One of the most common ideas in the whole healthcare financing discussion is a moral one. Why, people say, should my taxes and my healthcare premiums go to take care of the huge medical problems of people who don’t take care of themselves? As one commenter on TheHealthCareBlog.com put it: “…self inflicted injuries to not be covered at all, ideally. If someone drinks their liver away I don’t think we should all have to buy them a new one. Same for smoking.”

This is a common idea, one that seems logical and right on the surface. But there are four assumptions built into it, all four of which have problems:
1) That the “self-inflicted injuries” that people commonly identify (smoking, drinking, other addictions, obesity) actually are major predictors of cost.
2) That we can clearly differentiate “self-inflicted injuries” from other medical problems
3) That to the extent that they are actually “self-inflicted,” the patient could just stop doing them if they just had enough gumption, or enough something.
4) That if our goal is to cut unnecessary medical costs, refusing medical coverage would cut costs.

But each of these four is problematic.
1) The best predictors of medical costs are not smoking, drinking, or obesity, but depression and stress. (“Association Between Health Risks and Medical Expenditures,” http://www.the-hero.org/Research/Studies.htm) So trying to dis-insure “self-inflicted injuries” might miss the target of lowering healthcare costs.

2) Trying to decide what is “self-inflicted” and what is not presents a major problem. A friend has a lifelong condition that gives him excruciating pain. He has struggled manfully (and successfully) against addiction to booze and painkillers to ameliorate his pain. He has always felt bitter toward his father because his father was addicted to booze and painkillers. He recently realized that his condition is genetic, and guessing from some symptoms he observed, realized that his father was fighting the same excruciating pain. His attitude toward his late father changed instantly.

You can easily see other people with addictions and troubles that you don’t have. What you can’t see is what led them to that situation. You may be the very model of the perfect human, with no addictions of any kind, nothing in your life that you don’t want there, and you have never made any mistakes in your life that could have led you down the wrong path. Maybe. But even if you are, who exactly would you want sitting in judgment about which of your medical difficulties are “self-inflicted,” and which are not? Your individual doctor? Or a committee, say? A “death panel?”

3) The idea that people with “self-inflicted” problems such as smoking, drinking too much, other addictions, or obesity could just stop doing them is blatantly, obviously, provably false. And if it is false, then we have no logical or moral basis for refusing to help people who have those problems. Even if they could have avoided those problems by making better choices in the past, it is very difficult to unmake those choices now. They need a lot of help.

4) If your goal is to spend less on these people, making sure they don’t get coverage won’t do it. People with coverage cost the system less than people without coverage. In fact, they cost the system half as much. (http://today.uci.edu/news/2012/02/nr_insurance_120209.php). No matter the source of their problems, self-inflicted or not, it costs less to give people with lots of problems more, smarter, earlier care rather than less — unless your plan is to just take them out and shoot them when they show up in the ER.

So no part of the idea that we can and should reduce healthcare costs by refusing coverage of people with “self-inflicted injuries” is supportable. In the end, it makes no sense.

 By Joe Flower

A reader writes to ask: What about personal responsibility? “I see no movement afoot to require the public to accept or meet norms of behavior that would reduce the need for medical treatment—smoking, excess drinking, use of drugs, over weight, etc. What ever happened to ‘You reap what you sow’?”

Good question. I answered:

Thanks for writing. This is a common concern. It’s often expressed something like, “Why are we paying for all this healthcare for people who won’t take care of themselves?” This seems, at first blush, an obvious question with an obvious answer. After all, as I constantly point out in what you read, vast amounts of healthcare dollars are spent to correct what we might call “self-inflicted lifestyle damage.” Why should the rest of us pay for that? Where is the responsibility?

On inspection, the question is more complex and the answer is not so obvious. Let me try to parse it out. I can think of four related aspects of the question.

1. Their health affects ours. My wife and I had a lovely dinner at a very nice French restaurant on the waterfront here in Sausalito last night. The staff was all French, with those endearing accents. The busboy who set our table, poured the water, took away dirty plates and all that, was Mexican. I talked with him a bit in Spanish about the nice weather. I have no way of knowing his immigration status. Now, if I had my ‘druthers, just as a customer, would I rather that he have good access to healthcare and healthcare advice, be up on his flu vaccinations, be aware of the importance of washing his hands frequently, or would I rather he be a seething mass of communicable disease, compounded by ignorance?

Similarly, why should I wish the best outcomes for the Yakima Valley Farmworkers Collective? Because I drink beer. Ninety percent of the hops in the U.S. come from the Yakima Valley area. Sick and injured farmworkers do not help make hops cheaply and reliably available. In many ways, private health is a public concern. Wanting everyone to be as healthy as possible is not just a nice, charitable feeling. It is a public health concern, as well as an economic concern.

2: Assumptions about will and information. “You reap what you sow” is a very American thought. We like to think that people are completely responsible for their actions, have the ability to change them, and the knowledge that they need to identify what they are doing that is wrong or stupid, and to identify how to correct those actions. And of course in some sense we are, but that sense may not be as universal as we would like to think it is. My wife, Dr. Jennifer Flower, Ph.D., is a psychoanalyst, and we were discussing this just the other night, in the context of an article in the NY Times about Congressman Anthony Weiner. The article asked the question everyone has been asking, “What was he thinking?” They talked to various experts on neurophysiology, compulsive behavior, addictions, and the like, about the changes in the brain and mental patterns that lead to bizarre and obviously stupid behavior like that. That “Jackass” actor presumably knew that getting blind drunk and driving his car at 140 miles an hour was stupid and dangerous and would get him killed. Yet he did it anyway. Repeatedly, to a predictable end. People like that make being on the highway far more dangerous than we would like it to be.

We can now assume that people who smoke have heard that it is bad for them, but many of them don’t really know how they could stop. You and I might think that they should know, but they don’t. Most people who are obese don’t like being obese, don’t know how they got that way, and don’t really see a realistic path to losing all that weight. Again, we might think that we could tell them what to do, but they don’t actually know what to do (and most of the time, we would be wrong about what would actually work).

Assuming that people with behavioral problems could just correct them is not a realistic or fruitful way to frame the thought.

3: Ability to correct behaviors of others. So what do we do to correct those people’s behaviors? History shows us in multiple ways that simply telling them to shape up doesn’t work. Prohibition doesn’t work. Shame doesn’t work. Even good information by itself doesn’t work. The only thing that works is good information, combined with good attention, conveyed in language and modalities that they can hear it, delivered repeatedly by people whom they trust. What it takes is total engagement.

Short of that, changing those folks’ behavior is a pipe dream. The way you and I think they “should” live is completely irrelevant. Our opinions change nothing. “Requiring the public to accept or meet [our] norms of behavior” is a non-starter.

4: Just let them die? What would be the logical result of taking “you reap what you sow” as the driving dictum of the healthcare system? If you have a problem caused by your behavior, you’re on your own. Just suffer and die. This is, in effect, making stupid behavior a criminal offense. Some obviously is, such as drunk driving. But I’m picturing trials before you get treated at all to determine whether your lung cancer came from your smoking or the effluent of the refinery that you lived near; whether your obesity was willful or not.

If we are not going to just tut-tut disapprovingly and cast people who we think caused their own problems out into the cold, then we end up treating them. What’s the cheapest way to treat them? As early as possible. In fact, the absolute cheapest way to treat them is to prevent the behavior from causing a medical problem in the first place, by getting very engaged with them as early as possible, at the primary care level, and in the schools, in the workplace, and in the community. That’s how they essentially ended risky sexual behaviors among gays in San Francisco and across the nation in the late 80s and 90s. There are scores of other examples in the “Healthy Communities” movement.

So the answer to: “Why do we have to pay so much to take care of people who won’t take care of themselves?” turns out to be: Because we have been in denial about the problem. If we truly want to spend as little as possible taking care of bad-behaving people, we need to build better systems for engaging with them earlier, stronger, in their language.

A “nanny state?” What would the Founders do?

By the way, does this sound like a “nanny state”? No, because engaging with the system is still voluntary at every step. It’s a numbers game. There will always be those who can’t or won’t take up the challenge to change their behavior. But it can be clearly shown that you can change the landscape of bad behavior within a population by offering the right kind of help at the right kind of level.

You ask, “Did our founders ever envision a nation that would use the government in the way it has been re: provision of healthcare?” We actually know what the Founders thought. Healthcare of course was a much more primitive matter then, and far less expensive compared to people’s income. But it was a much greater problem for one part of the population that was poor but economically important. So the very first Congress established a single-payer, individual mandate system for them: sailors got a few dollars taken out of their pay every payday; when injured or sick they could go to the sailor’s hospital in any of the young country’s major ports. They took care of the problem.

What would Jesus do?

We also, by the way, have some sense of how Jesus would deal with people who behave badly. When he encountered the accused prostitute, he told her to change her ways: “Go and sin no more.” But first he invited those in the crowd who had never behaved badly to cast the first stone. Then he knelt and began writing in the dust the sins of the crowd, and they melted away. When we are quick to condemn those who behave badly, and try to withdraw our help from them on that basis, this is a lesson worth contemplating. Few of us are as free of bad behaviors throughout our lives as we would like to imagine. Most of us struggle to live a good life. Some of us have had a lot more of a leg up in doing that than others.

So economics, good systems analysis, and a sense of forgiveness at the core all drive us to the same conclusion: The way to drive down costs for people’s unhealthy behavior is not to withdraw services from them, but to get to them earlier with smarter, stronger engagement.

 By Joe Flower

It’s coming back!

The health care reform debate is only through the first round. In a few years, as early as 2013 or 2014, we are likely to see another round, with at least as much whacked-out drama as this one. But the cry will not be, “Bring back the good old days!” The cry will be, “These costs are killing us! Do something! Now!” This next round will be entirely focused on draconian cost-cutting.

The push for reform was about three things: Cost, quality, and access. Well, one out of three is not bad. The bill we got will eventually do a pretty good job on access, but it does little substantive or forceful about the other two. Quality is not a political issue with any grip; despite what we wonks and practitioners know, the public still doesn’t think that quality is a big problem. But cost? Big time.

Look at the trends: Health care inflation continues unchecked (the cost of each item continues to rise faster than general inflation). The Baby Boom is hitting its 60s (I turn 60 this year, and I am a pretty good marker for the pig entering the python), so utilization will rise rapidly – we will each use more health care items, and there are more of us at the age of increasing usage. Obesity and other markers for chronic illness continue their decades-long rise. Medicine is increasingly able to save us from death, but not cure us, meaning we need decades of continuing care that our great-grandparents did not live long enough to need. Meanwhile, even as they have saved themselves from annihilation or even serious government competition, the private health plans have entered a slow “death spiral,” as even those who have insurance increasingly back away from high-cost comprehensive plans in favor of ever-skinnier high-deductible plans. As costs rise, individuals (that is, voters) are more and more personally exposed to those costs, even deferring needed treatment because of costs. The forced inclusion of sick kids (though a great thing) will also add to the costs.

But…but…all those new people!

Full implementation of the act in a few years will bring tens of millions of new rate-payers into the system spreading the cost over more people. But that may actually add to the pressure for cost reform. There are, roughly, three chunks of uninsured. One chunk has been priced out or tossed out because they have a serious health problem. They will certainly welcome coverage. A second chunk is poor or near-poor. They will certainly welcome the subsidies to help them get coverage. The third chunk, though, are not necessarily poor or unemployed. They work for themselves or for an employer who does not offer insurance, and they have made a rational economic decision that the benefits of health insurance are not worth the cost, because they are, for instance, young, healthy, and childless. They are likely to feel dragooned into paying for something that they already decided is not worth it. And the new rules will have a leveling affect: If you can only charge the near-elderly three times what you charge the youngest, those youngest (the ones most likely to feel they don’t need health care coverage) will be paying considerably more than they would have under the old regime.

So the next few years will see a “perfect storm” of factors pushing up the costs of health care – particularly as expressed through private insurance premiums.

Is our political system capable of real cost reform?

That’s a good question. Any way you cut costs cuts into someone’s livelihood and someone else’s gravy train. Nobody thinks of what they are doing is “waste.” Nobody. And much of the public has what Ian Morrison calls a “Pimp My Ride” attitude toward healthcare: Bring on all that magic stuff! Don’t you dare take any away before I get mine!

So the political difficulty is quite real. But the pain felt by the public is also quite real, and will become more real and obvious as the months go by.

What if the Republicans regain power? What if the Democrats lose their majority in the House or the Senate, or lose the White House? That is not really a problem for this scenario: The underlying forces are so great that whoever is in power will have to at least appear to be doing something about the cost of health care. The Republicans will frame it as fixing the mess the Democrats made.

The clash between the public demand for cost reduction and the public demand to “Pimp My Ride” will mean that the cost-cutting legislation will not be shaped as across-the-board, government-imposed cost controls. Instead, it is more likely to be shaped in a complex of measures that allow politicians to take credit for “doing something” about costs while distancing themselves from what is actually being done. The measures would include such things as:

• a Medicare rate commission with teeth, able (like the military base closure commissions of the last decade) to make decisions that can only be overturned by Congress en masse, not piece by piece.
• Mandated bundling: Call it “beyond DRGs” – all common, definable interactions, procedures, goods, and services bundled into packages: A compound fracture of the tibia, an uncomplicated birth, a diabetes care subscription, a medical home.
• Mini-caps: Certain services, especially ones dealing with wellness, prevention, or chronic illness, not only bundled into subscriptions, but priced by the year in a kind of mini-capitation: Well-baby care, diabetes services, pregnancy and birth.
• Common carrier rules: As in transportation and telecommunications, the provider can set whatever prices and offer whatever inducements and discounts and special offers they want, but they must give the same price, the same special deals, to all comers, large or small.
• Real and transparent prices: A prime reason to establish bundling and common carrier rules is simply that you can’t have competition on price and quality if you can’t know what the price is. So put up a menu: Having your baby here costs this much, a cholecystectomy that much, a new knee this other amount, the whole thing, soup to nuts, diagnosis to rehab to drugs to scans.
• Real quality transparency: You also can’t have competition on price and quality if you can’t tell how good the product is. Put up a scoreboard: How many hearts did you do? How many came back to pump? How many infections? Unless you’re Michael Jordan, nobody really likes a scoreboard hanging over their head. But we need scoreboards, or we (individuals, employers, health plans, government) can’t possibly be smart shoppers for healthcare.
• Comparative effectiveness research with teeth: Today, a procedure, drug or device can be reimbursed if it is safe and effective. We may get to a point where a procedure, drug or device can be reimbursed if it is safe and cost-effective. If your elaborate billion-dollar surgical/genomic/interventional/whatever scheme turns out, after a great deal of study and evaluation, to be 5 percent more effective than rest, aspirin, and yoga, the Medicare rate board will say, “That’s nice, but you’re on your own. We’re not going to pay for it.” And private health plans, under that cover, are likely to follow suit. Such schemes will become like cosmetic surgery: legal, perhaps even somewhat common, but paid for by Visa.
• De-tortified malpractice: Now, the only way to be compensated for a medical mistake is to pin the blame on someone, sue, win, and win big enough to give a big chunk to the lawyers. And there is little to no evidence that suing doctors improves their skills. Take malpractice claims out of the tort system altogether into a medical compensation scheme like other countries use, and you will help more wronged patients, run the rare incorrigibly “bad” doctors out of the system, and help the rest improve – at about 10% of the cost of our current system.
• Regional bidding to health authorities: Consider one detail of the Canadian system. The government does not simply say, “Here’s how much we will pay for diabetes services, or long-term care services, or emergency services.” Instead, each province establishes a set of regional health authorities. A metropolitan area may have half a dozen or more. These authorities take bids: Organizations (many of them not-for-profit or religious) step forward and say, “We can provide (for instance) diabetes services for X thousand patients per year for Y dollars, and here is our track record, our quality statistics, our patient satisfaction numbers.” They compete on price and quality. Cost down, quality up. Can the system be gamed? Certainly. But our system comes pre-gamed.

There are probably many other possibilities for fine-grained cost reductions, when the time comes that the public is howling enough for help. For us in the industry, now is the time to get ahead of this curve by figuring out how we can get control of our own processes and drive down our own costs.

In trying to think about the future of health care, thoughtful, intelligent people often ask, “Why can’t we just let the free market operate in health care? That would drive down costs and drive up quality.” They point to the successes of competition in other industries. But their faith is misplaced, for economic reasons that are peculiar to health care.

More “free market” competition could definitely improve the future of health care in certain areas. But the problems of the sector as a whole will not yield to “free market” ideas – never will, never can – for reasons that are ineluctable, that derive from the core nature of the market. We might parse them out into three:

1. True medical demand is wildly variable, random, and absolute. Some people get cancer, others don’t. Some keel over from a heart attack, get shot, or fall off a cliff, others are in and out of hospitals for years before they die.
        Aggregate risk varies by socioeconomic class and age – the older you are, the more likely you are to need medical attention; poor and uneducated people are more likely to get diabetes. Individual risk varies somewhat by lifestyle – people who eat better and exercise have lower risk of some diseases; people who sky dive, ski, or hang out in certain bars have higher risk of trauma.
        But crucially, risk has no relation to ability to pay. A poor person does not suddenly discover an absolute need to buy a new Jaguar, but may well suddenly discover an absolute need for the services of a neurosurgeon, an oncologist, a cancer center, and everything that goes with it. And the need is truly absolute. The demand is literally, “You obtain this or you die.”
2. All demand apes this absolute demand. Medicine is a matter of high skill and enormous knowledge. So doctors, by necessity, act as sellers, and agents of other sellers (hospitals, labs, pharmaceutical companies). Buyers must depend on the judgment of sellers as to what is necessary, or even prudent. The phrase “Doctor’s orders” has a peremptory and absolute flavor.
        For the most part, people do not access health care for fun. Recreational colonoscopies are not big drivers of health care costs. In some cases, such as cosmetic surgery or laser eye corrections, the decision is clearly one the buyer can make. It’s a classic economic decision: “Do I like this enough to pay for it?” But for the most part, people only access health care because they feel they have to. And in most situations, it is difficult for the buyer to differentiate the truly absolute demand (“Do this or you die”) from the optional.
        Often it is difficult even for the doctor to tell the difference. The doctor may be able truthfully to say, “Get this mitral valve replaced or you will die. Soon.” More often, it’s a judgment call, a matter of probabilities, and a matter of quality of life: “You will likely live longer, and suffer less, if you get a new mitral valve, get a new hip, take this statin.
        At the same time the doctor, operating both as seller and effectively as agent for the buyer, is often rewarded for selling more (directly through fees and indirectly through ownership of labs and other services), and is not only not rewarded, but actually punished, for doing less (through the loss of business, the threat of malpractice suits, and punishment for insufficiently justifying coding).
        So the seller is agent for the buyer, the seller is rewarded for doing more and punished for doing less, and neither the buyer nor the seller can easily tell the difference between what is really necessary and what is optional.
        This is especially true because the consequences of the decision are so often separated from the decision. “Eat your broccoli” may actually be a life-or-death demand; maybe you need to eat more vegetables to avoid a heart attack. But you’re not going to die tonight because you pushed the broccoli around the plate and then hid it under the bread.
        So, because it is complex and difficult, and because its consequences are often not immediate and obvious, the buy decision is effectively transferred to the seller. We depend on the seller (the doctor) to tell us what we need. Whether we buy or not usually depends almost solely on whether we trust the doctor and believe what the doctor says.
3. The benefit of medical capacity accrues even to those who do not use it. Imagine a society with no police. Having police benefits you even if you never are the victim of a crime. You benefit from that new bridge even if you never drive over it, because it eases the traffic jams on the roads you do travel, because your customers and employees and co-workers use it, and because development in the whole region benefits from the new bridge.
        This is the infrastructure argument. Every part of health care, from ambulances and emergency room capacity to public health education to mass vaccinations to cutting-edge medical research, benefits the society as a whole, even those who do not use that particular piece. This is true even of those who do not realize that they benefit from it, even of those who deny that they benefit from it. They benefit from having a healthier work force, from keeping epidemics in check, from the increased development that accrues to a region that has good medical capacity – even from the reduction in medical costs brought about by some medical spending, as when a good diabetes program keeps people from having to use the Emergency Room.

All three of these core factors show why health care is not responsive to classic economic supply-and-demand theory, and why the “free market” is not a satisfactory economic model for health care, even if you are otherwise a believer in it.

Answers for the future of health care?

The answer to the first problem, the variability and absolute nature of risk, is clearly to spread the risk over all who share it, even if it is invisible to them. If you drive a car, you must have car insurance, and your gas taxes contribute to maintaining the infrastructure of roads and bridges; if you own a home, you must have fire insurance, and your property taxes pay for the fire department. Because of your ownership and use of these things, you not only must insure yourself against loss, you also must pay part of the infrastructure costs that your use of them occasions. Similarly, all owners and operators of human bodies need to insure against problems that may accrue to their own body, and pay some of the infrastructure costs that their use of that body occasions. However the insurance is structured and paid for, somehow everyone who has a body needs to be insured for it – the cost of the risk must be spread across the population.

Skipping to the third problem, the infrastructure argument, its answer is somewhat similar: To the extent to which health care capacity is infrastructure, like police, fire, ports, highways, and public education, the costs are properly assigned to the society as a whole; they are the type of costs that we normally assign to government, and pay for through taxes, rather than per transaction. In every developed country, including the United States, health care gets large subsidies from government, because it is seen as an infrastructure capacity.

That leaves the second problem, the way in which all demand apes the absolute nature of true demand in health care (“Get this or die”). The answer to this problem is more nuanced, because it is not possible to stop depending on the judgment of physicians. Medical judgment is, in the end, why we have doctors at all. But we can demand that doctors apply not just their own judgment in the moment, but the research and judgment of their profession. This is the argument for evidence-based medicine and comparative effectiveness research. If a knee surgeon wishes to argue that you should have your arthritic knee replaced when, according to the judgment of the profession as a whole, the better answer in your situation is a cortisone shot and gentle daily yoga, the surgeon should have to justify somehow, even if just for the record, why your case is different and special. The physician’s capacity to make a buy decision on your behalf must be restrained at least by the profession’s medical judgment. If the best minds in the profession, publishing in the peer-reviewed literature, have come to the conclusion that a particular procedure is ineffective, unwarranted, or even dangerous, it is reasonable for insurers, public or private, to follow that best medical judgment and stop paying for it.

These three core factors – the absolute and variable nature of health care demand, the complexity of medicine, and the infrastructure-like nature of health care capacity – are all endemic to health care and cannot be separated from it. And all three dictate that health care cannot work as a classic economic response to market demands. Failure to acknowledge these three core factors and structure health care payments around them account for much of the current market’s inability to deliver value. Paying “fee for service,” when the doctor is both the seller and acting as agent for the buyer, and when the doctor is punished for doing less, is a prescription for always doing more, whether “more” delivers more value or not. Paying “fee for service,” unrestrained by any way to make classic value judgments, means that hospitals and medical centers respond to competition by adding capacity and offering more services, whether or not those services are really needed or add value.

For all these reasons, it is vastly more complex to structure a health care market rationally, in a way that delivers real value, than it is to structure any other sector, and simply fostering “free market” competition will not solve the problem.

When the terrorist attacks of 9/11 hit the United States, and suddenly we were plunged into war, first in Afghanistan and then in Iraq, I don’t remember anyone demanding that the wars be “deficit neutral.” No one talked about whether we could afford them. They were things we just had to do. When George W. Bush proposed giving vast sums to rich people in the form of tax cuts, no one argued that it would be “deficit neutral.” Rather, it was argued that cutting taxes wouldn’t bring in less tax revenue at all, it would bring us more tax revenue, because the economy would grow so much faster. And besides, it was somehow terribly urgent, something we just had to do. When the banks tottered and needed to be shored up with taxpayer money to the tune of nearly $1 trillion, there was no way to argue this would be “deficit neutral.” We might get the money back, we might not. Whether we could afford it was not the question, we just had to do it to save the banking system. Similarly, the “Stimulus Bill” was terribly urgent, and something we just had to do, whether we could afford it or not.

Then we come to health care reform, and suddenly, it seems, this is where we draw the line. The president says that health care reform must be “deficit neutral.” It can’t actually cost us anything in tax funds. And everyone nods sagely and argues over how to do this.

Why?

Why is this the one thing that we can only do if we can prove ahead of time that it will not actually cost anything? Our current system costs us an estimated 44,000 lives and impoverishes millions of Americans every year, and causes untold suffering – why is this the one huge national problem that everyone agrees we can’t afford to solve?

(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
programs.

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
industry.

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
market?)

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
stance.

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
useful?

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
care.

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
out.

(by Joe Flower, from TheHealthCareBlog.com)

You want healthcare reform. I want healthcare reform. Grandma Jenkins wants healthcare reform.

What is healthcare reform? What kind of animal are we talking about? How would we recognize it if it came up and bit us? What are its markings, its behavior, its habits?

From observing the systems of other countries, from the results of local experiments and variations in the U.S. system, and from serious research over decades into outcomes and comparative effectiveness, we can actually outline what the marks of a better healthcare system would be.

But healthcare in the United States is a complex adaptive system. If we want to capture it fully, we have to take one step back and revisit what we know about the nature of complex adaptive systems and how that knowledge might apply to reform of this system.

Healthcare is complex. It has many inputs and outputs which operate independently upon one another in multiple overlapping feedback loops. Device manufacturers, for instance, adjust their costs and prices to reimbursement levels, and reimbursement levels are set to prevailing price structures. Preventive diabetes services, such as relatively inexpensive nutrition education, are under-compensated, and so are scarce; this leads to a need for more expensive services such as emergency treatment of diabetic shock and amputations.

All dynamic systems adapt continually. The various players (pharmaceutical companies, providers, health plans, consumers, employers, regulators, politicians) optimize their positions as much as they can with the resources they have access to (mostly money, but also other proxies for money, power, and positional security, such as votes, public sentiment, access to media, and systemic inertia). This is normal. This is how systems work.

This is also why our healthcare system, in almost universal judgment, is so dysfunctional. It has been optimized to the convenience and profit of the players with the greatest resources. All systems are in some sense self-righting: If the pikes eat up all the trout, then the pikes die off; without many pikes around, the trout proliferate until the pikes make a comeback, gorging on the trout. But in this case the healthcare system is dragging down the economy with its expense, and causing enormous personal economic misfortune, bankruptcy, misery, and death in the population. Waiting for it to right itself (or expecting that it will do so before causing ever-widening suffering and destruction) is a mug’s game.

Healthcare as a game

The healthcare industry in the United States is, in game theory terms:

•    Both competitive and cooperative
•    Multi-player
•    Non-zero-sum – you don’t have to make others lose in order to “win”
•    Infinite – with no end point, it is more like the stock market than football or chess

This infinite game has been a reasonably stable system, with each player performing his expected part (though often grumbling that he is not well served) because it has been, in game-theory terms, a near-perfect Nash equilibrium, a kind of strategic gridlock in which no player could benefit from any unilateral change in strategy and, in fact, would usually be punished for it. A doctor who decided unilaterally to spend more time with each patient, a pharmaceutical company which unilaterally lowered its prices, even a hospital which managed to reduce its re-admit rate, or a hospital CEO who decided to forego a shiny new edifice and focused instead on re-engineering processes – all would be punished economically and professionally for doing what we, their ultimate customers, would like them to do.

However, the system is now showing symptoms of increasing instability, as various players perceive that they are doing so poorly at the game that a change in strategy might, in fact, benefit them. This includes doctors who opt out of the insurance payment system or set up “concierge” practices or open urgent-care centers; patients who go to foreign countries for care, buy pharmaceuticals over the Internet, or opt out of the medical system entirely because they can’t afford it; and hospitals like Geisinger who set up their own insurance system, hire doctors, bundle products, and give warranties. Players that show little interest in major new strategies, such as pharmaceutical companies, health plans, and device manufacturers, are signaling that they feel that they are “winning” at the game as currently played – or at least that they feel that they are doing better than they would under any other strategy that they can see. Players attempting to quit the game or change the rules are signs that the game is breaking down.

The local optimization of players in a Nash equilibrium does not mean that the current strategic gridlock is actually the best for all concerned. There might well be some different configuration in which all parties are better off. But they can’t get there from here without some interruption of the system from outside, some influx of new energy (like, for instance, new funding), some new players (like, say, a government-sponsored “safety net” insurance program), some shift in the resources of the existing players (like consumers or employers being given greater information and power to choose).

What seeing health care as a system means

In practical, everyday terms, this point of view – seeing healthcare as a complex adaptive system capable of analysis in terms of game theory – renders some useful observations and rules of thumb for evaluating any possible healthcare reform. They include:

1. You get what you pay for (and the inverse, if you don’t pay for it, you don’t get it). Stick a scoop into the healthcare soup, and you’ll find dozens of examples, but here’s one: Give pay-for-performance (PFP) bonuses for specific measures (number of diabetes patients getting eye exams, for instance) and that measure will improve. Other measures will not improve and may, in fact, decline as resources are shifted to improving the specified measures. The assumption that PFP bonuses will cause a general increase in quality has proven generally unfounded.
2. The Law of Unintended Consequences reigns supreme: To the closest approximation, all the most important consequences of any given scheme will be the unintended ones. Example: Charging customers co-pays. Intended consequence: Cut casual over-utilization, recreational surgeries, whine-on-demand hypochondriacal office visits. Actual consequence: Cut all minor utilization including preventive checkups, pap smears, mammograms and so forth, thereby actually increasing major utilizations for the big things that the checkups didn’t catch; also cause some people to forego truly necessary treatment (chemotherapy, cardiac catheterization) and simply die rather than impoverish their families.
3. Controlling specific costs and utilizations becomes a game of Whack-A-Mole. Example: Control length of stay and other in-patient cost structures, and suddenly you get lots of drive-through surgeries (“You want fries with that hip?”), until those come under control as well. Try to control pharmaceutical costs by refusing to reimburse for over-the-counter drugs, and suddenly there is a prescription version of ibuprofen, same stuff just twice as strong so that it can be reimbursed. This is the adaptive part of a complex adaptive system. The system perceives proscriptive regulation as damage and routes around it.
4. Systemic decisions reflect the needs and desires of the individual decision-makers, not the system as a whole, or even the sectors within the system. If you want to understand hospitals’ strategic plans, for instance, you have to ask yourself how hospital CEOs make a living, what enhances their career prospects and what gives them more prestige and job security. The same is true of pharmaceutical company executives, doctors, health plan executives, consumers, legislators – anyone making a decision. Those needs and desires may line up with the needs of their sector, or with the needs of their customers or payers or constituents, or they may not. If they don’t, the needs of their sector or their community or their customers or constituents become just about perfectly irrelevant.
5. Don’t expect anyone to "do the right thing." They just won’t. It is close enough to the real case to say that they can’t, if they are punished for doing so. So don’t design any part of the system on the assumption that the various actors will do the right thing. Sure, in every profession there are people who swim upstream of the flood of incentives and do what is right by the people they ultimately serve, even to their own detriment. These people are heroes of healthcare. But heroes are rare, and their appearance is unpredictable. Any part of a system designed for heroes to step forward and sacrifice themselves will fail. In aggregate, expect the decision-makers in any sector to act in their own personal best interest.

This lesson has stood out vividly in the current financial crisis: Deregulators felt that bankers and other financiers would regulate their own behavior and do what would be prudent for their institution, their sector, and their customers. Instead, they fairly uniformly did what brought them the biggest salaries, stock options, and bonuses.

However obvious it is to an outsider what "the right thing" should be in another person’s situation, it is not at all obvious to that person. The surgeons doing the thousands of unhelpful spinal fusion surgeries, the doctors ordering the hundreds of thousands of unnecessary images, the health plans cutting off chemotherapy to people whom they have managed to re-define as ineligible – we can come up with lots of psychological and sociological characterizations of their motives. But the simplest explanatory principal is Upton Sinclair’s dictum: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”

There are probably many other rules of thumb that we could list here, but we could start with these. With a systems point of view in mind, we can turn to possible healthcare reforms and ask: What would be the markers of a healthcare system that would truly work?

(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.

Possible: 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.

Cheaper: 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.

The reaction in certain quarters to the healthcare reform provisions of the stimulus bill now clearing Congress lays bare the nature of opposition to the forthcoming fight for real change in healthcare: It will be viciousness at the top of the lungs.  It will be a scorched-earth campaign.  Its main weapon will be fear. It will be unencumbered by any actual knowledge, subtlety, awareness of history, or access to the thoughts of people who actually know what they are talking about.  Its fury will be unloaded not just in service of narrow and inflexible political nostrums, but in the service of sectors of the industry which fear that a truly efficient and effective healthcare system would cripple their profit margins.

The fulminating rages across Rush Limbaugh's radio rants, Matt Drudge's blog, the editorial pages of the Wall Street Journal, and commentaries issued by conservative think tanks, all echoed around the blogosphere. The connections and logical leaps that they consistently make are rather startling to anyone who has been working on the systemic problems of U.S. healthcare for the last few decades. The prime targets of this offensive are comparative effectiveness research, to which the bill allocates $1.1 billion, and help for digitization. The federal government already pours over $300 million per year into comparative effectiveness research – using powerful medical and statistical techniques to determine the most effective and least costly ways to treat disease – through the National Institutes of Health and the Agency for Healthcare Research and Quality. But to Limbaugh and company, actually finding out what works and what doesn't automatically means having committees of government bureaucrats tell your doctor what to do. Research equals socialism. In this frame, digitization, which seemed to work out okay in airport kiosks, grocery stores, and the ATM down at the bank, means something entirely different in healthcare.  It means the end of all medical privacy, all ability to choose, and all security in one's access to healthcare.

The irony is that these folks are all about the free market, about choice, about one of America's great skills, shopping. But Americans, and America, are truly dismal shoppers when it comes to healthcare, because we have no idea what we are buying. Neither we nor our proxies (the government, health plans, employers) have any clue what actually will keep us healthy or cure us, who is really good at it, or what it will really cost. As situations go, this is double-plus ungood.

The really sad irony is that we already have, in our system as it works today, every bad outcome these folks are imagining.  We already have bureaucrats telling the doctors what they can and cannot do, and telling consumers what doctors they can go to, they're just private bureaucrats working for health plans, informed more by the balance sheet than by effectiveness studies. We already have people's private medical records being used to deny them coverage – by everyone except the government.  We already have healthcare rationing, we just do it by ability to pay, by whether you still have a job, and by whether you have been visited by the dread "pre-existing conditions." With our current patchwork of plans tied to employment, many with very high deductibles and co-payments, many subject to rescission when they are most needed, most immune to lawsuit under ERISA, no American under the age of 65 can feel secure in their access to healthcare.

There is a good chance that this toxic brew will be effective.  Comparative effectiveness research in political methodology shows that fear and ignorance are a powerful combination when administered in high enough doses. As the debate over the actual healthcare reform bill moves forward, we can expect massive volumes of this combination to be dumped on the public, and on those of us who have been trying to roll this boulder up the mountain for a long, long time.

(From Hospitals and Health Networks Weekly, January 28, 2009)

Merely covering all Americans in some fashion to pay for the system we have now would fall far short of creating a system that works. In fact, that would take far more than federal legislation, but the legislation can lay the foundation for true and lasting change. What would be the bare bones of legislation that would create a new, better health care system?

A new president and a new Congressional majority, all with a mandate for health care reform. A public crying out for health care reform—and informed by a sentiment that can often best be described as boiling rage at the current payment system. The popular, respected and very ill Senator Ted Kennedy trying from his sickbed to pull together a bill and a coalition of support for a health care reform bill, the measure he has called “the cause of my life.” An economic downturn threatening the jobs and health care coverage of millions of Americans—but especially of baby boomers, most still short of retirement and Medicare age.

It would be hard to imagine a more potent mix for a health care reform bill that would promise universal coverage of some kind or another.

Essential Parts

Beyond universal coverage, there are several must-haves for any legislation brings about a working health care system.

First would be the goals: not only to include all Americans (“more health care”) and to make sure that no one is denied coverage for any reason (“more health care security”), but to nurture higher quality in the system (“better health care”), at lower cost (“cheaper health care”). Not lower inflation; lower cost. Not a little bit lower; a lot lower.

Impossible? Too much to even aim for? Tell that to the dozen or so medically advanced countries that have better health outcomes than the United States does, at half or two-thirds the per capita cost—with or without private health plans. We could do it, and we could do it without draconian measures, without long lines or access problems—if the country and the Congress can stare down the political influence of those who benefit from the extraordinary largesse allowed by the current lack of a real system.

Insurance: Medicare for everyone (why is it “socialist” to pay for health care for people under 65, and not for those over 65?) might be the most efficient way to bring health care to all Americans. Short of that, though, if one goal of a universal coverage plan that embraces private health plans is “health care security,” we will need a strong dose of basic insurance reforms.

For one, we would need penalties for financial rescission. That’s when you run up a lot of health care bills because you have developed cancer, for instance, and suddenly the insurance company decides that there is some mistake, no matter how trivial, on the detailed, 15-page form you filled out years ago when you applied, so you are no longer a customer, and you are responsible for all your medical bills out of your own pocket. A number of district attorneys and attorneys general around the country have labeled this all-too-common practice criminal fraud, and strong penalties for it must be written into federal law.

We would also need to end medical underwriting: Health plans must offer their product to all comers, regardless of “pre-existing conditions,” with rates differing only for age group and geographic location, like car insurance. The logic of true insurance is to create the largest risk pools possible, yet current industry practice is precisely the opposite, to attempt to slice up the pools as narrowly as possible, making insurance unaffordable or impossible to get for precisely those who need it most.

Medical loss ratios could be legally capped at 85 percent; that is, only 15 percent of premiums taken in could be consumed by marketing, processing, profit and other expenses.

Health plans operating under such constraints would not be the vast engines of profit that they are today, but they could contribute considerably to their policy holders’ health care security by guaranteeing coverage, aggregating health care customers and using their buying power to push providers to improve.

Transparency: We need an agency that operates in health care the way the Securities and Exchange Commission is meant to operate in the financial world. Both providers and payers would be required to submit and certify certain types of data, both financial data and medical outcomes data, for public display. It’s a basic rule of management: What gets attention improves. Any improvement in health care must be based on real data about what works and what doesn’t, at what cost.

Digitization and automation: Through a greatly expanded, layered combination of reimbursement incentives, tax credits, loan guarantees, mandates and penalties, the federal rules must drive the industry to digitize and automate. There are rich fields of possible improvements in health care, and most of them depend on digitization, either to implement or to measure. Paper-based health care is opaque to improvement.

Measurement: The same incentives should drive measurement that is as much as possible ubiquitous, automatic and invisible. The same way that the grocery chain where I shop knows what type of wine I favor—through my shopper’s card and purchases, though no one ever asked or wrote it down—providers should be able to discover and analyze every detail of their procedures, to discover what works and what doesn’t.

Evidence-based medicine: It is one of the great mysteries of 21st-century health care why we remain willing to pay for any other kind of medicine. Organizations that have emphasized working from evidence, like Intermountain Health Care, have shown remarkable results.

Eventually, the reimbursement system should pay for what has been shown to work (including so-called alternative therapies and short-term behavioral interventions) and not for what has been shown useless (such as many back surgeries, whose usefulness has been debunked in the peer-reviewed literature). There are mountainous problems with implementing evidence-based medicine as a basis for payment across health care, but any new legislation should push firmly in that direction.

And this is why there is no “Tort reform:” heading here. Malpractice suits are a huge problem in health care largely because there is no other feedback loop enforcing quality. In a context in which providers work in teams, using evidence-based guidelines, standardized practices except where an individual case calls for variation, and digital records that communicate clearly between different providers and documented each decision, malpractice would simply not be the problem it is today.

Stupid events: It was a big step last October when CMS announced that it would no longer pay for “never events,” such as accidentally removing the wrong leg. But there are many procedures done and paid for in health care that may be “medically indicated,” but are just wrong to any common-sense perspective.

For instance, I hear, from people in long-term care of the frail elderly across the country, of a surprising amount of unnecessary, unhelpful, often risky and certainly expensive procedures performed on their patients, such as giving artificial hips or knees to permanently bedridden people of extreme age. It is difficult to see how to write into law a prohibition against paying for such procedures, or how to cleanly differentiate them from what is truly necessary, helpful and worth the risk, but these procedures represent a type of excess that we can no longer afford.

Prevention and primary care: Any comparative study of health care systems shows that a strong primary care system, and a strong system of preventive measures, not only results in better health and saved lives, but save money. We greatly underpay our primary care providers and stint on reimbursement for preventive measures. Increasingly we even discourage insured people (through co-pays and deductibles) from getting their physicals and tests and vaccinations. These trends need to be reversed.

Group services: We reimburse providers only for one-on-one services. Yet for many lifestyle-related conditi
ons (such as obesity, smoking, diabetes or stress), bringing patients together in problem-solving and mutual support sessions, in combination with their usual doctor’s appointments, have proven highly effective. Improved reimbursement rules would reflect this.

Bundled services: Imagine giving one price for, say, an uncomplicated birth, a mitral valve replacement or a diabetes management program, including all necessary tests, diagnostic procedures, therapies and even rehab. Selling such “products” would mean that the buyers (patient, employer, health plan or government) would be paying for what they are actually buying—a properly birthed baby, a fixed knee, a managed case of diabetes—instead of a list of tests, therapy sessions or devices that may or may not be necessary.

Bundled services are not just convenient for the buyer; they represent a major path to rapid improvement for the providers, for this reason: No buyer can judge whether any individual item on the list was necessary or effective. In most cases, though, a buyer can clearly and easily judge whether the whole product worked, whether it did what it was supposed to do.

Not everything in health care has the desired outcome. Health care, in fact, largely consists of narrowly rescuing us from disasters, and it doesn’t always succeed. In fact, eventually it fails—once per person. But it is possible for health care to succeed much more consistently to do the things that it needs to do to guarantee the best possible outcome—including evidence-based medicine, persistent teams, checklists and lean management. Bundled services would not only provide a way for the customer to evaluate the service, they would also force providers into the same kind of serious quality-building work almost every other industry now takes for granted.

“Neo-caps:” Bundled services for chronic care (such as managing diabetes, congestive heart failure or chronic obstructive pulmonary disease) not only provide an opportunity for continuous improvement, they also allow the provider to intervene earlier, and with a broader range of tools, to keep the patient’s health at an optimal level.

Such interventions might include, for instance, behavioral therapy and social interventions to help patients deal with difficult home or life situations that keep them from controlling their disease, or nutritional counseling, cooking classes and even eating clubs to help people learn to change their diet—all far less expensive and difficult to manage than later, acute intervention in the emergency department.

Control of drug prices: It makes little sense for the largest buyer of drugs in the world to refuse to negotiate or control or in any way impact the price of the product. There are plenty of mid-points between mandating prices and simply accepting whatever prices the drug companies demand. For instance, the price the U.S. government pays could be pegged to the average prices negotiated by other major countries such as France, Germany and Canada. At the same time, the prices of some life-saving drugs are now so high that citizens are forced to impoverish themselves in order to fight their disease. That is not right in a free and wealthy country.

R&D: We need (among other things) vigorous detailing of whole classes of drugs, not just the newest and most profitable; research into the effectiveness of hundreds of devices and therapies; and research into and promotion of the use of checklists throughout health care. Most of the most promising areas of possible improvement in health care are simply not being backed with vigorous, impartial research that could affect the system as a whole.

Much of potential for “real health care reform” is down in the nuts and bolts, the gears and sensors and switches. Any health care reform bill will be filled with pages and pages of detail, and much of current law and regulation actually discourages or forbids the kinds of change that we need in health care. Perhaps this time around we can begin to get it right.