The Healthy Debate - Moderated by Dr. Jeff Bauer

Conceptual Art and the Future of Health Care?

2011-03-01T15:01:00.009-06:00

The third function listed on my new business card is conceptual artist. (The card includes a "zoom" from one of the embryonic paintings in my new series, Ham & Swiss on Rye; full image below.) So, what is conceptual art, and how does it relate to health futurism and medical economics?

Sol Lewitt, one of conceptualism's pioneers, provided a classic definition: "In conceptual art, the idea or concept is the most important aspect of the work. When an artist uses a conceptual form of art...all of the planning and decisions are made beforehand and...the idea becomes a machine that makes the art." It is self-executing art, which in painting means that the fundamental creative activity occurs before the artist starts putting pigment on canvas.

Early conceptual artists rejected traditions of painting and galleries. For example, many created wall-mounted works from words, rather than visual images, and others used unconventional materials to actualize new ideas and explore different ways of seeing the world around them (e.g., happenings, installations, earth sculpture). Conceptual art took root in the late 1960s, when I was a student at Colorado College, a great little liberal arts school that brought many of the movement's leaders to campus. I was so busy with studies in basic and social sciences that I never had time to try the creative techniques that the visiting artists discussed in lectures and shows I attended.

My artistic interests lay dormant for many years until my Kellogg Fellowship mentor, Ben Barker, inspired me to do something innovative with the opportunity provided by the program. With his support, I abandoned my original fellowship project -- a study of urban medical centers' impact on rural health -- and began learning to paint. The other fellows presented papers on their academic research projects at the end of our three-year program, but I displayed a dozen paintings and explained how immersion in art had opened my mind to creative thinking. The experience profoundly changed my approach to the future of health care...and life. Thank you, Dr. Barker!

In the process of becoming a conceptual artist over the past three decades, I have learned that a pre-determined process can lead to unexpected discovery and improvement. I have also learned how artists see the world as a realm of possibilities that can be organized in many different, aesthetically defensible ways. Now, in the process of returning to self-employment, I am trying to apply this same artistic inspiration to my work as a health futurist and medical economist -- while preparing 30 paintings for a gallery show this spring. Our existing health care system is not a pretty picture, so why not approach health reform with the creative vision of a conceptual artist? What would good health look care look like, and how can we create it?

Empty Storefronts and the Price of Health Care

2011-02-24T09:03:00.000-06:00

My work as a conceptual artist (next week's post) gives me quality time to think about the future of health care and medical economics (last two posts) while painting. Juxtaposing images and colors on a canvas opens my mind to synthesized thinking about health care, too. Here's how it happened this Tuesday...

I went out for coffee with a friend and neighbor who works in commercial real estate. It being municipal election day, we discussed the daunting challenges confronting our new mayor. Chicago has serious economic problems that are visible in many ways, including a growing number of empty storefronts in the neighborhood where we live. My friend has specialized in leases for small businesses in the area for the past 20 years, so I asked him about prospects for filling the empty retail spaces in Lincoln Park.

His answer was disturbing. Historically, the most common client for smaller stores along the major streets has been an entrepreneur who takes out a second mortgage to create a "mom and pop" business -- a jewelry store, small restaurant, art gallery, clothing outlet, specialty book shop, wine or cheese store, neighborhood gym, etc. The crisis in housing has effectively shut down financing via second mortgages, which means no start-up capital for small business entrepreneurs, which means the store fronts will stay empty for the foreseeable future, etc.

I know a few small retail property owners, and yesterday's coffee talk led me to thinking about something they have had in common with health care proprietors. For landlords, commercial tenants have always come and gone, but empty space was not a long-term problem because money was available to support replacement businesses...until now. For the first time, retail property owners cannot count on new entrepreneurs to fill empty space. Small business owners don't have their traditional access to start-up financing, and their customers cannot pay higher prices due to stagnant incomes. Landlords have only one obvious way to fill empty properties now -- lowering the rent for retail space, perhaps a lot.

For decades, health care enterprises could turn to insurance companies to keep their businesses going. Third-party payers passed expenses along to employers, who absorbed most of the added costs and passed some of the increase along to workers....until now. Global economic problems in general and domestic unemployment in particular are health care's equivalent of disappearing second mortgages. Disposable consumer income is very hard to find. How will health care businesses keep their doors open when consumers don't have any more money to pay rising costs of health care? I see one obvious way -- lowering the price for medical services, perhaps a lot. I can't see a pretty picture emerging for providers that fail to reduce costs and pass the savings along to payers, purchasers, and patients as lower prices. I think the Affordable Care Act is a misnomer; it doesn't help solve the problem of keeping providers in business. What do you think?

What Is a Medical Economist?

2011-02-16T15:41:00.001-06:00

Economists are a diverse lot, focusing on everything from international trade and currency exchange rates to single industries and production processes. Macro-economists focus on "big picture" phenomena like national income and employment, the money supply, and government economic policies. Globalization is literally turning their world upside down. The economic theories and models they learned in graduate school don't apply any more, so macro-economists are struggling to find new policies that will produce desired outcomes in international marketplaces.

Micro-economists, on the other hand, study resource allocation and productions processes at the level of specific industries -- including health care. A medical economist with graduate training should have the skills to study the flow of goods and services through a medical enterprise (hospital, medical group, drug company, health plan, etc.) and to identify changes that would reduce costs of production, improve quality of output, or otherwise enhance productivity of workers, equipment, and capital. A good medical economist can easily find wasted resources in the health care delivery system and then develop ways to put them to more productive use.

Medical economists should be busily at work in today's health care organizations because resources for medical services are becoming very scarce. Patients and their traditional third-party payers simply don't have any more money to pay for care. The health sector is finally hitting a budget constraint. It is no longer "different" from other sectors of the economy, so conventional economic analysis is now applicable to solving the serious problems on one of our economy's most inefficient and ineffective sectors.

When called upon to apply their analytical and problem-solving skills, medical economists can be very valuable members of clinician-led, multi-disciplinary teams with responsibility and authority to make sure that medical services are provided correctly all the time, as inexpensively as possible. I would never expect a medical economist to solve health care's problems single-handedly, but neither would I expect the problems to be solved without appropriate input from one.

Unfortunately, medical economists have tended to concentrate their efforts on a macro-economic issue, health care's rising consumption of the gross domestic product (GDP). This narrow focus makes me think of many medical economists as Chicken Littles who loudly proclaim that the sky is falling without taking time to understand what's really happening. My health sector friends in Europe have come to the same conclusion. They note that the U.S. has far more medical economists than any other country (by at least a factor of ten, I'll bet), yet it has one of the developed world's most unproductive health care delivery systems. I think that the health of our economy and our residents would be a whole lot better off if medical economists would quit talking about health care's rising costs and start doing something about it instead. What do you think?

What is a health futurist?

2011-02-08T13:00:00.001-06:00

My ongoing transition from corporate VP to self-employment is posing several challenges, including the need to design a new business card. I decided to list three functional roles after my name rather than an executive title -- generating the next three blog posts because each function deserves an explanation. My primary professional self-identity is being a health futurist, so just what does that mean?

Ever since serving as the Colorado Governor's health policy adviser back in the 1980s, I've purposefully analyzed the five trends that I believe are most likely to shape health care delivery over two to five years. I decided to follow only the top five trends because they account for at least 80% of the changes that ultimately occur, and organizations and their leaders rarely have the capacity to deal with more than a handful of challenges at a time. I selected the 2-5 year horizon because it's the time frame within which strategic decisions can be made and implemented. It gives a sense of immediacy for actions that need to be taken while outcomes can still be influenced. (Whether organizations actually take timely steps to shape their futures is a separate challenge that I generally leave to colleagues with expertise in organizational change.)

I also believe a health futurist should forecast the future, not predict it. Predictions are statements of what will happen and when, such as health care spending will hit 20% of GDP in 2015. Predictions assume continuation of trends that shaped the future in the past -- an absurdity in today's uncertain world because health care is being transformed by a revolution in clinical knowledge, unprecedented progress in communications and information technologies, and dramatic redistribution of financial responsibility in the medical marketplace.

Forecasts are estimates of the probabilities of possibilities, such as the likelihood that health care spending as a % of GDP in 2015 will be more, the same, or less than it is now. (My current forecast for these possibilities is 20%, 60%, and 20%.) The health futurist as forecaster is responsible for identifying the circumstances that could lead to each possibility and recommending interventions that could reasonably be expected to increase the probability of desired outcomes.

To me, being a health futurist is fun when motivated by a strong belief that progress can come from creative, purposeful responses to anticipated changes. Forecast-based futurism sure beats the alternative of trying to cope with rigid, prediction-driven "reforms" like HITECH and PPACA. I think we in the business can do better than the politicians, which is why my role as a health futurist is pondering the realm of the possible and suggesting options to create a variety of really good medical systems. How do you approach the future of health care? Are you having fun yet?

Did the Fat Lady Just Sing in "ObamaCare," the Opera?

2011-02-01T12:22:00.001-06:00

Being a big fan of Wagnerian opera, I readily relate to the common saying that it isn't over until the fat lady sings. Yesterday's action by U.S. District Judge Vinson has already generated more than one comment that the drama of ObamaCare is in its final scene, but I disagree. We've still got lengthy acts to endure. The legal denouement must still be determined by the Supreme Court, which apparently will not act any sooner than next year. I am not qualified to second-guess the high court, but my reading of expert commentaries suggests that consensus within the legal community has shifted from strong belief in constitutionality a year ago toward considerable uncertainty -- even reasonable doubt -- today. This opera has never been produced before, and its ending is yet to be written.

To borrow a thought from director Peter Sellars, ObamaCare really is a "mess worthy of an opera." (Sellars collaborated with composer John Adams in "Doctor Atomic" and "Nixon in China," two excellent operas based on political history.) Health reform has a rich plot with several levels of conflicting action. A president pushes a major project that is inconsistent with his historical personality and arguably a diversion from more pressing issues of the time. The fated turn of events leads to unexpected outcomes that are both good and bad, etc. I won't be surprised if "ObamaCare" is produced someday at the Met (whose excellent HD production of "Nixon in China" is coming to a theater near you on February 12).

Will this new opera be a tragedy? A farce? Sadly, I expect it will be a bit of both, and the Supreme Court decision will be only one of several forces represented on the stage when the final curtain falls. Health reform's lack of coherence will figure prominently in the finale; the plot didn't make sense from the beginning. Above all, a dysfunctional economy -- the ominous threat that should have been dispatched in the first act -- will turn out to be the villain that prevents a happy ending. The chorus representing patients, providers, and payers will be expressing their dismay that things did not work out as hoped or planned.

Like Wagner's Ring cycle, the saga of reform will continue. Even if the Supreme Court puts an end to ObamaCare, the U.S. still won't have an efficient and effective medical economy. We must continue waiting for the fat lady's stirring pronouncement of health care Valhalla. What other operas might help us understand the mess we are in and how to get out of it?

The Outlook for 2011 in Health Care

2011-01-11T16:48:00.000-06:00

Today's date, 1/11/11, suggests a contrived approach to blogging about the New Year -- like predicting the one big change to expect or the top eleven predictions for 2011. However, my crystal ball view for this year is not precise or symmetrical. It is very cloudy. In my 40+ years of full-time work in this business, I have never been more uncertain about the near-term future. Health care could go in several different directions this year, and it almost certainly will. We need to be prepared for the simultaneous occurrence of seemingly contradictory outcomes. One of my favorite Oriental sayings sums it up nicely: "Things are not as they seem, nor are they otherwise."

If you are likewise confused in your own thoughts about the immediate future, I believe you understand what's going on. Nothing makes sense. Health care's leaders do not have a roadmap to follow because there's no consensus on where we want to go and how to get there. The country does not have any identifiable leaders who have a persuasive vision and the power to move the health system in a clear direction this year, and I certainly do not see any political or economic forces that suggest rational convergence is on the horizon. Rather, I foresee unraveling (but not repeal) of the health reform laws due to shortfalls in appropriations, plus exemptions from the laws to the point that exceptions will be the rule. And the annual increase in health spending -- down to 4% last year -- will fall even further due to serious structural problems in the economy. We are approaching zero growth in the medical sector. The underlying problems are likely to be solved in the long-run, but not in 2011. The wild card is constitutionality of the health reform laws.

My perspective on the future is undeniably shaped by formal training in economics, with its theoretical assumption that the "higgle and joggle" of the marketplace will move us toward desirable equilibrium. The philosophical question that divides economists is how much the process should be managed by government vs. how much it should be left to the "invisible hand." Because our political system is broken, I think that providers, payers, and purchasers need to lead the way in setting the nation on a better course and reallocating resources to move us in the right direction. My crystal ball doesn't suggest that this will likely happen in the next 12 months. I hope I'm wrong. Yet, as another Oriental sage once said, "Surely, we will end up where we are headed if we do not change direction." Can anything be done to start pushing us in a good direction in 2011?

Forecast and Resolution for the New Decade

2011-01-04T12:41:00.006-06:00

The infosphere has been full of predictions and resolutions for 2011, befitting the start of a new year. Curiously, I've seen nothing to recognize the simultaneous arrival of a new decade. The ten year horizon is much more interesting to me as a futurist, so here are my initial forecast and resolution for the new decade in health care.

The first task is naming the decade. I propose "Crisis Teens," using crisis in the medical sense of a turning point where a life-threatening problem can get better or worse. If the health care system in the U.S. were a patient, it would be in the critical care unit with a diagnosis of systemic failure and an uncertain prognosis. The latest therapy (2010 health reform) isn't offering any realistic hope to improve the nation's health, and changes in the underlying circumstances of 2011 (Republican control of the House, legal challenges to the reform laws, increasing income disparity) suggest a strong possibility that the therapy will be withdrawn. With no miracle cure on the horizon, the outlook for health care is uncertain at best and gloomy at worst.

This is not necessarily bad news. Uncertainty can offer hope because it means that outcomes are not predestined. Thoughtful, purposeful responses to anticipated changes can make a difference. Consequently, my forecast for the coming decade is a range of outcomes (that is, successes and failures). Many health care organizations -- particularly progressive, open-minded partnerships of providers, payers, and purchasers that recognize the need to work together -- will develop successful responses to the new circumstances. Comparable numbers of organizations will either fail because they are not capable of adapting to new circumstances or will survive, barely.

For organizations desiring success, I propose the following New Decade's Resolution: to design an integrated health system that works, and then build it sooner rather than later. Health systems with a good future will generally adopt a creative "do-it-yourself, now" approach that recognizes the enormous risks of waiting for politicians to find a viable solution later.

If anyone has a better suggestion than "Crisis Teens" to characterize the new decade -- or a different interpretation of the circumstances that will define it -- please reply with a comment. (While you are at it, the past decade still needs a name. The best suggestions I've seen so far are the "naughts" or the decade of "lost opportunities," and both explain the mess we are in today.) I know from my first career as a weatherman that the best forecasts emerge from open discussions leading to clarification and even consensus. A healthy debate is the key to a better understanding of the future and what we can do about it. What are your forecasts and resolutions for health care in the new decade?

Season's Greetings!

2010-12-15T14:40:00.000-06:00

I'm on vacation through the end of the year. May all you readers have great holidays and a satisfying 2011!

Clarification: Black Clouds Can Have Silver Linings

2010-12-07T11:57:00.000-06:00

Two health care executives contacted me personally over the past week to ask if they should throw in the towel. They were impressed and, therefore, depressed by my analysis in the two previous posts to this blog. I am pleased to report that they may have overreacted to the generally gloomy outlook I presented. A clarification is due—especially with respect to the likelihood of receiving HITECH incentive payments as a meaningful user.

Their misinterpretation related to my view that the expected value of HITECH subsidies is considerably less than 50% of the amount (approximately 30 billion dollars) that Congress appropriated for the program under ARRA. This outlook, shared by at least a few other experts, does not mean that a qualifying provider will receive less than 50% of the amount to which his or her organization is eligible. Qualifying as a meaningful user of certified technology is an all-or-nothing proposition. A provider meeting all of the criteria will almost certainly receive all of the incentive payments.

The slight hedge in the previous sentence allows for the very remote possibility that a future Congress will not appropriate funds as authorized by the law. However, assuming no changes in the law, providers who fall short of meeting all the criteria will get nothing. “Close, but no cigar,” as the saying goes. Congressional staff analysis of the program prior to its passage actually allowed for the possibility that total HITECH expenditures could be less than half the authorized amount. My forecast isn’t as contrarian as it might seem.

The silver lining in the big black cloud is something more than the good news that some organizations will likely get millions of dollars in incentive payments. Rather, it’s my belief in the economic concept of creative destruction. In response to expectations of problems ahead, progressive enterprises discard their old business models and build a better mousetrap—an unending process because evolution will subsequently produce a better mouse.

The silver linings in the black clouds are the new business models developed by providers, payers, purchasers, and their business partners to prepare them for emerging from turbulent times with different, better approaches to producing health care. Many of today’s enterprises will be swept away by the perfect storm that is brewing, but future-focused survivors will transform the medical marketplace in exciting ways. Qualifying for HITECH is not a strategic precondition for their success.

Reform Outlook: State and Local Differences

2010-11-30T16:01:00.003-06:00

Last week’s blog post addressed the possibility of differences between what the health reform laws promise and what they will ultimately deliver. I argued that the probability of reform evolving as enacted is considerably less than 100%. This forecast is not uniformly negative. I expect somewhat less than half of the authorized expenditures will be disbursed over time, yet some beneficiaries could actually receive all that the laws have promised (while some others get nothing). Separate from the national perspective, who gets what and where the benefits are realized will be determined by two significant factors—state politics and local economic conditions.

Substantial implementation powers are delegated to state governments, and states are responding in very different ways. At one extreme, voters in three states have passed referenda that effectively prevent their states from implementing the federal laws. Attorneys General in approximately 20 states are pursuing constitutional challenges that would, if successful, make ObamaCare a moot point. At the other extreme, several states are moving full-speed ahead to implement the powers delegated to them, such as creation of insurance exchanges to facilitate purchase of mandated insurance by 2014. The ultimate impact of the federal reform laws in a state that has opted out of reform will obviously be very different from the impact in a state that is pursuing full participation.

State and local differences in economic circumstances will also have a major influence on reform’s ultimate payoff, most notably in the adoption of Medicaid as a vehicle for expanding coverage. Many states will not have the funds or the desire to meet their long-term obligations for enrolling patients in Medicaid, which will cause the projected number of insured patients to fall short of expectations. In addition, the number of patients insured by employers will depend on the strength of local economies. Reforms’ projections of reducing the portion of uninsured Americans from 17% in 2010 to 6% by 2018 are based on economic forecasts that are widely believed to be overoptimistic for the country as a whole, but actual results will vary substantially by locality.

If you are confused by this analysis, you understand the situation. It is confusing. The health reform laws of 2010 embody incredible complexity due to the politics of getting them passed at all. They are not the result of a rational, methodical, non-partisan process to solve a well-defined problem. The latest reform laws are based on so many assumptions and other “guesstimates” that their outcome is literally unpredictable, and the resulting uncertainty needs to be adjusted for significant differences at the state and local levels. How do you think reform will play out in your neck of the woods? In your opinion, how much does location matter?

Expected Value of HITECH and Health Reform

2010-11-23T10:39:00.003-06:00

Am I the only one who seriously doubts that the health laws of 2009 and 2010 will be implemented as enacted? Lots of people seem to assume that reform dollars are “money in the bank.” For example, a major bond rating agency recently suggested that financially troubled hospitals will see a major turnaround in 2014 when they get a windfall from mandatory health insurance. Another well-known organization just upgraded its industry outlook on the premise that HITECH will start pumping tens of billions of dollars into hospitals’ and doctors’ coffers next year. And anti-trust regulators are concerned that providers will increase profits by becoming accountable care organizations in accord with the Affordable Care Act.

I think the optimistic outlook is a case of counting chickens before the eggs have hatched. Republicans control of the House Ways & Means Committee for the next two years surely diminishes the likelihood that Congress will appropriate all monies authorized by the reform laws, and the emerging consensus on HITECH suggests that the number of providers qualifying as meaningful users will be far smaller than originally expected. A dismal economic outlook still raises doubts about consumers’ abilities to purchase mandated insurance in 2014, or even to pay their rapidly increasing share of health care bills in the interim. In addition, states have almost no capacity to finance the reforms that are delegated to them.

The overall situation immediately brings to mind an important concept from economics and business—expected value. It is the probability-weighted estimate of future returns, derived from a careful analysis of factors that could cause value over time to be less than expected under the ceteris paribus assumption (i.e., all other things being equal). Expected value analysis adjusts an income stream for the probabilities that actual events won’t evolve in accord with original expectations.

To me, the recent shift in political power and the economic outlook suggest that the probability of reform evolving as enacted is considerably less than 100%. I am not sure what the actual discount should be, but I am certain that providers and payers will not ultimately receive all the money that the laws would allow. To launch discussion, I’ll suggest that the expected value of reforms’ authorized infusions of cash should be discounted at least 50%. What discount would you use? I also believe that health care enterprises must immediately take steps to make up the difference by becoming efficient and effective—learning how to produce their services at an acceptable and accountable level of quality, as inexpensively as possible. (I optimistically believe it can be done!) Has anyone got a better idea?

What If My Forecast Is Wrong?

2010-11-16T09:15:00.003-06:00

Because I was a weatherman before becoming a health futurist, I am accustomed to questions about consequences if a forecast completely misses the mark. Getting wet is the worst that might happen if it rains on a day expected to be clear, but health care executives don’t want to go to all the trouble of preparing for a storm if I am wrong in my current 80% expectation that health care will be battered by economic tempests for at least two more years. (Admittedly, this forecast can alternatively be interpreted as a 20% possibility of desirable conditions, such as rapid economic recovery or unexpected support for increased federal health spending in a Republican-controlled House.)

Refusing to fall into the proverbial trap of talking about the weather but doing nothing about it, I have been clearly suggesting how health care’s executives and caregivers should prepare for a perfect economic storm. The essential keys to battening down the hatches are rapid, enterprise-wide adoption of IT-based performance improvement processes and long-term, multi-stakeholder partnerships for capturing wasted resources and reallocating them to activities that produce more health per dollar already being spent.

Providers and purchasers must implement pervasive business processes that identify unexplained variations from expected performance and then make sure the deviations don’t happen again. This is harsh medicine for an industry that has been free to operate for 50 years without budget constraints or direct performance monitoring. Nevertheless, I believe that brutal economic restructuring—not rational health reform—is putting an end to the medical economy’s halcyon era.

So, what if my forecast is wrong? What if medical expenditures actually do rise from 17% of GDP in 2010 to 20% by 2015 as other experts have predicted? Should decision-makers breathe a sigh of relief and plan to carry on with business as usual? I certainly don’t think so, but neither did the leaders of several dozen integrated health care systems that decided to become accountable for consistently good performance long before an intractable economic downturn was on anyone’s radar. The success of these game-changing systems ought to suggest a new and different path for tradition-bound providers and payers.

Besides, health professionals should be working to create the best health care system that 17% of GDP can buy, even if I believed we’d see nothing but blue skies from now on! In the very unlikely event that the economy turns around early next year and House Republicans decide to increase health spending, shouldn’t our top priority still be to do health care right all the time, as inexpensively as possible? In other words, providers and payers should be making the same changes, whether my forecast is right or wrong. If you disagree, please propose feasible alternatives.

Post-Election Results Analysis

2010-11-09T09:42:00.003-06:00

I stepped out on a limb last week by analyzing results before the polls closed. Final tallies confirmed my expectation that the election would not provide any good news for medical care or real health reform. The outcome brings to mind an ad slogan from the 1950s, trading a headache for an upset stomach. The future will be painful for anyone awaiting relief from government, even if the source of discomfort is changed. Here are a few post-election observations offered to stimulate discussion.

Republicans did not take over Washington, DC. They only seized the House. Democrats still control the Senate and White House. Republican efforts to repeal ObamaCare will be well-publicized, but they will be futile. Even if Republican “repeal and replace” alternatives (e.g., malpractice reform, interstate sale of health plans, strengthening the doctor-patient relationship, prohibiting taxpayer-funded abortions, etc.) offered any hope of solving cost and quality problems, they have almost no chance of being enacted in the next two years.

Republicans did take commanding control in a lot of states. The magnitude of their victories suggests that legislatures and governors will impede (or, in some states, prevent) implementation of reforms delegated to states in the 2010 laws. The dire economic circumstances of most states increases even further the likelihood that the laws will not be implemented as enacted.

The election results were quickly followed by release of the latest economic indicators, which continue to be generally dismal. Unemployment remained at 9.6%. Overall consumer purchasing power even deteriorated. I still cannot see how consumers will be able to afford additional financial burdens forced upon them by the 2010 reforms. Nothing about ObamaCare or last week’s Republican victories shows how we can avoid the health care “train wreck” that both parties addressed during the 2008 elections.

Last, and definitely not least, the implementation of health reform will be affected by decisions that must be made sooner rather than later to avoid general economic disaster. Most new Representatives and Senators won by promising to reduce the deficit and increase jobs. Most economists (me included) see the choice as reducing the deficit or increasing jobs. If deficit reduction prevails—the more likely outcome, in my opinion—reductions in federal support for health care will larger and faster than expected.

Last week’s election results make me all the more certain that real reforms are going to come from the private sector—visionary providers, payers, purchasers, and their business partners working together to improve the efficiency and effectiveness of health care in spite of government reforms. What do you think? Please comment, particularly if you see any silver linings in dark clouds on the political horizon. After all, we Chicagoans were so dismayed by this election that most of us only voted once…

Election Results Analysis…One Day Early

2010-11-02T13:04:00.004-05:00

Futurists are expected to step out on a limb, so I’ll daringly interpret the results of the mid-term elections before the votes are cast and counted. I’m totally unwilling to say who will win because this election is like no other. However, my crystal ball (I really do have a crystal ball on my desk!) gives a pretty clear picture of how the final tallies will affect health care for the next two years—no matter who is elected. The dynamics of this election foretell much more than the winners.

First and foremost, the campaigns and the candidates suggest to me that the two parties are badly fractured, if not irreparably damaged. Neither the Democrats nor the Republicans are likely to be cohesive political forces when the next Congress convenes in January. Internal divisions within the parties will probably create more gridlock than differences between the parties. In the likely event that Republicans gain control of the House of Representatives, rifts between Tea Party loyalists and traditional party leaders will seriously complicate efforts to “repeal and replace” the reform laws of 2010. The most probable outcome will be failure to appropriate program funding authorized by the laws. ObamaCare will largely remain the law of the land, but it will not be funded at anything near the anticipated levels.

In the unlikely event that the Democrats retain control of Congress (about equal to the unlikely event of the water landing that flight attendants mention before take-off), the most probable outcome is slightly different. Many Democrats who supported the 2010 laws are likely to push for changes in the laws if they are reelected, but appropriations are still likely to fall short of authorizations due to the a dismal economic situation and Democratic concessions to control deficit spending in order to get reelected.

In other words, I expect that the election’s impact on health care is pretty much the same no matter which party wins, albeit for different reasons. The federal government’s future contribution to the health care “pie,” 17% of the GDP, is fixed at best—especially because consumer purchasing power is not going to grow to make up the difference. Those of us in the provider and payer communities have no choice but to do a better job with our current resources. Growth is not an option for the industry as a whole, although it is a possibility for progressive organizations that learn how to do a better job when their competitors do not. Reforming business processes is the no-lose response for providers and payers who plan to survive and thrive in a market that will be unforgiving—no matter who wins next week.

What do you see in your crystal ball? Here’s your chance to be a futurist, with the attendant risks and rewards.

Disclaimers

2010-10-26T10:08:00.001-05:00

I intended to make a few disclaimers when this blog was launched in 2009. Well, the policy issues of the intervening year—particularly health reform/insurance overhaul and HITECH/meaningful use—evolved with such relentless immediacy that I never found a slow news week for covering the “housekeeping details.” Since I won’t make a prediction on the blogosphere’s current preoccupation, the mid-term elections, now is a good time to pause for three important statements that will put my weekly commentaries in proper perspective.

First, the opinions expressed in this blog do not necessarily represent positions of my employer or any of the clients that hire me as a speaker, writer, or consultant. I gratefully appreciate the freedom that Xerox and ACS have given me to speak my mind without any censorship. In return, I feel that any criticism I express in this forum must be constructive. The senior executives who asked me to do a weekly blog set the tone by naming it “A Healthy Debate.” My purpose is to express opinions that get readers thinking and contributing to discussion of important topics. Every post ends with a request for readers to express their opinions, and every response has been published, also without any censorship. (I truly value the many readers who have added a comment—especially those with different points of view!)

Second, my criticism of one faction’s positions absolutely does not imply support for any other faction’s positions. I have been consistently critical of the Democratic approach to health reform, but I am equally dismayed by Republican opposition. Neither party is addressing the tough trade-offs that must be made under new economic circumstances. I’ll be happy to support a realistic political platform for reform when I see one, regardless of the party that proposes it.

Third, I firmly believe that the United States should and still can create the world’s best health care system. I am an industry insider, proud of four decades spent as a medical school professor, health policy adviser, and consultant. I am motivated by visions of a really good health care system—formally structured to do the right thing all the time, as inexpensively as possible. Sadly, I perceive that most legislative or regulatory efforts do not steer our system toward this goal. On the other hand, I am excited by good things being done by a growing number of progressive providers, payers, purchasers, and their business partners. Their partnerships are showing that a good health care system really could be produced with 17% of the GDP.

What are your disclaimers when you express opinions about the future of American health care? What vision motivates your thinking about reform?

Does it matter if the Affordable Care Act is unconstitutional?

2010-10-19T08:44:00.003-05:00

Will federal judges decide the future of health reform? It’s an FAQ everywhere I go. My ability to answer the question might be suspect because I am not an attorney, but my friends with law degrees don’t seem to have definite answers, either. Like the future of the economy—an area where I do have some qualifications—the legal standing of reform is uncertain. Anyone with a coin to flip can play the game with credentialed experts because nobody knows for sure how the Supreme Court will ultimately decide the issue. (Indeed, the closest thing to a consensus among lawyers seems to be that it will go all the way to the Supreme Court…if the reform laws are not changed before legal challenges work through the lower courts.)

From my perspective as a medical economist and health futurist, I don’t think the legal outcome really matters to health care decision-makers who are trying to guide their organizations through turbulent times. Constitutionality is a red herring that diverts attention from the real challenge to the future of health care. The economic outlook is dismal for at least another year or two; the odds of a turn-around anytime soon are exceedingly slim. Consequently, the future of a health care enterprise is likely to be decided by its appropriate and timely responses to stagnant gross revenue. Governors of the Federal Reserve Board have a lot more to do with the near-term future of health care than justices of the Supreme Court.

The key to a successful future is cutting the waste out of delivery and finance, then reallocating reclaimed resources to better ways of doing business. After all, the issue likely to go to the top court—whether Congress has constitutional authority to force people to buy health insurance—is moot if uninsured Americans don’t have disposable income to make the purchase. Even if the Supreme Court upholds the mandate and ObamaCare is not repealed or amended by the Congress, the economy is still unlikely to provide employers and consumers with more money to spend on health care.

In other words, providers’ and payers’ economic futures are not going to be significantly affected by the ultimate legal outcome. Health systems need to hedge their bets by quickly learning how to produce care of acceptable quality, as inexpensively as possible. Our political leaders should have explicitly enacted this approach to reform, but they added fuel to the fire (i.e., mandated insurance) instead.

I believe that real reform is in the hands of providers, payers, and patients—not judges. Your thoughts on the matter? You don’t have to be a lawyer to make your case here…

Are your data lost in translation?

2010-10-12T10:57:00.002-05:00

This question may seem a bit odd because health care executives don’t tend to think about their data after submitting numbers to third-parties like CMS, professional associations, researchers, and industry analysts. We assume that outside users of our data will utilize exactly the information we provided when they conduct their studies and prepare their secondary reports.

Not necessarily! As a data geek of long standing, I have helped students and clients uncover errors—many with negative consequences—in third parties’ displays and transformations of numbers submitted to them. For example, facility-specific mortality rates officially reported by HCFA (now CMS) in the 1990s often varied substantially from death counts submitted by the hospitals. More recently, providers find that their cost and services data are not always the numbers that get published on consumer-oriented Web sites. An east-coast hospital CEO told me just last week about a significant discrepancy between the actual number of physicians on the medical staff and the count reported in an industry data base. The publicly available report even showed no physicians practicing in a clinical area where the hospital had four full-time boarded specialists.

We understand the “garbage in-garbage out” phenomenon, but how do good data get turned into garbage? (I am giving providers the benefit of the doubt here. Their numbers can be inaccurate, too, creating a serious problem that must be solved as they start using analytics and other performance improvement tools to achieve efficiency and effectiveness.) Many errors are introduced as information is “keyboarded” to a third-party’s data base from provider-prepared forms—a problem that should diminish as more data are transferred electronically through all-digital data exchanges. External reports can also fail to match the time period when the data were collected with the date of the report, giving the impression that historical information is current. Discrepancies of two to three years are common. Finally, some of the most damaging errors are created when third-parties transform data with general models or statistical techniques that do not fit the specific circumstances of an organization providing the information.

Growing pressure for transparency and accountability will increase the potential for adverse consequences resulting from data distortion by Web sites and other external entities. Consequently, health care executives are advised to double-check their numbers, comparing the data they submitted with the numbers published in external reports prepared by third-parties. In my experience, errors in data translation can be costly in many ways. What are your experiences with outsiders’ use of your numbers?

“But what about tort reform?”

2010-10-05T11:24:00.003-05:00

My standard speech on the future of health care analyzes implications of five top trends that are shaping the future of health care. The “malpractice crisis” isn’t one of the transformative forces I address—which almost always causes someone in the audience to ask, “But what about tort reform?” I believe that professional negligence is a big problem, particularly in terms of the resources that it wastes, but the political process is not likely to solve the problem in the foreseeable future.

I tell health care leaders to focus instead on trends they can harness to the benefit of their organizations and, above all, their patients. The transformative trends in my crystal ball are advances in medical science, networked information systems, shifts in demography and epidemiology, new organizational arrangements for health systems (especially partnerships with payers and purchasers), and changes in the payment for medical services (more than just health reform). Resources and time are stretched to the limits these days, so my economist’s world view suggests we should put our efforts into these areas that offer the greatest potential returns.

Tort reform doesn’t offer high marginal returns; it’s a political quagmire. We should concentrate elsewhere, remembering that the #1 cause of malpractice claims is malpractice. Reducing the number of medical errors and other forms of professional negligence is a much more productive way to lower the costs of malpractice. I’ve got nothing against the Plaintiff’s bar, but I’d love to force malpractice lawyers into another line of work by eliminating any basis for the suits they file.

Knowing what we know today, health care leaders can do the most to end malpractice suits by adopting proven performance improvement tools, supported by state-of-the-art information technology. Executives and clinical leaders should strive to make sure that all service delivery is guided by formal, functioning, accountable, and pervasive processes that identify any deviations from their organization’s standard practices, immediately followed by corrective actions to prevent unexplained variations from happening again.

Admittedly, medical mistakes will still occur, but good information and performance improvement systems dramatically reduce the probability of errors and keep them from occurring over and over—a highly desirable outcome that the legal system is not designed to produce. Once we have set up systems to do things right all the time, we can then start the equally important task of finding the least-expensive ways to do them.

So what about tort reform? The American jurisprudence system unquestionably adds to the high costs of our health care, but improving clinical practice offers a much bigger and faster bang for our buck than trying to change legal practice. I vote for putting our scarce resources into modern information systems and performance improvement. What about you?

Economics 101 and the Rising Costs of Health Care

2010-09-28T11:49:00.000-05:00

As an economist, I’m bothered by gross oversimplifications underlying the glib statement that costs of health care are rising. Mistaken notions of cost, in combination with shallow political discourse, help explain why health reforms consistently fail to solve deep-seated economic problems of American medicine.

Cost is only one factor in the equation of total spending. If we really want to limit the number of dollars flowing through the medical economy, we must develop coordinated policies that impact all variables. A quick review of the fundamentals of Economics 101—production theory and supply & demand—reveals the range of variables that policy-makers should be addressing to reform health care.

Cost means cost of production. It is represented by U-shaped curves showing how much a producer pays for various combinations of inputs that produce a particular good or service. Costs can be lowered with a less expensive combination of inputs (e.g., substituting advanced practice nurses for physicians) or economies of scale (e.g., consolidating underutilized clinical services into a single unit) that yield the same product.

Price is the producer’s charge for selling its goods and services. Obviously, producers cannot stay in business if production cost exceeds market price, so they must constantly lower costs and/or convince consumers to pay a higher price by differentiating their product through advertising and other promotional activities.

Total expenditure on a good or service is determined by the price that consumers pay, multiplied by the quantity they purchase. Expenditures can be reduced through economic policies to lower costs of production and/or to curtail demand (e.g., disease management programs).

The health “reforms” of 2010 were not directly focused on reducing production costs, prices, and demand in ways that would stop the relentless increase in total spending on health care. Instead, the new laws’ focus on insurance overhaul will almost certainly have the opposite effect, first by increasing demand and then by increasing production costs by creating chaos in the marketplace. Ideally, the spending outlook could have been more promising if sound economic analysis had not been derailed by hard-ball politics.

However, the outcome would be bleak even if lawmakers had acted in accord with the lessons of Econ 101. Effective (i.e., paying) demand for health care is going to be severely constrained for years to come because consumers are being expected to pay a growing share of their total bills while consumer income is stagnant. Patients simply won’t have money to cover the additional expenditures that reform is shifting to them. Congress may ignore the basic laws of economics, but providers and payers cannot. I think that their survival requires cutting costs of production, providing acceptable medical services at affordable prices, and helping patients reduce demand—in spite of the new reform laws. What do you think?

A Down-to-Earth Idea for Health Reform

2010-09-21T15:44:00.000-05:00

As a futurist on the speaking circuit, I am generally asked to make my comments from the “30,000 foot” perspective. Meeting planners seem to assume that something as uncertain as the evolution of health care can only be viewed from a high level. Fortunately, audiences seem interested in my assessment of the probabilities of a broad array of possibilities—especially in the context of recent health reform laws. Listeners would rightly reject my forecasts if I told them exactly what was going to happen. Nobody knows. Any number of things, many unforeseeable, could occur in the medical marketplace.

I was caught off guard in a speech last week when a prominent elected official in the audience asked me what could be done right now to address serious threats to health care at the state and local level. He wanted a “down-to-earth” example of a homegrown solution, independent of federal reform. Specifically, he asked, what responsive action could be initiated locally in 2010 without waiting to see what happens in Washington between now and 2014?

The pointed inquiry gave me an opportunity to share an idea that has been on my mind for some time. (I just wish I had been smart enough to plant the question.) The solution begins with finding a provider, a payer, and an employer who are all tired of blaming each other for the ever-rising costs and uneven quality of health care. All agree that they need to change their practices that contribute to today’s mess. The parties then agree to a few key rules for the new relationship.

• First, the partners agree contractually to work together for at least five years—long enough to reap the collective benefits of investing in health promotion and disease prevention and changes in benefit design (e.g., restructured incentives).

• Second, they agree to develop a health plan for the 21st century with input from all parties, including beneficiaries. They adopt a common goal for the new approach to employee benefits, such as achieving specified improvements in the health of employees and dependents.

• Third, they make the difficult agreement that significant trade-offs will be made; more of the same won’t do. It’s time for strategic decisions that rearrange resources and relationships, seeking synergies in goal-directed change.

• Fourth, and most important from an economic perspective, the partners agree to freeze spending on health care at the current (2010) level—no increases, no decreases. The business relationships shift from arguing over unaffordable annual increases to seeking the best value for today’s spend.

In other words, the partners agree to a budget constraint—the essential step toward efficiency and effectiveness. Government’s role would be to relax rules and regulations that prevent the new partners from working accountably and transparently to do a better job with what they’ve got. It’s just an idea…what do you think?

Solving the OSFA Problem: Process Standards or Standard Processes?

2010-09-14T18:00:00.001-05:00

Journalists often ask me to summarize the future of health care in one word. To me, the word is diverse. The realm of possibilities for delivering good medical services is growing at warp speed. Why? I believe the #1 reason is our new knowledge about genetic and molecular characteristics of common medical problems. Clinicians have a growing array of tools to identify the biologic instructions built into an unhealthy cell. With this information, they can select an intervention that interferes with the pathological process—bypassing the historically common approach of trial-and-error.

Diseases that were once thought to be the same in all patients are now recognized as being different conditions requiring different treatments, even though they have the same physical appearances. Simultaneously, clinical protocols are shifting from seeking cures to managing chronic conditions. The one-size-fits-all (OSFA) paradigm of 20th century medicine is rapidly yielding to personalized health care that reflects differences in patients and their diseases. The new disease model improves quality and reduces costs in a variety of ways, such as matching a disease’s specific biological characteristics with a drug specifically targeted to interfere in the disease process.

Believing that the medical care system should be organized to support state-of-the-art medical science, I am disappointed because recent reforms reflect OSFA thinking. Providers and payers are being pushed to fall within narrow, rigid guidelines while the scope of good medical science is expanding. For example, I do not see evidence that reform’s approach to comparative effectiveness research is sensitive to the emerging principles of personalized medicine. I also fear that reform’s regulatory mechanisms will not be able to keep up with the rapid changes in clinical science. Guidelines are likely to be outdated by the time they are adopted.

I propose a radical shift in thinking about the best way to reduce costs and improve quality—by replacing the imposition of performance standards across all providers with the expectation of standardizing performance within each individual provider organization. (For details, see http://bit.ly/aG9Zuq.) Rather than telling providers what OSFA results they must achieve to be reimbursed and assuming that they will figure out how to meet the standards, let’s require health care organizations to use proven performance improvement tools and assume that they will do the right things because they are doing things the right way.

In other words, the current approach to reform is headed in the wrong direction. It does not reflect the diversity of possibilities for improvement in American health care. Reform shouldn’t be based on OSFA outcome standards. Instead, I think that reform policy should promote business processes that help producers to do the best possible job. What do you think?

Wanted: Questions and Ideas for Future Posts

2010-09-07T09:08:00.000-05:00

No blog this week due to a prolonged holiday weekend; I'll return to the regular schedule -- mid-day posts on Tuesday -- next week. In the meantime, please suggest topics or pose questions that you would like to have addressed in future blogs. Your input is much appreciated!

Data Analytics: Silver Lining in a Big Black Cloud

2010-08-31T11:47:00.000-05:00

Good economic news is almost impossible to find these days. Employment is not improving, and historically low interest rates are not promoting investments that will restore lost jobs any time soon. The political process is deadlocked, incapable of producing coherent changes in economic policy. The real estate market is so battered that experts doubt housing will be a sound investment for at least a decade. The birth rate has declined for the second straight year—one of the surest signs that consumers of childbearing age are not confident in the future. Even Wall Street’s occasional gains are seen as blips in a downward cycle. The share prices of health care stocks are falling, and the bond ratings for most non-profit hospitals have been downgraded in the past few months.

However, the value of one health care asset—information—is rising fast. Companies that store and analyze data are the hot commodity in today’s medical marketplace. Competitive bidding for several health data companies has doubled or tripled their share prices in the past few months. Major payers, IT companies, and private investors are all betting that information is a critical success factor in health care. Access to key data and appropriate analysis of the numbers is increasingly viewed as the coming differentiator between winners and losers in health care.

Is this data frenzy creating the next unsustainable bubble? No; it has sound economic foundations. I cannot think of another industry that has collected so much information and used it so poorly. Health care’s inefficiency and ineffectiveness are due in no small measure to mismanagement of its data. Conversely, state-of-the-art information systems and analytics were common attributes of health systems identified as models for reform (e.g., accountable care organizations, medical homes). We simply cannot reduce costs of acceptable health care without good numbers and intelligent analysis. Wall Street gets it.

My bullish view is not an unconditional endorsement of data and analytics. Some companies in the business will perform highly sophisticated manipulations of bad numbers, ignoring a lesson of the latest crash in the stock market (e.g., “quants” who failed to realize that collateralized debt obligations included a lot of mortgages that would not be repaid). Others will collect good numbers but analyze them with flawed statistical techniques.

Nevertheless, companies that mine accurate, meaningful, and timely numbers with the right analytical tools will strike gold. They have the opportunity to shape successful health reform in local marketplaces—faster and better than complicated federal laws with uncertain political futures in bad economic times. What do you think? Is health reform possible without good data and sound analysis? Are data stocks a good buy…or the next market bust?

Is Meaningful Use Always a Step Forward?

2010-08-24T12:47:00.000-05:00

Recent hoopla over “meaningful use” (MU) is obscuring the compelling reason to adopt electronic health records (EHR). Digital transformation of medical care delivery is an economic imperative to reduce the costs of producing acceptable care—doing things right all the time, as inexpensively as possible. Digital transformation is a means to an end. The end is not “meaningful use.” Rather, it is identifying wasted resources and reallocating them to productive use.

I fear that MU rules for the first two years of HITECH will actually increase production costs for many providers seeking the incentive payments. By lowering the bar so more providers might qualify, the final rules fail to discourage simultaneous use of electronic and paper records for all data-gathering functions. In my experience, maintaining two identical systems increases costs—that is, MU-qualified providers with duplicative paper and digital information systems will incur higher overall costs than providers that continue to use only paper records.

I have seen this waste first-hand on three recent family experiences with a highly rated health system. Several paper forms were filled in by hand (by the patient, nurses, and physicians), and then the information on the forms was typed into the EHR before care could proceed to the next step. Labor costs were doubled, and data transcription mistakes could easily have occurred as data were keyboarded into the computer. Ironically, I believe that this duplicative and error-prone process could conceivably qualify for “meaningful use” payments, even though it certainly raises costs and potentially lowers quality.

I started working in health care 40 years ago as a medical records clerk. I have extensive experience with paper records, especially during my academic career as a researcher. I have subsequently devoted most of the past 20 years to promoting efficiency and effectiveness through digital transformation. Nevertheless, I have come to the conclusion that paper records should not be completely eliminated. Some data, such as a history and physical or background information provided by the patient, can be recorded more efficiently on a paper form. An intelligent scanner can then transfer the information to an EHR. On the other hand, many data entries (e.g., test results, medication orders, caregivers’ notes not made in the patient’s presence) should never exist on paper.

Today’s real challenge is to design and build integrated, intelligent record systems where data originate in the most cost-effective form but quickly migrate into interoperative electronic files. So far, I haven’t seen how the MU rules necessarily move us in this direction. Please educate me with your comments if you have figured it out; I need to know what I am missing in HITECH. Above all, I solicit your thoughts on optimal relationships between paper and electronic data collection.

Absorptive Capacity: Are We Doing Too Much?

2010-08-17T11:33:00.003-05:00

Do you remember studying absorptive capacity in economics courses? I didn’t encounter the concept until graduate school, yet I have found it to be an essential foundation of operations analysis. Considering absorptive capacity is a key to efficiency and effectiveness—especially in a recession when accustomed growth has come to a halt. (You can quit reading this post if your organization has sufficient revenue and personnel to do everything that needs to be done…)

Absorptive capacity is a measure of an individual’s or an organization’s ability to take on a new task. As individuals, we effectively recognize the concept when we say—as we so often do these days—that we have no “bandwidth” for a new assignment because we cannot keep up with the work we’ve already got. However, we probably don’t give due recognition to organizational capacity to do one more thing.

Based on my frequent interactions with providers and payers around the country, I think health care executives need to assess absorptive capacity at the organizational level. The number of operational demands is unprecedented and growing. As if HIPAA 5010 and ICD-10 mandates aren’t enough to stretch resources to the limit, along come challenges to become Meaningful Users and Accountable Care Organizations while trying to understand the Affordable Care Act! Any one of these new demands can quickly become the “straw that breaks the camel’s back,” resulting in inefficiencies that can then break the bank (not to mention employee morale).

Health care executives need to evaluate two possibilities from the perspective of absorptive capacity:

First, some things that seemingly must be done are not worth doing. (Decision-makers should also remember that anything not worth doing is not worth doing well.) My August 3^rd blog post on the marginal utility of meaningful use illustrated negative economic consequences when economic costs exceed financial incentives. Additional consideration of absorptive capacity will suggest that some projects are not worth the human costs, even if the projects show a positive ROI on the balance sheet.
Second, some “must do” tasks that cannot be done by one organization acting alone can be accomplished successfully by several organizations working together. Many health care delivery systems do not have available resources to own and manage today’s essential infrastructure of health information technologies. To use HIT productively, they need to assemble partnerships with an absorptive capacity that can be shared by all the stakeholders (including payers and vendors/outsourcers).

Health care’s “do-it-yourself” tradition is poorly suited to the new medical marketplace. Industry leaders need to realize that they simply to not have the economic or human capacity to do everything. Some “opportunities” need to be skipped or pursued with others. What do you think? Has your organization reached its absorptive capacity?

Medicare Solvency Extended?

2010-08-10T12:20:00.004-05:00

Last week’s report that the Medicare hospital trust fund will not run out of money until 2029 is perplexing. The system’s trustees said last year that insolvency would occur in 2017, so the 12-year extension of Medicare’s viability comes as quite a surprise. The only major change since the previous annual reports was passage of two convoluted laws that are uniformly criticized for their failure to “bend the cost curve.”

Yes, the reform legislation of 2010 includes dramatic cuts in future federal payments for Medicare services, but it does not meaningfully address the numerous market failures that generate wasteful increases in the volume and costs of care. These structural problems are succinctly and cogently presented in the Statement of Actuarial Opinion at the end (http://www.cms.gov/ReportsTrustFunds/downloads/tr2010.pdf, pp. 281-283). Even the Trustees’ commentary includes appropriate caveats. Nevertheless, their overall message conveys an optimistic outlook that I do not share.

The report’s positive spin is based on a possibility “that providers can improve their productivity, reduce wasteful expenditures, and take other steps to keep their costs within the bounds imposed by Medicare price limitations.” (p. 2) I’ve argued for years that improving productivity and reducing waste are imperatives for providers and payers, for economic and professional reasons independent of Medicare. I fear that the new reform laws will actually thwart the private sector’s efforts to become efficient and effective (i.e., to do things right all the time, as inexpensively as possible). Time and money that should be dedicated to improving operations will be diverted to trying to understand the complicated laws and complying with an exploding array of cumbersome regulations.

As a medical economist focused on building a world-class health care system by incorporating information technologies and performance improvement techniques into daily operations, I am particularly bothered by reform provisions prohibiting providers and payers from using comparative data to reallocate resources toward the least-expensive clinical interventions that provide acceptable outcomes. Economic analysis shows that trade-offs must be made when an economic system hits the limit of its resources. Consequently, providers and payers will increasingly find themselves in an economic Catch-22—better data will support making “discriminatory” coverage decisions that are not allowed under the reform laws of 2010.

All other things being equal, cutting Medicare expenditures would extend the solvency of the trust fund. However, other things are not equal, and Medicare’s gain will create pain elsewhere, sooner rather than later. We still have a broken health system that desperately needs to be fixed. Hence, last week’s report on the trust fund’s extended future does not give me any reason to breathe a sigh of relief. What do you think? Is there a silver lining in the dark cloud of Medicare cuts?

Marginal Utility of Meaningful Use (MU of MU)?

2010-08-03T12:47:00.001-05:00

To anyone with basic training in economics, MU designated a very important concept long before “meaningful use” co-opted the abbreviation under HITECH. The original MU, marginal utility, is part of the foundation of microeconomic theory—marginal analysis. It ought to be a key consideration in every provider’s approach to deciding if meaningful user designation under the federal incentive program is worth the time and money. (Don’t forget that providers must make the investment before pursuing incentive payments. HITECH does not provide up-front seed money.)

Marginal analysis embodies two steps for answering such questions. First, it looks solely at the relationship between additional expenditures and additional utility (i.e., value in use at the margin) of a possible activity. If the marginal utility exceeds the marginal cost, the analysis proceeds to the second step. The second, essential step in marginal analysis is comparing any investment with a positive marginal utility to other ways that the same resources might be spent.

A new activity with marginal value greater than marginal costs is not economically justified until additional analysis shows that its returns are greater than the returns from other ways that the same limited resources could be expended. In other words, positive MU is not a solely sufficient reason for making an investment when resources are scarce—clearly the situation facing all providers in today’s unforgiving economy. Marginal analysis ultimately supports the investment with the highest MU when investment capital is limited. (If your organization has unlimited funds, you can ignore the point of this blog post.)

As a medical economist focused on information technology for more than a decade, I do not believe that providers should automatically seek MU designation just because the value of the incentives is expected to exceed the costs of making the necessary investments in HIT. The key decision factor is the potential returns of other ways the same money could be spent. All other things being equal, providers will discover that investments in HIT can reasonably be expected to yield the best returns to the bottom line. Digital transformation of health care is a precondition to better, less-expensive health care for all Americans.

Becoming a government-qualified meaningful user will make the most economic sense for some providers, but none should blindly assume that HITECH is the only option. The rational approach is comparing all feasible HIT investments that will improve efficiency and effectiveness, and then choosing the best one. Given the narrow focus and uncertainty of “meaningful use” as being defined under the HITECH Act, I think that comprehensive marginal analysis will cause many providers to decide that the best returns are likely to come from HIT investments not eligible for the federal incentives. What do you think?

The Affordable (?) Care Act: A Law of Unintended Consequences

2010-07-27T13:25:00.004-05:00

As a medical economist asked almost daily to comment on the health reform, I remember that Murray Weidenbaum (chairman of the President’s Council of Economic Advisers in the 1980s) described our professional role as “serving as a social wet blanket, dampening the enthusiasm of proponents of simplistic solutions.” The more I learn about the recent laws and their implementation, the more I am convinced that reform as legislated in 2010 is simplistic. It will actually make health care more expensive for patients. Unless I am missing something—please let me know if I am—the long-run outcomes are likely to be the opposite of “affordable.”

For example, one of the laws’ major unintended consequences will be determined by the regulation of medical expenses. When Democratic leaders shifted the reform focus from containing costs to overhauling insurance, they severely criticized health plans for spending too much on administration. The final legislation consequently requires health plans to spend 80% or 85% of premium income on medical care—based on the simplistic but politically appealing premise that health insurance is unaffordable because insurers spend too much on non-medical expenditures.

If Congressional leaders had explored the relationship between administrative costs and the price of health insurance, I believe they would have discovered some non-medical expenses that ought to be increased. For example, health plans should be spending more money to prevent the delivery of unnecessary care and to help patients manage chronic conditions. The economic problem is finding the level of administrative spending that produces desired outcomes at the least cost. The political “solution” was establishing an arbitrary cap that will cause more money to be spent on care that does not benefit the patient.

Limits on administrative expenses will also force insurers to spend less on sales and customer service—a sad irony because reform is intended to allow (or force) millions of uninsured Americans to buy individual policies. As an economist, I foresee a real problem as sellers are required to spend less on administration while serving a growing market. I do not know the mix of medical and non-medical spending that would produce the most health for Americans, but I am seriously concerned that the reform laws were passed without any focus on this fundamental economic issue.

All stakeholders in the medical marketplace—health plans included—are guilty of wasteful spending that needs to be harnessed and redirected to productive use. However, more non-medical spending is arguably needed to control the cost curve, at least in the short-run. This issue cannot be resolved within the 450 words of a blog post, but it deserves extensive discussion. Do you think that limiting administrative expenses is a solution or a new problem?

Initial Impressions of Final Rules on Meaningful Use

2010-07-20T10:52:00.001-05:00

Online resources have published ample summaries of the final rules issued last week. CMS has put all the “meaningful use” regulations and official interpretations on a well-organized Web site, www.cms.gov/EHRIncentivePrograms. I see no value in posting one more recap of these details. My preliminary comments here are focused on implications instead.

As much as I appreciate the extraordinary work of selfless public servants who wrote them, the rules are not final. Federal regulators only defined the conditions for incentive payments through 2012 for a law that extends to 2016 and beyond. The rulemakers’ unexpected approach made a lot of sense because it proved they were listening carefully to public comments. By developing a phased approach with reasonable options, they addressed up-front concerns about roadblocks for getting started on the path to incentive payments. The initial hurdles are not the impediments that were feared.

However, providers and vendors who made public comments on the proposed rules should have been more thoughtful about getting what they asked for. The not-really-final rules resolve short-run concerns but don’t provide any detail about where the incentive program is headed in the long-run. Providers can now evaluate the odds of getting reimbursed for their up-front investments in EHR, but only for the first two years of the program. Given political and economic uncertainties for the foreseeable future, prospects for incentive payments in the later years are still tenuous at best.

The final rules for 2011-2012 clearly note that reimbursement incentives will be “all or nothing” under the program. The law does not allow partial credit. The rules further amplify the exceedingly complex structure of the underlying legislation. (I intended to read all 864 pages before writing this blog post, but I could not get past page 100.) I read the entire ARRA/HITECH law twice last year and did not fully comprehend its ambiguities until trying to digest the final regulations over the past week. I will ultimately get through the final regulations, but I do not expect to experience a “Eureka” moment of enlightenment in the process. The quest for HITECH funds may be easier than expected to start, but I fear it will be harder to complete because answers to the most important questions have been deferred. Yet-to-be specified details are devilish at best.

Nothing that I’ve read over the past week changes my fundamental belief that the need for EHRs is more important than ever. (See last week’s blog post for elaboration of this perspective.) Providers aspiring to be in business beyond 2012 must be engaged in digital transformation now. I don’t think that existing approach to medical records can produce efficiencies demanded by the new medical marketplace. What do you think? Now that we know final rules for the next two years, are HITECH incentives worth pursuing under any circumstances?

Productivity of Health Professionals: An Alternative to MU for ROI in HIT

2010-07-13T11:06:00.003-05:00

The final federal rule on meaningful use (MU) of electronic health records (EHR) is being published at the same time this weekly blog gets posted, so log on next Tuesday for my initial commentary on the resulting regulations. However, one compelling reason for adopting EHRs—their potential for producing much-needed and valuable improvements in caregivers’ productivity—will not be addressed in the final rule. I want to make sure that the positive link between electronic records and the output of labor does not get lost in the din of MU discussions unleashed today.

The absence of concern with EHRs’ contributions to productivity is not an oversight of federal regulators or providers who spoke up during the public comment period. Congress was focused on other issues, such as quality of care and security of protected information, when it passed ARRA/HITECH in response to the dismal economic circumstances of early 2009. The recovery law appropriated substantial sums for creating HIT jobs in technical support services, not expanding the supply of clinical care.

The “reform” laws enacted this March include significant appropriations to address the recognized shortage of health professionals, but the supply of caregivers will not be expanded for nearly a decade. In the meantime, provider organizations will not have enough professional personnel to meet existing demand, particularly in the underserved area of primary care. Today’s final rules on MU will define how a “qualifying” provider can use EHR to qualify for incentive payments, but they will not explicitly help today’s caregivers deliver acceptable levels of care to more patients each hour.

Health care executives will spend lots of time over the next few months deciding whether becoming a “meaningful user” is worth the HITECH “carrot.” I suggest that they should conduct a parallel analysis to see how investments in HIT might be used to increase professional productivity, independent of potential MU reimbursement. For many provider organizations, the increase in net revenue associated with EHR-enabled improvements in output per practitioner may actually be greater than the incentive payments—without the costs of reporting and compliance! For example, HIT that allows a nurse or a physician to treat one more patient each hour could generate a better ROI than an investment made solely to comply with “meaningful use.” What do you think about this alternative focus on productivity to justify investments in HIT?

Log on next week for my initial reactions to the final rule on MU. Better yet, publish your comments between now and then in the spirit of generating a healthy discussion.

It’s the stupid economy…

2010-07-06T13:32:00.000-05:00

If a picture is worth a thousand words, the Daumier print below could serve as two blog posts. It aptly represents a tendency to miss what should attract our attention. I use this slide in my speeches to show how our focus on actions in Washington—particularly the recovery and insurance overhaul laws—is diverting us from the real challenge to our future. The comet racing toward us is not reform. It’s the economy that merits our full and immediate attention. Adverse economic trends threaten the near-term future of providers, payers, purchasers, and patients much more than the “reform” laws that are being examined in telescopic detail.

Health industry players are accustomed to looking to Washington for more money when times get tough, and the government has always delivered in the past. However, today’s economic outlook suggests persistent stagnation is the most likely scenario for the next few years. A simultaneous backlash against deficit spending is likely to halt real growth in government spending for the first time in many decades, meaning that the medical sector should not count on additional federal funds for its growth.

Sutton’s Law says to go where the money is. Unfortunately, as an economist and futurist, I cannot see any extra money anywhere. Corporations are struggling to stay barely profitable in a harsh global economy, and the outlook for consumers is correspondingly bleak. I simply do not know how average Americans are going to come up with the extra dollars that “reform” is expecting them to spend on health care over the next few years. (If anyone knows where to find more money for health care, please pass along the information in a comment. I’d love to have some good news to share with my readers.)

So what should be done to stay in the business of health care until 2014 when most Americans will presumably have insurance? Getting through the tough economic times ahead compels providers and payers to become efficient, to find how to perform necessary (but not necessarily the usual) business tasks at lower cost. At the same time, they need to find ways to provide more value by passing the savings along to cash-strapped consumers in better, less-expensive services.

Given that many of the marketplace’s inefficiencies are directly related to a dysfunctional reimbursement system involving all parties, solutions need to be developed with multiple business partners. No single entity can go it alone and expect to survive under current economic circumstances. Instead of looking to Washington for more money, now is the time for key stakeholders to collaborate in creating a good health system than works. It won’t be easy, but it sure beats the alternative of looking for distant solutions when real opportunities are visible with the naked eye. Has anyone got a better idea?

Kudos for the Other Rochester

2010-06-29T10:14:00.001-05:00

Mention Rochester in the context of leadership in health care, and I’ll wager most people think of the Mayo Clinic. Rochester MN absolutely merits recognition as home of this world-class health system for more than 100 years. However, Rochester NY deserves just as much attention for its ongoing successes in community-based, future-focused health planning.

This past Friday, I had the pleasure of sharing the podium there with Dr. Janet Corrigan (CEO of the National Quality Forum) at a conference organized by the Healthcare Benefits Network, attended by leaders from a broad array of organizations with stakes in improved well-being of the population. Local guest speakers who followed our keynotes gave impressive overviews of data-sharing, care coordination, public health programs, wellness activities, and other collaborations to promote top-quality medical services and make them available as inexpensively as possible. The community’s new program for reducing unnecessary care was particularly impressive.

My usual role is to tell audiences that they had better start collaborating to do these things right away, but last Friday I found myself validating good work that has already been done. I was particularly impressed to see that vertical (multi-stakeholder) community partnerships, not just horizontal collaborations among providers, are the well-established norm there. Rochester MN is the place to look for a benchmark delivery system that has withstood the tests of time, but Rochester NY is the place to see how an entire community—not just its providers—can coordinate activities and resources to build a rational health system in response to today’s challenges.

Rochester NY isn’t waiting to see what Washington DC will allow as the latest health reform laws unfold (more likely, in my opinion, unravel) between now and 2018. Rather, Rochester’s leaders are defining what the local population needs for the foreseeable future and restructuring relationships as necessary to produce desired changes for the good of the community. If my comments added anything new for the local leadership’s consideration, it was a challenge to develop systematic methods for retaining and reallocating the resources saved as costs are lowered and unnecessary services are eliminated. Today’s dysfunctional system does not reward providers for becoming efficient, so they need to develop prior agreements that redirect savings to other planned improvements in community health.

After attending quite a few recent conferences exploring how to prepare for government-mandated health reform, I was inspired to find community leaders instead discussing how to meet local needs for health care in spite of ARRA and the Affordable Care Act. Can any community afford to put progress on hold while seeing what happens in Washington? If you agree with me that change cannot wait, I suggest you explore what’s happening in Rochester NY. Whether you agree or disagree, please contribute a reply to the Healthy Debate.

Putting HITECH Incentives in Perspective

2010-06-22T14:42:00.000-05:00

The final rule on meaningful use of electronic medical records (EMR) is presumably going to be published soon. Under the law, financial incentives for qualifying investments in EMR begin in 2011 but turn into penalties in 2015. Pessimistic commentators fear that the final rule will require providers to do more than they are willing or able to do in the four years before the “carrot” turns into a “stick.” On the other hand, optimists argue that the size of the incentive payments will be enough to overcome providers’ resistance to EMR adoption.

As a medical economist, I’m skeptical of the optimists’ argument. I think it overlooks financial realities, beginning with the fact that incentives will only be paid to providers that have already invested in EMR. The law does not give seed money in advance, only payment for money already spent on certified systems that are meaningfully used. The current reimbursement outlook—a 21% reduction in Medicare fees for physicians and a half-trillion dollar reduction in future federal payments to hospitals—works against providers being able to borrow money to buy EMRs that might qualify for incentives.

Even more to the economic point, reimbursement for “meaningful use” under HITECH will only be a meaningful incentive if it is greater than the marginal cost of making the investment. I haven’t seen any financial analyses to convince me that authorized incentives are enough to swing the balance sheet in favor of making the investment, especially because providers do not generally have spare cash to pay the difference between the costs of an EMR and the amount of incentives. When training and compliance costs are added to the equation, purchasing an EMR just to get the incentive “does not compute” for a lot of providers.

My skepticism about the questionable value of HITECH incentives must not be interpreted as negativism toward EMR. I have argued for years that digital transformation is absolutely necessary for health reform. I cannot imagine a really good health system without electronic records. However, I fear that HITECH is delaying progress. It has put EMR implementation on hold while providers wait to see how to get federal incentives (money many will not want when they see the strings attached).

The good news is that EMRs are already a hallmark of our country’s exemplary health systems. The best providers invested in electronic records to excel in clinical care, not to qualify for reimbursement incentives. They made dramatic changes in their business models, too. I hope short-term focus on HITECH incentives will not divert attention from the fundamental lessons of leading providers’ accomplishments. Success requires a lot more than an EMR. What do you think?

Renewed Optimism at AHIP Institute 2010

2010-06-15T07:45:00.000-05:00

Regular readers will remember that I was once excited about the discussions surrounding health reform. Only a year ago, the key stakeholders in Washington agreed on a common goal—curbing incessant increases in medical spending by sharing the pains of significantly restructuring the health care delivery system. Decision-makers were actually discussing tough choices and exploring trade-offs that need to be made. A medical economist’s dream fulfilled, at last…

Consensus sadly succumbed to politics during the summer recess. Democratic leaders shifted the discussion from comprehensive health reform to a single issue, insurance overhaul, when Congress got back to work in September. I was disheartened by the ensuing legislative scramble to put together any combination of ideas that could get 216 votes in the House. The two laws finally enacted this spring were colossal disappointments to me because they did not provide a solid foundation for building a really good health care system. In the unlikely event that the laws are implemented as enacted, more Americans will have access to a system that is still inefficient and ineffective.

My spirits were lifted last week when I attended the 2010 Institute of America’s Health Insurance Plans (AHIP), an organization vilified by the political architects of insurance overhaul. Speakers in every session were talking about reasonable actions that could be taken to reduce medical expenditures, such as sophisticated health promotion programs and improved data analytics to identify waste in the delivery system. They focused on getting more value for health care dollars through better management of existing resources, the solution that politics forgot.

Presentations at last week’s AHIP meeting did not change my longstanding view that payers need to improve business practices just as much as providers and purchasers (including the federal government) need to change theirs. However, the AHIP sessions did renew my economist’s belief in the power of creative destruction in the medical marketplace—progressive transformation through radical innovation. I heard insurance executives and other industry experts talking about moving forward with promising new solutions to old problems. They were discussing real health reform, from my perspective.

Their explorations of ways to improve health and cut costs were a refreshing contrast with the final months of legislative maneuvers focused almost exclusively on passing a bill, not improving medical care. I found health plans that are working with purchasers and patients to put a lid on health care spending. Of course, there’s lots of work to be done and many major changes to be made in the business of health insurance. Do you share my belief that mandating insurance is not a solution to the serious problems of cost and quality? Where do you think progressive health plans should focus their initial efforts to do what Congress would not?

Should reform be based on statistical significance?

2010-06-08T16:04:00.005-05:00

Having spent roughly half my career teaching research methods and statistical analysis to medical professionals, I believe the difference between statistical significance and real-world importance must be understood by anyone who makes decisions in health care. Statistical significance is a measure of the probability (p) that random chance explains the outcome of a test to see if an experimental effect—such as a new drug, a change in care delivery, or an alternative mechanism for reimbursement—makes a difference. Statistical significance increases as the p value declines.

However, statistical significance often has no practical importance for our daily lives or long-range plans. I’ve taught hundreds of students to resist the temptation to overreact to studies based on statistical significance of the findings. Presentations at last week’s annual meeting of the American Society of Clinical Oncology illustrated this very important point. Several researchers suggested that cancer patients who took new drugs lived significantly longer than comparable patients who took a placebo or older medication under controlled conditions.

The statistically significant difference sounds impressive, all other things being equal, but should we immediately start paying for a new drug if it extends life only three months and costs $50,000? Of course not! Today’s push for health reform is based on widespread agreement that our country cannot afford to spend more on medical care, and we could surely find a more productive way to spend an extra $50,000 if we had it.

Today’s economic realities and political circumstances are forcing us to learn to live within our means. We cannot adopt some new approach to medical care just because it is supported by statistically significant research. (For the record, I am a very strong supporter of medical research. This blog post questions the use of research reports, not the research itself.)

To complicate matters, a recent article in the Journal of the American Medical Association (JAMA; 26 May 2010, p. 2058-64) http://jama.ama-assn.org/cgi/content/abstract/303/20/2058 suggests that reports and interpretations of studies with statistically non-significant findings are frequently inconsistent with the actual results. In other words, more than a few of today’s “scientific” publications convey impressions not supported by the data.

We now run not only the risk of overreacting to good research, but to bad research as well. I hope that you will join me in pressuring our policy-makers to put statistical significance into proper perspective. Or am I the only one who fears that policy analysts are putting too much faith in data and too little in strategic vision of an efficient and effective health system with limited resources? Please share your thoughts.

What can countries learn from each other?

2010-06-01T12:39:00.002-05:00

Having spent the past week at conferences in Amsterdam and Grenoble with several of my London-based colleagues from Xerox/ACS, I had an excellent opportunity to gauge the current status of three top-rated health systems that are commonly cited as models for the U.S. to emulate. Ironically, I discovered that policy-makers in the Netherlands, France, and Great Britain are looking to us for solutions just as much as we are looking to them. Our respective systems for financing and delivering care are facing the same problems, in spite of significantly different organizational characteristics.

The costs of health care have exceeded available economic resources in these three top-rated European countries. American health policy analysts might look to them as models for universal coverage, but their economic challenges are no different than ours. These countries are slashing providers’ budgets on a scale comparable to the cuts that Democrats in Congress recently imposed to pass insurance overhaul “reforms.” So much for political promises that the United States could maintain accustomed levels of service and move toward European-style universal coverage!

The extent of covered benefits is also declining in these health systems that presumably provide more health care for their citizens. Residents of all three countries told me that many services traditionally included in the universal plans are now only covered under supplemental plans that require the individual to pay an additional premium. Further, the role of private providers is growing perceptibly in state-directed systems that many American liberals would have us emulate.

Those of you who follow my commentaries on health care will not be surprised that the principle themes of my speeches at last week’s European conferences were efficiency and effectiveness—that is, eliminating waste in health care delivery. Perhaps I should not be surprised by the strong, positive audience responses to my message. Indeed, a French study just concluded that more than 30% of all hospital stays there are inutile (useless). The world’s top-rated health systems are suddenly realizing that they must harness medical expenditures that do not contribute to the health of individual citizens or national populations.

The United States does not have a top-rated national health system, but I proudly believe our best providers are global leaders in applying performance improvement to health care. Americans can still learn from European countries that produce healthier populations with lower shares of GDP, but we can teach them a thing or two about lowering costs (efficiency) and improving quality (effectiveness). Some of our providers and payers have developed world-class solutions that will solve problems in Europe and elsewhere. I expect more Americans will be asked to speak at international conferences in the future.

What’s an ACO?

2010-05-25T16:02:00.003-05:00

The new reform laws raise more questions than they answer. One particular question was asked a lot at two national conferences I attended last week: what’s an Accountable Care Organization? Policy-makers seem to be placing high hopes on ACOs—integrated and aligned systems where all who care for an individual patient are at risk for delivering care of defined quality as inexpensively as possible [my definition].

Countless health care leaders will attend conferences over the next year to see if becoming an ACO is the key to their organizations’ survival under “ObamaCare.” I’ll step out on a limb and argue that becoming an ACO will be critical to the future success of most providers. I really like the general concept. However, I fear for three reasons that it will do more harm than good if the bureaucrats define ACO too narrowly when they translate Congressional intent into regulations.

First, the rule-writing process will take years. Very few health care organizations can afford to wait for the “feds” to tell them how to qualify for financial incentives that may ultimately be directed to ACOs. Integration is imperative now. The American economy cannot continue to support the waste that fragmentation generates in our health care delivery system.

Second, an ACO must integrate more than hospitals and physicians. To deliver the full benefits of alignment, an ACO must encompass key economic units on the supply and demand sides of a medical marketplace—accountably and transparently. In my view, a successful ACO will not only put doctors and physicians on the same balance sheet, but also bring payers, purchasers, and patients into the mix.

Third, competition between ACOs is needed to produce the full benefits of multi-stakeholder integration. I am concerned that regulations will turn the solution into a problem. A “one size fits all” definition of ACO would stifle the competitive innovation and diversity that caused Congress to favor ACOs in the first place. For example, Kaiser-Permanente and the Geisinger Clinic are two of the highly integrated delivery systems examined by Congress, but they achieve their impressive successes in different ways.

I fear bureaucratic rule-making will produce a narrow definition that excludes different paths to acceptably accountable care. (It’s happened before. Kaiser-Permanente ultimately chose not to seek designation as a federally qualified HMO under the 1973 Health Maintenance Organization Act that was based on the Kaiser model.) So what’s an ACO? It is a new and improved delivery system engineered to produce efficient and effective health care through partnerships of all key players in local markets. Ideally, ACOs will be as different as the marketplaces they serve. The less the concept is standardized beyond its generic attributes, the better.

How would you define an ACO? Is your health care organization ready to rise to the challenge now, or are you waiting for the Secretary of HHS to define it for you later?

What are the real “costs” of reform?

2010-05-18T09:09:00.002-05:00

Critics of health reform found some fuel for their fire in reports just issued by the Congressional Budget Office and the CMS Actuary. Both official government agencies increased their previous estimates of federal costs of insurance overhaul—thus renewing questions about reform’s long-run economic impact and political tactics used to get the bills through the House and Senate. Both reports put the new cost projections well above an economic threshold that swing-vote legislators were unwilling cross only two months ago.

As an experienced forecaster and economist, I doubt both the original and the revised estimates for three reasons.

The cost estimates are based on highly speculative assumptions. The future values of variables in the estimating equations are SWAGs at best. In particular, I believe they grossly overestimate consumers’ economic capacity to hold up their end of the “bargain.”
The federal government has a very poor record of estimating the future costs of previous health care legislation. Actual government expenditures have been well above earlier estimates much more often than they have been below, but they’ve never been right.
In their defense, the federal employees responsible for estimating reform’s costs were not given the time or resources to do a good job over the past year. Indeed, the CBO Director recently issued a very reasonable statement about the unreasonable pressures put on his staff, but it did not get the attention it deserved.

Nevertheless, I believe that the estimated federal cost of the latest reforms is a red herring. To me, the critical question is whether the reforms do anything to improve the quality of care and to stop the persistent increase in expenditures. The latest laws fail on both these counts. Insurance overhaul simply shifts a substantial portion of the rising costs of a dysfunctional delivery system from the federal government to payers and purchasers (including state governments). A lot of excellent ideas for improving the system were lost last fall when Democrats in Congress began to focus on passing a law rather than improving the delivery system.

I think we’ve got to get refocused on efficiency and effectiveness in the medical marketplace. We do not need estimates of reform’s costs for the federal government to know that the status quo is unaffordable for everyone. We will be even deeper in a financial hole if we spend the coming years fighting over the minutia of regulations when we ought to be re-engineering the entire health care delivery system. What do you think? Alternative points of view are welcome and will be published. That’s what a healthy debate is all about.

What’s an “affordable” health plan?

2010-05-11T13:10:00.003-05:00

As a health futurist, I feel comfortable predicting that one of the hottest political issues for the next few years will be designing the “affordable” health plan that uninsured Americans must purchase in 2014. The insurance overhaul laws delegate the general task to the Secretary of HHS, but they also dictate specific services that must be included in the mandated packages. The process of combining regulatory authority with statutory mandates will be one big can of worms. (The equivalent French expression, translated as a nest of poisonous snakes, provides an even better metaphor.)

The reform laws themselves set the stage for a bitter battle by decreeing that plans must include many “basic” services to comply with the law—but defining them is one of more than a thousand “the Secretary shall…” delegations of authority in the legislation. Having observed the promulgation of federal regulations for nearly 40 years, I do not foresee this process going smoothly. It sets up intense battles between some of the most powerful constituencies in Washington. Providers, payers, purchasers, pharma, and other suppliers and will fight to protect their interests under the negative-sum budget constraints built into the laws (if Congress continues to honor its current intent, another area of uncertainty).

The new laws also identify preventive services that must be covered. Many of these tests are politically popular, but they are also expensive and imprecise. For example, the “affordable” health plans must pay all costs of breast and prostate cancer tests that are not clearly supported by scientific evidence or economic analysis. Ironically, the debatable prevention mandates were legislated by the same Congress that made a major commitment to comparative-effectiveness research in the economic recovery law of 2009. This policy conflict will further complicate the Secretary’s efforts to translate Congressional intent into viable, deficit-reducing regulations between now and 2014.

In spite of these problems, a basic and affordable health plan must be developed. It is an essential step for creating an efficient and effective health system. However, I fear the politics of implementing insurance overhaul will get in the way of doing what needs to be done. I am optimistic, on the other hand, that partnerships of dedicated stakeholders will develop good, progressive health plans in state and local markets. I expect that I will be deeply involved in this quest. Please join me by sharing your concepts of health plan design that reflect the medical science, technologies, and economic realities of the next decade. In your view, what services should and should not be covered in a basic, affordable health plan?

Complexity, Chaos, and Opportunity

2010-05-04T20:02:00.000-05:00

Being a health care futurist is not easy these days. (Paradoxically, it is fun.) The executives and caregivers who read my writings or listen to my speeches want to know exactly what to expect so that they can prepare accordingly. Most would prefer a clear picture of where our industry is headed—even if they didn’t like it—to an ambiguous and confusing view.

I often sense their disappointment when I make the case that health care is moving in many contradictory directions at once. I try to convince them that they understand what’s happening if they are confused. Washington’s efforts to solve the medical economy’s problems don’t follow a logical path toward a discernable and desirable outcome. Neither party has taken the time to define a good health care system and a viable plan to create it.

Insurance overhaul is driven by a compelling need to stop the relentless rise in spending on medical care. The “Obama Care” laws include major cuts in government spending, but they do not create an efficient and effective health system for patients who are being mandated to make up the difference. The laws also allow outcomes to differ substantially on a state-by-state basis, and they will create a wide variety of unintended consequences across the nation. The result will be chaotic—the opposite of ordered.

Health care is not the only American industry headed toward disorder in the absence of a viable, coherent goal. The recent proliferation of best-selling books on complexity and uncertainty focuses on other sectors of the economy, particularly finance and natural resources. Health care is not the only industry suffering from serious problems created when independent economic entities compete for fixed resources in a zero-sum game that has no shared rules or respected referees.

The good news is that chaos is not necessarily a bad thing. Science teaches us that order can emerge from disorder, either randomly or purposefully. One of the 20^th century’s great economists, Joseph Schumpeter, used this principle to show how a process he called creative destruction replaces dysfunctional enterprises with progressive competitors. In other words, today’s progressive health care leaders will see disorder as an opportunity to replace old ways of doing business with new ones.

Health reform from Washington will get in their way, but it won’t prevent them from harnessing medical science, information and communications technology, and collaborative partnerships to create health systems attuned to the resources of their marketplaces. The work won’t be easy, but it will be rewarding. I’m excited by the opportunities to embrace change and reinvent health care. How about you?

Standing behind My Prediction that Health Spending Will Stabilize

2010-04-27T10:07:00.003-05:00

The ultimate challenge of being a futurist is accountability for your prognostications. I’m particularly susceptible because I publish a lot more than others who assess long-run trends shaping the evolution of health care. Fortunately, the futures described in my writings from the 1980s and 1990s have played out as foretold. (The exception is my prediction that HIPPA would be repealed in 2008, a case of wishful thinking getting in the way of objective analysis.)

More than a few followers have been asking lately if I still stand behind the prediction I made in Paradox and Imperatives in Health Care (2008) that American spending on health care would stabilize at 17% of the gross domestic product, beginning around 2010. My view contradicted the prevailing belief that spending would continue to rise, reaching 20% of GDP in 2015. Initially, I took heat for predicting the end of growth in medical spending. But when the Great Recession hit later in the year, a few gracious critics even called to congratulate me for my contrarian perspicacity.

Then last month’s “health reform” resurrected conventional wisdom that health spending would continue growing. (See my March 30 post on Reform vs. Overhaul to understand the quote signs around “health reform.”) However, I stand behind my original prediction that health spending is peaking. If—and it’s a big if—the legislation is implemented pretty much as presumably intended, it will increase the number of Americans with health insurance. However, it will not increase their spending on health care for two reasons.

First, getting the laws passed required a political trade-off between breadth and depth of coverage. More people will presumably be covered, but overall coverage will be proportionally reduced because Democratic leaders promised the laws would not increase federal spending. Indeed, more than half the increased costs of coverage will be paid by decreased reimbursement to providers. Congress has historically reneged on such promises, but I think public pressure to reduce the deficit will prevail for the foreseeable future.

Second, due to new economic realities, consumers will not have disposable income to make up the difference when expected to pay higher premiums, deductibles, and co-insurance for expanded coverage. These unpleasant side effects of insurance overhaul will create a political backlash and almost certainly cause the laws to be changed, but nothing in the nation’s economic outlook suggests to me that consumers will have available resources to increase their personal spending on health care.

Please comment if you see a solution I am missing! Given my personal belief that health care is a pillar of national strength, I would be happy if my prediction were wrong. However, the economist in me believes just as strongly that progressive partnerships of providers, payers, purchasers, and consumers can build a great health care system with 17% of GDP. Your thoughts?

Insurance Overhaul: First Step toward Government Takeover?

2010-04-20T17:11:00.001-05:00

As a health futurist and medical economist, I’m not surprised to get questions about implications of the latest reform legislation. Discussing changes in health care with journalists and industry leaders is part of my job. However, I am surprised at the question asked most frequently: don’t I think that insurance overhaul is the first step toward a total government take-over of American health care? I do not think so, for several reasons.

First, if the new laws had been engineered as part of a socialist conspiracy, I believe that I would know about it. I have good working relationships with a wide-ranging group of politicians, staffers, policy analysts, and lobbyists—people who provide background information for my forecasts on the future of health care. They are committed to their respective causes, but they are not behind-the-scenes conspirators. I have not heard the slightest hint of a plan to “take over” health care. (Indeed, most of my political informers tell me that they wish health care would go away; it’s a no-win issue.) Even my most liberal sources went no further than pushing a government health plan to compete with private insurance. Single payer, a goal that would qualify as a step toward government takeover, was not even on the table for serious discussion. Insurance overhaul’s new thrust, creating state insurance exchanges for private health plans, reinforces the status quo.

Second, the exploding federal deficit shaped every discussion of health reform over the past year. To pass the overhaul laws, Congressional leaders cut $500 billion from authorized federal spending on health care. This “solution” shifts payment responsibility to states and consumers at a time when neither has disposable resources to make up the difference. The economic result is going to be hard times for all. I simply cannot imagine a scenario where the federal government suddenly has enough money and uncontested power to impose a stable equilibrium on the medical marketplace. I will rethink this position if anyone can convince me that economic recovery and bipartisanship are just around the corner.

Third, if insurance overhaul were a planned step toward socialism, the plan would need to reverse the underlying dynamic of health system change in the US. In reality, American health care is moving toward remarkable diversity, not the one-size-fits-all outcome of a federal policy like No Child Left Behind. The future of insurance overhaul will play out differently in states and in local marketplaces. (Indeed, if a government takeover occurs anywhere, it will be at the state level.) We will see a variety of outcomes in the coming years, many of them quite independent of federal reforms.

Above all, I don’t think the federal government is taking over the medical economy because nobody in the federal power structure has a creative, realistic, and unifying vision of a good health care system. Today’s political process is preoccupied with trying to fix a broken 20^th century delivery model. When our political leaders can focus on designing a system attuned to the needs and technologies of the 21^st century, I’ll take the takeover hypothesis seriously. How about you?

Economic Solution to a Political Problem: Least-Cost Reimbursement?

2010-04-13T11:30:00.000-05:00

If the federal government wants to avoid a visceral backlash when 38 million more people presumably start getting health insurance in 2014, it had better start preparing Americans to pay a bigger share of the costs of their care. The “affordable” insurance product that will be foisted upon them will not pay for everything. If the insurance overhaul laws of 2010 are ultimately implemented and enforced as enacted—far short of a sure thing, in my view—the mandated plans will be priced on the assumption that beneficiaries pay 35% of their medical bills.

Congressional leaders had to reduce mandated insurance’s actuarial ratio (the potion of total expenses paid by insurance) to 65% to make estimated program costs acceptable to the conservative Democrats who controlled the fate of reform. Consequently, the political price paid for increasing the number of Americans with health insurance was reducing the new plans’ overall level of coverage. Economic and political realities—not “greedy” insurance companies—simply did not allow creating a program with the generous benefits that insured Americans have come to expect over the past 50 years. Premiums, copayments, and deductibles will all rise dramatically as the actuarial ratio falls to 65%.

The trade-off is not necessarily bad social policy, but it is sure to create a political firestorm when voters begin to understand the real implications of “affordable” insurance. Providers and payers will be caught in the cross fire. They will have no choice but to eliminate inefficiencies in their own operations as overhaul transfers significant payment responsibility to consumers who won’t have more money to spend on health care. Health reform’s opponents will have a hey-day fighting to neuter overhaul under these circumstances, but they are unlikely to offer an alternative for improving the flawed economics of American health care.

I suggest a reform-oriented approach to ease the transfer of financial responsibility to patients who believe insurance should cover just about everything—base insurance reimbursement on the least-expensive intervention that can reasonably be expected to meet a patient’s medical needs. Then, let the patient pay the difference if s/he wants a more expensive treatment. For example, research suggests that physical therapy and surgery produce comparable outcomes for treating lower back pain, yet surgery is considerably more expensive. The “affordable” plan’s benefit for lower back pain would be reasonable costs of physical therapy, but the patient would be free to elect surgery and pay the difference.

Wouldn’t reimbursement generously pegged to least-cost acceptable care address the concerns of anti-reformers who argue that the 2010 overhaul legislation will restrict choice and impose rationing? As a medical economist, I think it’s a new idea worth serious consideration because the alternatives—especially opposing reform with no new ideas—are scary. The possibility of an actuarial ratio of 65% compels creativity, sooner rather than later. How do you think we should respond?

And now, for something completely different…TDM!

2010-04-06T10:44:00.003-05:00

Am I the only person who needs a break from trying to understand insurance overhaul and its implications? Reading the two laws and juxtaposing their verbiage is numbing my brain, so I’ve decided to think about something else today. (Don’t fret if you were looking forward to my ongoing commentary on health reform; it will resume next week.)

Today’s diversion—the thought that keeps coming to mind while I ponder the new legislation—is data. Insurance overhaul and relentless evolution of medical science will compel all health sector enterprises to pay unaccustomed attention to the numbers in their many data bases. Operational success will increasingly depend on having good data and the ability to analyze them in real-time.

Quality of data has been a preoccupation throughout my career. (Google Statistical Analysis for Decision Makers in Health Care, Second Edition if you want an understandable, in-depth discussion of data quality.) Having lots of data to analyze is useless if the numbers are not meaningful, accurate, and timely—which is altogether too often the case. Consequently, we need to start paying careful attention to the validity and reliability of numbers that “reform” will impose.

Efficiency of data is a related concern that comes immediately to mind in context of the overhaul legislation. Compliance requirements will force providers and payers to handle more data than ever before, which means that spending on data will quickly become a major concern. (Data costs will be a really big headache for providers also seeking designation as “meaningful users” for HITECH funding.) Managers will need to prevent data duplication, accelerate access to useful data, stop collecting data that have no value, and halt other unproductive expenditures on information.

The overhaul laws will not force us to focus on the quality and cost of data; we must do it ourselves. However, we don’t have an enterprise structure for managing all our data as a single resource. To complicate matters, our data will continue to reside in many locations, both on paper and on disk. We need a system to manage the interface between different data resources, one that integrates principles and devices for total data management (TDM).

OK, I just made up TDM, but it has a nice ring to it…like ERP or CRM. Please give me your suggestions for a better name, but above all, let me know what you think about the need to develop a system for optimizing cost-effectiveness of the paper and electronic data bases we’ve already got. We’re never going to become paperless, and we barely have the time and money to undertake the truly essential steps in digital transformation (e.g., providing all relevant clinical information to all caregivers simultaneously in an EHR). We really need to get a getter bang for the bucks we are already spending on data. I can’t get this thought out of my mind, even with all the other things a health futurist needs to be thinking about these days. What do you think?

Reform or Overhaul?

2010-03-30T09:27:00.001-05:00

Democrats can claim a victory in the health care arena. I just question which battle they won. The party’s leaders consistently touted broad, system-wide reform for nine months following the 2008 elections, but political rhetoric shifted after the swift-boating and town hall meetings in August. “Insurance overhaul” replaced “health reform” as the Democratic battle cry in September. The semantic switch occurred with such speed and consistency that it was surely orchestrated by skilled political advisers.

It was not a case of journalists seeking another word because reform was becoming hackneyed. Reform and overhaul are not synonyms. I think the difference is significant, and it needs to be understood to put the new law in context. According to my dictionary, Merriam-Webster’s 11^th Collegiate, reform is the act of improving something by changing its form or removing its faults and abuses. It’s a radical challenge to the established order. Initial discussions of a health reform law adhered to this transformative meaning. Conversely, overhaul means to renovate or remake. It restores an existing structure rather than creating a new one. It’s non-threatening.

Overhaul is something done to a classic car, like a ’57 Chevy or a ’64 Mustang. These were great vehicles in their day. However, a restored old car is still an old car. An overhauled classic may look as beautiful as it did 50 years ago, but it gets lousy gas mileage, isn’t designed for safety, won’t fit in most parking spaces, and makes no sense for everyday transportation in 2010.

Transportation, on the other hand, is being reformed. The unstaged, untouched photo below illustrates the point. The SUV in the background is an overhauled version of the classic car: poor mileage, hard to park, expensive, etc. The mini-car and the motorcycle in front of it symbolize transportation reform in the true sense of the word. They are efficient and effective vehicles for getting around on today’s overcrowded roads. You can rent an SUV for the occasional trip that requires something big, but the smaller vehicles represent real progress.

From my point of view, the new law represents nothing more than an overhaul of the old health care system with all its problems. I can’t fault the political leaders who created it. They openly abandoned reform six months ago and delivered as promised. However, I am deeply disappointed that the newly legislated overhaul does so little to create health care equivalents of vehicles attuned to today’s different needs and limited resources. I am confident that our industry’s forward-looking providers, payers, and purchasers will form partnerships to reform health care. I just hope that the overhaul law doesn’t get in their way. What do you think? Does the new law take us where you want to go?

Reform As a Party Game

2010-03-23T10:58:00.002-05:00

Do you remember the party game someone starts by whispering a few words into the next player’s ear? The message gets passed from player to player until it has gone around the room. The final version is compared with the original message—and the end result is almost nothing like the original. The difference is usually worth a good laugh, too. The course of health reform over the past 15 months reminds me of this game. However, the game is not over, and the final result will not be funny.

We all should remember the message that started the game: health care has gotten so expensive that something must be done—now—to stop the rising costs. Less than a year ago, everyone in Washington agreed that cutting expenditures on health care was absolutely essential to economic recovery. A bipartisan approach to solving health care’s problems seemed possible because Republicans and Democrats were “on the same page” of cost containment.

How the message changed as it got relayed through the party! House Democrats just passed a Senate bill that will dramatically increase overall spending on health care. According to estimates of the Congressional Budget Office, the law the president signs today will increase spending on health care by nearly one trillion dollars over the next decade.

The law’s presumed deficit reduction gives a false impression that health care spending is being brought under control—but nothing could be farther from the truth. Under the law being signed today, spending on health care will still rise by nearly a trillion dollars between now and 2020. The federal government simply doesn’t plan to incur more debt to fund the increase. Providers, payers, employers, taxpayers, and consumers will make up the expensive difference.

More Americans will have health insurance under the law (not necessarily the same thing as getting access to health care, but that’s another matter). Nevertheless, containing cost—not expanding access—was the important message that got lost at the reform party. The game is not over because Senate approval of House “fixes” provides additional opportunities for changing the outcome over the next week or two. And then the courts will be asked to have their say.

Nevertheless, have we made progress if the endgame has nothing to do with the message that positioned reform as a top political priority in the first place? How are we going to eliminate the inefficiencies in our health system and reallocate the wasted resources to providing quality care to all Americans? Shouldn’t we put top priority on building an efficient and effective health system? I’ve spent the last 20 years proposing answers to these questions. Please let me know what you think!

A Report from the Front Lines

2010-03-16T14:27:00.003-05:00

One of the problems with reformers in Washington is how little time they spend with professionals who actually deliver health care every day. One of the benefits of my travels as a speaker is interacting with real caregivers on a regular basis. Last week, I had the pleasure of working with 75 members of the California Healthcare Leaders Network (http://futurehealth.ucsf.edu/Public/Leadership-Programs/Home.aspx?pid=145) sponsored by the California Health Care Foundation (www.chcf.org).

The participants in this forum—all clinicians by background—are exemplary professionals in the day-to-day business of meeting people’s needs for care and cure throughout California. They are Chief Medical Officers of delivery systems large and small, Chief Operating Officers with doctoral degrees in nursing and pharmacy, leaders of quality assurance programs for major health plans, directors of Community Health Centers, full-time primary care practitioners, etc. You and I would be happy to have any of them as our caregivers. They represent the best in American medicine—the exact opposite of the maligned providers many politicians want to reform.

These front-line professionals come together several times a year to hone their leadership skills, to network, and to share thoughts about improving the delivery of health care. After 12 hours of intensive interaction with them, I was thoroughly impressed with their commitment to producing top-quality care at lower cost for more residents. I did not hear a single comment suggesting their objective was to earn more money or turn the system to their personal advantage (common themes in medical meetings in the not-too-distant past).

Rather, I heard them express heartfelt frustration about numerous roadblocks that prevent them from taking the time to work with patients whose needs require more attention than the current system allows them to give. These caregivers wish that our health system’s resources could be redirected toward patient-centered medical homes, prevention, chronic disease management, accountable care organizations, and other reforms that would actually improve delivery of health care in the United States. They wonder how aspirations to build a world-class health system got derailed into narrowly focused insurance overhaul in less than a year.

How I wish the powers-that-be in Washington would spend quality time with real professionals who are trying to solve real problems on the front lines of the battle for health care! These clinical leaders from California have great ideas…and they ask hard questions about what can be done to rid our system of the perverse incentives that get in the way of doing what really needs to be done. How can we redirect health reform toward building a really good health system, regardless of the outcome of the “Hail Mary” play that the Democratic leadership is planning to run within the next few days? Please help answer their question by adding your comments.

What about the patient?

2010-03-09T07:59:00.000-06:00

The reform debate has been so focused on economic disequilibrium created by providers and payers (mostly payers, as of late) that an observer could be forgiven for forgetting patients are also part of the equation. Yes, something definitely needs to be done about the high costs of medical care and health insurance, but is the typical patient just a helpless pawn in a game controlled by two powerful players that only care about their own profits? Can problems of cost, quality, and access be solved solely by reforming the business practices of hospitals, physicians, and insurance companies?

I spend a lot of time interacting with providers and payers, and they make a convincing case that the typical patient is also part of the problem. For example, physicians report that patients frequently demand a drug or a test that isn’t appropriate, but writing the order is less of a hassle than taking unbillable time to educate the patient about the risks of overmedication or running the risk of losing the patient altogether as s/he goes down the street to another doctor who will provide what the patient wants. Powerful public outcries against scientifically sound proposals to formalize evidence-based medicine and reduce the frequency of screening mammography offer further evidence of patients’ contributions to the high costs of care. These problems deserve at least as much consideration as the cost-increasing impact of defensive medicine.

Democrats’ final, frantic push for reform-cum-insurance overhaul is highlighting supply-side market failures without saying anything about the expenditure-increasing impact of excess demand. I believe that providers and payers absolutely must make major improvements in the way they do business, but I am frustrated by reform proposals that do not expect patients to improve their health behaviors, too. Providers and payers are way ahead of Congress in addressing this problem through medical homes and care management programs. Purchasers (employers who provide health benefits) are also taking steps in the right direction by with innovative programs that shift insurance from entitlement to engagement.

I am disappointed that these impressive efforts to promote appropriate, cost-effective care don’t get the same political attention as stories about people who can’t get insurance. A lot of Americans with insurance coverage are squandering resources that could be allocated to those without it—assuming that we can find the political will to balance the right to health care with the corresponding responsibilities. Taxing Cadillac plans might transfer income, but it doesn’t align rights and responsibilities. Do you think reform should look more carefully at patients’ contribution to the problems and participation in the solutions? If so, how?

Quality: Promoting Performance or Process?

2010-03-02T12:39:00.000-06:00

Last week’s reform summit focused the political spotlight on existing proposals for solving problems of access (i.e., availability, affordability, and coverage of insurance). Lesser discussions of cost and quality were also restatements of previously stated positions. The meeting of the parties was civil, but it was not a meeting of the minds.

If even one participant responded to the President’s request for new ideas—a precondition for progress, in my opinion—I missed it. Consequently, to complement last week’s new idea for getting expenditures under control by fixing medical spending at 17% of GDP (see 2/22 post), here is a new idea for improving quality: let’s replace pay-for-performance with pay-for-process.
Pay-for-performance (P4P) has caused many providers to improve care, but it has not eliminated bad care. Meeting an 80% performance standard, a common threshold for P4P quality indicators, is an improvement for many providers. However, 80% falls far short of doing the right thing all the time. I’d like to think that 100% appropriate performance is possible in a country that spends 17% of GDP on health care.

Pay-for-performance is viewed cynically by providers. It is frequently called pay-for-reporting because collecting the numbers presumably gets more attention than improving the care. Recent analysis even suggests that costs of reporting may exceed the financial rewards, reinforcing the cynicism. P4P is also compared to the equivalent reform in K-12 education, No Child Left Behind, where teaching students how to take the assessment test has become more important than teaching them how to learn.

Rewarding, even requiring, an operational performance improvement process (PIP) deserves serious consideration as a better approach to ensuring top-quality care. Assuming Americans don’t want anything less, I seriously suggest that health reform replace selective P4P with PIP encompassing the delivery of all care. Reimbursement and regulations should give providers a strong incentive to use data-driven, standards-based processes (e.g., ISO 9001, lean management, Six-Sigma, TQM/CQI) that identify unexplained variations and immediately initiate actions to prevent problems from happening again.

A comparison of performance-based and process-driven approaches helps make the case for shifting reform’s focus from meeting minimum standards to optimizing all care. Under P4P, hospitals receive extra payment for being able to document that aspirin was given to 80% of all heart attack patients within a specified period of time. Under PIP, hospitals would only be rewarded when every heart attack patient was evaluated and treated according to a protocol on the appropriate use of aspirin.

This new idea puts even more urgency on adoption of information technology and casts a different light on the emerging definition of meaningful use. But quality is #1, isn’t it? What do you want to reward—P4P or PIP?

How to Control Spending on Health Care

2010-02-22T12:50:00.001-06:00

Since President Obama has asked for new ideas about limiting how much we spend on health care, I have a serious proposal: let’s actually put a limit on how much we spend on health care. Participants at this Thursday’s summit should decree that the current relative level, 17% of gross domestic product (GDP), is all the country can afford because medical expenditures are now crowding out critical investments in education, environment, and infrastructure.

As the national economy goes, so goes health care under my straightforward proposal. The only way for medical enterprises to get more absolute resources is overall economic growth. Unlike all the complicated proposals on the table, capping the medical sector’s relative share of GDP would operationalize reform’s only area of bipartisan agreement—that spending more on health care will soon lead to economic disaster.

This policy would also incorporate a lesson we should learn from the dozens of industrialized countries that produce healthier populations for 13% or less of their GDPs. We have been studying differences in these countries’ health systems—which are substantial—without focusing on the one attribute they have in common. All set global budgets for health spending. They rely on a variety of public and private mechanisms for operating within the budget, but they put advance limits on spending. My friends in these other countries are amazed that U.S. health policy effectively allows unlimited spending.

Policy experts over the past year made a strong case that one-quarter to one-third of health spending in the U.S. is wasted. Cutting this waste out of the system by reducing health care to 13% of GDP could quickly garner populist political support as an alternative to freezing expenditures at 17%, as I propose, or allowing them to rise to 20%, as CBO predicts. We forget that Bill Clinton’s goal as a candidate in 1992 was to cut health spending below 10% of GDP. He got elected by focusing on economic recovery, not health reform. (The Obama administration has misinterpreted the lessons of subsequent events in the Clinton White House, but that’s another subject.)

At this week’s summit, industry stakeholders should make a firm commitment to maintaining health care at 17% of GDP. Further, they should agree to work together accountably and transparently for reallocating the wasted resources to quantifiable improvements in cost, quality, and access. This direct approach should focus national attention on creating the best health care system that 17% of GDP can buy—a much more inspiring goal, to my way of thinking, than trying to find more resources for the dysfunctional system we have. What do you think?

The Neglected Conflict: Politics vs. Policy

2010-02-16T08:34:00.000-06:00

The ongoing battle over health reform is largely perceived as a confrontation between Democrats and Republicans. Focusing on two parties obscures a very important fact that the battle is waged on two fronts—whether a reform law will pass, and what will be in a reform law. It’s a classic conflict between politics and policy, and it rages within the parties at least as much as between them.

Politics is the art of getting things done. Its practitioners focus predominantly on winning elections and retaining power. Politicians work diligently to deliver on promises they made as candidates, always with the next election in mind. Passing (or defeating) a law is the ultimate measure of their success in politics. For health reform in 2009, Democratic leaders were much more concerned with rushing a bill to the President’s desk than they were with the bill’s content. They argued that the law’s flaws could be addressed in 2010 and beyond.

By contrast, policy is the science of creating purposeful change. It involves defining a desired future state and a viable way to get there. Policy makers analyze data and evaluate impact of actions that might move the numbers in the desired direction. They are inclined to take the time needed to put together a package that makes sense for their constituency. They aspire to “get it right” the first time so that a resulting law will not need to be amended in the next legislative session.

Sadly, from my perspective, politics trumped policy during the 2009 confrontation over health reform. Long-overdue policy changes fell by the wayside as political deals were made to secure votes. Getting a law passed was more important than passing a good law—and all sides lost when all was said and done. Consequently, my forecast for legislated health reform any time soon has slipped to 10%. (See my December 2009 blogs for details on the previous forecasts.)

Good policies that slipped from the pinnacle of reform to the purgatory of demonstration projects over the course of 2009 are unlikely to be enacted any time soon. However, the critical state of health care in the U.S. does not allow complacency. We’ve got an impending disaster on our hands if we don’t make needed changes, and it looks like we’ve got to make them without a reform law. We must resurrect and implement good policy proposals outside the political realm.

In your opinion, which reform policies need to be pursued ASAP? How would you proceed to get them implemented? (For my views, see previous posts to this blog and recent writings at www.jeffbauerphd.com/writing.htm. To express yours, click on Comments just above the title of this post.)

Three Reform Ideas Whose Time Has Come

2010-02-08T10:40:00.001-06:00

As luck would have it, I was a student in Paris during the revolution of May ’68. Many protest banners featured Victor Hugo’s famous observation that nothing is as powerful as an idea whose time has come, and innumerable Left Bank discussions were dedicated to identifying the new thoughts that could lead to desired changes after the revolution was over.

The faltering reform battle in Washington reminds me of “les événements” in Paris—not because it is going to revolutionize American health care right away, but because its heated discussions actually highlighted concepts that are going to transform health care in the US in years to come. In my opinion, three powerful ideas that did not become linchpins of the reform bills will nevertheless be translated into progressive actions via the “invisible hand” of the marketplace (hopefully facilitated by supportive government actions).

• Progress in health care requires digital transformation of the way health care is delivered. State-of-the-art electronic medical records and related health information technologies (HIT) were common denominators of health systems that have accomplished the cost and quality improvements of health reform. These systems (e.g., Kaiser, Geisinger, Mayo, Intermountain) have already created the digital infrastructure required for exemplary performance improvement.

• Successful reform requires integrating hospitals and physicians in accountable care organizations. In addition to deploying HIT throughout the enterprise, systems that provide models for reform have employed their medical staffs and put physician leaders in their C-suites. These integrated systems eliminate the market failure created by competition between hospitals and independent medical staffs.

• Global payment mechanisms rewarding value must replace fee-for-service reimbursement that rewards volume. The significant waste of paying for medical services on a piecemeal basis was consistently demonstrated in expert testimony on reform. Providers and payers need to be given specific incentives to develop and implement efficient, bundled reimbursement mechanisms.

The House and Senate reform bills include limited programs to demonstrate the power of these ideas, but I don’t believe that federal demonstrations can produce the necessary changes fast enough. From my perspectives as economist and futurist, American health care delivery needs to be transformed sooner rather than later. We do not have the luxury of waiting 5-10 years for the results of demonstration programs based on ideas that have already proven their value. The 21st century economy is not going to be kind to a medical sector playing by 20th century rules.

Do you think that the health reform revolution of ’09 produced any powerful ideas whose time has come? Please comment on the three ideas above…or propose others.

Preventing the Clash of Two Cultures

2010-02-02T08:59:00.000-06:00

A noted British scientist and novelist, C.P. Snow, argued in a famous 1959 lecture that social progress was confined by conflict between two cultures—the sciences and the humanities. His paradigm has been applied to other polarized relationships and is viewed as a helpful model for understanding communications failures that prevent competing groups from getting together to solve serious problems.

Recent events show that elected officials in Washington are not close to solving the serious problems of health care. Hence, it’s time for a “two cultures” analysis. Having concluded that collaborative solutions must be crafted ASAP in the private sector, I believe we should focus on cultural differences between providers and payers. Understanding these differences is a precondition for creating the efficient and effective health care we ought to be getting for 17% of GDP.

To launch discussion, I suggest that provider culture enshrines a sacred doctor-patient relationship centered on hospitals (AKA doctors’ workshops). Provider culture seeks to expand facilities and technologies that allow physicians to practice medicine at the state-of-the-art—that is, to do everything possible for every patient. It fiercely resists economic considerations because money is not supposed to influence a doctor’s decision. Provider culture can be traced back several thousand years to Greek philosophers.

Payer culture, on the other hand, is uniquely American and not even a century old. Unlike every other country in the Western world, the United States formally rejected government finance mechanisms for health care in the decades surrounding World War Two. The third-party payer is as American as apple pie, purposefully created as a private business to channel funds from purchasers (mostly employers, until now) to providers. Payers can only survive by generating revenues in excess of expenses. Requiring payers to spend more—the final focus of politicized reform in 2009—compels them to raise revenues or to develop new “work-arounds” that make the medical marketplace even more inefficient.

The clash between provider and payer cultures is predictably dysfunctional. It pits two groups of generally good people, doing the jobs we expect of them, against each other in a negative-sum game. If disaster is to be avoided, creative and visionary leaders must find ways that the two cultures can work together to improve the health of Americans. Given today’s political gridlock, can you think of any more important reform than reconciling providers and payers? If not (like me), what steps would you take to align the two cultures for producing consistently good health care as inexpensively as possible?

TANSTAAFL

2010-01-26T10:57:00.000-06:00

Most pundits are arguing that ObamaCare was derailed last week by the election of a Republican to replace Ted Kennedy. For reasons discussed in my recent posts to this blog, I believe that health reform was well on the way toward collapse under its own weight. The voters of Massachusetts only provided the straw that broke the camel’s back. Focusing too narrowly on Massachusetts’ role in the Democrat’s loss of their 60th Senator runs the risk of missing a lesson that must be learned by any political leaders who resurrect health reform in the future.

Commentators are building quite a list of factors that presumably explain the special election’s results and foretell its implications. Most of their insights are valid because health reform had a lot going against it. However, the cancer that was likely to kill reform, without help from Massachusetts, was its evolving complexity and resulting costs. Given the precarious 60th vote, Democratic leaders kept expanding the scope of reforms to solidify the support of wavering Democrats. The net result was a Rube Goldberg of special concessions built on a cumulative foundation of uncoordinated provisions.

The emerging legislation was anything but a coherent package of reforms that could be understood by a growing number of voters, including a majority of Democrats by the time Scott Brown stepped on to the national stage. Public support for reform was falling fast as voters perceived the price to be paid for “affordable” coverage was an unpleasant combination of rising taxes and reduced benefits. Political leaders seemed to assume that voters would forget a fundamental principle of economics—TANSTAAFL. (“There ain’t no such thing as a free lunch.”) Well, voters weren’t forgetting it.

The more politicians put on the plate, fewer people wanted to sit at the table because they knew there would be a big bill to pay, not to mention smaller individual portions once the resulting lunch was served to everyone. Paying more for less just didn’t make sense. Neither did the premise that insurance companies could be forced to provide more coverage without raising rates. Most voters understand the laws of economics, especially in a sick economy.

We’re back to where we started a year ago when everyone agreed that rising expenditures on health care were unsustainable—indeed, were a major cause of the economy’s ills. How can we stop the growth in spending on health care without wasting another year on reforms that most Americans won’t buy? I vote for promoting accountable partnerships of providers, payers, and purchasers to cut waste out of the system. Rather than putting more on the plate and increasing the bill, let’s create a healthier lunch for the amount that we are already paying. What would you do?

The “Shot Heard ‘Round the World” of Health Reform

2010-01-20T11:49:00.002-06:00

It’s ironic to have happened in Massachusetts, but not surprising that an anti-reform Republican defeated a Democrat in the Senate election yesterday. Opinion polls over the past few months suggest that the same result would have occurred almost anywhere. A growing majority of voters across the country are disenchanted with the direction of health reform because politicians on both sides of the aisle have failed to address the general public’s #1 concern—affordability.

Yesterday’s Democratic loss should not be interpreted as a significant Republican victory in the ongoing war to revolutionize health care in the United States. Given the troubled state of the American economy, voters in upcoming elections will be no more impressed with Republicans’ lack of a compelling solution than they are with the expensive (i.e., unaffordable) plan being crafted by Democratic leaders.

One of those leaders hit the nail on the head last week when he noted that Democrats can’t sell a reform plan if Americans can’t buy it. Voters were not buying purely political concessions made to organized labor or Nebraska because they feared (correctly, in my opinion) that health care will cost even more if a bill is rushed to the President’s desk. Opposition to deficit spending is also a powerful message of the vote in Massachusetts, the only state that has effectively implemented the expensive reforms being finalized in Washington.

If yesterday’s outcome is telling politicians that affordability is the #1 issue, then we can only hope that legislators will start looking for ways to lower consumers’ total costs of medical care—a goal very different from reducing the number of uninsured. Leaders in both parties need to refocus reform on supply and demand problems that cause American health care to be unnecessarily expensive and then to promote responsive improvements in the medical marketplace. Some of these serious structural problems, like fee-for-service reimbursement and uncoordinated care, have been addressed in the reform debate. Other important causes of high costs, like counterproductive regulations and organizational inefficiencies, have not gotten the attention they deserve.

I think yesterday’s voters in Massachusetts represent frustrated people all over the country who want our politicians to put top priority on creating a health system that consistently produces acceptable care at reasonable prices. I don’t think reform has been heading in this direction for the past year. Does anyone else share my belief—and, surprisingly, my optimism—that we could build a really good and affordable health care system in the United States if we were to redefine reform accordingly?

Don't Even Count Your Eggs Yet...

2010-01-12T12:53:00.000-06:00

Requests from speaker bureaus give me a pretty good indication of our industry’s current expectations. Inquiries over the past week suggest a perception that ARRA/HITECH requirements and health reform are finally final—or sufficiently close to closure that health care executives will want to attend meetings this spring to learn how to qualify for new government funding.

In my opinion, many people are overacting to last week’s stories about stimulus and reform. We’re not close to a final definition of “meaningful use,” a statutory prerequisite for HITECH payments. The publication of proposed requirements in the Federal Register, expected for January 13, will start a 60-day period for public comment. (Ironically, the comment period would end on the Ides of March—a date forever associated with betrayal by a false friend.)

The final rules would presumably be issued later in the year, but such deadlines are routinely missed. Even in the most optimistic scenario, the gap between passage of the law and distribution of the bulk of authorized HITECH funds will be nearly three years. Delays in subsidies for expanding health insurance coverage will be even longer if a reform bill passes in early 2010. Progress on programs may be in the news right now, but checks will not be in the mail for years to come.

Speaker bureaus apparently aren’t being deluged with requests for presentations on last week’s news that will affect the survival of health care organizations this year—unemployment staying above 10% and government tax revenues falling far short of already gloomy expectations. Consumers, employers, and governments simply do not have money to pay more for health care. Help from Washington cannot come fast enough to fill the void created by economic stagnation.

The wisdom of not counting chickens before they hatch brings to mind a French saying, “To make an omelet, you must break eggs,” that also provides important perspective on the current news. We’ve got to break out of our shells and change the way we do business because customers cannot pay us to keep doing what we’ve done in the past. Supply-side enterprises in the medical marketplace cannot count on getting any more nest eggs than they’ve got right now. I think we must scramble—move quickly and stir things up—by putting top priority on business process transformation in 2010. Do you agree, or do you think I’ll have egg on my face by the end of the year?

The Obligatory Predictions for 2010

2010-01-05T10:22:00.000-06:00

As a health futurist, I am sure the blogosphere expects me to start 2010 by predicting what will happen in health care over the coming year. The task is particularly daunting because nobody knows how reform will play out over the coming month. (See previous postings for my outlook.) Nevertheless, here is my “big picture” prediction to launch a healthy discussion.

The realm of possibilities will be largely defined by the economy, and I believe that economic activity will be stagnant over the course of the year. We will see ups and downs in key monthly indicators, but the overall trends won’t give us confidence that the economy has returned to sustained growth. The year will most likely limp along in a jobless recovery, meaning that employers stay profitable by cutting costs—not by increasing sales—as unemployment continues to hover around 10%.

The net result for health care enterprises will be an abnormally difficult year. The number of patients with employee health benefits will continue to decline, as will the coverage of health plans. Serious financial difficulties, particularly delinquent receivables, will cause an elevated number of business failures and mergers and acquisitions. Many people will be disappointed that the time and energy devoted to health reform in 2009 (whether or not a law is passed over the coming weeks) did nothing to improve the economic problems of American health care in 2010.

Crisis will be the word used most often to describe the medical marketplace throughout the coming year because the overall situation is bad and is not going to get better. The good news is that a crisis is not necessarily a hopeless situation in the context of health care. Crisis describes a clinical situation where the patient can get better or get worse, depending on the appropriateness of diagnosis and treatment. Although I expect that a large number of health care enterprises will be in worse shape at the end of the year, I also believe that many will be better off because they diagnosed and treated the real causes of their immediate problems, particularly inefficient and ineffective operations.

In other words, I see successes and failures in my crystal ball for 2010. In spite of economic adversity, health care enterprises have a lot of control over their futures this year. The successful enterprises will see 2010 as the year to end business as usual and take control of their own reforms. Do you think I’m an optimist, or a pessimist?

Updating (But Not Changing) My Forecast for Health Reform

2009-12-29T11:16:00.000-06:00

I’ve been at odds with other commentators ever since the battle over health reform was launched early this year. In contrast to conventional wisdom that reform was a “sure thing,” I have consistently estimated a 30% chance for a major legislative overhaul. My crystal ball has always indicated that the forces against meaningful reform were slightly more than twice as strong as the forces that could make it happen. (I really do have a crystal ball on my desk.)

My approach to forecasting the prospects for health reform over the past year reflects my original training as a weatherman. (I really was a meteorologist back in the 1960s.) Forecasters learn to estimate the probabilities of possibilities by evaluating the relative strength of forces that could lead to different outcomes. I have consistently perceived that the serious economic downturn, competing national priorities, deep divisions within the Democratic Party, and absence of a shared vision of reform would be very tough obstacles to overcome.

Now that the Senate has passed its reform bill, I have received a few calls to see if my forecast has changed. It has not, for three reasons.

· The Senate and House bills are very different on polarizing issues that matter a lot to key members of both chambers. Forging an acceptable compromise between divergent wings of the Democratic Party will be very difficult (but, admittedly, not impossible).

· Approving the Senate bill required last-minute compromises and special arrangements that challenge the interests of key stakeholders. Their lobbyists will be out in force, trying to undo the tenuous coalition created to get 60 votes.

· Neither chamber’s bill reflects a realistic plan for actually improving health care in the United States. A merged version of the two bills could expand the number of Americans eligible for health insurance, but it would be very unlikely to reduce costs or improve quality of medical services.

Being a strong advocate for improving our health care delivery system, I’m not happy with my contrarian forecast. However, I learned in my meteorology days to base my forecast on the likely outcomes of the forces at play, which was not always the weather I wanted. I also learned that people love to make their own forecasts. So, step out on a limb with me and share your forecast. What do you think is most likely to happen, and why?

What are the foundations of meaningful reform?

2009-12-15T15:28:00.000-06:00

The push for health reform has changed course substantially since the new Congress and administration took office in January. Originally envisioned as an industrial-strength effort to make medical care less-expensive and consistently good, the reform movement has shifted its aim to the much narrower target of insurance overhaul. The goal seems to have shifted from improving the medical marketplace to requiring Americans to purchase insurance, without forcing long-overdue changes in delivery or payment.

A few remnants of the original push to improve the system—a very different goal than expanding the number of Americans with insurance—may survive as demonstration programs (thus allowing elected officials to claim that cost and quality reforms are included in a reform law if one passes). Prospects for any fundamental changes in the delivery system have all but disappeared as the legislative year ends, although creating an expert commission to address cost issues still has some significant support at both ends of Pennsylvania Avenue.

Some writers for the trade press apparently sense reform’s loss of momentum and purpose. Journalists who interview me on a regular basis have shifted their line of questioning from the likelihood of reform now to what needs to be done in the future. Just last Friday, one magazine writer asked me to identify the three top goals that should be addressed next time because meaningful reform is not going to be accomplished this year.

In my opinion, real reform must be built on three foundations:

All delivery organizations must use pervasive performance improvement processes, based on state-of-the art information technologies that ensure medical care is done right all the time, as inexpensively as possible.
Health systems and health professionals must operate on the same balance sheet, eliminating the waste created when hospitals and doctors work for different economic units.
Fee-for-service reimbursement must be replaced with a payment mechanism that rewards quality and value, not volume, of goods and services provided.

I believe that we’re wasting valuable time if reform does not focus on making all three fundamental changes. We should be figuring out how to do these things together, as quickly as possible. Several successful health care organizations give us good models for building a world-class medical marketplace. Simply forcing more Americans to buy insurance is not social or economic progress if health care is still overpriced and unreliable. What would you do to move us in the right direction?

If reform passes this year, will it matter?

2009-12-08T17:05:00.003-06:00

All year long, people have asked me to write and speak about the prospects for health care overhaul in 2009. I’ve consistently forecast the prospects for reform at 30% or less, which has put me at odds with the near-universal view that the Democrats had the power to make it happen this year.

The political events of the past few days reinforce the main reason why I am a reform skeptic—something quite different from a reform opponent. (I firmly believe that reforms are desperately needed. The status quo is unsustainable.) Health reform has not been a “sure thing” because the ruling party is not unified on key issues. Democrats in Congress are deeply divided, and the White House has not provided clear or consistent leadership on what needs to be done or how to do it.

Consequently, the political price to be paid for passing a law in the next few weeks is incorporating pet projects (a.k.a. pork) and eliminating controversial provisions. Any final product is certain to be unfocused and inconsistent. It is also likely to be very expensive, which is why the current reform proposals impose cuts in existing programs and create new revenues almost immediately while delaying the actual reforms for several years.

If a reform law passes under these circumstances, people will discover that they are being expected to pay for reform long before the reforms are implemented. It’s a set-up for repealing any 2009 reform law before the 2010 mid-term elections. Sound impossible? It happened with the catastrophic insurance law twenty years ago, and I believe it would happen again. Even if a reform law passes in the next few weeks, its chances of surviving the next session of Congress are slim.

Reform in Washington is a red herring in my view, but the problems that compel reform are getting more serious by the day. Some key Democratic leaders say that we should pass something now and deal with its defects later. I disagree. Providers, payers, purchasers, and consumers should start working together to find solutions in their local markets. They should study our country’s health systems that have become excellent without waiting for national reform and work as partners to build on their successes.

We’ve always believed that health reform is ultimately local. Why shouldn’t reform be local, especially when the current political system seems to be incapable of solving problems nationally? What do you think?

Critical Issues. Constructive Debate.

2009-12-01T16:35:00.014-06:00

The goal of this blog is to provide a forum for constructive discussion of critical issues about the future of healthcare—specifically to build consensus around realistic solutions to problems affecting:

• providers
• purchasers
• payers
• patients

All parties are welcome at this virtual table. We value your insight as we explore results-oriented partnerships in local healthcare marketplaces as essential alternatives to the polarizing reforms advocated by special interest groups in Washington.