In my rattling around the country I talk to a lot of cab drivers. They are my major source of insight. Cab drivers all hate Obamacare and they are almost all uninsured. They don’t know how they can possibly afford health insurance, even if they got a subsidy. “Hey man, it costs a $100 to fill the gas tank, and they want me to spend money on health insurance. Are they crazy?”
I have had very interesting conversations with cab drivers about a variety of health care issues, such as where to get a cheap colonoscopy for cash (ideas, anyone?) or how to get a job in health care, because driving a cab isn’t making it for them.
Last week I had a nice conversation with a 38-year-old cab driver in Palm Springs, who after serving nine years in the military, went to the University of Florida and got a degree in finance. For the last decade, Geoff has bounced around in poorly paid, unsatisfying jobs in the financial services industry, only to be bounced out on the street in the economic meltdown. He is uninsured. (His parents were uninsured for 20 years until they became old enough for Medicare, when they found out that they both had untreated, mild heart attacks in their 50s). Geoff plans to move to Oregon and become a nurse.
Cab drivers are the working poor, the very people health reform is supposed to help. All across America they face the same problems. There are no jobs, even for college graduates, and there are certainly no jobs with health insurance. To buy health insurance in the individual market is insanely expensive and clearly out of reach for those making less than $50,000 per annum. All cab drivers face the same problems. Health reform is supposed to help all of these cab drivers, but there is very uneven progress in implementing health reform across the country.
Four Americas Defined
In my travels to 33 states since health care reform passed last March, I have been struck by the substantial variation in the enthusiasm for and energy behind health reform. In almost all major markets there are market-leading health systems preparing for a new health care future that models the principles of reform. But in many states, this view of change is not shared by governors, elected officials or hospital administrators, or by the population at large. This is particularly true of progress being made toward health insurance exchanges, which is the focus of this column.
Along with my colleagues at Harris Interactive and the Harvard School of Public Health, we developed a crude segmentation of states into what we term the Four Americas. They are the “active implementers,” the “passive-aggressive implementers,” the “place on hold” states and the “send back” states.
Active implementers. States such as California, New York, Maryland and those that compose New England are making rapid progress toward health insurance exchanges by passing state legislation and detailing the design of the exchanges. In my state, California, we have passed a law enabling the exchange and prescribing its form and powers, including the ability to selectively contract with qualified health plans. We have four out of five of the board members appointed to the Health Insurance Exchange Board. We are holding planning meetings. We are writing position papers. We are on our way, despite our massive budget problems.
A similar story could be told in New York, Maryland and New England. Of course, all of us are following in the path-breaking work of Massachusetts, and indeed many states are availing themselves of support from John Kingsdale and his colleagues, who are now consulting on forming exchanges and sharing their invaluable experience in creating the Massachusetts Connector. Virtually all of the active implementers have Democratic governors, and these states have received five out of seven grants to establish the electronic infrastructure for the insurance exchanges.
Passive-aggressive implementers. There is a large group of states that are making progress: They are planning, and they may be having meetings, but they are either publicly or privately seething because they hate Obamacare. States like Georgia, Texas or Missouri fall into this category.
Why are they even bothering? Obviously, part of it is that health reform is the law, and it would be a little churlish not to make an effort to comply with the law. And second, it’s about the money. The basic story of health reform is that blue states subsidize red states. For example, Connecticut provides Medicaid coverage up to 200 percent of the federal poverty level (FPL). Obamacare requires that Medicaid be available up to 133 percent of FPL as a national standard, with the federal government paying for almost all of the increment in expenditure. Connecticut gets nothing out of it.
Conversely, many passive-aggressive implementer states have very restrictive eligibility requirements for Medicaid and would be substantial net beneficiaries of the new law. (By the way, this is a standard law in the perversity of American politics that blue states pay more in taxes than they get back in benefits, and red states get more than they pay in. This is also true within many states, such as California; blue counties subsidize red counties.)
Place on hold. Attorneys general from more than 20 states have joined to present legal challenges to the health reform law. In a subset of those states, such as Florida, governors are placing health reform implementation on hold until the legal challenges are resolved (ultimately by the Supreme Court). The Obama administration seems to be in no particular hurry to litigate this issue, which means that another large game of chicken is being put in place. Governors who place implementation on hold are betting that Obamacare gets repealed (and maybe even contributing to that outcome by standing firm in resistance). However, if President Obama is re-elected in 2012, and the law remains in place, these reluctant governors would have a couple of weeks to pull an exchange out of their hat and notify the federal government by January 1, 2013, that they will have one. Otherwise the feds will roll into town to do it for them. That would be fun to watch.
Send back. Some states just do not want to play with Obamacare, and they make no secret of it. I have spent a good deal of time in Oklahoma over the last couple of years working with my dear friends at Saint Francis Health System on their Vision 2015 Initiative. Through that work, I have learned a bit about Oklahoma politics and policymaking.
On a recent visit, the Tulsa World newspaper reported that despite the fact that Governor Mary Fallin (a newly elected Republican) was glad Oklahoma received one of the seven health insurance exchange innovation grants, state senate leaders were unwilling to take up the enabling legislation in the state legislature to allow the state to accept the grant because that would mean “we’d be marrying Obamacare.”
Similar battles have raged within Oklahoma, where major hospitals have proposed a voluntary fee (not a tax) on their revenues to be used to get matching federal support for Medicaid (on a 3-to-1 matching basis). State legislators refuse to accept the money from hospitals because it would be a tax.
Variances Reflected in Polls
The wide range of views on health care reform are evidenced in survey data from the Four Americas. We took the Harris Poll results on public attitudes toward “repeal and replace” that we discussed in a previous column (“Common Ground”) and analyzed the responses across the Four Americas.
Just to remind you, based on a poll taken after the election, 40 percent of Americans want to repeal some or all of the bill, 31 percent want to keep all or most of the bill (including those who want to expand it) and 29 percent are not sure. Across the Four Americas, 38 percent in active-implementer states want to repeal the bill, as do 40 percent in passive-aggressive-implementer states, 47 percent in place-on-hold states and 52 percent in send-back states. That is a significant difference.
However, we also found in analyzing the data by state that states with a Republican governor versus those with a Democratic governor don’t show this range of variation. In Republican-controlled states, the repeal/keep ratio is 43/30, but in Democratic-controlled states it is 38/32. I believe this shows two important things: First, there is no block of states (not even blue states) where health reform has majority support. (Partly this is the belief among core Democrats that the health reform law does not nearly go far enough.)
The second observation is that Democratic-controlled states and Republican-controlled states are not that different. While we know that Democrats and Republicans are widely different in their view on reform at the individual level, that does not aggregate to clear-cut views in either direction at the state level. I guess there are Democrats, Republicans and Independents everywhere. That is why I would say that governors, both Republicans and Democrats, would be wrong to assume that the recent election has given them a strong mandate in one direction or the other—particularly based on an election where national turnout was 42 percent. The results could be very different with a 60 percent turnout in the 2012 election.
Impact on Exchanges
Health insurance exchanges could have a major impact on the health care marketplace. There is considerable uncertainty and potential variation in the types of exchanges that may be established at the state level, albeit that the federal law places some strict rules they all must meet. Couple that to varying degrees of enthusiasm about getting started, and the health insurance exchanges could be very different across the country, with resulting impacts on the health care marketplace in each state.
Here are some things to watch for.
We are all turning bronze. There is a growing body of evidence—from actuaries, academics, consultants and researchers—that when consumers in the exchange select insurance options, they will pick the bronze plan (a 60 percent actuarial value). By definition these plans will have high out-of-pocket costs and may not cover as wide a range of benefits as the health reform enthusiasts intended.
Some in the health care delivery business see exchanges as a new source of patients with commercial insurance similar to the benefits that schoolteachers and firefighters enjoy. Not so fast. Not only will those school teachers and firefighters get their benefits rolled back as part of the global backlash against public employees, but those of us in the exchanges will be operating with skinny network, high-deductible plans.
Exchanges could be a non-event or become the exchange that ate Manhattan. Depending on how exchanges are structured at the state level, they could have limited pickup. The proposed insurance exchanges have two huge advantages over some of the failed insurance exchanges across the country, such as California’s Pac Advantage program for small business. First, the proposed exchanges have subsidies. Second, they have enabling rules. However, there is still a huge opportunity for states to make exchanges highly dysfunctional by not regulating the behavior in the non-subsidized individual and small group market.
What killed Pac Advantage was brokers taking good risks outside the exchange and dumping bad risks into the exchange. Unless state legislation prevents this, it is highly possible that exchanges get selected against and spiral downward. Conversely, if exchanges are up and functioning and acceptable, there could be massive growth over time as employers see the benefit of giving their employees incentives to move to the exchange. This won’t happen initially in 2014, but in a Cadillac tax world and with high-functioning exchanges, there could be massive growth. (And remember, we would all be pretty bronzed).
Activist exchanges or a website. Some states like California have started a path toward an activist exchange with rules and practices that pursue various policy goals. Other states such as Utah have functioning small business insurance exchanges that are no more than well-designed websites that give consumers a clearinghouse of options in the marketplace and some useful comparison tools to allow consumers to shop for the available options. Some states will be more activist than others.
Activist to do what? There are a wide range of options that states could consider even if they are committed to an activist path. For example, in California we are having exploratory planning meetings to discuss a wide range of options. These include:
• Just get folks covered. Some argue that the first goal is to reduce the uninsured so that the exchange’s first priority would be to enroll the previously uninsured. A priority on coverage expansion, above all, would suggest that the focus be on ease of use and outreach, rather than on trying to pursue other policy objectives like delivery system transformation.
• Make value-based purchasing to encourage delivery reform (e.g., accountable care organizations, or ACOs). Some argue that it would be wrong to squander the opportunity to use the exchange to encourage delivery reform through activist value purchasing approaches. Given that one of the five exchange board members is Paul Fearer, chairman of the board of the Pacific Business Group on Health (the leading employer coalition on the West Coast), one can imagine that value-based purchasing will be considered by the health insurance exchange board as a goal for the exchange. Some suggest that we go even further and that the exchange should favor ACOs.
• Support a robust private market for health insurance. Some argue that the exchange should be aimed at encouraging an expansion of private health insurance coverage, and encouraging more competition from local plans as well as those from other states.
• Re-create managed competition for small groups. Some aficionados of managed competition, such as Kaiser, would like the exchange to structure its small group offering so that an individual employee at Joe’s Cab Company could pick Kaiser or Blue Cross and not have to stay in a group.
• Blend Medicaid and the exchange business for the low-income consumers. Public sector leaders argue that the exchange business and Medicaid are really the same population (people who move in and out of eligibility for Medicaid as their income and employment varies). The leaders would advocate for close coordination and connection between the two programs. But private sector leaders in the health care system and the business community would disagree.
• Support the safety net delivery system. Leaders in the safety net (particularly public hospitals and community clinics) would like to see the exchanges designed to support the safety net, because they are really the providers of last resort for low-income folk, and they will be there for the many millions who are still left out, even after health reform.
• Provide the final exit for business. Some in the business community argue that the exchanges need to be developed as a socially acceptable alternative for their employees, and that they may provide business with a golden opportunity to gracefully exit the health benefits business over the next decade.
All of these are valid arguments, and we will see how they play out in California. My point is that all of these decisions have to be made in every state. Hospitals and health care systems need to develop a point of view of what they would like to see happen in the state or states in which they operate. And they need to work with governors and state legislators on shaping the enabling legislation.
Four Americas: Play the Tape Forward
How will this all play out? To find out, I interviewed my friend Drew Altman, president and CEO of the Kaiser Family Foundation, a key player at senior levels of health policy, and someone who understands the politics and policy of health reform at the federal and state level better than almost anyone in the country.
He sees the variation we describe here across the states. But he made two key observations. First, based on his experience as the head of Health and Human Services in New Jersey, serving a Republican governor, he reacted to my sweeping generalization that ideology seemed to be trumping economics, where states like Oklahoma were sending back money that might help them. He reflected that, at the state level, “eventually state cabinet members, like I was, have to tell the governor that while he might not agree with the federal direction there are enormous financial implications for the states by not complying with the law.”
However, Altman went on to say: “This time it could be different, because of the extreme ideological polarization; but the economic plight of the states is so dire, they may have to come around.”
His final point was intriguing: “We may see governors rebrand health reform in their own image.” Particularly if President Obama is re-elected with a Republican Congress, a not unlikely scenario, it is conceivable that health reform will be scaled back with more latitude provided to the states. This could provide a golden opportunity for governors to use the federal funds but rebrand health reform as a state-based solution that reflects the wide variation across the Four Americas.
And maybe that’s the right answer for all those cab drivers out there. We’ll see.
Author Archive
The Four Americas
Thursday, June 2nd, 2011The Incredible and Wasteful Complexity of the US Healthcare System
Friday, March 11th, 2011During the health care reform debate, we wrote that most people’s attitudes to it were “confused, conflicted, clueless and cranky.” A major reason was that the American health care “system” is fiendishly complicated and few people really understand it. As a result hardly anyone knows much about what is actually in the reform bill (but that does not prevent them from having strong opinions about it). Sadly, the reforms, whatever their merits, will make the system even more complicated, the administration more Byzantine and the regulatory burden more onerous.
System complexity
The American healthcare system is already the by far the most complex and bureaucratic in the world. We were once asked to spend ninety minutes explaining American health care to a group of foreign health care executives. Ninety minutes? We probably needed a few weeks. Most other countries have relatively simple systems, whether insurance coverage is provided by a government plan or by private insurance or some combination of these. But in the United States insurance coverage, for those who have it, may be provided by Medicare Parts A, B, C, and D, 50 different state Medicaid programs (or MediCal in California), Medicare Advantage, Medigap plans, the Children’s Health Insurance Plan, the Women, Infants and Children Program, the Veterans Administration, the Federal Employees Health Benefits Program, the military, the hundreds of thousands of employer-provided plans and their insurance companies, or by the individual insurance market. This insurance may be paid for by the federal or state governments, by employers, labor unions or individuals. Some employers’ plans cover retirees, others do not. The result is that the system is pluralistic, mysterious, capricious and impossible for most patients and providers to understand.
Administrative complexity
The administrative complexity is amplified by the multiplicity of insurance plans. About half of all Americans with private health insurance are covered by self-insured plans, each with its own plan design. Employers customize their plan documents, led by consultants who make a good living designing their plans and tailoring their contracts. As one prominent consultant told us recently, if all the self-insured plan documents were piled on a table they would not just exceed the 2,700 pages of Obamacare, they would probably reach the moon. For the rest of the commercially insured population, health plans may be traditional indemnity plans, Preferred Provider Organizations or Health Maintenance Organizations.
The coverage provided by different plans varies dramatically. They may or may not include large or small deductibles, co-pays or co-insurance. Beneficiaries may pay a large, small or no part of their health insurance premiums. Some plans cover dependent family members and children, others do not. The Medicare Part D pharmaceutical benefit plan involves a “doughnut hole,” which will disappear as health reforms are implemented. Surveys have found that few people fully understand their own insurance plans let alone the bigger picture. While health reform takes some steps toward standardization of insurance offerings and improving transparency, overall it is likely to increase complexity.
Physicians may be paid by salary, fee-for-service, or capitation, with “pay for performance” bonuses based on complicated metrics. In order to get paid, most doctors and hospitals have to use many thousands of codes to describe the care they have delivered. Doctors can spend hours a day doing this; hospitals employ tens of thousands of coders; insurance companies and government programs spend a small fortune entering and checking this coding. A substantial proportion of payment claims are disputed, further increasing administrative costs and the “hassle factor.”
Some insurance companies are for-profit, some are not-for-profit. Hospitals may be for-profit, not-for-profit charities or be run by federal government agencies such as the VA or the DOD or by cities.
The administrative complexity exists in the private and public sectors and in both for-profit and non-profit organizations. Medicare is relatively efficient because it has a simple criterion for eligibility – your age (although it also covers people with disabilities). But for many of us administrative complexity is rampant because health insurance is a function of our jobs or our income (or lack of it). Our insurance changes often (because our employers change their plans, because we change jobs or because our income changes), far more often than it does in other countries. As a result we have armies of people who sell insurance, keep track of who is eligible for what, chase, authorize or deny payments, and lob faxes, emails and assorted missives at us and each other. In Los Angeles County, 1,900 people work on nothing but MediCal eligibility with a union-mandated productivity target of completing two forms a day. There are an estimated 150,000 such eligibility workers across the country. The health reform bill proposes to expand Medicaid by 16 million so the number and cost of these workers will surely increase.
Regulatory complexity
Different parts of the health care system are managed or regulated by dozens of Federal government and state agencies, including the Department of Health and Human Services, the Center for Medicare and Medicaid Services, the Centers for Disease Control, the Veterans Administration, the Food and Drug Administration, and the Agency for Healthcare Research and Quality. One report claims that the health care reform bill will create 183 new agencies, including state insurance exchanges and a Medicare Independent Payment Advisory Board and the Center for Medicare and Medicaid Innovation.
And then there are the acronyms. If you don’t know them you will not understand much of the health policy debate: PPACA, DHSS, FDA, CMS, VA, CDC, AHRQ, SRG, MLR, HMO, PPO, PBM, COBRA, P4P, CER, EMR, HIT, DRG, FEHBP, WIC, CHIP, DSH, MMA, and many more.
We believe that this complexity is a major reason why we have (and this is very well documented) the most expensive, inequitable, inefficient and unpopular health care system of any developed country, with poor to mediocre outcomes. The problem is not the doctors or the hospitals but the system. Reimbursement, with its many thousands of points of public and private sector payment and the mindboggling payment rules, creates a bow wave of administrative costs and many perverse incentives. And these costs are the incomes of powerful interests who fight to preserve them.
The American “system” is exponentially more complicated than the systems in other countries – and the reforms will make it even more complicated. Unfortunately reform that would simplify the system is probably not politically feasible. A benign dictator might scrap the system and start over with a much simpler system. But in a democracy, with powerful interests and 17% of our economy involved, “you can’t get there from here.” We have to build on what we have, heaping complexity on complexity.
It is therefore no wonder that surveys find most people (including, it would appear, many members of Congress) understand very little about the health care system let alone health care reform. A recent Harris poll asked people which of 18 items are or are not in the reform bill. Modest majorities were able to give the right answer for only 4 of the items. And pluralities got the answer wrong on nine of the items. For example pluralities believed that the bill includes higher income taxes for the middle class, new ways to ration care, a new government run health plan, cuts in Medicare benefits, increased payroll taxes and “death panels”.
Of course, many millions of people followed the reform debate with interest and passion, but because the issues were so complicated, very few of them understood them. Which is why rhetoric often trumped substance, and misinformation often fuelled strong opinions. And why American health care is likely to be extraordinarily inefficient and expensive far into the future.
Humphrey Taylor is Chairman of the Harris Poll.
Ian Morrison is a healthcare consultant in Menlo Park, California.
Common Ground
Friday, March 11th, 2011In the wake of the Tucson tragedy, the national political conversation is on the cusp of potential transformation. As I write this, we are in the first stage: a pious truce in which most leaders on both sides honor the dead and wounded and avoid inflammatory rhetoric and analysis. Both President Obama’s oratory and Speaker Boehner’s genuine grief have inspired the country to try to tone down the vitriolic rhetoric. Next, we enter the second stage where we as a country (hopefully) “disagree without being disagreeable.”
But longer term, there are three possible scenarios for the civility of our national discourse and the potential for finding common ground. Each will have an impact on healthcare:
• We go back to business as usual
• We disagree without being disagreeable, on an ongoing basis
• We really search for common ground in policy
Scenario 1: Short Memories
The first scenario is the short national memory alternative. We have largely forgotten the Ninth Ward of New Orleans; the people of Haiti, where only 5% of the rubble from the disaster has been cleared a year after; and, the Gulf Coast Beaches post oil spill. And so with Tucson, we may return to business as usual, and the national conversation resumes its ill-tempered tone, especially about healthcare. I certainly hope this is not the case.
In this scenario, Republicans may try to run out the clock on Obama, and run aggressively against Obamacare by promising to repeal it if elected to control both the Congress and the White House in 2012.
It makes perfect political sense. The major benefits of the bill to lower income folks have not kicked in and will not kick in until 2014, health insurance costs continue to rise in the interim (and some even blame Obamacare for making it so), and the public really don’t understand what is (and what is not) in the law. For example, surveys show that majorities of the public don’t know that provisions that they like, such as tax credits for small business to purchase health insurance, are in the law. While on the other hand, significant minorities (around 30 percent) continue to believe that unpopular provisions such as death panels are in the law when they are not.
In addition, the legal challenges to the individual mandate will make their way through the legal system (and make some state Attorneys General into Republican rock stars in the process) eventually winding up in the Supreme Court. And who knows what a Roberts court would decide?
All of this political theater aimed at demonizing health reform will drag out over the year and then, before you know it, we will all be in Iowa in January 2012 listening to Republican presidential hopefuls argue that repeal of Obamacare is a national priority. In the absence of tangible benefits to voters, Republicans might be successful in persuading the country that Obamacare is a bad idea and that it should be repealed and replaced.
Scenario 2: Civil Disagreement: Repeal and Replace
A second scenario is that the tone of the debate is more civil going forward, but the fierceness of the disagreement remains. In this scenario, “respectful, repeal and replace” will be the clarion cry of the new Congress this spring. Obamacare will likely be the subject of many rounds of congressional hearings. As new regulatory details emerge there will be much to criticize. Any reform so sweeping has lots of crazy moving parts and is a target rich environment for critics, doubters, and outright opponents.
Harris Interactive/Health Day polls taken after the election show that about 40% of Americans want to repeal all or most of the provisions of the bill (only 28% say repeal the whole bill). But, and this is funny, the public wants to repeal most of the key elements of the bill except for the key elements that are in the bill. For example, when asked about specific elements to repeal, only one element, the individual mandate, has a majority (57%) favoring repeal, all the other elements including guaranteed issuance, health insurance exchanges, tax credits for small business, employer mandates, and expansion of Medicaid have either majorities or significant pluralities favoring keeping the provisions rather than repeal. The Harris poll also shows that the basis for opposition among those who oppose is largely ideological (big government, higher taxes, rationing of healthcare, socialism) or fear of higher taxes, higher costs, or lower quality. Those who oppose Obamacare oppose the caricature not the content of the law.
I have been to thirty states (mostly red states) since Obamacare was passed in March, 2010 and I can testify that the new law is not universally adored across the nation. Yet, I also found that everywhere I go healthcare leaders are preparing for a new future when key provisions of the health reform legislation will be in place. Expected features such as expanded Medicaid coverage, new exchange based health insurance expansion, and changes in reimbursement to reward accountable care and patient centered medical homes are all stimulating strategic actions in the field. A lot of people are out there preparing for a future that assumes that repeal and replace does not happen.
Obamacare Repealed: Welcome to the Replace Part
If Republicans were to control the White House and Congress in 2012 (as in Scenario 1 or 2) what would happen to healthcare reform? Well, to fully undo the statute requires an enormous bulletproof majority in both houses, but let’s assume that happens, what would repeal and replace look like.
The best clue to what “replace” looks like is in the proposals put forward by Republicans in the past: tax credits for small business to provide insurance (which is already in Obamacare), high risk insurance pools (also in the law), allowing purchase of health insurance across state lines, Health Savings Accounts and malpractice reform. These initiatives are unlikely to make much of a dent in the 50 million uninsured. (The non-partisan CBO estimated approximately 3 million uninsured would be covered). Nor would they do much to reduce the costs of care (with the exception perhaps of malpractice reform, which I will return to below).
More radical ideas have been put forward by young members of the Republican Party such as Representative Paul Ryan who has proposed a voucher system for Medicare starting in 2021. The Ryan Plan would undoubtedly save Medicare money but cost seniors a fortune, because the value of the voucher would be considerably below the expected costs of care.
Asking seniors to pay ever higher out of pocket costs for healthcare is a little problematic. Senior median income is $22,800 mostly from Social Security and 87% of seniors have incomes less than $50,000 per annum. There is not a lot of leeway for massive cost shifting. Similarly, “affordable health insurance” is code for high deductible catastrophic insurance policies, which are fine if you are rich but don’t work so well for low-income folks. We already have armies of people who are getting inadequate primary care and prevention because of onerous cost sharing.
The other likely part of “replace” is significant reimbursement rate cuts under Medicare and Medicaid. If you are a budget deficit hawk you don’t have to be great at arithmetic to figure out that cutting reimbursement rates for public programs will save the government money.
So there doesn’t seem to be much to the replace part of the “repeal and replace” that would deal with the broader problems of cost, quality, access, and security of benefits. I would like to hear more details beyond the vague promise of a “robust, market-based system where free enterprise and competition produces the best healthcare system in the world.”
The Gathering Storm
While it may be perfectly logical to talk about repeal and replace, it is a policy disaster in the making. Just like climate change, we don’t have time to play chicken.
Healthcare costs are a national security emergency. Lack of coverage and care for low- income people is a national disgrace. Working families are financially devastated by illness. Mothers of children with pre-existing conditions live in fear of being uninsured.
Just last evening, our friends, an affluent couple each with their own small business described the agony of trying to get health insurance for their 13 year old son who because of a heart defect, that he had corrected surgically at birth, is permanently uninsurable. Their fall back plan? Activate Canadian citizenship because the father is a native Canadian.
It seems crazy to me that you have to change countries to get access to health insurance.
Before you say, well let’s just regulate insurers to take all comers at an affordable price, think it through. If insurers have to take all comers you have to mandate that everyone has to have insurance (don’t listen to me, go talk to an actuary). If everyone has to have insurance, then you have to subsidize a lot of lower income people, because health insurance costs the same for everyone regardless of income, and people with below median incomes really cannot afford it. The logical source of subsidy for poor people is rich people. Pretty soon you are at Obamacare, or some variant of it.
I don’t think the law is perfect. I think it is an ugly compromise like every other healthcare system around the world, but I think we should improve it, not waste our time and energy on repeal and replace discussions, however civil.
Scenario 3: Finding Common Ground
A third scenario would be for both sides to come together to refine and refocus the healthcare reform legislation. Early polls after the Tucson tragedy showed increased support for making constructive amendments to the bill rather than outright repeal. In the spirit of finding common ground, Republicans could use their new found political clout in Congress to refine and refresh health reform, not repeal and replace it. Here are some areas of common ground where Republicans might propose and Democrats might accept modifications of the law, particularly focused on making healthcare more affordable for everyone:
• Malpractice Reform tied to Quality and Patient Safety. Republicans and doctors firmly believe that malpractice concerns is the root cause of cost escalation. Policy wonks disagree, but that is irrelevant. So why can’t we have an intelligent, civil debate about changing the malpractice environment? For example, by tying malpractice reform to patient safety and quality improvement efforts and creating safe harbors for medical practice when it is evidence-based. Or what about requiring arbitration before malpractice suits could occur, or changing contingency fee arrangements, as well as the usual discussions of limiting damages? I am no expert in this area but I am sure there are some commonsense things that might actually work.
• Personal Responsibility. Republicans are big on personal responsibility. I agree. Let’s put a little more responsibility on patients to comply with treatment, pay more if they are not participating in their get well program, increase incentives for wellness and so on. What about a tax credit if your BMI is under 25? We have been light on the personal responsibility stuff the last couple of years. Members of Congress could propose something sensible.
• Administrative Modernization. Corporate America has gone through massive re-engineering with standardized information technology solutions to streamline administrative processes. Obamacare contains important steps toward the modernization of eligibility verification systems particularly for Medicaid and in the new health insurance exchanges. Republicans and Democrats could come together behind administrative efficiencies.
• Value Based Purchasing and Reimbursement Reform. CMS and DHHS have shown themselves willing and eager to work with the private sector on value based purchasing and reimbursement reform initiatives. The private sector could benefit greatly if they synchronize their purchasing and reimbursement reform efforts with Medicare in particular. Bring the private sector guys to the table.
• Revitalizing Managed Care in Public Programs. Managed care, whether for profit or non-profit, can be a real force for good. Republicans have historically been managed care’s champions, and ironically there is much opportunity for managed care in Obamacare such as Managed Medicaid, despite the whacks to the Medicare Advantage program. Let’s refresh and revitalize managed care for public programs.
I hope the new Congress comes together to work on the peoples’ business. Searching for common ground on healthcare would be a good start.
Ian Morrison is an author, consultant and futurist based in Menlo Park, Calif. He is also a regular contributor to H&HN Daily and a member of Health Forum’s Forum Faculty Speaker Service.
Chasing Unicorns: The Future of ACOs
Monday, January 3rd, 2011My good friend and colleague Mark Smith M.D., M.B.A., president and CEO of the California Healthcare Foundation (on whose board I sit), said it best:
“The accountable care organization is like a unicorn, a fantastic creature that is vested with mythical powers. But no one has actually seen one.”
I have re-blogged and re-tweeted (twitter@seccurve) this so often I got all the credit for the line. Welcome to the Internet age. But in all fairness to me, re-tweeting someone else’s intellectual property is as close as most of us get to original thought these days.
And that, my friends, brings me to why chasing unicorns is so important. Rising health care costs is a national security threat greater than any other. It will kill the budget, the economy and, some even argue, the patients because of unaffordability, excessive iatrogenic interventions and profligate use of resources. We desperately need some big new ideas about how to practically meet Don Berwick’s noble triple aim of better care, better population health and lower per capita costs.
One of those big new ideas is the accountable care organization.
Well, actually it is not an entirely new idea. And many in health care can (and are) legitimately claiming to having been one for a long time: Kaiser, Geisinger, Mayo, Cleveland Clinic, capitated delegated medical groups of California and even a few network model HMOs (among others) can say they were doing this all along.
I gave a little after-dinner talk to an elite group of ACO thought leaders in Los Angeles (basically the talk is the rest of this column) and it was a combination of both a roast and homage to Dr. Eliot Fisher of Dartmouth (who was there, I may add) and whom I always describe as a national treasure, not only for leading the wonderful Dartmouth Atlas work, which in many ways was the intellectual underpinning of, and the compelling case for meaningful health reform, but also widely credited with coining the term accountable care organization. But, as Eliot would be the first to modestly admit, many others in that room that night (Enthoven, Shortell, Levine, Crosson, Margolis, O’Kane, Robinson and too many more to adequately acknowledge here) are all part of the intellectual and practical foundations of this re-emergence of the accountable care organization vernacular.
At their very best, ACOs could be a powerful, successful, re-tweet of Enthoven’s managed competition, which a lot of us thought was a pretty decent American compromise the first time around (see a previous column, “The New American Compromise”). At its worst, it could be a badly defined mish-mash of half-baked ideas and experiments that is an orgy of excess for lawyers and consultants. As one colleague noted to me, probably half of the 1,500 attendees at the 2010 ACO Congress in Los Angeles were lawyers and consultants (myself included) eager to arm themselves with a new PowerPoint for an assault on the dazed and confused delivery system. (Google “ACO video” and you will find a brilliant cartoon about this on YouTube.)
So, here’s my take on ACOs and what we have to do to make them work right. I frame my suggestions very simply and modestly, first as a central two-part problem, and second as Morrison’s 10 Laws. (When you are a futurist you’re allowed to make up your own laws.)
The Mutual Disrespect Problem
There is in American health care a central problem governing the organization of health care. I call it the mutual disrespect problem, and it has two important parts:
Part 1: Everyone thinks everyone else’s job is easy.
Part 2: Anyone can do what a health insurance company does.
There is in health care an astonishing degree of mutual contempt for the component parts of the system: doctors hate hospital administrators, nurses hate doctors, and everyone hates insurance companies, especially the patients and the government.
Which brings me to the second part, namely, that every stakeholder assumes that whatever insurance companies do, the stakeholder could do easily for themselves. I have written before that insurers will be asked to explain their own benefit to society (see my earlier column, “Explanation of Benefits”). Insurers are having an exceptionally profitable year financially through no particular genius on their part it seems to me (just check their earnings against estimates). Despite all that, they actually do things that other actors (particularly hospitals and doctors) are pathetic at or incapable of such as eligibility monitoring, enrollment management, administration of benefits and, some would say, predictive modeling, population health management, case management, technology assessment and, of course, risk management.
So it is important, before we embark on this path to accountable care that we all start with a little self-awareness and good old-fashioned humility about core competencies to manage the risk for, and outcomes of, care for a defined population.
And so to the 10 Laws.
Morrison’s 10 Laws of Accountable Care
Morrison’s first law: Any organization that claims to be an accountable care organization, is probably:
• not accountable for a defined population;
• doesn’t care for patients beyond a few isolated episodes; and
• is not very well organized.
With the obvious exception of the organizations in the introduction that have a legitimate historic claim to being proto-ACOs, most people who are announcing themselves as accountable care organizations are full of it. Indeed, sometimes the louder the claim, the weaker the evidence. (It’s a bit like national politics, no?)
Morrison’s second law: You can’t be accountable for the care of patients … unless you know their phone numbers. The way the ACO provisions are currently framed, patients who end up in an ACO will be assigned to them through an “attribution logic.” Personally, if I was running an ACO, I’d rather know patients’ phone numbers so I can call them up and harass them about what they are eating. If I am going to be accountable for their health expenses, then I would like to be a wee bit proactive about identifying and managing the risk that I am taking on. And a really good start would be knowing exactly who the patients are. By the way, most doctors (or hospitals for that matter) don’t have a clue what other providers their patients go to or what their patients are doing when they are not with them, so this is not a new problem. It is just that now there will be money attached, both positively and negatively.
Morrison’s third law: Patients in accountable care organizations should at least know they are in them. Even I, with my perverted sense of humor, could not make this up. Patients in ACOs will not know they are in them. Mercifully, the policymakers are onto this aberration, so expect amended regulations that will require notification of the patients, possibly as follows:
“Dear Madam, Sir or Occupant,
Congratulations! Our attribution logic engine has automatically assigned you to get (almost all of) your health care from an organization with a new name that doesn’t mean anything but that actually used to be known as your local hospital. It is an accountable care organization now and it will be great for your health.
Have a wonderful day.
The People at Medicare
P.S. They don’t know who you are either so you might want to give them a ring.”
Morrison’s fourth law: Patients in accountable care organizations should not be allowed to leave, just because they had a bad day. Under pressure from the freedom and liberty folks, no one had the juice to say that patients in ACOs have to stay with them. No, the patients can skate away whenever they like. Imagine the money-losing, non-compliant, frequent flyer congestive heart failure patient being dumped on your doorstep because the hospital a few miles away paid for the limo and subsidized the patient’s rent so they could move in next door. Extreme, you say? In 25 years of observing American health care, I can say that it is a lot easier to dodge risk than manage care. This one really worries me, and I think it needs to be fixed, through voluntary enrollment for one-, two- or three-year periods, but once you pick, you stay. This could end up being an ideological deal breaker.
Morrison’s fifth law: Accountable care organizations must “bend the trend”; otherwise, it is a massive distraction for busy professionals who don’t have a life already. Look, everyone is busy. And so unless we are prepared to get behind the notion of bending the costs curve through more accountable health delivery systems, it will be a massive distraction that diverts our attention away from simpler, more immediate end points of improvement like avoidable readmissions, medication errors or primary care redesign. We must commit to slowing if not reversing total costs growth.
Morrison’s sixth law: Doctors love fee for service. They just want more fee and less service. We policy wonks (especially the economists) love to talk about reimbursement reform: Change the incentives and the system will reform itself. We are always talking about the incentives for doctors (since their decisions drive most health care costs). So my colleagues at Harris Interactive had the brilliant idea of asking doctors how they feel about all that. The Harris surveys show that the majority of physicians are, on balance, somewhat satisfied with their current reimbursement method (namely fee for service). They just complain about the amount of the payment for the level of effort involved in providing the service. But when it comes to changing the method of payment, the same surveys show that physicians don’t seem to like any of the provider payment reform ideas now circulating, including pay for performance schemes, bundled payment or global episodic payment. A recent academic survey confirmed Harris’s numbers that only about 16 percent of doctors would be in favor of accepting bundled payment.
The wonks designing bundled payment have not quite thought through the likely bloody wars in every hospital when a sack of money is dumped on the desk to cover all the costs of a hip or knee replacement: the diagnostic work-up, the DRG payment, the surgeon’s fee, the rehab and the readmission risk. Fights over who gets what will be reminiscent of the second battle in Braveheart.
Morrison’s seventh law: Any successful payment reform requires that you buy the doctors off in the short run so you can “grind the bastards down” in the long run. This is an almost direct quote (including the profanity) of a prominent executive of the British NHS when I asked her why they had spent 30 percent net new money on the British Primary Care Pay for Performance scheme. Generations before, Aneurin Bevan, father of the British NHS, was asked how in 1948 he secured the cooperation of the British doctors in health reform; he reputedly said, “I stuffed their mouths with gold.”
A similar story could be told of the dawn of Canada’s medical insurance in Saskatchewan in the 1960s. And yet, we in the United States did not learn the lesson of history, so the doctors never got a permanent sustainable growth rate (SGR) fix in health reform, and still don’t, going into a “spend no more” Congress. Oops.
Morrison’s eighth law: One man’s waste is another man’s income. There is enormous waste in American health care: unnecessary care, redundant care, defensive care, inappropriate care, unethical care, excessive care, futile care and corrupt care. But one man’s waste is another man’s income. In Japan, they call waste muda. In Oklahoma, they call it margin. Extracting waste, at least in the short run, means someone’s income has to either go down or disappear entirely; in the long run, we can reallocate. Again, this is easy to say, hard to do.
Morrison’s ninth law: The high-value ACOs seen through a Medicare lens may not be high value seen through an all-payer lens. (In other words, if hospitals integrate locally to be accountable will they end up being market dominating?) There are really two important consequences of this law. First is that despite the great work of the Dartmouth Atlas it doesn’t tell the whole story about performance because to date the data have been Medicare only. Yet as I have written about before (see “If Bernie Madoff Ran Health Care”), because of the enormous variation in commercial insurance prices to providers in various parts of the country relative to Medicare, the hospitals and regions who show well or badly under Medicare numbers may not be as good (for example Sacramento) or as bad (say McAllen, Texas) as their Medicare-only Dartmouth Atlas shows. The easy solution is for Dartmouth to get an enormous grant from someone to put all the data together, to report it all out and let the boards of hospitals be truly accountable for analyzing, explaining and governing their stewardship of resources.
The second idea in this law, and one that regulators are confronting head on and fast, is that if health care providers consolidate locally in the name of accountable care organizations, will it lead to a concentration of market power and, in turn, even higher prices? Provider consolidation has been going on like crazy for a decade, and many argue that this explains the rising prices seen in many markets. The ACO trend could make this situation even worse without appropriate policy and regulatory oversight.
Morrison’s tenth law: The people most capable of managing the care of populations are the people least trusted to do it. Certain aspects, if not many, of managing the care of populations may be best done by a managed care organization. Yet surveys of doctors and the public reveal that managed care organizations are the least trusted, are the most deserving of more regulations, and are perceived by physicians to have done more to harm quality than almost any stakeholder, with the exception of malpractice lawyers and the government.
Looking Ahead
Despite my natural Scottish cynicism, I am incredibly excited that the health care marketplace is embracing accountable care, and that hospitals, in particular, are running as fast as they can to integrate with their physicians and figure out mutually beneficial ways to get higher performance for the communities they serve.
We should be deeply grateful to the leaders of the accountable care movement (past, present and future) for their tireless efforts to energize the health care field to achieve better health for populations, higher quality of care and lower cost. We salute you all.
ACOs are vaguely defined, conceptually fuzzy and badly constructed, both legislatively and managerially, and they are potentially profoundly unpopular with doctors and patients. But they may be our best hope to have an organized health care system that is accountable for our care.
Ian Morrison is an author, consultant and futurist based in Menlo Park, Calif. He is also a regular contributor to H&HN Weekly and a member of Health Forum’s Forum Faculty Speaker Service.
In Search of the Next Economy
Monday, November 1st, 2010The global economic boom of the last quarter century got found out in the meltdown of the last two years. It was fun while it lasted, and it sustained unprecedented (and some would argue, wasteful and unnecessary) growth in the health care sector. The old global economy was predicated on Asian toil and savings subsidizing American self-indulgence, gluttony and sloth. Bankers made out like bandits creating esoteric and highly lucrative instruments to facilitate the to-ing and fro-ing of cash. The rest of us just got older, fatter and more stressed out as we worked too hard and then collapsed in an overleveraged heap.
Health care reaped the rewards of global growth by skimming an ever larger share “off the top” of corporate profits, government revenues and household incomes. No one complained because we had houses and pickups and jet skis and Applebee’s, and when we overindulged we had fancy stents and well-heeled hospitals fixing our failing corpus. That game is so over.
Understanding the Global Economy before 2007 in 10 Easy Steps
I am not a card-carrying economist, but I know enough to be dangerous. Really smart people (whether true economists or not) have thought long and hard about what has happened in the global economy. (I particularly like the work of Harvard historian, and fellow Glaswegian, Niall Ferguson, whose Ascent of Money was a wonderfully insightful review of recent economic history, especially his concept of Chimerica, the intricate co-dependence between American investment and consumption, on the one hand, and Chinese production and saving, on the other.)
Drawing on the work of these smart people, here is my simple-minded take on how the global economy worked prior to the meltdown, in 10 easy steps.
1. Hard working people in communist countries (e.g. China, Vietnam) made good, cheap products and exported them to America at a profit.
2. They saved as much money as they could (like 30 percent of their income; before the meltdown, the U.S. savings rate was zero).
3. They loaned their money to U.S. banks and government.
4. Our banks leveraged the money 30 to 1 and loaned it to Americans to buy big houses we couldn’t really afford.
5. Many Americans (and a lot of immigrants) were fully employed building these houses, cleaning them, and selling mortgages and title insurance.
6. Some Americans worked as nurses, doctors, teachers, waiters or cooks because they weren’t any good at real estate or construction.
7. The rest of Americans were prison guards or gave PowerPoint presentations to each other.
8. We all had jobs, we all could borrow money to buy stocks and more houses, and there was great demand, so the value of the houses and the stocks kept going up; and because we all felt rich…
9. We got to borrow even more money so that…
10. We filled our houses with good, cheap products made by hard working people in communist countries.
As we say in Glasgow, this is half-joking, full serious. We have been on a consumption binge fueled by asset inflation. This binge was a product of cheap U.S. money, unrealistically loose credit, supported by artificially high Asian savings rates buoyed by artificially low foreign exchange rates. Add lack of government oversight and a global financial market that rewarded speculation, leverage and trading over prudence, parsimony and sustainability, and you have a recipe for financial disaster.
We know the story:
• $6 trillion of home equity wiped out since 2005 (with all the hopes, dreams and economic security that the home equity represents);
• reduction in stock values to a new normal Dow at 10,000 with lackluster growth anticipated;
• national income growth stalled, personal income declining and in turn, government tax revenues at federal, state and local level in severe deficit;
• massive credit card balances for working families left unpaid or unpayable;
• lack of demand for goods and services, because working families can’t afford Applebee’s, or nail salons, or prescription drugs, or doctors’ visits, or elective surgery;
• now the Europeans are seriously belt tightening because of their own profligacy and government spending, further crimping global demand; and
• 14.6 million unemployed, millions more underemployed, and millions more with reduced work hours, furloughs, elimination of overtime and, in an increasing number of cases, an absolute reduction in wages for those who have jobs.
The contraction of employment and the asset devaluation has touched almost everyone, from rich retirees to highly trained professionals like lawyers, accountants and techies, to teachers, firefighters and the waitress at your local diner.
Health care was not unscathed in the economic meltdown. As we forecast in “Meltdown,” a column published in the depth of despair in January 2009, health care did take significant hits in terms of patient volumes, Medicaid reimbursement rates, rising uninsured, increasing bad debt loads and difficulty accessing capital. (Indeed, the latest figures just released for 2009 show that the number of uninsured grew by 4.4 million in 2009 to an astonishing 50.7 million. A full 7 million people lost their employment related health insurance, in 2009. Had it not been for expansions in Medicaid enrollment and SCHIP the total uninsured would have skyrocketed further. What is perhaps most alarming is that over half of those who became uninsured in 2009 had household incomes over $50,000 per year). But despite all this economic turmoil, total health care spending continued to grow, albeit more slowly, and employment in health care continued to grow continuously over the last year. From June 2009 to July 2010, according to the Bureau of Labor Statistics, health care employment grew by 231,000 jobs from 13.54 million to 13.77 million. Hospitals alone added 35,000 jobs, one of the few bright spots in the whole economy.
The Obama administration deserves a lot of credit for avoiding the economic Armageddon that was perilously close to happening. But, despite the stimulus package and the happier news at GM, and the oil leak being capped, we are all still a bit worried about the massive deficit and, more troubling to the average citizen, the lackluster job and income growth prospects as far as the eye can see. We are all in search of the Next Economy.
In Search of the Next Economy: The Global View
The Global Economy is not over. But it might be different in the future. Here are some ideas of how the Next Economy might work from a global perspective:
China and India grow up. If China were to allow its currency to strengthen and the Chinese consumed more at home, we might all be better off. For example, according to the New York Times on July 22, 2010:
“In the first half of this year, G.M.’s sales in China rose 48.5 percent from a year earlier, and for the first time ever, the automaker sold more vehicles in China than in the United States…. G.M. sold nearly half a million Buicks in China last year, almost five times the brand’s sales in the United States.”
Internal domestic consumption growth in China can make America better off. Similarly, the India market has huge opportunities to grow as its population surges past China in the decades ahead.
Europe smartens up. Europe is biting the bullet. From the PIGS (Portugal, Ireland, Greece, Spain) to the once business-like United Kingdom, the deficit issues are enormous. On a recent visit to Ireland, I witnessed the carnage of a burst bubble. While outwardly prosperous and perpetually cheerful, the Irish have been through an economic rollercoaster that has seen deficits rise to a high of 14.3 percent of GDP in 2009, GDP fall by 7 percent in 2009 and property values down by 30 percent. In Dublin’s tony Merrion Square area, every second elegant Georgian doorway has a To Let (For Lease) sign, and the brass plaques of the former tenants portray a cadre of hedge fund managers, property speculators and assorted economic hangers on, vaporized as the bubble burst. (I should say that Ireland has still extraordinarily expensive real estate; a modest little bungalow in the suburbs of Dublin might still list at 1.5 million euros!) While growth is now essentially flat in 2010, the Irish remain cheerful, charming and convinced of happier times ahead, but they are in a very deep hole, with total debt at 997 percent of GNP in 2009 compared with the United Kingdom at 409 percent; United States, 93 percent; Canada, 62 percent; India, 20 percent; and China, 7 percent.
Throughout Europe, governments (including the recently elected Conservative–Liberal Democrat coalition government in the United Kingdom) are tackling their deficits by raising taxes and cutting public spending and by taking really tough steps for Europeans (including reducing public pension schemes, cutting services and pairing back public sector employment). If the French are taking on pension entitlements, you know it’s serious! The trick will be not to overdo it and contribute to a worldwide, double-dip Grand Recession. In the long run, generous health and pension costs will have to be paid for through the toil and taxes of young immigrants from within the European borders and beyond, who will be needed to sustain economic growth in the European Union.
Africa wakes up. Following a superbly organized World Cup, South Africa was seen by the world as a modern, sophisticated nation. The whole of Africa may have an opportunity to come into its own in the next two decades and climb out of the post-colonial malaise of corruption, political and tribal infighting, and crushing poverty and disease. What if China chose to subsidize African growth and consumption instead of American, in exchange for access to Africa’s natural resources: What would the global economy of 2050 look like? We might find out in the decades ahead.
Latin America turns up. The Latin American miracle is that it has not collapsed in its last 50 years of economic turmoil. Progress is being made through a weird combination of petro-socialism (such as Venezuela), narco-autocracy as in Colombia, and good old-fashioned industrialization in Brazil and Argentina. A growing middle class market and a lot of natural resources make all of Latin America another natural target for Asian investment and economic partnership.
Islam wants up. There are about a billion Muslims in the world, and most live in economically repressed nations. Some citizens, like the Saudis and Kuwaitis, get bought off by their oil-rich leaders, while migrant workers from Pakistan do all the hard work. Other Islamic countries—Iraq and Afghanistan come to mind—struggle economically and remain horrible examples of corruption, inequity and inefficiency. Countries like Turkey (not without its own problems), which is secular in government and mostly Islamic in the private lives of its citizens, represents, perhaps, the best possible example of how Islamic nations can embrace freedom, democracy and markets without losing face or faith.
The United States ’fesses up. And we in the United States, yes, we need to ’fess up. We need to ’fess up that lower taxes means higher deficits. And that Proposition 13–like tax provisions, and the tax deductibility of mortgage interest, may be great if you have them as individuals, but as a society, they are luxuries that we cannot afford. And that most government spending at the state and local levels goes to health care for the poor, education and prisons, and no one wants to cut these programs. But that, in turn, generous public sector pensions and health benefits for workers in those sectors are unsustainable. And finally, that rising health care costs are the primary threat to long-term budget deficits, not because of more old people, or more poor people, or more covered people under Obamacare, but because of the continuously rising intensity, and thus costs, of medical services for people in public programs. And before you say, “Well, shift them to private programs,” the problem is that private programs are even more costly, and most people can’t pay for them anyway; it’s all too expensive, and most of us need a subsidy. Unless we change the way we do what we do.
In Search of the Next Economy: The U.S. View
Look, it’s really not that bad. I believe in the United States and the energy and ability of its people to create a better life. I also believe that the Chinese and the Indians and the Brazilians and the Russians and the Turks and the Estonians want that, too, if you give them half a chance. It will all work out in the end. Trust me.
Let me offer one view of how the U.S. economy may reshape itself over the next decade, and what it means for health care. The economy may be composed of a number of very different sectors:
The ultra-productive, high-performing, globally competitive economic base. There is emerging a high-performing, ultra-productive economic base in the United States that takes ideas, knowledge, innovation, branding, marketing and technology and turns them into profits on a global basis. Think Microsoft, Oracle, Google, Apple, Intel, Cisco and Salesforce.com, but also think P&G, Coca-Cola, Amgen and Pfizer. Along the way, they create a lot of profit and a few jobs. Not a lot of jobs though, as most of these global high fliers manage global webs of production and distribution, and we consumers could care less where our iPad was made as long as Steve Jobs and his friends designed it. These companies primarily create profit and wealth, not jobs and incomes.
The new free-basing experience economy sector. Joe Pine and Jim Gilmore coined the term “the experience economy” a decade ago and wrote a great book about it. But a new variant is emerging based on a free base, as Chris Anderson (formerly of Wired magazine and now of TED) artfully predicted.
For example, Facebook has more than 500 million members. It is privately held, but if it IPOs, as it might in the next year, its market cap could be stratospheric. Does it make money? Who knows? Who cares? But with 500 million users spending endless hours a day saying “Wassup?” to each other, it has got to be worth a lot. It employs a few hundred people and occupies a few hundred million more.
Another good example is a start-up company called Bleacher Report that my son works for in San Francisco. It is a sports fan–based website. Fans create content for free: Wannabee sports journalists lying on their couches in Wisconsin work very hard writing articles and creating other content. They do it for nothing more than exposure. Bleacher Report gets upward of 14 million unique visitors a month, and they are now in the top 150 websites on the planet. They do have employees and real offices and smart engineers and server contracts all paid for by Venture investors, and increasingly by advertisers. Like most Silicon Valley start-ups, much of their office technology infrastructure is free: Google docs, G-Mail, G-Chat and the like. The good news for health care is that, like most Silicon Valley start-ups, the company offers generous health benefits; the bad news for health care is that virtually no one in the company is over 30, and there are only two girls.
But the best example of this new free-base experience economy is Zynga. It makes games for Facebook and gives them away free. For instance, according to the New York Times of July 24, 2010:
“In FarmVille, its most popular game, players tend to virtual farms, planting and harvesting crops, and turning little plots of land into ever more sophisticated or idyllic cyberfarms. Good farmers — those who don’t let crops wither — earn virtual currency they can use for things like more seed or farm animals and equipment. But players can also buy those goods with credit cards, PayPal accounts or Facebook’s new payment system, called Credits. A pink tractor, a FarmVille favorite, costs about $3.50, and fuel to power it is 60 cents. A Breton horse can be had for $4.40, and four chickens for $5.60. The sums are small, but add up quickly when multiplied by millions of users: Zynga says it has been profitable since shortly after its founding.”
You think I am kidding, right? People buy virtual chickens and tractors with real money so they can play a game on Facebook.
Zynga has 1,000 employees, up from 375 a year ago, and 400 current job openings. The company has been valued at $4.5 billion and has the backing of Silicon Valley’s Venture elite companies such as Kleiner Perkins.
Maybe there is an opportunity providing virtual health care to the virtual farmers?
Market-based meritocratic Maslowian economy. Most Americans will work in a market system of exchange, meeting basic needs through labor. The more you make, the higher up the Maslowian needs pyramid you will get. It will be meritocratic based on value creation, which in turn will largely be dependent on education levels. For example, in the depth of the recession H1 Visa slots available for engineers from abroad with bachelor degree qualifications remained unfilled because there was no demand, whereas masters degree level requests for visas were oversubscribed. Folks will be working tables at Applebee’s serving other folks who work tables at Applebee’s, where they will likely be paid more in the form of health benefits than they earn in the form of wages. Smart bankers will still be buying big boats if they have really added value to companies and to shareholders. But they will be taxed more progressively, as the tax cuts expire, to pay for health and education programs for those who want to work their way out of waiting tables, and for the health programs of those who remain through choice or circumstance.
Gigantic Keynesian sector. The health care, education and criminal justice systems represent a gigantic Keynesian sector that employs large numbers of people mostly supported by federal, state and local taxes. These sectors will offer solid, though not spectacular employment opportunities, shielded as they are from the worst sting of global competition, by virtue of the fact that they are geographically bound social services. But in the future, employees of the organizations will have more modest pensions, skinnier health benefits, less overtime and lower income growth, though they will have more economic security than most.
Freelancers. Liberated from job-lock, working forever to pay the bills, and forced out by restructuring and realignment in corporate America, armies of baby boomers will drift through the next decade eventually into Medicare but buying health benefits through insurance exchanges on the way. The individual market for health insurance purchased through exchanges will grow much further if employers decide to exit health benefits and send the employees to the insurance exchanges. It is unlikely to happen immediately, but a decade from now, it could be very different. For example, assume health insurance exchanges get established properly and work effectively from 2014 on. Assume further that the Cadillac tax comes into force in 2018 as planned, providing a major incentive for employers to opt out. Under these assumptions, and if employers feel morally freed to send their employees to the exchange (with some more generous employers giving employees a cash inducement, but other less generous employers giving employees simply an apology), then many employers may exit health benefits altogether, creating a massive shift to those plans sold through the exchanges.
The luxury sector. There will still be basketball stars, and entrepreneurs, and wealthy families, and smart lawyers who live in luxury. It won’t be as good as the Bush years, but it will still be good to be rich. No matter what happens to the overall economy, there will be a lot of rich people in the United States (many of them non–U.S. citizens), and they will want and demand the best possible health care that money can buy. Problem is, there are not enough of them to go around, so competition for the luxury set will be fierce.
Change Or …
It might all sound a bit depressing, and it is certainly more austere. But it could turn out to be a bit fairer, more meritocratic, less capricious and more sustainable than the economic boom we went through.
If health care leaders think they can survive and thrive in the decade ahead by focusing solely on the privately insured, then you have to ask: Where exactly are those privately insured going to come from in the Next Economy? And how rich will there insurance coverage be?
No matter what, health care leaders need to prepare for the Next Economy by making their health systems high performers: delivering superior quality at competitive costs. Health systems must also learn to survive and thrive on public payment levels, competitive private sector pricing, and most importantly, changing how they deliver care. Do that and you will still be in the phone book in 2050 (at least on my iPad), and I will friend you on Facebook.
The New Math
Monday, September 6th, 2010It’s becoming increasingly clear that the future of health care is now arithmetically impossible. You know, the future where the trend bends, the people get everything they want without paying more, the doctors are whole and happy, the hospitals flourish because there are no uninsured, and the ERs are empty because everyone has an insurance card and they go to their regular doctor instead. Well, it was nice PowerPoint while it lasted. Reforming the health care insurance system without fundamentally changing the health care delivery system is mathematically impossible. We need a new math for the entire system.
Welcome to the Future under the Old Math
The old math is based on the notion that you pay providers every time they do something. Some patients have cards that pay providers a lot, some patients have cards that pay providers a little and some patients have no cards. The trick, if you are a hospital, is to have more patients with well-paying cards than patients with no cards. For a doctor, it is best to avoid the no-card patients entirely, unless you work for a federally qualified health center and you therefore get paid a lot per unit of service for the patients with no cards; or if you are doctoring in a big safety net institution on a salary; or you are simply noble, hard-working and eager to be extremely badly compensated.
With health reform, some of the people with no cards will get cards that have poor reimbursement attached to them. (They are called Medicaid patients and they will expand by 16 million under the law.) Doctors won’t see these patients because the doctors are already too busy. Hospitals will see them, somewhat reluctantly, because they have no real choice. They will lose money on each one of the patients, and they will try to make it up on volume, until they find they can’t.
Then, there are the people with the richly paying cards (who are employed by companies who currently offer health insurance at an annual cost of $18,000 a year in premium for a PPO family product). These companies are going to be the target of cost-shifting by doctors and hospitals until the companies decide they have to move their employee’s job to India because they can’t afford to pay the money for cost-shifted health care. The unemployed patients will go on Medicaid or get substantial federal subsidies to purchase insurance through a federally subsidized health insurance exchange.
Everyone is grumpy, no one can afford the taxes, the premiums are ridiculous, hospitals cannot make money, you have to wait forever to see a doctor. Doctors want to retire but they can’t because their 401(k) never recovers because health care costs are ruining the economy. This is not good.
A New Math for Health Care
All this misery is predicated on two key assumptions. First, that reimbursement should cover the costs of care. Second, that the way we do things now is the right way.
I think we need a new math. When CFOs say to me that “Medicare covers only 95 percent of the costs of care,” I rephrase that as: “Medicare doesn’t meet the current income expectations that your people have for delivering the service in exactly the same inefficient way as today.” Doesn’t sound so good.
Similarly, physicians who refuse to take Medicaid patients (most of them) and those who refuse to take Medicare patients (about 20 percent and growing) are basically saying the same thing: “You are not meeting my income expectation for me doing things the same way I have always done them.”
Every business in every other industry has had to change what they do and how they do it. We need to learn from them about how to change.
But, also, we need to help these providers out of the bind they are in by developing a New Math:
Population-based payment. Pay integrated systems of care a risk-adjusted, per capita fee to cover a population. (Wait, you say, that sounds like capitation! Dude, it is capitation. Get over it.) If these integrated systems of care can develop a way to deliver services that result in superior health outcomes for the population they cover and the systems make money, God bless them, so long as there are performance scorecards, and the patients join these systems voluntarily and willingly (with an incentive to select low-cost, high-performing systems).
Change the delivery model with technology. One doctor can see 20 patients per day. How many patient encounters per day can be generated by a team of one doctor, three nurse practitioners, five patient service representatives and a big honking server? I don’t know, but the fact that Kaiser had close to 9 million e-visits last year and took their in-person visits down to 60 percent of the prior year, by all accounts, speaks to a new math emerging in how to use technology to do more with the limited number of doctors we have.
Change the compensation principle from action to outcome. Patients want health outcomes, not health services. They can be encouraged to watchfully wait, rather than be aggressively treated. When pleasantly presented by persuasive professionals, patients pick properly. The shared decision-making literature is full of lessons on how to do this if the incentives mesh with the decision-making science.
Pay doctors more (sometimes at the micro level) to save money at the macro level. It may be better to spend a well-compensated hour with a co-morbid Congestive Heart Failure (CHF) patient than to have that patient become part of the all-too-familiar “revolving door” of chronic care management in acute care hospitals. This will not happen spontaneously without a new math to support the economics of medical homes, accountable care organizations and readmission reimbursement.
Release the power of pyramids. Referral pyramids can lead to volume-quality virtuous cycles. Similarly, delegation of tasks down the clinical pyramids can improve throughput and quality so that everyone is practicing at the limit of scope of practice and those limits are being expanded through licensure, decision support, organizational innovation and clinical redesign.
I am encouraged that if we are lucky and get good leadership from HHS and CMS, and from the policy and academic communities, we can conceive of a New Math that will lead us to a sustainable future. For example, I was really excited to learn that a friend and colleague, Dr. Arnie Milstein (who retains his role as chief medical officer of the Pacific Business Group on Health) in addition will be leading the new Clinical Excellence Research Center at Stanford University. The center is dedicated to bringing engineering, business and clinical faculty together to pursue innovation that will lead to high-performance health care delivery that is truly better, faster, cheaper. I can’t wait to see the fruits of that new effort.
But, while theory, policy, pilots and thought leadership are all important in developing a New Math for health care, the most important critical success factor for the future is a health care field (and health care leaders) willing to embrace this New Math. I believe that a new generation of health care leadership will come of age under the New Math, that they’ll figure it out, like it, work it and create great health systems for the future. And then the math might work out for all of us.
The Second Curve
Sunday, August 1st, 2010An Introduction to the Second Curve given in Vancouver June, 2010
Flip the Switch
Friday, July 30th, 2010Healthcare reform is the new reality. All stakeholders are reading the fine print, and the tea leaves, and trying to identify what it all means. There are two big themes in the new law: first, more people will be covered but at lower reimbursement; second, there are seeds of change to shift the game from pay for procedures to pay for outcomes. All the rest is regulatory gobbledygook, aimed at making state insurance commissioners insane, and giving the alternate universe that is FOX News something to be against.
How do hospitals prepare for these fundamental changes?
Fifteen years ago, I wrote a book called the Second Curve: Managing the Velocity of Change. It was an embarrassingly simple premise: most businesses and most industries are going along quite nicely on their first curve (the base business, the business they know how to run on a daily basis). But they have a sneaking suspicion in their gut, that it will be replaced by a second curve: a new business, or a new way of doing business, that is radically different from the first.
The dirty little secret of futurism is that you cannot predict the future, and there is a natural human tendency to overestimate the impact of phenomena in the short run and underestimate the impact in the long run. This causes multiple strategic errors: companies jump too soon, walking away from all of the profit and revenue on the first curve, or even more fatal, they cannot build the second curve, and end up not making it in the long run as the forces of change make them irrelevant in a new world. Or worse yet, the second curve puts them in direct competition with themselves or their best customers. Oops, what to do?
The benefit of writing a book is that people who read it ask you to come and give a talk because they resonate to the premise. The bad part is you to get to meet people who have even better examples of what you wrote than the ones in the book, and it’s too late to include them.
I gave a few hundred Second Curve lectures to many, many companies in many, many industries, and a lot of different countries over the last fifteen years. I learned four big lessons that I didn’t fully appreciate, when I wrote the book.
• Americans Love the Frontier. Every group I ever talked to was eager to start the second curve. I used to recommend as a strategy that CEOs give $50 million in start up money and a bunch of stock options to a bunch of crazy people in the organization to start the second curve. I thought it was an outrageous and provocative idea. Yet, in every session, there would be instant volunteers. Everyone wanted to be the future, even if it was risky, and even unlikely, and a little nuts.
• Premature Extrapolation. My old colleague, Paul Saffo, the celebrated technology forecaster and master of the bon mot once said: “Never confuse a clear view for a short distance”. I redubbed that classic insight as premature extrapolation. Just because it is obviously going to happen doesn’t mean it has to start immediately. For example, in our work in the early 1990s for Pitney Bowes and the largest, most sophisticated postal services around the world, we built a forecast on the future of mail. Based on research, surveys, and countless expert panels we developed a forecast that mail would eventually start to decline in use because the two main underpinnings of first class mail (bills and statements on the one hand, and direct marketing on the other) would migrate to electronic form. But, our forecasts and scenarios also showed that in the US, there was a high degree of attachment to paper based mail in those two key areas. We built careful monitoring systems with our clients so they could follow the true path of the first curve, even as they built the second curve. Mail in America grew slowly but steadily until 2007! If our clients had walked away from the first class mail stream, and bet the farm on the second curve too early, they would have walked away from nearly twenty years of steady, profitable growth.
• Second Curves Take Time to Build. The key challenge of the second curve is that the business model is nearly always different from the first. But, most importantly, it involves a different culture, and cultural change does not happen quickly or easily. If you really want to have a different culture five years from now, you really should have started a couple of decades ago. No kidding.
• Most Leaders Can’t Deal with Strategic Schizophrenia. I was like Pollyanna when I wrote the book. I extolled people to manage on two curves. But, I had precious few examples beyond IBM, who actually successfully managed the transitions from adding machines to mainframes, then mainframes to PCs, then PCs to the internet, then the internet to consulting services. Most organizations don’t do well managing on two curves. Second Curve players (disruptive innovators, as Harvard’s Clay Christensen calls them) are easy to find. But few know how to manage on two curves, because they are so different, they have different culture, people, heroes and incentives.
So, back to hospitals.
Expansion of coverage albeit at lower reimbursement, is something a hospital can handle, but, reimbursement reform is a new game. The legislation includes important pilot programs to promote Accountable Care Organizations (that take full financial risk for the care of patients) and to encourage bundled payment experiments (where the fee for the hospitalization would cover immediate pre and post discharge care as well as the associated physician fees, and any risk of readmission). These are but the beginning of a long inevitable path to changing the reimbursement system to reward value not volume. We have only just begun.
The future, in the long run, may be very different, you have to prepare, and you must start now, because if you don’t, you’re toast. But you will be in a world of strategic schizophrenia for some time to come. Here’s my best guess of what to do:
• Integrate for Accountable Care. Take the building blocks of accountable care (financial risk for the care of patients, integrated medical staffs dedicated to high performance, performance measurement and management across the continuum of care, and a business model to sustain it all) and bring them together. Easy to say, hard to do. But, this is your work.
• Make it Cheaper. Any way you cut it, making healthcare services cheaper will be a good thing. Cheap doesn’t mean inferior or nasty. It means that it costs less. Like Wal-Mart with its superior, high –tech supply chain that delivers everyday low prices, hospitals that get ahead of the curves on aggressive cost management will be well ahead in any future.
• Make it Better. Be a maniac for measurement and performance improvement. You have to constantly strive to measure and improve and everyone on your team needs to believe that, whether they work directly for you or not. Good morning Doctor, let’s chat.
• Focus on Outcomes. The bottom line of healthcare is great health outcomes for patients and populations not profitable procedures, technically perfected for paying patients. Good outcomes may be death with dignity; or return to health status; or living well with chronic disease. Lose the scalpel, focus on the patient and the outcomes they want.
• Innovate on the Side. Successful second curves are built from pilots and experiments, often off to the side. For example, IBM’s low-cost PC business was first built in isolation in Florida away from the dominant corporate culture. So too, hospitals may have to pilot medical home initiatives and bundled payment experiments with small teams of innovators, to learn how to play a new game.
• Flip the Switch. Constantly look to the future, build the culture and capacity for the second curve, and the business model for a different game, while doing your best to nurture the organization that brought you into the millennium. But then, you, the leader, have to determine when to “Flip the Switch” and focus the entire organization on that new game. That’s leadership.
Ian Morrison is an author, consultant and futurist based in Menlo Park, Calif. He is also a regular contributor to H&HN Weekly and a member of Health Forum’s Forum Faculty Speaker Service.