Reform Outlook: State and Local Differences

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

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?

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

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

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

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?

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?

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?”

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?

Solving the OSFA Problem: Process Standards or Standard Processes?

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?

Absorptive Capacity: Are We Doing Too Much?

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?

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)?

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

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

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

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…

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

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.

Should reform be based on statistical significance?

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’s an ACO?

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?