Ian Morrison

Much attention has been paid to private employers’ growing activism in managing health care costs and taking a more direct and aggressive stance in engaging the delivery system. But private employers have two big problems: First, they have difficulty acting in concert, and second, they don’t generally have many lives in one place. States are large employers, they run large Medicaid programs, and some have their own health insurance exchanges.

Increasingly, states including Washington and Arkansas are using this combined purchasing power to transform the health care marketplace and coordinate their payment reform efforts with private purchasers. Public purchasers (acting in concert with willing private purchasers) can have a powerful influence on health care transformation.

The Role of Public versus Private Purchasers

Everyone knows that Medicare is the big dog in health care. Indeed, for inpatient care, Medicare frequently accounts for a majority of patients. And certainly when Medicaid is included, public purchasers nearly always account for a majority of patients on both an inpatient and outpatient basis. So when Medicare changes the way it pays providers, we all pay attention, as we should.

On a revenue and margin basis, it’s a different story. Commercial insurance is the financial lifeblood of American health care delivery system — hence the focus in past columns on the role that private purchasers (particularly large self-insured employers) play in changing the rules of the game. (See, for example, my H&HN Daily column, “Urgent Care.”) [http://www.hhnmag.com/articles/4024-urgent-care]

The rising costs of health care premiums for employers and the looming Cadillac tax have caused employers to introduce new benefit designs such as consumer directed health plans and to become more active in their engagement with the delivery system in reference pricing experiments, centers of excellence initiatives and targeted accountable care organization contracts.

But as noted in the introduction, even large, self-insured employers have dissipated their power. First, they struggle to act in concert and bring their true purchasing power to bear. To be fair, it is complicated. Large national self-insured employers come in many different flavors, with workforces of varying blends of income, education, age and health care status. An aging, unionized, Rust Belt workforce is a little different from Facebook, whose employees’ health needs focus more on acne medication and lollipops for owies.

Large employers also have different corporate values and priorities: some paternalistic and others Darwinian in their attitude toward human resources. And it turns out that the CEO’s wife’s OB/GYN has outsize influence on many corporate benefit decisions. So  it is really hard for large employers to pool all their purchasing power and sing from exactly the same hymnal, if I may mix metaphors.

The second power leakage for self-insured employers comes from their lack of geographic concentration. Take Facebook again, which is headquartered in my town: Menlo Park, California. It has grown 48 percent in the last year to 10,000 employees, but only about half are in the Bay Area. Five thousand lives is a tiny drop in a big Bay Area bucket.

More traditional Fortune 500 companies may have hundreds of thousands of employees but they are spread over many regions and countries with very little concentration in one city. Think GE, IBM, big box retailers and banks. There are exceptions: Disney has big concentrations of employees near its theme parks in Orlando, Florida, and Anaheim, California, as does Boeing in Seattle and Southern California, Intel in Albuquerque, New Mexico, and so forth. But they are truly the exception rather than the rule.

So who does have big geographic concentrations of covered lives? Answer: state and local government. Whether it is employees and dependents of state agencies, municipal workers and dependents, school boards and state universities and their faculty and dependents, state correction officers, or retirees of all of the above, you are talking about a lot of humans all in one place. Add to that state Medicaid rolls and state-based exchange enrollees, and pretty soon you are at a third or more of all health care even without Medicare.

State-Based Purchasers Flexing Their Muscle

States have long recognized their purchasing power and influence on health and retirement benefits. CalPERS, for example, purchases over $7 billion per annum of health care in California alone and continues to be a major innovator in health care purchasing. It has conducted reference pricing experiments and created active managed competition marketplaces that have kept rate increases in check. In 2015 Kaiser reduced rates to CalPERS by nearly 4 percent. (Kaiser and other plans had modest rate increases approved for 2016 with almost half of the increase due to recent increases in pharmacy costs.)

Cities, too, have flexed their muscle. In 2014 the City of San Francisco battled health plans (again, particularly Kaiser) on rate increases. In response, Kaiser recently decided to drop rates by 2 percent in fiscal year 2015–2016 and freeze rates during fiscal year 2016–2017.

In Massachusetts state purchasers employed narrow networks to reduce costs to state employees. Montana started regional clinics to provide more direct access to the uninsured, and it encouraged state workers to use these clinics.

While states have flexed their muscle in purchasing health care for workers, retirees and dependents, it is not all sweetness and light. The public sector has its own issues, primarily the challenge of heavily unionized workforces. Nationally, union penetration in the private sector labor force is at historic lows, around 6 percent, while among state and local employees, school teachers, firefighters, cops and corrections officers it exceeds 30 percent, according to the Bureau of Labor Statistics.

Historically, unionized public sector workforces have bargained for rich health benefits to compensate for what were perceived as lower wages. (Hence the perverse economics and politics of the Cadillac tax, whose framers thought they were whacking over-compensated Goldman Sachs bankers only to find out that the people with the richest health benefits in America were New York firefighters and Los Angeles schoolteachers.)

Despite Governor Scott Walker withering out of the Republican primary as road kill in the Trump juggernaut (“You’re fired, you were a disaster in Wisconsin”), the fiscal conservative wing of the Republican party would dearly love to put enormous pressure on state and local government to dramatically reduce what are perceived to be excessively generous health and retirement benefits. So the scrutiny on state employees health care costs will likely intensify in the next election cycle.

And then there is Medicaid. With 71 million, Medicaid now has more enrollees than the entire population of France. If it were its own country it

would be the 20th largest in the world by population. If it were its own economy it would be the 25th largest, edging out Argentina. And this year Medicaid spending will exceed the entire global revenue of Wal-Mart by $50 billion. It is a big screaming deal.

Medicaid is growing rapidly as a share of state budgets (despite massive federal support) both in states that expanded Medicaid and those that did not. And because there are still a lot of people uninsured nationally who earn less than 138 percent of the federal poverty level, it could get even bigger if Democrats win in 2016. States will have a big problem, even with continued federal help, and Medicaid spending will crowd out other needed investments in infrastructure, K–12 education, state universities and criminal justice systems.

Case Study: Washington State

So it is against this backdrop that you have the good folks in Washington State. The Washington State Health Care Authority oversees Medicaid and health benefits for state employees, and is responsible for more than 2.1 million of the state’s 7 million residents. A 2013 CMMI Innovation planning grant catalyzed the authority to develop its Health Care Innovation Plan. This plan, according to the authority, “builds on Washington’s unique blend of entrepreneurship and collaboration. It seeks to channel health plan and provider competition toward value without dictating lockstep adherence to specific payment or delivery system models.”

The Healthcare Innovation Plan laid out three key strategies:

• Drive value-based purchasing across the community, starting with the state as “first mover.”
• Improve health overall by building healthy communities and people through prevention and early mitigation of disease throughout the life course.
• Improve chronic illness care through better integration of care and social supports, particularly for  individuals with physical and behavioral co-morbidities.

The Health care Innovation Plan identifies a number of “foundational building blocks” including: robust quality and price transparency, activated and engaged individuals and families, regionalized transformation efforts, accountable communities of health, leveraged state data capabilities, practice transformation support, and increased workforce capacity and flexibility.

Through the advancement of common measures, strategic agendas and clinical processes the Washington State Health Care Authority has set a goal of moving 80 percent of the state’s activities to value-based purchasing by 2020 and galvanizing the commercial market to reach 50 percent by 2020.

Working with a network of health plan partners including Regence, Premera, Group Health and local Medicaid plans, the authority seeks to advance the goals and principles laid out in their innovation road map. They also sought to encourage providers to develop accountable care models.

In particular, The Seattle Times reported on June 8 (http://www.seattletimes.com/seattle-news/some-state-workers-to-see-new-option-for-health-care-coverage/) that for upcoming open enrollment for 2016:

“The Washington State Health Care Authority, the agency that manages benefits for public workers through the Public Employee Benefits Board (PEBB), has signed deals with the UW Medicine Accountable Care Network and the Puget Sound High Value Network to provide coverage to PEBB members….

“Beginning in November, PEBB members can choose one of the accountable care programs among a variety of insurance options. … The accountable care options initially are limited to workers in King, Snohomish, Kitsap, Pierce and Thurston counties. The state’s goal is to enroll 50,000 PEBB employees in one of the new programs, officials said.

“The program is expected to expand statewide in 2017. PEBB covers about 355,000 public workers and family members.”

These two ACO-like networks (one anchored by the University of Washington, and the other composed of Virginia Mason and others) are being offered in a region where Boeing and other large employers have entered into similar direct ACO relationships.

The Washington State Health Care Authority is acting strategically as a purchaser in the marketplace to help transform the overall health care marketplace toward higher performance that is accountable for cost and quality. It is also encouraging the private sector to follow its lead in value-based payment. But how widespread are such efforts?

All Payer Transformation Led by States

An excellent review of various state efforts to coordinate payment reform was conducted by researchers from the Pacific Business Group on Health in a research brief supported by the Millbank Memorial Fund. (http://www.pbgh.org/storage/documents/Milbank_-_PBGH_Report_FINAL_2_17_15.pdf)

The report documents initiatives to advance multipayer payment reform that are underway in several states. For example:

• Arkansas has initiated multipayer based episodic payment initiatives and patient-centered medical home programs.

• Minnesota’s multipayer payment and delivery system reform strategy is primarily tied to spreading an ACO concept (the Minnesota Accountable Health Model framework) among Medicare, Medicaid, commercial payers and self-funded populations in the state.

• Oregon’s recent multipayer efforts center on spreading the coordinated care organization model introduced into the state Medicaid program in 2012. CCOs are like ACOs, only Oregonian.

• Vermont is at the forefront of state efforts to reform its health insurance payment and delivery system, and continues to actively test value-based payment approaches with multiple public and private payers.

Implications

Watch for states to play a greater role in driving payment reform in the programs they pay for (Medicaid, exchanges and state employee groups) as well as influencing and coordinating with private purchasers to follow the same path. The goal in all cases is to transform health care delivery for higher performance on the basis of cost and quality.

All health care is local. By acting locally, we might actually achieve the transformation we all hope for.

At the recent Health Forum–AHA Leadership Summit, much of the discussion by keynoters and learning track faculty alike was the coming transformation in health care toward paying for value. Newly announced mandatory Centers for Medicare & Medicaid Services programs for bundled payment in orthopedics added fuel to the volume-to-value wildfire.

But what exactly is the right vision? There is growing skepticism among many respected industry experts who question whether population health, providers at risk and accountable care organizations (ACO) are really the right answer. They fear these models may all turn out to be a bridge too far. Instead, they argue, we should get the basics of health care delivery right first. Then we should use bundled payment–type models as our lead foray into financial incentives that promote improved care coordination and clinical performance delivered by focused, high-performing teams.

At the summit, Michael Porter from Harvard Business School strongly argued that bundles are the right path to value. Similarly, my pals Nathan Kaufman and Jeff Goldsmith, whom I have enormous respect for and nearly always agree with, clearly articulated in recent writings their concerns with the at-risk vision based on their thoughtful analysis of recent ACO performance and their decades of research and strategic consulting with health care leaders.

I get their point, based on the rocky performance of CMS’s ACOs (pioneers and shared savings model alike) and the meager overall improvements in cost and quality they have yielded after the substantial investment occurred. I also wholeheartedly agree that providers bearing risk is not for the fainthearted. I call it the mutual disrespect problem: In health care everyone thinks that everyone else’s job is easy, and anyone can do what a health insurer does. Actually, it’s not that easy.

So, there is a plausible (and perhaps even likely) conclusion that meaningfully incenting providers to deliver care by taking financial risk for a defined population they serve (across the continuum of care) is an impossible dream that will end in failure. Therefore we should settle back on bundles and other less grandiose improvement initiatives instead.

I am not yet throwing in the towel on providers at risk. On the contrary, I still believe that our best hope for sustainable health care may well come from large integrated systems of care competing on the basis of cost and quality for a defined population.

But, like my more skeptical colleagues, I completely agree that this is difficult work for policy makers, health plans and the entire health care delivery system.

One Strategy or Many?

If you believe all the PowerPoints you see in health care, it would seem at first glance that there is only one strategy for health care systems: Get big, take risk, look like Kaiser, only better.

Yet, many systems that are large, growing and respected such as Virginia-Mason, Cleveland Clinic, Mayo Clinic, Yale-New Haven and others are not going to be in the population health business even though they are the de facto provider of most health services for a large and identifiable chunk of their local population. And that strategy is perfectly fine, provided they can secure patient flow that is profitable for the services they provide. It further assumes that large self-insured employers will be willing to suck up the inevitable cost shift from Medicare and Medicaid over the next decade. Maybe it will all be fine forever and they can manage their cost structure to deliver value in the form of quality and patient experience for the clinical services they provide.

At the other extreme, there are actors who are “all in” on the path to risk. Advocate, Intermountain, Presbyterian and many others are committed to having a majority of revenues from at-risk lines of business including Medicare Advantage, Managed Medicaid, their own employee health plans, direct contracts with self-insured employers, and a variety of commercial and public payment accountable care arrangements. They too have their challenges. But the commitment of the leaders seems real as evidenced by the public statements of CEOs and the signing of blood oaths by members of the Health Care Transformation Task Force early in 2015 (a group of private sector payers and providers who committed publicly to have a majority of their revenues derived from value based payment by 2020).

For example, at the MedAssets CEO conference that I moderated earlier this year, polling of an audience of 200 C-suite executives from large integrated delivery surveys showed that a majority of them believed a majority of their revenue would be derived from value-based payments by 2020. In addition, over 80 percent said they would have either an insurance product co-branded with an insurer (53 percent) or have their own insurance license (30 percent) by 2020. In a proprietary Nielsen Strategic Health Perspectives survey taken in 2015, 8 percent of hospitals said they are “committed to moving the majority

of revenues to fully at risk within 5 years”; this is up from 1 percent in 2014.

My take on these and other proprietary surveys is this:

Half are not moving. About half of hospitals are either doing little or taking a “wait and see” attitude. It is more prevalent to wait and see on the East Coast than in the West.

The movers are still early on. Of the half who are moving, most are pursuing clinical integration strategies and dabbling in ACOs and shared savings pilots so as not to be left behind. They are not all in, yet.

True risk bearers who are “all in” is a small but growing minority. I think the 8 percent number is right and reflects my experience that this is a real phenomenon, is rapidly growing, and may account for a third of health systems in two or three years. And that would be enough to have a significant impact in the marketplace.

Most providers are not thrilled with payment innovations of any type. Nielsen surveys consistently show that almost all payment innovations — whether it be bundles, capitation, global payment and so forth — are not enthusiastically embraced by hospitals or physicians.

Finding Common Ground

I grew up in Glasgow, a city divided on sectarian lines in the ’50s and ’60s like Northern Ireland. As a Protestant, I didn’t have a Catholic classmate until I went to university. Rangers and Celtic matches were tightly contested on the field and turned into running, bloody pitch battles in the streets afterward. It was senseless, stupid, counterproductive and energy sucking. Sectarian division is not helpful.

I worry that we may be entering a sectarian battle in the health care system between bundlers and the true population health believers. I don’t think a sectarian fight is a good idea, so let me propose some common ground:

Any big move away from open ended fee-for-service payment is good. Let’s agree that any departure from unfettered fee-for-service that encourages providers to improve quality of care, advance outcomes and contain costs is a move in the right direction. We should celebrate all moves off the fee-for-service baseline.

It won’t be “either/or.” The vast majority of hospitals and health systems will live in a world of mixed incentives for a long time. There will be bundles, pay for performance, gain-sharing and at-risk models mediated by insurers or by other intermediaries yet to emerge. Few institutions will have the luxury to be pure plays, so get comfortable with mixed models.

Respect each other’s differences. There are legitimate advantages and disadvantages of bundles versus risk-bearing models that I will briefly touch on below, but let’s just respect that each has something to offer. Let’s not turn this into “my liturgy is better than your liturgy.”

Develop thoughtful policy. The reason that many of the ACO and Pioneer programs had a rocky start is that there were flaws in the policies from the get-go. Some of us pointed them out in a tongue in cheek way at the outset (see my past column “Chasing Unicorns”). Most notably, the fact that patients can go wherever they want without hindrance and that “success” was benchmarked against national norms, not relative performance improvement, have each been major contributors to the pioneers’ decision to turn back (see also my column “Why Pioneer Turns Back”).

Bundles versus Population Health Risk

Focusing on bundled payment may be a more acceptable strategy to many health systems because it is consistent with the central focus of most institutions, namely continued growth in clinical programs. More surgery is still better economically for hospitals in a world of bundles. When done right, incentives can be aligned to encourage improved care coordination across the continuum of care and, in turn, to improve quality and drive out some forms of waste and redundancy.

The good news is that, because you don’t have to take any risk for the total costs of care for the population, you don’t really have to worry about the frequency of services being provided. More is better. (One exception is the Wal-Mart/Pacific Business Group on Health center of excellence model where part of the bundled payment for cardiac surgery and joint replacement is for screening for the appropriateness of the cardiac and orthopedics procedures being contracted. This turns out to have a big effect on utilization, with 30 to 50 percent of cases deemed inappropriate for surgery.)

The great advantage of bundles is that they can encourage improvement of teams on dimensions that they actually control and that patients care about.

The downside of bundles is that not all health conditions are as easy to bundle as joint replacement. Complex co-morbid patients are trickier to bundle. But as Professor Porter taught us all at the summit, there are examples from other countries where bundled payments have been designed to accommodate complex, chronic conditions.

Overall, my main beef with bundles is best exemplified by a quote from a health system CEO who told me: “Screw me on the bundle and I’ll screw you on something else.” This is a wise statement because it points to the potential for providers to raise charges on non-bundled items to accommodate for revenue lost.

Going https://www.acheterviagrafr24.com/prix-du-viagra/ at risk is different. The key distinction is that more is no longer better. Indeed, Kaiser and the capitated delegated models of California managed care learned decades ago that the primary goal was to minimize hospitalizations and procedures driving bed days per thousand enrollees to a level sometimes half of the normal fee for service population. When you are at risk you are not trying to fill the hospital; you are trying to empty it.

But as we have learned in surveys and in the field, because there are very few pure-play, at-risk integrated delivery systems, the likelihood is that integrated systems will be in mixed payment models for some considerable time and will face conflicting incentives as a result.

While most systems will be in mixed payment models, many health systems (our surveys show about a third) are making significant investments in population health infrastructure and are experimenting and planning to take risk. When they run the math at the population level, they always run into the 5/50 problem. The reality is that, in any insurance pool, 5 percent of patients (the heavy users) account for 50 percent of costs; conversely, about 50 percent of patients use very little health care.

Hospitals have historic warm and fuzzy relations with the 5 percent. When you are an insurer, you’d prefer to hang with the 50 percent healthy folk.

As health systems pursue risk and dig into the analytics of who those 5 percent patients are and what conditions they have, they soon stumble across the following:

HONDAS. I was famously denied coverage before Obamacare kicked in (see “My Journey through Obamacare”) because my insurer deemed me a HONDA (hypertensive obese non-compliant diabetic alcoholic), none of which is true but is directionally correct. HONDAs show up on most lists of heavy users.

Behavioral health. In almost all insurance pools, from employer-sponsored coverage to Medicaid, the heavy users will likely have behavioral health issues.

End-of-life care. Particularly in the Medicare population, end-of-life care will be a big component of costs (approximately 27 percent); those patients at end of life will be heavily represented in the 5 percent heavy users covered under Medicare.

Cancer. In any insurance pool, patients with cancer will typically be in the top 5 percent of heavy users.

Frail elderly. Again in the Medicare population, frail elderly will be among the heaviest users, and many of these patients are dual eligibles.

Specialty pharmaceuticals. The recent growth in new specialty pharmaceuticals with very large price tags is having an impact on all insurance pools, from Medicaid to commercial. Indeed, the chief medical officer of one of the nation’s largest insurers told me that this year, for the first time, any patient taking a biological would likely be in the top 5 percent of costs in the commercially insured population.

Social work, not medical care. As we have stressed in this column many times before, the best management of many of these top 5 percent utilizers may end up looking a lot more like social work than medical care. Housing, transportation, income support, nutritional support and counseling may be more beneficial and effective than any form of conventional medical intervention.

If a health system is getting into the risk business, it has to be comfortable managing these issues. But it is not only the population health risk takers who must confront them.

For example, expect more cancer care bundles from public and private payers that provide incentives to caregivers to manage the total costs of care, including specialty pharmaceuticals. Similarly, there will be considerable experimentation with dual eligible payment models over the next decade as Medicaid expands massively in importance for the entire health care system. That experimentation might include bundled payment pilots for the frail elderly or for patients with Alzheimer’s.

In my view, it is not either risk or bundles, it’s both. Let’s get it right, though.

Final Observations on the Value Journey

Overall, my forecast can be summed up as follows:

Integrated systems with their own health plan, regional scale, direct contracting and Medicare Advantage contracts is the end game for some large players who are preparing for “population health” risk. Some, not all, will succeed.

Many hospitals will be caught between two paradigms for the next five years (at-risk versus fee-for-service), but the direction is toward more risk bearing on the basis of value through a variety of constantly evolving partnerships and risk-sharing arrangements.

Bundled payment for procedure-oriented care presents a major step toward promoting value and care coordination that does not require population health (frequency risk).

And finally: Value-based payment trends are not enthusiastically embraced by providers. So expect public payers to make more payment innovations mandatory, not just voluntary.

Once again Chief Justice Roberts is the adult in the room as the Supreme Court strongly reaffirms the legitimacy of subsidies for coverage under the Affordable Care Act (ACA).   “Congress passed The Affordable Care Act to improve health insurance markets, not destroy them.” Amen.

President Obama declared: “The Affordable Care Act is here to stay.” And certainly through his presidency that is now true. But there is an election in 2016 and Republicans running for president now have to decide whether health care is finally settled, or whether “repeal and replace” is potentially a winning political formula.

Republican candidates may choose to pivot to immigration, jobs, ISIS, or shrinking government as the principal issues they want to campaign on. Or they may choose to stay the course and campaign on “repeal and replace” in the presidential primaries and the election itself. We will see.

In the wake of the Supreme Court decision, The New York Times was quick to suggest that there was no future for the struggling state-based exchanges; and to be sure, if you are in Oregon or Hawaii, healthcare.gov now looks like a better alternative than trying to maintain a state-based exchange infrastructure.

But I think it would be wrong to assume that health insurance markets will be completely federalized for three reasons. First, the ACA provides flexibility to states to go above and beyond the ACA in its regulation of insurance – including, for example, creating active purchasing provisions, putting limits on cost sharing, and regulating network adequacy. Second, Medicaid is still a state delivered program, and there is significant interaction between exchange populations and the Medicaid eligible population. And third, many, many states are using 1332 waivers to get creative with Medicaid expansion and in reforming state-based insurance and health care delivery markets.

There may be a Default Future emerging, no matter who is running the country – one that has regulated health insurance marketplaces at the state level, subsidies for low-income consumers for both Medicaid and exchanges, and where consumers choose among competing plans and delivery systems on the basis of cost and quality. This future may apply to seniors through Medicare Advantage and perhaps even many employees with employer-sponsored health insurance as employers migrate to defined contribution models of health benefits over the next decade.

Points of Difference

Obviously it matters who is running the country. At the core, the question is, Will rich people continue to write a check to help cover poor people, and how big will that check be?

Republicans are less likely to tolerate Medicaid’s reaching 100 million enrollees over the next decade, to support generous subsidies for middle-income families, or to accept tight regulation of insurance product offerings. But they are also likely to recognize that the bottom half of the income distribution will not purchase health insurance without premium support (individual mandate or not) delivered in the form of tax credits, vouchers or some other conservatively correct term for subsidy.

They will find it hard, if not impossible, to abandon guarantee issuance. This will require regulation of insurance markets, particularly if the individual mandate is somehow repealed or weakened. And many Republicans, most economists and a lot of Democrats favor the gradual elimination or curtailment of the tax deductibility of employer-sponsored health insurance whether through the Cadillac Tax or some other means.

To date, Republican politicians at all levels have been unified in their loud trashing of Obamacare and commitments to repeal and replace. And up until now it has been a winning political strategy. Obamacare is an empty vessel into which all the perceived ills of American health care can be poured.

With a little help from shadowy unknown donors who outspent Obamacare supporters 10 to 1 on negative adds in key states in the last Congressional elections, Obamacare hating helped secure control of the U.S. Senate for the GOP.

But now it is different. As Colin Powell said about invading Middle Eastern countries: “You break it, you own it.”

You cannot run for president or control Congress for that matter and just be against Obamacare. You actually have to be for something (as well as remember all three of the federal departments you are planning on closing). It is a much higher bar to clear.

Sane conservative thought leaders realize that there are affordability gaps, that there must be subsidies, and that insurance markets need regulation to prevent meltdown through the classic sources of market failure: cream skimming, adverse selection and moral hazard. The Supreme Court ruling strongly reaffirms this understanding.

The most thoughtful conservatives wax lyrical about possible models such as Singapore and Switzerland as bastions of free enterprise and freedom from government meddling in health care. Many of us see these systems as highly regulated marketplaces, where consumers pick among tightly prescribed offerings supported by income-based subsidies in an exchange marketplace. Not exactly Adam Smith gone wild.

Three Futures

It seems to me there are three possible futures:

Subsidized unregulated marketplaces. This is close to the Republican Congressional vision of more limited subsidies, more limited regulation and many bewildering choices of cheap insurance products that don’t cover much available across state lines.

Managed marketplaces. States are organized into regulated marketplaces with robust Medicaid and activist insurance exchanges that create competition among insurers offering standardized benefit designs.

Dumb regulated markets. All premiums and provider reimbursement rates are highly regulated regardless of provider efficiency, plan performance or consumer responsiveness.

For me, managed marketplaces at the state level make the most sense, provided they get subsidy support through federal taxes. But I recognize that most states have struggled with establishing functioning exchanges. There have been technological, political and managerial meltdowns in several states such as Oregon, Hawaii and even Massachusetts (ironically). Many states lack the scale and sophistication to operate their own exchanges, and the infrastructure for those exchanges may have to be purchased from a national source (healthcare.gov to the rescue) as in Oregon and Hawaii.

Lessons from Covered California

Covered California remains the salient example of a state-based exchange that seems to be working at scale much the way it was intended. As we identified in previous columns, a lot was riding on Covered California as a test case of Obamacare and as a harbinger of the default future. (See “Eyes on California” and “The Future of Exchanges.”)

Covered California has received many criticisms, and there are certified haters out there. One particularly poisonous but brief critique came from the prestigious Columbia Journalism Review, a piece that for my tastes was a little light on journalism and lacked a comprehensive review of the facts.

In a series of interviews I asked Covered California’s executive director, Peter Lee, to respond to the idea of a default future, to review how it is all going and to answer the criticism from the haters. (Bias alert: I have known Peter Lee for 20 years as a friend and as a client while he was the CEO at the Pacific Business Group on Health. I am a huge fan and supporter of his work, passion and dedication. He is irrepressible and with his energy and intellect is the perfect person to champion the future.)

The final recent interview took place while he was driving at 6 in the morning to the airport and while drinking a double-shot Americano. Below is what I learned about the default future from the leader of the most important exchange in the country amped up on Starbucks.

Off to a Factual Start

As of March 2015, Covered California has 1.3 million Californians who have effectuated enrollment (that is Health and Human Services speak for paid their premium and have active health insurance). [See summary figure below from Covered California.] Over 1.8 million Californians have been served by Covered California since its inception. It’s not as many as McDonald’s, but it is a good start and a major contributor to cutting California’s uninsured rate in half since 2013. It should be noted that Covered California has helped reduce the uninsured by not only signing up folk to the exchange, it has also been the vehicle for nearly 3 million Californians accessing Medi-Cal coverage since 2013 (approximately 2 million who are newly eligible). In addition, Covered California is the place to get coverage for the many Californians who move in and out of eligibility as their income and life status changes. “We provide the glue to the employer-based health system when life happens to enrollees,” Lee told me.

Covered California and the MC Hammer Effect

Covered California is here to stay. Federal funds have been appropriated for its establishment. Covered California has a strong balance sheet (unlike most other state-based exchanges that lived hand to mouth by begging for support from their legislatures for operating funds). It has revenue to sustain its operations and can increase revenue by increasing per member per month assessments on plans. As Lee put it: “We totally control our own destiny” even for the one fiscal year, 2016–2017, when Covered California estimates it would draw down on its substantial reserves for maintenance of ongoing operations. Apart from the fact that Covered California is in the black, the subsidies are in current law, so it would seem as MC Hammer famously said: “U Can’t Touch This.”

However, Lee acknowledges that future Congresses and presidents could ratchet down subsidies for both exchange customers and Medicaid eligibles, thereby altering the relative attractiveness of insurance to lower- and middle-income Californians. As in most states the vast majority of Californians (88 percent) who purchased insurance through Covered California received a subsidy.

MC Hammer also provides the context for the longer-term future of Covered California: It has become “Too Legit to Quit.” Covered California estimates it will collect $6.5 billion in premiums in 2015, making it the second largest purchaser in the state (apart from Medicare and Medi-Cal), just behind CalPERS. While the effect on the delivery system is mediated through the four major plans that account for 95 percent of Covered California (Kaiser, Blue Shield, Anthem and Health Net), the exchange is now a major force for shaping insurance design in the state. Covered California has influenced narrow networks and innovation in benefit designs of standardized plans — the recent announcement of cost-sharing limits for specialty pharmaceuticals being one example.

The Value of an Active Purchaser

The ability of Covered California to shape the marketplace of standardized benefit designs is one of the many advantages of an active purchaser exchange. California is one of only a handful of active purchaser states and certainly the largest and most successful.

Active purchasing helps shape the market in a number of important ways:

Consumer-friendly choice, not endless choices. All too often we assume more choice is better for consumers. Wrong. A growing body of research in psychology and behavioral economics is showing that you can have too much of a good thing in the form of choice, especially of health insurance plans. A good example is the analysis that Covered California provided of the choices available in three cities: Los Angeles, Denver and Miami. At the Silver level alone there were seven plan choices in Los Angeles, and 35 in both Denver and Miami. I went on the Colorado exchange website and found more than 70 total plan choices for the ZIP code I picked in Denver. I have a PhD and am supposed to know a little about this stuff. I have no idea how you could possibly decide among the seemingly endless variants of deductible and co-payment combinations. Lee wryly dubbed this as leaving consumers to the mercy of “the invisible hand of Cigna,” meaning consumers don’t benefit from endless, confusing choices that are almost impossible to compare.

Steering consumers to enhanced Silver. A major critique of exchanges is that they are providing relatively high-deductible plans to relatively low-income people. Growing out-of-pocket costs for middle-income people is becoming a bigger and bigger political issue. But the ACA does provide help, and for most lower-income folk an enhanced Silver plan would seem the most sensible trade-off because of the cost-sharing limits for lower-income enrollees available in enhanced Silver plans. Covered California has succeeded in getting 58 percent of all its enrollees in such plans through a combination of outreach and providing a limited number of standardized, clear and transparent benefit designs. This is in contrast to exchanges in states like Washington and Colorado which provided a dizzying array of choices to a population where marijuana is legalized. It is probably no accident that those two states had the highest proportion of bronze purchasers as stoners defaulted to whatever was the cheapest rather than the best choice: “Dude, the Rocky Mountain high $10,000 deductible PPO Bronze looks super affordable.”

Making plans compete on network and price. By standardizing benefit design among a limited number of plans, Covered California makes plans compete on network and price, not benefit nuances. While there have been legitimate complaints about network transparency of exchange product, as we will address below, the creation of a regulated active purchaser marketplace has forced plans to develop narrower networks in order to have a competitively priced exchange offering, thereby helping consumers.

Managing new entrants. From its inception, Covered California was positioned as an active purchaser that would not simply accept any insurer on the exchange. Covered California evaluated all applicants and discreetly and confidentially excluded some applicants whom it judged could not meet the requirements. Covered California also determined that any plans that were active in California at the time of launch would have the choice to apply to be on the exchange or wait for three years to enter the market. The rationale was to protect those bold pioneers from fast followers getting a free ride on their hard and risky initial work. That explains why United could not enter California for the second year of enrollment because it chose not to apply in the first year. (United did enter exchanges in more than 20 other states across the country in year two and, given the Supreme Court’s ruling, will be able to function as expected.) The exception to the three-year wait rule is that completely new plans to the market will have the opportunity (but not the certainty of acceptance) to apply to offer in the exchange. So perhaps we will see new entrants like the start-up insurer Oscar in California next year. Also, Covered California’s board has a modified policy to allow a wider range of entrants to offer policies in regions of the state where there are an inadequate number of competitors.

On Target

Many news stories and a few health care consultants who should know better characterized Covered California’s recent enrollment as disappointing and missing targets. Lee explained to me the underlying assumptions about enrollment growth and reviewed progress from his perspective.

A number of points made by Lee and other sources are worth repeating here:

Churn is inevitable and was expected. Lee had been clear to the public and press at the end of year one’s enrollment that there would be churn in the exchange marketplace as individuals got jobs, got married, qualified for Medi-Cal or moved on throughout the year. Indeed, Covered California estimated that about a third of the exchange population would churn in the first year by about half a million in a year, a number that proved to be accurate. As Lee told me: “We needed to grow by 400,000 or more just to stay in place.”

Medi-Cal was swamped. Medi-Cal in California is massive and growing; apparently, according to industry sources, it did not

do redeterminations of Medi-Cal eligibility which affected perhaps 200,000 enrollees who would have moved from Medi-Cal to Covered California. Nevertheless, even with these head winds Covered California hit within the mid-point range of its expected enrollment growth.

Comparisons with Florida and Texas are confusing because of Medicaid expansion status. I have been bemused on my travels across the country by all those who dislike Obamacare and exchanges who are shocked to hear that almost a million people in Texas and 1.4 million in Florida have signed up and paid their premium on the federal exchange in 2015. Part of the reason the exchanges have signed up so many (more even than Covered California in the case of Florida) is that these states refused to expand Medicaid. Perhaps 40 percent to 50 percent of the exchange population would have been eligible for Medicaid if their state had expanded coverage up to 138 percent of the federal poverty level (FPL) as originally planned in the ACA.

Fluffing up income to qualify? Florida and Texas each have over a million people in the so-called coverage gap: too rich for Medicaid, too poor for an Obamacare subsidy (available at 100 percent of FPL). Remember that in most of the South, as a childless adult it is easier to get into Princeton than it is to get a Medicaid card. If you make more than 29 percent of the FPL in Mississippi you are too rich for Medicaid. So when exchanges became available and low-income Floridians and Texans actually realized they were eligible for exchange subsidies, many signed up. Indeed, industry insiders point to Florida where the number of people between 100 percent and 138 percent of FPL who signed up exceeded the total estimated number of eligibles in the state in that income category, suggesting that folks in the coverage gap may be fluffing up their income to qualify for subsidized coverage. I don’t blame them.

Three Key Successes

In all the political score-keeping on Obamacare enrollment and the measurement of coverage, we often miss the essential purpose of Covered California and the ACA: to get health care (not just health insurance) to those who have been left out. Covered California can boast:

Care, not just coverage. Despite the doom and gloom predictions, a Kaiser Family Foundation study from May 2015 shows the following trends: “91 percent of Covered California enrollees reported it was ‘very’ or ‘somewhat easy’ to travel to their usual source of care, which matches the findings for what the study calls the ‘Other Private’ market. 59 percent of Covered California enrollees had a checkup or preventive care visit by the fall of 2014, which is nearly twice the rate for preventive care visits among the uninsured. This is not significantly statistically different from the data for the ‘Other Private’ category, and, if extrapolated out over time, this means more than 800,000 preventive care visits have been provided through Covered California plans since January 2014.”

Reaching diverse populations. Covered California was criticized after the first year of enrollment for not reaching Latinos and other ethnic groups in proportion to the number of eligibles in those groups. When I asked Lee if they got closer in year two he said: “Forget close; we hit it out of the park.” For example, a Kaiser Family Foundation study found that “Covered California enrollees are more racially diverse than the group of Californians with private coverage. 60 percent identify as a race/ethnicity other than white. Latinos make up 37 percent of the total.” University of California simulation studies estimate that 38 percent of eligibles are Latino, so Covered California hit the target almost exactly.

Keeping premiums low. As rate submissions for 2016 are starting to become public, it is encouraging that while some plans in some markets across the country are asking for significant rate increases (asking not yet getting, it should be noted) the typical Silver plan is asking for only 4.5 percent increase and the second lowest Silver (the benchmark for subsidies) only 1 percent. So, too, in California: average rate increase is 4.2%, and real affordability has been achieved for many with 77 percent of enrollees paying less than $150 per month after subsidy and 120,000 Californians paying less than $10 per month in premium.

Work to Do

Covered California, like all exchanges, has been criticized for network adequacy and provider transparency. On narrow networks, Lee is unapologetic: “Narrow networks are a good thing, not a bad thing, if they deliver consumers a high-quality, affordable choice of providers.” And even in special cases such as children’s hospitals, Lee is proud that “Every children’s hospital in the state is in one or more of our plans.”

Critics of narrow networks on exchanges point to a lack of transparency about which providers are actually in the network. On this point Lee acknowledges that there is work still to do. Accuracy of provider directories of networks was a problem for both consumers and providers before Covered California was launched, and it will get better in 2016 and beyond, Lee said. Indeed, Covered California and the plans did a joint mailing to all doctors in the state to explain their network status.

A Vision of the Future

As we enter a new political season, health care is likely to be on the table. Don’t be surprised when all the dust settles three years from now if state-based exchanges play a prominent role (enabled by federal infrastructure and premium support for low income people). The successful state-based exchanges will be active purchasers in a managed marketplace. Covered California provides a vision of that future. We should be grateful for their efforts.

The PowerPoint is easy: Healthcare needs to move from volume to value, we must improve patient safety and quality, reduce the cost of care and transform the entire patient care experience to be higher performing, by using modern information technology: all noble, necessary, and non-negotiable.

But, here’s the issue: we may be straining the ability of frontline caregivers to pull this all off. They don’t just do PowerPoint, they have a day job: they look after patients. And many are at their wit’s end.

In the past few months I have had many conversations and interactions with health system leaders and boards; professional clinical leaders (physicians, nurses, clinical pharmacists and others); medical directors of health plans, physician associations and health systems; and real live physicians and nurses who deliver care. Every one of these people, each in his or her own way, points to what I have come to term improvement fatigue.

As usual, my brilliant insight was not original. (There are no new ideas, basically all of us pundits are in the recycling business). It turns out that as long ago as 2007 a high profile group of medical leaders (http://content.onlinejacc.org/article.aspx?articleid=1138535) pointed out in a prestigious medical journal the rise of quality and improvement fatigue as a growing consequence of the increased pressures to measure and improve the quality of care. But in the last eight years the pace has intensified as bigger strategic commitments are being made to reach the lofty PowerPoint future of health improvement and transformation that is being pursued by government, purchasers, and health delivery systems themselves.

Don’t get me wrong, I support the PowerPoint… hell, I wrote a lot of it. But all of this change trickles down to the caregivers and they need help.

They want to understand better the “why of change” in a clear and coherent way, and they need help and support in changing how care is delivered while at the same time they are actually delivering care.

This is a key challenge for health system leaders: to learn to spot improvement fatigue and help frontline caregivers overcome it so that they can continue to do what they always wanted to do: care for their patients in the best possible way.

What is Driving Improvement Fatigue?

Obamacare Angst. Ironically, we celebrated the fifth anniversary of Obamacare (which reduced the uninsured by a third) with the 50^th vote by the House of Representatives to repeal it. Our national sport is knocking Obamacare and using it as the whipping boy for all we hate about healthcare: high deductibles, financial gotchas, high prices, waiting times for appointments, bureaucratic impediments, government incompetence, private sector malfeasance etc, etc. You hear it from many clinicians: “this will all get better if we just get rid of Obamacare.” Well actually, no. The problems of cost, access, quality, value and security of benefits would, in my judgment, be aggravated by repeal, not helped. Valuable momentum would be lost, and politicians of every stripe would be loathe to make bold moves, taking the steam out of the promising progress we have already made and will make if we stay the course. But, it is true that Obamacare has been a significant accelerator, stimulator, and funder of change – and quite frankly at the same time a convenient excuse for health plans, health systems and purchasers to pressure caregivers to make necessary changes happen.

Need for Explanation of the Why of Change. Clinicians are smart, you can explain to them the why of change: the lack of affordability, the need for transparency, the moral necessity of coverage expansion, the desirability of moving from volume to value, and so forth. If you need help just look at recent columns from fellow columnists Joe Flower, Emily Friedman and Paul Keckley. Or turn to the rich resources of the AHA Health Forum.   But it is not enough for health system CEOs to just explain the why of change to their board, they have to explain it to everyone who delivers care. Harris surveys of hospital leaders we conduct try to identify who is on board with understanding the financial necessity to make changes. We find that the boards are on board, the CFOs are on board, the management team is on board. There are just three groups that are not on board: doctors, nurses, and patients!

Mixed Signals. To make matter worse, when leaders reach out to explain the why of change, (the volume to value journey, the path to population health, and so forth) they give the great talk and then follow it up with demands for RVU productivity, or referral management and patient flow capture, or, worse yet, growth targets for ancillaries. As Tonto said: “they speak with forked tongue.” (Full metaphor disclosure: Most of what I knew about Americans [until I became one] was from TV, I loved the Lone Ranger as a young boy in Scotland and would change out of my kilt after Sunday School to don my Lone Ranger outfit. There is no higher authority to me than Tonto.)

High Stakes. Improved patient experience, reduced readmissions, elimination of avoidable harm are all noble goals, but now there is money attached and it is only going to grow as a share of all health spending. A greater share of reimbursement will be at risk for performance as purchasers and providers alike, pledge to bold and ambitious targets. This is high stakes stuff.

Multi-Tasking. There are so many different improvement projects going in most clinical areas that there has to be confusion. Whether it is Lean overlayed with checklists, new quality metrics, patient satisfaction improvement projects, and the implementation of electronic health records, the effects must be bewildering to the front line. This is particularly true of complex inpatient care where the acuity levels continuously rise as more routine care is shifted to the ambulatory environment. A perfect example was a meeting I had with quality improvement specialists from a variety of leading institutions who were focused on implementing specialized clinical decision support software. I asked them if there was confusion and fatigue with all these improvement initiatives. One young lady pulled out her business card and showed her new title to the group: “Coordinator of Coordinators.” Enough said.

The Quality Police. I am a big fan of transparency, quality improvement, measurement and public reporting. I salute the pioneers from NCQA to NQF to Leapfrog to CMS to Healthgrades to Consumer Reports for putting their time, talents and resources into the infrastructure for quality and accountability. But, among the caregivers I talk to, many of them feel that the measures don’t measure what matters to them and don’t truly reflect quality as they see it. Even more worrisome, the measures are cumbersome to collect, and are duplicative and often inconsistent in their results. A terrific example of this was a recent careful academic study (http://content.healthaffairs.org/content/34/3/423.full.html) that found that there was remarkably little consistency in the results of the different hospital quality rating systems. This finally explains the old joke that there are 432 Top 100 Hospitals in America (is this a great country or what?) Many clinicians feel the quality police are watching them, yet don’t always know the transgressions they might commit, or even whether they can actually affect what is being measured.

Complexity. At a recent meeting of leaders of academic medicine, a wise old dean asked me a really hard question: what can we do to eliminate the underlying complexity? He meant of course, not only the complexity of medical science and of care delivery, but also the administrative, economic, regulatory and financial complexity. America has the most complex health system in the world, and it’s being made more complex every day by everything from Obamacare regulations to personalized medicine. I didn’t have a very good answer, beyond: “ Make things simple.” As Apple has shown it requires genius to make things simple. It’s not easy, but it’s crucial.

The Electronic Health Record. If there is one source of improvement fatigue above all else it is the electronic health record. I have a slide I put together that shows old movie posters of Ben Hur and Lawrence of Arabia with the caption: “There is a reason they call it EPIC: it’s big, it goes on forever, and it costs a fortune.” Any time I use it with a provider audience it gets a dry laugh. AMA surveys and countless anecdotes reinforce the notion that the electronic health record is a major source of improvement fatigue. Clearly electronic health

records are a step in the right direction, but how do we help clinicians deal with the transformation, without losing their mind.

The Digital Doctor

Mercifully, we have a new resource in the form of my friend Bob Wachter’s brilliant new book, The Digital Doctor: Hope, Hype, and Harm at the Dawn of Medicine’s Computer Age. It helps us understand where we are and where we are headed with information technology in medicine and the appropriate role it should play in improving medical care. The Digital Doctor will be an invaluable resource in the battle to overcome improvement fatigue among clinicians attributable to the Electronic Health Record (and the other sources discussed above) because it explains the positive and the negatives of digital medicine in a thoughtful, nuanced, balanced, and engaging way.

Bob is always annoyingly excellent at everything from golf to Elton John impersonations, but his latest work is extraordinary. His book coherently explains the pitfalls and promise of digital medicine and provides a sober, smart and beautifully written review of our rocky recent history and our likely more promising future. Moreover, it is grounded in both deep scholarship on the subject and candid, contemporary conversations with nearly one hundred of the leading luminaries in the field, from venture capitalists to policy wonks to practitioners.  Bob has the advantage of being a distinguished academic and practicing physician at UCSF, as well as a leading health policy expert and pioneer in the quality and patient safety movements. He also coined the term “hospitalist,” and has been a leader in that specialty, the fastest growing in the history of medicine. Finally, he is one hell of a gifted writer.

I read the first half of his book and sent him an e-mail: “Unless you f-ed up the second half, it’s a tour de force.” Well, the second half is better than the first and will help leaders, clinicians and the public at large understand what’s at stake in moving medical care to the digital age. Bob’s book should be a must read for everyone in healthcare. It explains and inspires, and it will provide succor, support and solutions for individuals and organizations suffering from improvement fatigue.

Treating Improvement Fatigue

So what can health leaders do beyond reading and disseminating The Digital Doctor?:

Tell a Consistent, Coherent Story. Healthcare leaders must consistently and continuously explain the why of change to their organizations, particularly the front line caregivers. You cannot over-communicate. But, remember these are intelligent professionals who value authenticity, consistency, and scientific evidence. They are not easily persuaded by illogical PowerPoint exhortations that seem at odds with observed behavior and priorities.

Rethink Physician Leadership. The healthcare system has a problem. We need to redesign clinical care for higher performance and this is fundamentally work that must be led by and embraced by all clinicians, with physicians taking the lead. There is a woeful dearth of physicians capable of leading the transformation of multi-billion dollar clinical enterprises. Just because you have a medical degree (and even an MBA as well) doesn’t mean you have the stuff to lead massive change in complex organizations. (It is important to have both the degrees and the experience in managing large scale operations, but it’s a Catch 22 how do you build that leadership experience if you haven’t had a chance to lead clinical organizations?) Conversely, the current practice of systems co-opting a smart, committed and gifted physician, bestowing on him the title of CMO, and asking him to run interference with medical staff and shape up his clinical colleagues to get with the improvement program is not necessarily a recipe for success. Especially when these CMOs usually have no P and L responsibility, limited staff, and no real organizational power to hire and fire.

I hear it from CEOs all the time: where can we find, and how do we grow, Chief Medical Officers who have the skills and savvy of a big-time operations person and the clinical acumen, leadership skills and street cred of a brilliant clinician? And from CMOs and physician leaders I hear the other side of the coin: when are we be going to be given the power, the budget and the authority to make real and lasting change in the clinical enterprise? Some organizations may succeed by using diads of physicians and administrators (as Mayo has done for generations), or they will be lucky enough to find those exceptional physicians who can effectively manage large enterprises. But, a sustainable future requires the entire healthcare field to systematically find a way to attract, develop and give leadership learning opportunities to physicians who can build lifelong careers as leaders of massive clinical operations that will be in a constant state of change.

Provide Institutional Support. Progress is being made despite the difficulties. The field has shown that readmissions can be reduced, central line infections eliminated, inappropriate elective c-sections reduced. Many worthy improvement successes have happened seemingly without exhausting practitioners. Key lessons come from successful pioneers such as the Michigan Hospital Association’s Keystone Project: draw on the nation’s best experts and best practices, focus on a few actionable initiatives, and consistently provide support, training and infrastructure for making change happen. It is about capacity building, focus and perseverance.

Emphasize Noble Purpose. Even with great leadership and strong institutional support, clinical improvement will not occur without the active and enthusiastic support and participation of all front line caregivers. And here is the good news: If you can look clinicians in the eye and say that change and their help in change will be better for the patients, families and communities you serve, they will be with you.   Connecting to noble purpose will help overcome improvement fatigue.

As a Scottish-Canadian-Californian, I have always said I have a unique perspective on healthcare and all things to do with healthcare including death and dying, because the Scots see death as imminent. Canadians see death as inevitable. And Californians see death as optional.

I wrote that joke more than 20 years ago and continue to use it because it tells a fundamental truth, that Americans and the American healthcare system are uncomfortable with the inevitability of mortality.

Patients and families consistently report preferences to die peacefully at home, but all too often we die in hospitals with a highly medicalized and uncomfortable end.  This column will explore the economic and societal issues of issue of end

of life care for an aging society. How does the US rate versus other countries and what are the opportunities for hospitals and health systems to improve care at the end of life.

Care and Costs in the Very Old

Let’s start with a fact base. We are all going to die. And the chances are that more of us will die at an older age. By 2050 the number of people on Medicare ages 80 and older will nearly triple, the number of people in their 90s and 100s will quadruple. Recent analysis of Medicare claims data (excluding Medicare Advantage enrollees) conducted by the Kaiser Family Foundation http://content.healthaffairs.org/content/34/2/335.full.html

found that Medicare spending rises with age and peaks at 96, declining slightly at older ages. Spending at age 96 is $16,145, more than double the per capita spending at age 70 ($7,566). Even excluding those who died in the given year, the pattern persists. Interestingly, the peak age of spending varies with the Medicare service line for example, inpatient per capita spending peaks at age 89, part B and D drugs at 83, and outpatient at 83. Services such as hospice peak at

104 years of age, SNFs at 98 and home health at 96.

We are living longer and consuming services at an increasingly intense rate well into our 90s. And this KFF analysis by their own admission underestimates the healthcare costs of the very old because it does not include Medicaid which is the principle payer for nursing home expenses. Indeed, CMS develops estimates of age-specific cost estimates for all expenditures for all payers that shows between 2002 and 2010 per capita spending for those aged 65-84 grew 36% from $11,692 per capita to $15,857 per capita, while per capita spending for those over 85 grew by 38% from $25,192 to $34,783 over the same period. This reflects a pattern of rising age specific utilization rates that has been documented in many countries including the US, namely that over time we treat older generations more intensely.

International Comparisons

Most other developed countries are much older than we are…I don’t mean castles and battles, I am talking percentage of the population over 65. From Scandinavia to Japan many developed countries have over 20% of their population over 65 compared to only 13 percent in the US.

And as we stated they are experiencing the same phenomena we are of upward-bending age-specific utilization rates, which in layman’s terms means they are doing more for the average patient age 75 than they did 10 years ago in Scandinavia, Germany, France and so forth. The rates are probably much steeper in the US but it is difficult to get reliable age specific data for international comparison.

One recent window on international differences in care for the elderly is provided by the excellent work of the Commonwealth Fund who conducted international surveys of the elderly in 11 countries and found that: http://content.healthaffairs.org/content/early/2014/11/13/hlthaff.2014.0947.full.

“US older adults were sicker than their counterparts abroad.

Out-of-pocket expenses posed greater problems in the United States than

elsewhere. Accessing primary care and avoiding the emergency

department tended to be more difficult in the United States, Canada, and

Sweden than in other surveyed countries. One-fifth or more of older

adults reported receiving uncoordinated care in all countries except

France. US respondents were among the most likely to have discussed

health-promoting behaviors with a clinician, to have a chronic care plan

tailored to their daily life, and to have engaged in end-of-life care

planning. Finally, in half of the countries, one-fifth or more of

chronically ill adults were caregivers themselves”

Interestingly, we may be behind other countries in primary care provision and out of pocket burdens but we are seemingly ahead in prevention among the elderly, chronic care planning and in end of life planning. All of which seem to be positive attributes.

Strikingly, the US elderly seemed to be sicker with 68% of US elderly report having two or more chronic conditions compared with the next highest Canada at 56% and the lowest the UK with only 33%. It may be we in the US look for more things and get diagnosed and treated more aggressively rather than a pure epidemiological phenomenon.

As my old friend Bill Rosenberg of PWC likes to say: “Good health is a state of incomplete diagnosis”. 

Healthcare Costs in the Last Year of Life

What about the last year of life isn’t that where all the money is? As policy guru Zeke Emanuel wrote in a New York Times editorial in 2013:

“Wrong. Here are the real numbers. The roughly 6 percent of Medicare patients who die each year do make up a large proportion of Medicare costs: 27 to 30 percent. But this figure has not changed significantly in decades. And the total number of Americans, not just older people, who die every year — less than 1 percent of the population — account for much less of total health care spending, just 10 to 12 percent.”

So the last year of life is not the only source of high spending rather it is part of a pattern of intense medicalization of aging and disability for an aging society.

Confronting Mortality: Three Gurus

Mortality is getting attention. Atul Gawande, arguably the leading medical writer, thinker and communicator of our generation has taken on the issue of end of life care from his perspective as son and surgeon.

Gawande’s new book Being Mortal, as well as his Frontline film and accompanying articles and interviews beautifully document the pain and dilemmas of dealing with mortality from the physician’s, patients and family members perspectives. On the one hand, doctors want to provide hope to patients that they can be returned to their lives whole and healthy. On the other hand, physicians understand (when patients often do not), that the chances of treatment and interventions delivering on that promise are often pretty slim. And that particularly for those of advanced years or with serious medical conditions such as advanced cancers, death is more likely than a return to a full life. Even when doctors know the odds they find it hard to talk about it. And all too often the medical system just takes over and we keep doing things to patients without them fully realizing that they are not going to get “better” in the true sense of the word.

Gawande’s stories of his own and his colleagues’ patients as well as the experience of his own father’s illness and death poignantly portray the key dilemmas of being mortal.

Patients, families and providers are ill equipped to have the candid, open dialog about preferences, probabilities and planning for the end. Instead, all too often physicians “do their best” or “do everything they can” but still come up short of preventing mortality, while in many cases aggravating morbidity and eroding the quality of life remaining.

Hope is a wonderful thing. False hope can be cruel.

Gawande’s work reveals that end of life care is about listening to patients and engaging them in honest dialog about options and outcomes. Easy to say, but excruciatingly hard to do, and I salute those who do this work everyday with skill and compassion.

Atul Gawande will be one of the Keynoters at this year’s AHA Health Forum Leadership Summit in San Francisco and I look forward to hearing his views.

Another high profile healthcare guru, the aforementioned Zeke Emanuel, drew a lot of attention for his recent Atlantic article explaining that he wanted to die by 75. I put it in my calendar to check in with him when he is 74.

But as an oncologist and bioethicist, as well as a leading health policy leader, Emanuel is remarkably well qualified to make the case that longevity without vitality is overrated. His general point is that we can’t really expect “the compression of morbidity” (a short period of unpleasantness at the end of a high functioning life) which bursts the bubble on what he terms a “uniquely American idea”.

I have many friends in their late 70s and 80s who despite the aches and pains that all of us are too familiar with are high performers, still enjoying golf, ice hockey (the Canadians, eh?), skiing, sailing and even marathon running.  They are active and engaged.

Indeed, the Blue Zone movement identified enclaves around the world where the combination of never retiring from work, walking, social engagement, a glass of wine and a nap every afternoon seemed to lead to longevity without impairment. That’s my plan.

But, Zeke is probably right, most of us won’t be that lucky.

My third guru on mortality is my old friend Richard Smith, doctor, writer and philosopher king who served as editor of the British Medical Journal for over 20 years and then became a globe-trotting evangelist for the improvement of chronic care. Richard is a blast to follow on Facebook and Twitter: erudite, enthusiastic and engaged in multiple issues of health and society on a global basis and he’s funny as hell. For the last few years Richard has become very interested in death, but not in a morbid way LOL. He emphasizes the role that death plays in life’s journey and draws from the great poets and writers of how mortality and morbidity are all part of being human. Richard’s central thesis is that overt and unwarranted medicalization of the human journey may be counterproductive and harmful. Enjoy life while you have it, but embrace the whole journey, including death.

Encouraging Trends

There are encouraging trends in care for the elderly at the end of life.

The Rise of Palliative Care and Hospice. Despite the temporary derailment of death panels, the hospice and palliative care movement keeps gaining momentum. There were more than 5,800 hospice organizations in 2013 up from 5,000 in 2009 according to industry statistics. These organizations served 1.54 million patients in 2013 up from 1.34 million in 2009. The National Hospital and Palliative Care Organization (NHPCO) estimates that in 2013 a full 1.11 million deaths occurred while under the care of hospice (total deaths in 2013 were 2.6 million implying 42% of deaths occurred in hospice). A rigorous analysis of Medicare claims data for decedents by Dr. Joan Teno found that: “of all Medicare decedents in the year 2001, 18.8% accessed hospice for three or more days. By 2007 the proportion of Medicare decedents accessing three or more days of hospice services had increased to 30.1%”.

The Role of Health Systems. More and more health systems are embracing palliative care and hospice initiatives and embedding them in the chronic care continuum.  Large systems from coast to coast such as North Shore LIJ in New York and Sharp Healthcare in San Diego have developed integrated palliative and hospice care services as part of an integrated continuum of care and as they pursue their journey from volume to value.

Integrating with Plans and Providers. Hospice and palliative care organizations have historically been relatively small-scale, independent, entities often volunteer and faith-based. Indeed, NHPCO data show that 78.7 percent of organizations have 500 or fewer admissions per year. As health plans and providers focus on the continuum of care expect greater interest in partnership and in select cases consolidation of hospice organizations into larger entities. Similarly, managed care organizations operating in the dual eligible, Medicare advantage and Medicaid programs will be seeking partners with hospice and palliative care as managed care for the elderly population continues to grow. For example, in California Senator Hernandez, himself a physician championed legislation SB 1004 requiring managed care plans serving Medi Cal patients to integrate palliative care into their service offerings. However, the Medicare hospice benefit remains the primary source of funding for hospice and palliative care organizations nationally providing 87% of revenue in 2013.

Beyond Just Cancer Care. While the hospice movement was born out of the goal of serving terminally cancer patients, by 2013 those with cancer diagnoses accounted for 36% with dementia at 15% of patients being the second largest and most rapidly growing. Alzheimers and dementia are massive national policy issues worthy of a whole column given the developments in science and technology and the resulting costs that will ensue (a topic for another day).

A Personal Note

My mother died of pancreatic cancer at age 82 seven years ago in Vancouver, BC. When she took ill she received very high tech care (an endoscopic billiary stent) to prevent a rapid demise from jaundice, but her physicians made crystal clear from the outset to my mother and to the family that she had terminal cancer and there was no therapy, treatment, or surgery that would extend her life beyond a few months. She appreciated the honesty, and enjoyed her four months getting all her affairs in order, and saying her goodbyes, while enduring any discomfort with dignity and class. She had four great months at home and a good death supported by my brave and dedicated sister and a remarkable palliative care team of physicians and nurses who helped keep her at home pain free and in control of her own life. She died on a snowy December night in my sister’s arms with the Christmas lights twinkling and Johnny Mathis singing “Chances Are”. It’s what she wanted. We all deserve that chance.

Health care leaders are starting to recognize that consumers are becoming a major decision-making force. Let’s be clear at the outset: The rise of the consumer is not the panacea that will solve all our problems. It is a reality that hospitals and health systems must respond to. For the foreseeable future, consumers will pay more for health care and be more involved in picking plans, providers and individual treatment options. This development means significant financial consequences for consumers (unlike almost any other developed country).

Providers need to understand the financial predicament of the typical American health consumer and the responses consumers are making in this changing environment. At the same time, with a new congress and a political season of primaries and posturing just around the corner, pundits, politicians and plutocrats need to recognize where consumers are as voters, plan members, employees, patients and family members.

This fact-based review of where American health care consumers are and where they are headed is a synthesis of a wide variety of sources, including publicly available economic and survey data as well as proprietary survey data distilled form Harris Interactive/Nielsen’s Strategic Health Perspectives, a service that I have been involved in since its inception almost 30 years ago. I am particularly indebted to my colleagues at Harris/Nielsen and Harvard for teaching me all of this during our work together. My colleague Kim Slocum’s work on health care consumerism and the shallow pockets of most American households has been very influential on my own thinking.

The short version is this: Health care costs have hit the limit of affordability for the typical American household, yet consumers are being asked to take on more of the cost burden (unless they get a subsidy in an exchange or are covered by Medicaid). When they have to make choices, the vast majority will pick cheap (less provider choice in return for lower premiums, even for those consumers receiving substantial subsidies), and they will forgo care (both necessary care and unnecessary care) because they have neither the income nor the savings to pay for a significant out-of-pocket cost burden.

Welcome to the future. Hospitals and Health systems just need to deal with it…we’ll get to the possible responses at the end of the column.

Why Focus on Consumers?

The American health care consumer is becoming older, fatter, more diverse, and more skeptical and demanding over time. But the key trend is that consumers are being asked to pay and choose more than they have in the past. Indeed, we may be nearing the cost-conscious consumer envisaged in my friend Alain Enthoven’s elegant conception of managed competition, in which consumers (my words not Alain’s) select a plan when they are well and live with the consequences when they are sick.

As more of the market moves to exchanges, as high deductible health plans and narrow networks proliferate, and as managed care in public programs such as Medicare and Medicaid become the norm, so consumers will be asked to make more decisions, increasingly with their own money.

An International Context

American health care consumers are exceptional. They operate in the most expensive health care system in the world, with the highest out-of-pocket costs in absolute and relative terms. (Arguably Switzerland has higher relative out-of-pocket costs.) And the United States is alone among the developed countries in having more than a quarter of its citizens experiencing cost-related health care access problems.

In addition, detailed comparisons of 11 countries sponsored by the Commonwealth Fund find that the U.S. health care system underperforms on many measures of cost, quality, value and consumer responsiveness. For example, and surprisingly to many, Americans enjoy less immediate access to primary care services than most of the comparison countries and ironically rank last in the percentage of primary care physicians who report that their practices have arrangements to see a doctor or nurse after hours. People, you can get a cheeseburger anywhere in America at 2 o’clock in the morning, but you can’t see a primary care physician at 6 o’clock at night? That’s crazy.

Shallow Pockets

You can’t turn around without hearing about income inequality. (We talk about it but can’t agree on solutions. Other countries have taken action on this; for example, fast food workers in Denmark enjoy a minimum wage of $20 per hour, without much of a hit surprisingly to the price of a Big Mac.)

It is undeniable that in most countries, and particularly in the United States, most of the income gains have accrued to the top 1 percent and in turn to the top 0.1 percent and 0.001 percent of the income distribution. My worst nightmare is that America is re-creating 19th-century Britain with a self-perpetuating affluent aristocracy and a bunch of poorly paid servants. It’s like Downton Abbey in which only Kardashians and the scions of venture capitalism enjoy the pampered good life, and the rest of us are doffing our caps as Uber drivers or waiting tables at Michelin-starred restaurants that have a nine-month waiting list for a reservation.

The problem for health care is that we all get sick, and awkwardly and inconveniently, poor people are sicker on average than rich people. Cause and effect work both ways here, by the way.

So let’s just focus on typical or average consumers. Given the disparity of income it is wise to think about median consumers rather than average (mean) experience. For example, median household income for 2015 will come in around $53,000 (mean will be in the low $70,000). But here is the kicker: The average health plan premium for a family in a typical employer-sponsored plan is in excess of $17,000 per year.

The average family can’t afford the average premium. And on top of that, each year the share of that premium that workers have to pay continues to rise.

Nor is there much prospect of median incomes rising. They have remained flat for nearly 20 years, and they will likely continue to remain flat because of globalization and technology that creates a bifurcated economy where the hyper-productive (or super fortunate) few do well while everyone else is in a global competition for work.

Perhaps more alarming is the current net worth of Americans and their current cash savings, both of which have been dramatically affected by the Great Recession. For example, households with incomes up to 400 percent of the federal poverty level are in a negative financial asset situation and have liquid assets of less than $3,000. So a $3,000 deductible virtually wipes them out. Most Americans live paycheck to paycheck — not

the best situation for high-deductible health care.

How do consumers deal with this rising economic burden of health care, and how do they feel about it? The short answer to the first question is that they go without care when they have

to pay; they’ll skip doses of medications (even injections for cancer care!). For example, recent Commonwealth Fund Tracking Surveys show that lower income folk on private insurance are particularly vulnerable, and as a consequence 46 percent of Americans with private insurance who earn below 200 percent of the federal poverty level have experienced some cost-related access problem in the past 12 months: They have skipped doses, failed to fill a prescription, or neglected to visit a doctor or specialist when needed.

The problem is aggravated for those with one or more chronic illness. Detailed studies by RAND researchers show that cost sharing causes consumers to forgo necessary and unnecessary care in equal measure. “Skin in the game” is a blunt and somewhat cruel instrument.

In addition, consumers often lack the literacy to understand health insurance concepts and many consumers report is surveys that they “don’t know” what their premiums, deductibles and co-payments actually cost them. For way too many of us healthcare costs are a gotcha after the event.

Harris/Nielsen surveys of consumer emotion reveal that consumers are not exactly delighted to be empowered. When asked how they feel about health care and what they pay, the most common responses are typically “resigned” and “accepting,” not “hopeful” or “empowered.” But among the chronically ill and economically vulnerable, they are much more likely to use terms like “powerless,” “depressed” and “angry.”

Crowding Out Consumer Spending

Most of us realize that if we spend 20 percent of GDP on health care (almost half through government), that crowds out government spending on other public goods such as education, infrastructure, transportation and income support. But rising health care costs also directly affect consumers and their spending patterns at the household level.

A recent analysis by The Wall Street Journal of the change in middle-income consumers’ spending patterns between 2007 and 2013 found that the three fastest growing purchases (home Internet, up 81.3 percent; cell phones, up 49.1 percent; and health insurance, up 42.1 percent) were crowding out traditional goods, such as apparel or appliances. No wonder the Christmas retail sales disappointed: It all went to Apple, Comcast and health care.

Aging and Diversity

America is becoming older and more diverse. We have known this would happen for a long time, but now it is real. For example, from 2012 on, the number of folks turning 65 increases from an annual run rate of approximately 2.6 million per year to 3.5 million per year in 2015, a number that will rise to nearly 4 million per year over the next decade. (By the way, one positive effect of this baby boom bolus is that it will reduce the average age of the Medicare population at least for the first decade and, it’s hoped, provide some countervailing balance to the rapid growth in the over-85 population, which is growing because of enhanced longevity.)

As seniors become Medicare eligible, they are likely to pick Medicare Advantage. Surveys show that 57 percent of those turning 65 state a preference for Medicare Managed Care as opposed to only 29 percent of the currently eligible population.

The ethnic composition of Americans is changing, too, and of particular importance is the Latino population. Latinos account for 17 percent of the population, and they will grow as a share of the total population and of the electorate for the foreseeable future. They are disproportionately concentrated in the South and West of the United States. Indeed, three states (California, Texas and Florida) account for 55 percent of all Latinos in the United States.

Latinos are an important segment for coverage expansion. Remember that a third of the uninsured are Latino, and conversely, a third of Latinos are uninsured. While 20 percent to 30 percent of the Latino population may be ineligible for coverage expansion because they are undocumented, many Latinos are benefiting from coverage expansion through both exchanges and through Medicaid expansion where available. California and Texas alone accounted for a full half of all uninsured Latinos prior to Obamacare. As a result of Obamacare, Latinos living in California are benefitting substantially from coverage expansion; Latinos in Texas, not so much.

But while Latinos are concentrated in a few states, the states with the fastest growing Latino populations are rural states such as Alabama, South Carolina, Tennessee and Kentucky. Diversity is increasing everywhere as the rural economy mirrors the global economy we described earlier: Hyper-productive older white farmers armed with sophisticated tractors and technology are supported (when needed) by migrant Latino or Southeast Asian farmworkers.

Emerging Consumer Aspects

Consumers have other factors, beyond buying things. They are also voters, employees, parents and spouses; they live in rural and urban setting; some are more digitally oriented than others and so forth. Let’s take a quick tour of some of these other aspects.

Consumer as voter. The American public is not in love with Obamacare. Nobody is changing anyone’s mind on this. We all have entrenched opinions based more on ideological preferences than real experiences.

Ironically, many middle class voters attribute the rise in out-of-pocket costs of their own employer-sponsored coverage to Obamacare (which is a tenuous connection at best and dead wrong at worst). This perceived harm to middle class health care coverage was a centerpiece of the $400 million–plus spent on anti-Obamacare ads in the 12 swing senate races. Republicans crushed Democrats in those states, and anti-Obamacare ads were credited as being helpful in mobilizing the conservative base. The Democrats’ extreme reluctance to tout gains made by Obamacare meant it was a very one-sided debate in those states.

Yet surveys reveal that consumers who are newly covered by Obamacare (whether through exchanges or Medicaid expansion) are both grateful and satisfied with

their coverage. Indeed, the newly covered are more satisfied with their coverage than those with employer-sponsored insurance, according to recent Gallup polls.

It is undeniable that more than 10 million Americans have coverage (net of all changes) as result of Obamacare compared with 2013. That is the biggest reduction in the uninsured since Lyndon B. Johnson’s presidency.

You’d think it would be the subject of some national pride, rather than seen by half the country as the perfect symbol of a failed administration.

Consumers as employees. More than 160 million Americans receive health insurance through employer-sponsored coverage. Most economists agree that the cost of health benefits is a tax efficient form of compensation. Middle class consumers did not receive a wage increase in the last two decades, it all went to healthcare.

Employees are increasingly exposed to more cost burden for health care coverage, a trend that has been building for more than a decade. But as we described in a previous column (“Urgent Care” [http://www.hhnmag.com/display/HHN-news-article.dhtml?dcrPath=/templatedata/HF_Common/NewsArticle/data/HHN/Daily/2014/Sep/090214-morrisson-accountable-care-disease-management-speakers-express]), employers feel a sense of urgency, because of the Cadillac tax and other factors, to take more action against health cost increases. Employers are redefining retiree and spousal benefits to place more of the economic burden on households. In addition, more employers will use exchanges, both public and private, as a tool in their health benefit strategy, further moving the market toward retail and asking more of consumers to choose and pay.

Rural consumers. Rural Americans have the same issues as all consumers, only they are more extreme. They tend to have lower incomes, have poorer health status, and are less likely to have health coverage through work because there are fewer large employers in rural areas. As a consequence, rural consumers are also more likely to be uninsured and more likely to be covered by public rather than private insurance.

But the political geography of the United States aggravates the coverage situation for rural consumers. Analysis by the Kaiser Family Foundation found that a full 65 percent of the 7.3 million uninsured who live in rural areas were in states that were not expanding Medicaid. (Only half of the urban population is in non-expansion states.) Given the composition of the new Congress and the makeup of state houses and state legislators, rural consumers will have higher numbers of the uninsured, at least for the next two years, and maybe forever.

The e-consumer. Ask yourself how much you rely on your smart phone to conduct your daily life. We shop and manage all our travel, relationships and families with our phone. (Everyone has become a smartass — just a few clicks away from answering any question you may have in a conversation. Who was that guy in Breaking Bad again?)

The smart phone is the platform for our mobile life. And so it must be for health care. Health care is behind, but it’s catching up fast. Vast amounts of venture capital investment are being poured into apps to serve consumers health needs. Most of these investments will turn out to be duplicative and ineffective, but there will be many that change how we manage and deliver care.

For example, recent surveys by the Harris Poll show that consumers of all ages have a keen interest in virtual health care visits. Similarly, consumers expect to interact with health care as they http://www.cialisgeneriquefr24.com/cialis-a-vendre-quebec/ do with other service industries — using online appointment scheduling, comparison shopping, and tools for navigating through the continuum of care.

The phone is also rapidly becoming a platform for clinical apps that monitor and manage chronic conditions and improve wellness. Again, significant proportions of consumers are demonstrating interest in these apps and devices. How many of you got a FitBit for Christmas?

Retail consumers. As the first $1,000 to $3,000 of health spending moves to an out-of-pocket basis, consumers are looking to new retail care options that provide convenience and affordability. Consumers express strong interest in retail clinics, worksite-based clinics and urgent care centers as convenient alternatives for many acute and chronic care needs. Indeed, 20 percent of consumers have used one of these facilities in the past 12 months.

Consumers value convenience, even more than cost. Location and ease of making an appointment after hours are critical factors in their reason to go retail. Health systems, particularly those with affiliated primary care practices, would be well advised to serve the expectations of retail consumers.

Trade-Offs and Choices

As we have reported before in this column, consumers, when they are making choices with their own money, tend to select cheaper alternatives. Both public and private exchanges are a massive national consumer experiment in which the vast majority (over 85 percent) of consumers selected bronze or silver level plans in an exchange situation. Similarly, Harris/Nielsen trade-off surveys of consumers have shown consistently over the past five years that consumers prefer lower premiums and their current doctors over extensive networks of hospitals. Even patients with cancer or multiple chronic conditions are willing to make these trade-offs (at least in surveys).

Implications for Consumers

The American health care consumer has shallow pockets. Providers and policymakers alike must recognize this.

If Republicans win the White House in 2016, we can expect a greater burden on the consumer to pay for and choose health care: Medicaid expansion would be paired back, more high deductible bare bones plans would be the norm, and Medicare Advantage would grow even faster, perhaps with a defined contribution. Exchanges would likely still be a vehicle, but the subsidies may be paired back, again putting more of the burden on over stretched middle-income households.

If Democrats regain control of the Senate and win the White House, then Medicaid expansion would likely continue beyond the existing states, and there would be higher likelihood of federal subsidies remaining for exchange-based coverage.

But, all that is ahead. And as we start the race for the White House, candidates of both parties will have to propose what they are going to do about health care (if not Obamacare, then what exactly?) and they must recognize where the American consumer stands economically. Good luck with all that.

Either way, the consumer will remain an important force, because no administration can afford first dollar coverage where there is no deductible, for a generous benefit package for a technologically sophisticated American health care delivery system. Just ask an actuary.

Well, actually there is another way: budgetary targets and controls. But, that is a subject for another day and is very unlikely as a national solution quite yet. We will be watching and reporting on states like Massachusetts and Maryland, which are experimenting with this path, in later columns.

Implications for Providers

First, as I said at the outset, consumers paying more is not a solution; it is a reality. But we can do better than dumb cost shifting, blind premium support or simple tax credits. Value-based benefit design (VBD) shows some promise in targeting consumer incentives to encourage consumers to choose more wisely. In addition, large integrated systems of care that take risk (directly or in partnership with plans) may be best positioned to apply VBD principles to engage the consumers and communities they serve in a more creative and effective way — by waiving economic barriers to primary care and partnering with retail provider systems and other community resources.

Health system leaders need to be attentive to the economic circumstances of the American health care consumer and their preferences and changing needs. As we have seen, this will require investment in electronic infrastructure; service redesign; and dealing with consumers facing revenue cycle issues, such as collections.

The needs of the shallow-pocketed consumer may also redefine community benefit away from uncompensated care to undercompensated care. For example, it may mean providing ambulatory health care services on a systematic basis to maximize the health of the population you choose to serve, regardless of their economic circumstances. As the burden of inpatient uncompensated care falls (in the Medicaid expansion states in particular), many health systems will focus on new ways of serving the economically vulnerable health care consumer as a true community benefit.

Ian Morrison, Ph.D., 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.

My native Scotland had a momentous vote in September. Scots were asked a very simple question: “Should Scotland be an independent country…Yes or No.”

Well you probably know what happened: 85% of the electorate including 16 and 17 year olds turned out and voted 55% No, and 45% Yes to the question. I happened to be in Scotland twice in the last few months, once in June in the run up to the vote, and again in late September just days after the polls closed. While emotions ran high it was a largely civil discourse except for a bit of a sectarian skirmish along class and religious lines in Glasgow after the vote (which was not covered much in the US media). Overall, the vote, while an interesting curio to outsiders, was a bit awkward and divisive in the country. It still is.

The “Yes” side had a vision of Scotland as a brave wee country going it nobly alone like a 21^st century Braveheart, although practically it was really an attempt to get an even more generous welfare state supported selfishly by a higher share of North Sea Oil revenues: basically Norway with whisky.

“Yes” voters were much more visible across Scotland in the summer which led the silent majority to be a bit worried that they were going to be taken out of the United Kingdom.

Public opinion polls tightened as the vote neared and showed weird and conflicting preferences among the “Yes” voters. For example, they wanted to be independent but preserve the monarchy…”Aye, keep the Queen, get rid of the English.” Not so easy.

The same kind of tricky questions came about the currency, could Scotland keep the pound and not join the Euro group? The best answer to that was Scottish comedian Kevin Bridges’ suggestion that the Scots would start a new currency, the smackeroony.

Don’t even start talking about how an independent Scotland would disentangle its defense infrastructure, realign medical education, pension and housing subsidies and deal with the many, many non Scots in Scotland and the millions of expatriate Scots abroad.

Mercifully, the “No” vote won, but the forces favoring independence are still there, and the British government will still have to deal with the demands of the many Scots who favored more independence. For the record, I canvassed for the Scottish Nationalist Party in the late sixties as a student, and my local MP was Winny Ewing, only the second SNP member to go to Westminster. I believed then and now that Scotland should have significant devolution of power, (and indeed it has), over health, education, welfare, housing, transportation and other important domestic policy matters.

But a small independent Scotland trying to make it alone in an increasingly weak Europe, that in turn is competing in a brutally competitive global economy, in a divided and dangerous world seemed like a stretch to me.

Across the world, in Spain, Canada, Norway, France and throughout the Middle East, Asia and Africa there are groups, regions, peoples, tribes, and whole countries who see a better future being independent and isolated from the trends around them.   In many of these cases the aggrieved parties see a world that is complex, increasingly globalized and interdependent, and controlled by factors, forces and stakeholders that they have no influence over. They see independence as a pathway to control their own destiny, (especially if they can get the oil revenues to support it).

So what has this got to do with American healthcare?

Does Independence have a Future?

In America, independent doctors and hospitals feel threatened. They see the relentless growth of large regional systems of care coming to dominate the landscape. They see doctors running to hospital-owned practices to huddle for warmth in this uncertain future.

The independents may realize that they are sub-optimal in scale for delivering high quality and cost-effective health care services. They may recognize that they are woefully ill prepared for the move from volume to value. They may even fess up that they are completely out of their depth in a world of big players. But even if they have this self-awareness they often cling to independence because of the very real fear that they will lose control and autonomy. Why?

• Preserve the Deal they Currently Have.   Like the Scots, many are convinced that if they stay independent they have the best shot at preserving the deal they have. Most economists and oil experts anticipated that North Sea Oil revenues would eventually decline over the decade ahead. Yet the forces advocating independence assumed they would be able to cut a favorable deal with rival governments and massive global oil companies even in the face of predicted future declines in production. The same could be said for independent hospitals, and those rural critical access hospitals that believe they will still be able to preserve the deal they have in the face of fiscal pressures to the contrary. Similarly, many of the less aligned solo physicians simply refuse to deal with payers like Medicare or Medicaid or narrow network exchange plans, and believe that they can make it as a free agent or a concierge doctor. And some of them may be right. But it is unlikely all of them will be OK, and most are likely to be blind-sided by larger forces creating consolidation and integration in healthcare delivery. For example, I was advising a national group of ophthalmology leaders and many of them flatly stated that they would no longer take Medicare patients because of inadequate reimbursement.

“Which patients typically get eye disease? I asked naively.

“Old people.” They told me.

“Well that should work really well”.

• Old Dog, New Tricks. Remaining independent seems attractive because it is assumed that it liberates you from having to change. The Scots who voted “Yes” genuinely believed that this was their best hope to preserve and enhance a welfare state and obviate the need for government austerity favored by more conservative English politicians. While there may be legitimate arguments that austerity is overrated and perhaps dangerous as a macro-economic strategy, remaining independent does not insulate anyone from the global forces of change. Nor does it give you a pass on change.

• Uncertainty over The Future.   You can blame tough times on irresponsible global bankers, or English politicians, or Obamacare and argue that this will blow over and go back to the way it always was. You might even be right once or twice but you cannot eliminate uncertainty entirely.

• We May be Gone. Scotland will never lose its cultural identity, it has shown that over centuries. Being independent is not a requirement for maintaining traditions or preserving unique cultural quirks from haggis to the Glasgow accent. But in the case of American healthcare there is a legitimate concern that losing independence may threaten the very existence of the organization or its culture. I have seen this deep concern in the faces of board members of critical access hospitals, of sisters as they contemplate turning their missions over to secular leaders, of department chairs of academic medicine contemplating throwing their lot in with the system and giving up some departmental autonomy.

Facing a Vote on Independence

American healthcare stakeholders will be asked to vote on independence in the years ahead. There are examples everywhere. Faith based institutions and smaller systems are being brought into larger mega systems like Ascension or Catholic Health Initiatives, and some have been acquired by for profit actors such as Daughters of Charity hospitals recently being acquired by Prime Care.

Similarly, Banner Health’s acquisition of the University of Arizona’s Health Center in Tucson is an example of a large independent academic medical center becoming part of a much larger community based system.

The Vivity deal announced in Los Angeles is receiving national attention where six southern California hospital systems including UCLA, Cedars-Sinai and Memorial Care have joined with health plan partner Anthem Blue-Cross to offer an HMO product to compete against Kaiser.

These are the high profile examples, but in every state there are scores of hospitals and hundred if not thousands of physician practices who have to ask themselves whethe they can and will be independent in the future.  And if not independent then who do they partner with and on what basis?

Advice on Independence

As you all confront your own vote on independence consider the following:

Get Real. Hoping things go back to some imagined past golden age is not my idea of a smart strategy. Dude, these are the good old days. Make a realistic assessment of how your market is going to unfold and know that the big dogs in your marketplace (wherever you are) are trying to grow in scale. They will be aggressively managing referrals to keep more business flowing to their team, and they will be stepping up to compete more aggressively on value, both on a fee for service and (eventually population health) basis. And many of them have the financial heft or backers to make the necessary investments to win a sustained fight.

Fight for what Matters. If you are the chair of an independent rural hospital that is the largest employer for miles around and the anchor of your community, you probably worry about the future of your community if your institution were to disappear. But maybe the real fight is to ensure that there is a continued high quality presence in the community, that services and facilities are repurposed and transformed with the help of committed partners to serve your community better. And that future may be better realized with partners rather than as an independent institution.

Vote with Your Head, Not Your Heart. My fear with the Scottish Independence vote was that a majority of Scots would get weary of hearing whining, nasal speeches by ineffectual condescending English politicians then get drunk the night before and Vote yes….”we’ll show you English, (expletive deleted).” Similarly, leaders of independent institutions in American healthcare need to be clear-headed and honest, about what is the best solution for the stakeholders and communities you serve. And don’t get carried away with a romantic notion of independence that may be unrealistic and unattainable.

Health care is on a roll: Costs are moderating, coverage is expanding and quality is improving. I guess those death panels are starting to work.

But it is not enough. We need to pick up the pace. As we keep emphasizing in these columns, we have hit the wall of affordability in American health care: The average American family cannot afford the average premium. The recent CalPERS health care premium rate agreements in California are testimony to this. Reinvigorated competition among health plans wrestling for a share of CalPERS’s $7 billion-plus health spend has led Kaiser to reduce its rates by 4 percent for 2015. That’s the good news. The bad news is that Kaiser’s health maintenance organization family premium in the Bay Area is over $22,000 per year (the highest priced HMO option is nearly $29,000). Median household income in America is just over $52,000.

Affordability is the key and urgent need. The theme of urgency was one of the big acheter viagra lessons from the annual Health Forum/AHA Leadership Summit in San Diego. I am proud to have acted as the synthesizer and moderator of the event for more than 15 years, and this meeting was one of our best. This summer in San Diego the issue of urgency came up a lot.

Malcolm Gladwell brilliantly told the tale of how true innovators (often the Davids battling against the Goliaths) have a strong sense of urgency. They feel the need to change more intensely than the rest of us and are often disagreeably dissatisfied with the status quo that doesn’t move fast enough for them.

The health care field needs that sense of urgency. The people who may make this real are the private purchasers, and remember: They provide the entire financial margin for the health care delivery system.

The Voice of the Purchaser

I moderated a panel at the summit of leading private purchasers from CalPERS, Walmart and Disney to give summit attendees an opportunity to hear the voice of the purchaser directly. These purchasers are leaders among their peers and trendsetters in the health benefits marketplace. They spoke with a clear voice: They want the American health care system to reduce costs and improve quality, and do it soon.

While increases in corporate health care costs (like all health spending) have slowed to around 5 percent growth rate, many employers are deeply concerned that they have experienced decades of annual 5 percent to 10 percent increases with no measurable improvement in quality or service.

Purchasers are of one voice on a number of issues that should promote a sense of urgency among hospitals and health systems:

It’s not just about cost. While cost and affordability are extremely important to purchasers, they are not their sole concern. Purchasers are looking for evidence of significant and measurable improvements in quality and service, gains that match the continuous value improvement they expect from other vendors. Purchasers like Disney who pride themselves on delivering a delightful customer experience that is prompt and courteous expect their providers to deliver the same. Many purchasers like Disney and Intel are looking at on-site and near-site clinic options where they can be assured that timely and responsive care can be delivered with minimum disruption to valuable employees’ time.

A strong preference for integrated care. Surprisingly to some, given purchasers’ demonstrated and increasing use of preferred provider organization–like products and high-deductible plans, purchasers would actually prefer to have highly valued integrated care delivered everywhere they have employees. The reason they are pursuing many of the initiatives described below, such as centers of excellence, is that across the country high-performing integrated care is either unavailable or unaffordable.

Purchasers are nearing the limits of cost sharing with associates. Many purchasers have slowly but inexorably raised the employee’s burden of health care costs, often enabled through so-called consumer directed health plans with greater deductibles and co-payments tied to transparency tools and wellness engagement initiatives. Some purchasers with historically generous plans still have some running room with this strategy (and the Affordable Care Act has legitimized bronze and silver levels of actuarial values that are lower than many of the more generous employer-sponsored plans).

The next frontier for

some employers includes retiree benefits and spousal benefits where employees are increasingly responsible for their own costs. But overall, the sense I have from many purchasers, including the panelists at the summit, is that they are nearing the absolute limit of cost burden for associates when employee costs are 10 percent to 30 percent of total wages for low-income workers in retail and service industries. Couple that with unionized workforces that have long-standing contract prohibitions against higher levels of cost sharing and there is a growing sense that simply passing the burden to employees is not the end game.

The punch line is simple: It’s the health care delivery system that has to perform better.

“We are not paying the Cadillac tax.” If minimum actuarial values and limits on cost sharing is one end of the spectrum of the purchaser’s problem, the other end is the Cadillac tax, due to start in 2018. The so-called Cadillac tax is an excise tax on high-cost health plans offered by employers. Beginning in 2018, health plans that cost more than $10,200 for an individual or $27,500 for a family plan will be subject to the tax, which is 40 percent of the amount that exceeds those thresholds. For some

private purchasers, the tax could be enormous.

Congress’s intent was to start to claw back the deductibility of health benefits over a certain threshold (an approach many economists of different stripes support). It sounded good to stick it to the bankers at Goldman Sachs. But it turns out the people who have the richest health benefits are schoolteachers and firefighters in high cost–high wage areas like New York and California. They would reach the threshold first.

Private purchasers are adamant that they will not pay the Cadillac tax, and they will take action to prevent paying it: move costs to employees as far as they can, consider options like private exchanges, and become much more activist in managing the costs of the delivery system. https://www.acheterviagrafr24.com/viagra-pour-homme/ The Cadillac tax may be vulnerable politically, but even if it were repealed it does not alter the basic problem that the cost of health benefits are too high, particularly for low-income workers.

The Cadillac tax is still the law, and if employee benefit managers are going to keep their promise to their chief financial officers that they won’t have to pay the Cadillac tax, then they better have started on the path of more active management of the delivery system. Employers feel the urgency, and they are taking action.

Options for Activist Purchasers 

Purchasers are pursuing a number of options to more actively manage health care costs, quality and service. While many of these initiatives are mediated through the health plans that serve them, purchasers are not entirely thrilled with the performance of their plans and are willing to take action both directly and indirectly. For example, Pacific Business Group on Health members some years ago were frustrated by the health plans’ lack of innovation and created a “breakthrough plan” with the help of a start-up called Definity (later purchased by United Healthcare Group). Health plans quickly followed suit in emulating the breakthrough plan’s features in their own offerings.

So purchasers can influence plans to take action, but increasingly they are engaging more directly with the delivery system not only in their contracting but also in the information and incentives they are creating for their employees to engage with the health care system. Here are some of the key trends we discussed at the summit and are seeing in the marketplace:

Transparency and consumerism. Almost all sophisticated purchasers are actively encouraging their employees to shop around for health care by providing them with transparency tools that encourage employees to seek out providers that are of higher value (lower costs and higher quality). Tools like Castlight are becoming extremely popular among large employers.

Castlight provides employees with clear and accurate information on the true cost consequences of picking providers. This is not just wishy-washy stars and bars ratings or the lunacy of the chargemaster prices. No, this is accurate information on what it will cost you to go see Dr. Johnson versus Dr. Taylor given where you are in your deductibles and co-payments for the year and the actual contracted rate that Drs. Taylor and Johnson will be paid by your health plan. In other words, it is information about the real cost to you, given to you before you make the choice, not some gotcha surprise months after the event when you finally get the provider’s bill.

Purchasers are particularly interested in applying transparency tools to the “shoppable conditions,” such as maternity care, orthopedics and even cancer care. (Castlight and their competitors in the space are not without their own challenges, given that many of the major health plans steadfastly refuse to provide them access to plan data. A battle then ensues in which the purchaser insists that they want the Castlights of the world to have the data.)

The bottom line is that more and more privately insured patients will have real-time information about cost and quality implications of selecting providers, and they will have strong financial incentives to select higher value options. The old provider line of “don’t worry your insurance will pay for it” no longer applies in the emerging marketplace.

The new wellness. In all the surveys of employers, wellness tops the list of initiatives. But this is not the old-school wellness of subsidized gym memberships or ineffective anti-smoking pamphleteering. The new wellness is more activist, some might say Stalinist, where the employee will cialis generique be induced to engage in his or her health and wellness. These actions might include financial incentives to complete health risk appraisals; incentives to take a minimum of 7,000 steps a day, and verify same by synching their pedometer with their computer and the company’s health plan every night; and requirements to enroll automatically in wellness coaching if their body mass index exceeds some threshold.

It will be harder not to engage as an employee, and providers in turn, may feel the effects of this trend both positively in terms of better compliance and adherence by patients, and negatively in terms of potentially lower volumes.

Value-based benefit design. Sophisticated employers are realizing that dumb cost-shifting to employees may be counterproductive. Value-based benefit design is intended to create incentives for compliance and eliminate financial barriers to beneficial care. The classic examples are waiving co-payments and deductibles for necessary preventive and maintenance drugs for diabetics. More and more purchasers will use value-based benefit design to shape the health-seeking behavior of their employees.

Intense focus on heavy users. Almost all employers have done the math on their heavy users. Like any insurance pool, about 5 percent of patients account for 50 percent of costs. Purchasers are focusing more on those heavy users and targeting them for additional services, including weight management, smoking cessation, disease management and behavioral health initiatives. In extreme cases, some employers have prohibitions on hiring smokers. I have not heard of any weight-based prohibitions partly because it would likely violate the Americans with Disabilities Act provisions.

Interestingly though, a recent Kaiser Family Foundation tracking poll found that more than 70 percent of Americans were against health plans or employers charging higher premiums for heavy users such as those that were overweight. Not surprising, given that 70 percent of us are overweight.

Reference pricing. CalPERS pioneered the use of reference pricing in their Anthem PPO in California where they targeted hip and knee replacement. About 40 California hospitals agreed to a maximum hospital price of $30,000 for hip and knee replacement, and if you the patient wandered off to the other 400 hospitals doing it, you paid the entire difference in cost — at the extreme about $90,000 more. Well, no actual CalPERS member had to pay that because all the expensive hospitals ended up taking the $30,000 price. Volumes moved immediately to the 40 hospitals, and prices came down overall for CalPERS members in all hospitals.

So why doesn’t CalPERS do more of it.? CalPERS did indeed save a few million dollars, but remember they buy $7 billion worth of health care a year. A few million is not even a rounding error. They urgently need substantial change such as a 4 percent rate reduction per member per month like they got from Kaiser. Other private purchasers remain enthusiastic about reference pricing as a tool to trim the price outliers in a marketplace. But overall, it is a shot across the bow of providers to signal that private purchasers mean business. For them it is urgent.

Centers of excellence. Walmart is the Fortune 1 company. If it were a country, its gross national product would edge out Poland as the 24th largest economy in the world (and by the way, the Poles are pissed about it). Walmart has more than 2.2 million associates globally (1.4 million in the United States) with a total of 1.1 million associates and family members in the United States receiving health benefits. Walmart is a big deal in health care as both a purchaser of health care and increasingly as a deliverer of both pharmacy care and primary care.

Sally Welborn, the senior vice president of global benefits at Walmart, is a nationally recognized leader in the health benefits area. Walmart has received a lot of attention for its pioneering centers of excellence model in which it contracted directly with a number of regional centers for orthopedic and cardiac care. These recognized names, including the Cleveland Clinic, Virginia-Mason in Seattle, and Baylor Scott and White in Texas, receive a bundled payment for the care and are responsible for evaluating appropriateness of surgery.

Walmart associates can go to their local providers for care and pay the appropriate co-payments and deductibles, or they can be flown to a center of excellence with a family member at zero cost to them. Interestingly, between 30 and 50 percent of the cases are deemed inappropriate for surgical intervention, which says that a lot of surgery in America may be marginally indicated and even inappropriate.

The Walmart approach is growing as other Pacific Business Group on Health employers such as Lowe’s and McKesson have joined the program. But interestingly, when I asked Sally: “Walmart doesn’t own an airline. You wouldn’t be flying associates and their family members to Cleveland if there was bundled, appropriate, integrated care available everywhere Walmart is, would you?” Sally eloquently replied: “Yuh think?”

Narrow networks. Purchasers see narrow networks as a necessary next step to eliminate the cost outliers and to send clear signals to the value players that if you deliver value we can bring you more volume. And if plans are not the right intermediary for the narrow network, larger purchasers may take it into their own hands.

Going direct. Jim Hinton, current AHA chair and CEO of Presbyterian Health System in New Mexico, joined our panel to describe Presbyterian’s pioneering direct contracting initiative with Intel. Intel views health care like any other vendor: Quality has to go up and costs have to go down, and vendors sign a blood oath to that effect in multiyear contracts. Jim described this as a learning opportunity for providers to see how seriously private purchasers take the need for value.

In many markets, including Disney in Florida, or Boeing in Seattle (who recently contracted directly with Providence Health System), private purchasers are reaching out to delivery systems directly to craft exclusive accountable care organization relationships that emulate the principles of the Intel-Presbyterian arrangements.

Private exchanges. While none of our panel members were contemplating the use of private exchanges anytime soon, they all understood why some of their colleagues were considering them. Walgreens is a stellar example. Again, Walgreens has a direct interest in health care as a provider of pharmacy and primary care services, but it has recently moved all employees to a private exchange model offered by AON-Hewitt.

We’ll feature an in-depth review of the Walgreens story in a future column. But suffice it to say here: It’s going well. And as Tom Sondergeld, chief architect of Walgreens private exchange strategy told me: “Yes it’s going well … and we won’t be paying the Cadillac tax.”

Ian Morrison, Ph.D., 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.

If you are an optimist, as I am, you see growth in healthcare costs moderating, coverage expanding, and important progress being made on patient safety and quality. But even optimists cannot be complacent. We are just scratching the surface of what must be done to transform the healthcare delivery system. Remember, the baby boom is just starting the long march through Medicare (and for the vast majority of the eventually impoverished seniors, a significant tramp through Medicaid). It is also wise to take into account that healthcare premiums are swamping the finances of most middle class Americans and the businesses and taxpayers that support those health insurance premiums. And recall, we are on the edge of dazzling technologies that have the potential to extend life, cure disease, and ameliorate suffering but at a cost that could be staggeringly expensive as the recent case of Sovaldi shows us. No, we cannot be complacent we need to innovate our way out of this.

Sustainable Affordability: The Key Element of the Innovation Imperative

Healthcare affordability is the key challenge. We lull ourselves into complacency if we simply try to bend the trend a wee bit. Healthcare is already outrageously expensive and the demand pressures from an aging, obese, spoiled and demanding public will overwhelm our collective ability to pay for healthcare as it is currently conceived and delivered. Add to the demand side the creation of new technologies on the supply side: from genetically engineered drugs, to intelligent implantable devices, and new forms of prosthetic aides to mobility, well being and functioning…(none of which sounds cheap to me)…and you have a recipe for unit costs increasing and volume of units expanding.

Oh yes, and we are bringing 50 million more Americans into the fold with coverage expansion, slowly but surely over the coming decades, because we Americans are not really the heartless bastards we sometimes appear to be to the rest of the world. (I am writing this in Scotland so maybe I am tainted by the local views).

But while affordability is the key challenge, the solution is not just cost-cutting and re-engineering. Don’t get me wrong, we need to do those things but they will not get us to where we need to be. As one CEO in another industry I worked with taught me:   “You cannot re-engineer your way to greatness”.

Many organizations are on the important path of process redesign, supply chain rationalization, clinical process improvement, and “Lean”. All good, you had me at hello. But in many cases they will yield improvement that will be smothered by the forces of supply and demand outlined above. No, the true challenge is to create sustainable affordability through massively scalable innovation.

Leading Innovation

My long time friends and colleagues Dr. Molly Coye, Chief Innovation Officer at UCLA Health System and Dr. Wendy Everett, CEO of NEHI are pioneers in tackling this innovation imperative. I was honored to participate recently in their second annual National Healthcare Innovation Summit held at Harvard University Medical School in conjunction with HIMSS and Avia. The summit brought together Chief Innovation Officers and Chief Transformation Officers of leading healthcare delivery systems in a three day program that encouraged interaction between thought leaders and innovators in healthcare and many smaller entrepreneurial innovative companies and organizations that have promising and potentially highly scalable innovations. The values of such interaction is clear: we need to harness the innovation that entrepreneurial companies can bring and encourage large scale delivery systems to deploy them. All this must be done in pursuit of the noble Triple Aim of better healthcare, better health and lower per capita costs. Searching and sorting these innovations; evaluating, disseminating and connecting them to partners is very important work.

As these forums and other worthy initiatives across the country show, there is potential to bring large-scale innovation to healthcare delivery. I would offer the following observations about what to watch for on this journey.

The Trajectory of Silicon. In almost every other industry, meaningful innovation has occurred because contemporary information technology was deployed at scale. Moore’s Law dictates the power of semiconductors basically doubles every 18 months which has enabled many of the technologies that have transformed our lives. Getting on the innovation trajectory of silicon has been hard for healthcare, because healthcare delivery is not just about bits and bytes, yet that does not excuse us. Healthcare has been pathetically slow at incorporating contemporary information technology. I recall as a young analyst working in Vancouver B.C on behalf of the then new University hospital writing the justification for a Meditech electronic record system as part an all computerized hospital strategy in 1979! That was nearly 35 years ago, it is sad it has taken us this long to get with the program (if you pardon the pun). While meaningful use is no panacea, it has dragged the healthcare delivery system toward the future if not into it. We must get on the trajectory of silicon and use cutting edge technology to better effect. For example in Telehealth, companies like Teladoc provide remote access to physician consultation services on demand to more than 7 million members. Similarly, as Dr. Eric Topol teaches us the iPhone and its derivatives may become the key medical technology of the 21^st Century.

The Value of Clinical Innovation. We are on the cusp of a key societal debate about how to value clinical innovation. Scientists and industry pursue unmet medical needs, drawing on the best of emerging science and translating these technologies into meaningful innovation. We celebrate their success on the Nightly News and in the National Enquirer, medical breakthroughs we call them. But we don’t have a very good idea about how to deal with clinical innovation that is highly effective, incredibly expensive, with potentially huge number of clinically plausible patient applications. Biologicals or specialty pharmaceuticals have been the focus of this debate with the anti Hepatitis C-drug Sovaldi it’s epicenter. A drug that costs (read priced at) a $1,000 a pill and that could help millions of people is just the tip of a very big iceberg. Specialty pharma is no longer a rounding error for purchasers. A decade ago, specialty pharmaceuticals accounted for about 2% of the pharmaceutical budget growing at 20% compound per annum. Today the specialty pharmaceutical spend for most payers it is pushing 40% of drug spend and growing at 20% compound. United healthcare paid out $100 million for Sovaldi for their health plan members in the first quarter of this year alone. Industry supporters defend Sovaldi’s pricing as “value-based” because it is cheaper than the liver transplant it purports to deem avoidable. To me that’s nuts. It’s like saying that the telegraph should be priced at the same rate per bit of information as the Pony Express it replaced.

But I feel for the clinical innovators, they need to know what the rules are. What are we as a society prepared to pay for clinical innovation? On what basis? In the UK they are comfortable with making recommendations to cover therapies based on classic cost-effectiveness criteria such as Cost per QALY (Quality Adjusted Life Year) which sounds brutally calculating, but has the salutary effect of encouraging the manufacturers to lower their price to make the cut of deemed cost-effectiveness (typically around $50,000 per QALY). This all smells too much like death panels for most Americans. But we better figure this out soon or we will have a big problem. Imagine an effective but highly expensive neuro- surgical intervention for Alzheimers, or an effective xeno heart transplantation using Baboons raised on farms in Texas where the only limit was not organ donors but money. (By the way I raised this Baboon farm scenario with a Wall Street Journal reporter twenty years ago, and when he published it in a front-page story the next day I got an irate call from the head of heart transplantation at nearby Stanford telling me I was an idiot because it wouldn’t be baboons… it would be pigs. But you get my point.)

Scaling Emerging Models. Organizers of the Innovation Summit were clear that a key challenge for the future is finding scalable innovations. In healthcare we are spectacularly successful at pilots that never take off. Overcoming this dilemma needs commitment by health system leaders to deploy, at scale, promising innovations and putting the force of the enterprise behind them. All too often large scale delivery systems see innovations like Scout badges, little things they can point to that they have done but that are meaningless individually and collectively as a share of revenue or as a share of mind or strategic focus.

Disruptive Innovation Versus Distractive Innovation. Clay Christensen is a hero of mine. But I worry that his great insights and practical teachings may be lost in misuse, overuse and outright abuse of the term disruptive innovation.   For too many large health systems half-assed pilot projects are distractive innovations. And worse yet, the people they disrupt are not overpaid incumbents, but hard working clinical caregivers who are at the front-end of care but are bombarded with idea of the month projects overlaid on an already demanding workload.

Policymakers must support Innovation…Sometimes by Getting out of the Way. One of the key features of the ACA was the creation of a Center for Innovation within CMS, which I strongly support but we should not expect all innovation to come from the center or from government generally   A key role for policymakers is to develop an environment that encourages innovation by being less prescriptive not more, by eliminating regulations not creating more, by eliminating layers of bureaucracy not adding them. No one is regulating Apple’s App community developers and they seem to be doing just fine.

Health Plan Innovation: Reframing Markets. Health plans can play a key role in creating an environment conducive to delivery system transformation and innovation. At the Innovation Summit, Aetna CEO Mark Bertolini spoke eloquently about his vision for Aetna and all of US Healthcare where Aetna and others would enable consumers to select among (Aetna enabled) ACOs in private exchanges (I still think Obama’s public exchanges will be around too).

Business Model Innovation. As innovation experts such as Clayton Christensen and Larry Dobson teach us, most true innovation is not just in technology or service offerings but is rooted in business model innovation. Finding new ways to be paid is important: consumer subscription services, direct pay retail models, and sponsored offerings all have potential in healthcare. Advertising based plays get trickier because of the special sensitivity of patient specific information but they can exist as Web MD and others have shown.

Engaging Consumers. A common theme at the Innovation Summit and across the country is finding new ways to engage consumers in decisions and behavior around both health and healthcare. For example, Castlight provides tools to help consumers become more discriminating and motivated consumers for shoppable conditions. EOSHealthprovides tools for the chronically to engage more effectively in self-management.

Leveraging the New Digital Infrastructure: Social, Mobile, Cloud, Big Data and New Analytics. In Silicon Valley where I live the buzz is all about the new digital infrastructure that can enable all kinds of innovation. Many of the emerging healthcare innovators are leveraging these tools and applying them to consumer engagement, clinical process improvement and administrative efficiencies.

De-Institutionaliztion: Healthcare as a Social, Family and Community Responsibility. As we have explored in many recent columns, the shift from volume to vale and toward population health means that much of the future of healthcare will look a lot more like social work than medical care. But I am deeply struck on my trip to Europe that in Ireland, France and Scotland the social work dimensions of healthcare are not always delivered by government or formal healthcare institutions but are often driven and delivered by volunteer organizations and individuals, by a sense of family obligation to be care deliverers, by communities that support interaction. As we move to population health we need to develop and harness our own existing innovative American social and community based solutions for promoting health and delivering healthcare. The promotores in the Latino community being an excellent foundational example.

Engaging the “Big System” in Change. My final observation to the entrepreneurs of innovative start-ups and to the CEOs and Chief Innovation Officers of large healthcare delivery systems alike is focus on the Big System, namely the core delivery system and how it can be meaningfully transformed. Innovation should not be thought of like a myriad of little ornaments on a Christmas tree but rather as a means to re-think in a deep way how the whole delivery system can be redesigned at scale and with purpose to be higher performing. That is our work. That is the Innovation Imperative.