Archive for September, 2010

The New Math

Monday, September 6th, 2010

It’s becoming increasingly clear that the future of health care is now arithmetically impossible. You know, the future where the trend bends, the people get everything they want without paying more, the doctors are whole and happy, the hospitals flourish because there are no uninsured, and the ERs are empty because everyone has an insurance card and they go to their regular doctor instead. Well, it was nice PowerPoint while it lasted. Reforming the health care insurance system without fundamentally changing the health care delivery system is mathematically impossible. We need a new math for the entire system.

Welcome to the Future under the Old Math

The old math is based on the notion that you pay providers every time they do something. Some patients have cards that pay providers a lot, some patients have cards that pay providers a little and some patients have no cards. The trick, if you are a hospital, is to have more patients with well-paying cards than patients with no cards. For a doctor, it is best to avoid the no-card patients entirely, unless you work for a federally qualified health center and you therefore get paid a lot per unit of service for the patients with no cards; or if you are doctoring in a big safety net institution on a salary; or you are simply noble, hard-working and eager to be extremely badly compensated.

With health reform, some of the people with no cards will get cards that have poor reimbursement attached to them. (They are called Medicaid patients and they will expand by 16 million under the law.) Doctors won’t see these patients because the doctors are already too busy. Hospitals will see them, somewhat reluctantly, because they have no real choice. They will lose money on each one of the patients, and they will try to make it up on volume, until they find they can’t.

Then, there are the people with the richly paying cards (who are employed by companies who currently offer health insurance at an annual cost of $18,000 a year in premium for a PPO family product). These companies are going to be the target of cost-shifting by doctors and hospitals until the companies decide they have to move their employee’s job to India because they can’t afford to pay the money for cost-shifted health care. The unemployed patients will go on Medicaid or get substantial federal subsidies to purchase insurance through a federally subsidized health insurance exchange.

Everyone is grumpy, no one can afford the taxes, the premiums are ridiculous, hospitals cannot make money, you have to wait forever to see a doctor. Doctors want to retire but they can’t because their 401(k) never recovers because health care costs are ruining the economy. This is not good.

A New Math for Health Care

All this misery is predicated on two key assumptions. First, that reimbursement should cover the costs of care. Second, that the way we do things now is the right way.

I think we need a new math. When CFOs say to me that “Medicare covers only 95 percent of the costs of care,” I rephrase that as: “Medicare doesn’t meet the current income expectations that your people have for delivering the service in exactly the same inefficient way as today.” Doesn’t sound so good.

Similarly, physicians who refuse to take Medicaid patients (most of them) and those who refuse to take Medicare patients (about 20 percent and growing) are basically saying the same thing: “You are not meeting my income expectation for me doing things the same way I have always done them.”

Every business in every other industry has had to change what they do and how they do it. We need to learn from them about how to change.

But, also, we need to help these providers out of the bind they are in by developing a New Math:

Population-based payment. Pay integrated systems of care a risk-adjusted, per capita fee to cover a population. (Wait, you say, that sounds like capitation! Dude, it is capitation. Get over it.) If these integrated systems of care can develop a way to deliver services that result in superior health outcomes for the population they cover and the systems make money, God bless them, so long as there are performance scorecards, and the patients join these systems voluntarily and willingly (with an incentive to select low-cost, high-performing systems).
Change the delivery model with technology. One doctor can see 20 patients per day. How many patient encounters per day can be generated by a team of one doctor, three nurse practitioners, five patient service representatives and a big honking server? I don’t know, but the fact that Kaiser had close to 9 million e-visits last year and took their in-person visits down to 60 percent of the prior year, by all accounts, speaks to a new math emerging in how to use technology to do more with the limited number of doctors we have.
Change the compensation principle from action to outcome. Patients want health outcomes, not health services. They can be encouraged to watchfully wait, rather than be aggressively treated. When pleasantly presented by persuasive professionals, patients pick properly. The shared decision-making literature is full of lessons on how to do this if the incentives mesh with the decision-making science.
Pay doctors more (sometimes at the micro level) to save money at the macro level. It may be better to spend a well-compensated hour with a co-morbid Congestive Heart Failure (CHF) patient than to have that patient become part of the all-too-familiar “revolving door” of chronic care management in acute care hospitals. This will not happen spontaneously without a new math to support the economics of medical homes, accountable care organizations and readmission reimbursement.
Release the power of pyramids. Referral pyramids can lead to volume-quality virtuous cycles. Similarly, delegation of tasks down the clinical pyramids can improve throughput and quality so that everyone is practicing at the limit of scope of practice and those limits are being expanded through licensure, decision support, organizational innovation and clinical redesign.

I am encouraged that if we are lucky and get good leadership from HHS and CMS, and from the policy and academic communities, we can conceive of a New Math that will lead us to a sustainable future. For example, I was really excited to learn that a friend and colleague, Dr. Arnie Milstein (who retains his role as chief medical officer of the Pacific Business Group on Health) in addition will be leading the new Clinical Excellence Research Center at Stanford University. The center is dedicated to bringing engineering, business and clinical faculty together to pursue innovation that will lead to high-performance health care delivery that is truly better, faster, cheaper. I can’t wait to see the fruits of that new effort.

But, while theory, policy, pilots and thought leadership are all important in developing a New Math for health care, the most important critical success factor for the future is a health care field (and health care leaders) willing to embrace this New Math. I believe that a new generation of health care leadership will come of age under the New Math, that they’ll figure it out, like it, work it and create great health systems for the future. And then the math might work out for all of us.