Archive for March, 2012

The Half Life of Healthcare: Understanding the Velocity of Change

Friday, March 2nd, 2012

The key drivers of healthcare have different rates of change.  Coverage expansion is on a two to three year timeline.  Reimbursement reform is on a ten year timeline.  Cultural transformation of institutions is on a thirty year timeline.  Yet there are many areas of healthcare on a short fuse.  Budget cuts at the federal level can happen almost immediately.  Network changes or contracts can change in a year.  Some new technologies can have immediate impacts, others take decades to reach full deployment.  Understanding the different half lives of healthcare is crucial to preparing for the future.  Too many actors conflate these forces into a blur of change moving at the same speed.  That can cause big strategic problems.

Understanding the Velocity of Change

Half Life is a term from radioactive physics referring to the time it takes for a substance to decay by half, it is the rate of change in radioactive decay.  Similarly in healthcare, different dimensions of the future move at different rates.  We may understand this intellectually, but as actors in an unfolding game, we have difficulty in judging the pace of change. My old mentor, Roy Amara who headed the Institute for the Future for twenty years taught us a basic principle about the future that we codified as Amara’s Law:  “There is a natural human tendency to overestimate the impact of phenomena in the sort run, and underestimate it, in the long run.”

Another eminent IFTF colleague, Paul Saffo, had a brilliant insight about the pace of the unfolding future:  “Never confuse a clear view with a short distance.”  A phenomenon I dubbed “premature extrapolation”.

We imagine many important changes are close, even though logic suggests that they might move slower than you think.   For example, the aging of the baby boom as a driver of healthcare utilization has been hyped for as long as I have been in the futures business, which is over thirty years.  And yet the very first baby boomers, those born in 1947, only became eligible for Medicare this year!  We have been so eager to anticipate their arrival in Medicare, this particular major demographic trend is old news.

We are eager to see positive changes happen fast and celebrate their progress even though it may be imperceptibly slow.  One of my basic principles in analyzing future trends is that if something is going to be a big deal in the future, it has to start sometime.  And show meaningful progress year over year.

While we have a tendency to overestimate in the short run and underestimate in the long run, that is not the whole story.  Some things can move faster than you think.  Look at the sting of the recession, and its impact on credit availability for hospitals, and on slowing demand for elective healthcare services; or a change in the law that allowed coverage of 26 year olds.  And there may be more rude short term shocks in our future, that we will highlight in a moment.

So it is important to sort out the rate of change for each of the factors that are causing changes in healthcare and weave them into a plausible unfolding reality.


Short Half Life

Some drivers of change can happen pretty quickly (in the next 1-2 years):

  • Budget Cuts.  Perhaps the fastest change that could happen in healthcare is for significant cuts in public programs, particularly Medicare and Medicaid, within the next 12-24 months.  The deficits at both federal and state levels (even though states cannot really run them) may force significant action, much in the way that austerity measures have swept the European economies.  Piled on top of the existing reimbursement cuts in PPACA means this sting could hit the field before the benefits of expanded coverage take hold.
  • Cost Shifting.  A related impact is the immediate potential for providers to cost shift:  make up for the shortfall in public payment by increasing prices to commercial payers.  In turn, employers can simply cost shift (or as they call it cost share) with their employees.  This has been the game for the last decade and has meant that the typical American household is in a PPO with a $1,000 family deductible.
  • Lansky’s Short Fuse.  My friend Dr. David Lansky who leads the Pacific Business Group on Health, gave me the basic idea for this column when he told me that he believes that employers now have a short fuse.  I took this to mean that employers’ patience with inexorably rising costs and cost shifting is wearing pretty thin.  It also explains the speculation that employers may prefer a future where they are off the hook for healthcare, and send their employees to the new health insurance exchanges.  (I would argue that employer exit on a massive scale has a longer half life, maybe in 2018 when exchanges are up and running and the Cadillac Tax kicks in, because by then everyone will be driving Cadillacs).
  • Network Contract Changes.  Large employers can make big changes in their employee benefits plans two years out.  Small employers can switch insurers each year.  Providers can find themselves cut out in a skinny network in a year or two.  I have run into a significant number of hospitals, large and small, caught flat-footed by a sudden change in their preferred provider status as payers (plans and large employers in concert) move to skinny networks.
  • Mergers and Acquisitions.  Hospital leaders can merge institutions on short notice, and buy medical groups even faster.  Witness the rapid contractual integration of hospitals and physicians taking place across the country.  (I say contractual integration because that has a short half life, in contrast to true clinical integration and the related cultural shift toward accountability and quality which may take decades to fully accomplish).
  • Supreme Court Decisions.  The Supreme Court will rule in the summer whether PPACA is constitutional and no matter what the ruling it will have a big and immediate impact.  At the extremes, if PPACA is overturned anticipate less coverage expansion in the future (although the delivery system changes underway will likely continue), at the other extreme if the law is upheld, states like Florida will have to scramble to set up a health insurance exchange in six months, (that will be fun to watch).


Medium Half Life

Some aspects of change have a half life that is two to five years out:

  • Coverage Expansion. The major provisions for coverage expansion happen in 2014, a deadline that may drag out if states are unprepared to operate health insurance exchanges or rapidly expand Medicaid coverage.
  • Meaningful Use.  Meaningful use of computers got a major stimulus (pardon the pun) and relatively rapid progress is being made in deploying electronic health records.  The vision of interoperability enabled through robust Health Information Exchanges may take a lot longer.
  • Value Based Purchasing.  AHA Analysts estimate that approximately 9 percent of Medicare reimbursement to hospitals will be at risk based on quality by 2015, based on the value purchasing and readmission reimbursement provisions on the books.
  • Large Group Practice Formation.  Large multi-specialty group practices will be formed through a variety of models over the next five years.  But, we should learn from all the high functioning medical groups that have taken 30 years to become an overnight success.  Culture takes time.

Long Half Life

Some changes take a very long time, perhaps a decade or more:

  • Reimbursement reform.  Some reimbursement reforms like DRGs can be implemented to make significant short term changes in incentives that have a major impact.  The proposed reimbursement reforms in both public and private sectors are moving slowly (but inexorably) toward a new future.  Pilots must take take off and become mainstream.  That usually takes time.
  • Cultural transformation.  Some organizations like Virginia-Mason in Seattle have shown that leadership and commitment can change the culture, but these are exceptions.  Most high-performing cultures take a long time to build.  Patience, persistence and passion are needed to overcome the cultural inertia in most organizations.
  • Medical Education Reform.  Medical education needs to change to reinforce the broader transformation agenda, but it takes a very long time to affect the stock and flow of doctors and other advanced practitioners.  Most of the people practicing 10 years from now are practicing today (do the math).  And academic medicine is not often described as nimble, market sensitive, and change oriented.  There are notable exceptions such as UCLA who are pursuing a rapid and aggressive innovation agenda, but in the main it is hard to turn the academic medicine battleship.

Half Life in Action

Here are some key examples of the half life phenomenon to watch for:

  • Medicare.  The future of Medicare will be an enormous issue in an election year.  Medicare must be changed, but how much, how fast, and for whom?  Proposals to shift Medicare to a voucher plan for those who are 55 or younger today, is a long half life proposal.  (It won’t save in the short run but will have big impacts in the long run). Cutting the Medicare budget in 2013, has a short half life.  Bending the trend through reimbursement and delivery reform could take a very long time, maybe forever.
  • ACOs.  Accountable care is a megatrend, not necessarily the formal CMS pilot programs, but the general idea that integrated systems of care are being formed to provide accountable care to the population they serve.  You can buy the doctors tomorrow, but managing the half-life of payment reform, and business model migration is tricky stuff.
  • Health Information Technology Infrastructure.  We are seeing relatively rapid deployment of HIT and real progress towards meaningful use.  But we must keep the pressure on to build an infrastructure to support the vision of a high performing health system.  Finding faster pathways to interoperability will be required.

My advice to leaders is to discipline yourself to parse the future and use the half life concept to understand the pace of each of the individual elements of change.  If you conflate the future and see all the big changes as clear and close, you may have trouble in developing a sensible strategy, sequenced to meet the unfolding future.   Conversely, try to find ways to shorten the half life of change for elements such as clinical redesign and cultural transformation that are key to meaningful change.  I am very encouraged, because on my travels, I see front line providers stepping up to change clinical processes to make them better, safer, and high performing and they are doing this rapidly.  The best way to have a better future is speed up the good parts.

Ian Morrison is an author, consultant and futurist based in Menlo Park, Calif. He is also a regular contributor to H&HN Daily and a member of Speakers Express.