyone with an e-mail address, no matter what kind of
computer he or she uses. Properly coded Web pages built to strict
standards can be viewed on any computer, in fact any browser, or even
on a cell phone or a reader for the blind. The true barriers to data
transparency across health care are commercial, not technical.)

If the regulations look more like Option 1, we can expect little
disruptive innovation, slow development, ongoing difficulty in
translation between competing vendors, continuing high prices, and a
market that will still be dominated by the current major players. If
they look more like Option 2, we can expect something more like the
personal computer and consumer electronics markets: rapid development,
disruptive technologies, falling prices and many new players. Option 1
would be better for the established players, Option 2 better for
everyone else.

There is room for hope in this political season, and room for
cynicism. We prepare ourselves equally for relief and for despair. The
health care system could truly become a system; health care could
actually become higher quality, less expensive and available to
everyone. Or not: It could go on being designed for the comfort zone of
the biggest money players at the table. We cannot know which from the
headlines, but know it only as we see how each of these details plays