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Simple Care

Tuesday, June 6th, 2006

American health care is large and complex–larger, indeed, than the entire Italian economy and about as well organized. Recent advances have made it more complex, medically, organizationally and administratively. For example, genomic medicine will increasingly require that care be customized to a patient’s individual genetic profile. While this is not yet in the mainstream, the trend is clear. Similarly, benefit carve-outs, specialty disease management organizations, and focused factories including specialty hospitals and clinics all fuel the organizational complexity of the system. In addition, recent changes in reimbursement and benefit design–from the Byzantine complexity of Medicare Part D arrangements to pay-for-performance, tiered networks and consumer cost-sharing arrangements–make the health care system more impenetrable for patient and provider alike.

While this complexity is a natural outgrowth of the heterogeneity of a big country, a manifestation of American pluralism and a legacy of incrementalism in policy, we sometimes hide behind the complexity and use it as an excuse for not doing the right thing.

The Canadian Viewpoint

My wife, Nora, is a Canadian. Like most Canadians, she is pretty mystified by the complexity of the American health care system. She is a seasoned emergency room nurse; she is also a no-nonsense prairie girl from Manitoba (it’s like Minnesota, only colder). But while she has the Midwestern nice, she also takes no prisoners.

She grew up in a medical family and worked in critical care in Canada and the United States. She was a nursing systems analyst and manager, doing clinical re-engineering before it became fashionable. I respect and draw on her experience and perspective on all things, especially health care. To listen to Nora, it’s easy to fix the American health care system.

Nora’s major beef is complexity. Why does it all have to be so complex? In her view, health care is simple:

Develop a standard of care. There should be a standard of care for every procedure–from prevention, through primary care, to complex operations. The standard of care should be developed by professionals based on the best available scientific evidence. Providers should follow the standard of care and should be sanctioned through professional peer review if they don’t.

Use a set fee schedule. There should be a standard fee schedule for all patients and all providers, and there should be a standard claim form that everyone uses. (Estimates are that 25 percent of American health care is administrative waste motion in which armies of clerks battle over payment.) When pushed on the issue of whether all providers should get the same payment, Nora concedes that there should be a basic standard for all providers, but if providers deliver superior performance, then they should be rewarded not just through volume but also through price. Still, her basic question is, “Why aren’t all providers achieving the high level of performance of the best cohort, if they are following the standard of care, eh?”

Provide transparency. Nora knows that it is politically impossible to have a single payer system in the United States. Americans are not Canadian. She even concedes that there is some benefit to having the consumer pay something toward their care at the point of service. This is a view shared by most Canadian providers, by the way, who live daily with the consequences of unrestrained access to primary care. But what Nora has a great deal of difficulty with is that there is no price list in American health care. We Morrisons are a well family, but Nora spends hours on the phone hassling with Stanford, Wellpoint, Aetna and United trying to get a clear explanation of what things cost, what was covered, what we owe and why. It is not an explanation of benefits (EOB); it is an obfuscation of benefits (OOB). While Nora is an empowered consumer, she cannot get anyone in health care to tell her what something is going to cost in advance of having the service. How else are we supposed to decide?

Simplifying

What are the benefits of simplicity? Lower administrative costs, much greater consumer engagement and less anguish among providers. But how should we proceed in such a complex system that is unlikely to move toward anything that resembles a simple single-payer structure? Here are some examples:

Standardize care. The anesthesiologists have done a brilliant job of standardizing and enforcing clinical processes. The result has been improved patient safety, better outcomes and lower malpractice costs.

Use flat co-insurance. A 20 percent co-insurance applied to all services up to an out-of-pocket maximum would make prices transparent to consumers and be a lot easier to understand than tiered formularies, tiered networks and the arcane combination of co-payments, deductibles and other cost-sharing arrangements. Even in the drug area we have resisted this because pharmacists and PBMs make more money on generics by having a co-payment rather than co-insurance (a $10 co-payment for a generic drug is better for them than 20 percent of $20). Hospitals and physicians won’t look so good in a flat co-insurance world, and drugs (particularly generics) start looking like an even better deal.

Standardize enrollment processes. The California Healthcare Foundation’s pioneering Health-eApp and One-eApp are standardized, electronic tools for enrolling eligible beneficiaries in public programs such as MediCal and Healthy Families. As a proud member of CHCF’s board, my colleagues and I point to this as one of the foundation’s key innovative contributions, even though the public programs may not always have the resources to accept the eligible enrollees.

Standardize benefit designs. Health insurers are creating myriad choices for the customer–too much choice. The ridicule that Medicare Part D arrangements have earned from cartoonists and Saturday Night Live is because of the mind-boggling complexity of the choices. When I signed on the Medicare.gov Web site, the first thing it told me was to download a Flash Media Player. I had visions of grannies across America having to take a course in installing Java applets.

It is quite likely that the basis of any modification to Medicare Part D that the Democrats come up with will involve simplifying and regulating the number of choices available to consumers. But it should not stop there. Simple, standardized care and administrative processes can lead to better consumer engagement, lower costs, elimination of variation and disparities and better quality. Isn’t that what we want? Let’s not hide our inefficiency behind a veil of complexity.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California.

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The Atomization of Healthcare

Thursday, May 4th, 2006

What We Expected in 1990

Back in 1990, the future of healthcare was clear. We were going to have a world of large, vertically integrated delivery systems competing head to head on the basis of price and quality, at risk for the care of a defined population. Capitation was going to spur investment in community health and prevention and would place greater strategic emphasis on primary care over specialty care.

This Enthovian* nirvana was the basis of the ill-fated Clinton health plan and was a vision that guided policy and strategy through the late 1980s and early 1990s. However, the vision never happened. The Clinton plan unraveled, the integrated systems disintegrated, capitation receded, and the healthcare world floundered in search of a new vision, or at least a new idea.

What We Got by 2006

We are in a world that is almost the inverse of the integrated vision. The healthcare trend of the moment is toward the atomization of healthcare. Individual patient/consumers, under heavy financial incentives, are now “empowered” to navigate among a diverse, pluralistic set of providers. Individual hospitals and physicians are increasingly rated and ranked on measures of quality and costs, competing aggressively for individual patients. Hyperspecialty care, such as complex and esoteric surgery, for a few well-insured, sick patients is celebrated and profitable, while preventive, community-based, public health and primary care is underfunded and unpopular with new doctors. Newly graduating physicians want to be dermatologists doing cosmetic procedures for cash, not primary care physicians doing internal medicine for capitation.

By driving healthcare to the atomic level, we may be further eroding the “systemness” of healthcare financing and delivery, especially in the face of an obesity epidemic and an aging baby boom that will create a tsunami of demand for chronic-care management over the next two decades.

How should hospitals respond? On the one hand, atomization provides incentives and opportunity to focus service delivery on a few areas of specialization at which hospitals and physicians can excel. On the other, we may be optimizing the care of the few and neglecting the health of the community. Where are we headed, and what should we do about it?

Atomization of Healthcare Financing

The most obvious dimension of atomization is in the area of healthcare financing, particularly in the private insurance market. The rise of Health Savings Accounts (HSAs) and so-called consumer-directed health plans (CDHPs) is really the beginning of a new world of high-deductible health plans (HDHPs). HSAs are tax-advantaged HDHPs that have obvious appeal to high-income earners. CDHPs bundle together features aimed at empowering consumers to spend their healthcare dollar more wisely; stripped of the euphemisms, however, they are another version of HDHP. The insurance market is moving toward retail medical care for primary care and catastrophic coverage beyond a $1,000 or $2,000 deductible.

HDHPs are cheaper for employers to offer, and represent an affordable alternative for individuals who buy their own insurance, but they place a financial burden on lower-income and chronically ill patients that causes them to forgo, defer, or trade down in the realm of primary care. Although tiered formularies in pharmaceutical benefits plans have caused a substantial shift toward generic and therapeutic substitution (much of which is positive for patients, payers, and policy), exposing patients to the full retail cost of medication, doctors’ visits, and routine services in HDHPs is beginning to have significant effects on patient compliance. Recently published Harris Interactive surveys show almost twice the rate of noncompliance among patients in HDHPs as in the commercially insured population on such measures as not filling a prescription or not visiting a doctor because of cost.

Atomization of the insurance market, in which individual consumers have a wide choice of plans and price points, in which insurance carriers have the choice of marketing, underwriting, and pricing patients at the individual level, and in which patients face “home-free” incentives when they have exceeded their maximum deductible, points to a turbocharging of the classic sources of market failure in health insurance. Scholars point to several sources of market failure, and respondents to the Futurescan survey see these trends as likely:

  • Cream skimming: Insurers marketing to and signing up only healthy patients.
  • Adverse selection: Sick patients left in the insurance products with lower deductibles, causing a death spiral in the insurance pool.
  • Moral hazard: “When you’ve got it, you use it,” particularly after you have reached catastrophic coverage.
  • Undermining of community rating: Health insurance rates based on the experience of individuals and small groups.

Atomization of Hospitals and Physicians

There is much to be positive about in the reimbursement environment. Pay for performance (P4P) and increasing transparency on quality and costs are trends with significant momentum that are described elsewhere in Futurescan. Together they will improve quality, and we should support these trends. However, they will also create winners and losers, perhaps widening existing disparities among rich and poor institutions and the patients they serve, and creating further atomization of healthcare delivery. For example, the trend toward transparency on cost and quality at the individual hospital and even the individual physician level could be a divisive force between providers and even within integrated groups.

Atomization of measurement may create an illusion of excellence: that somehow brilliant physicians can rise above system failure, that the delivery system does not matter, only the performers themselves. What happens to the bottom-performing physicians in an otherwise top-performing medical group? Will they be economically ostracized, even though the group dynamic may be their best hope for performance salvation? We must be careful that our quest for fine-grain accountability does not create a wedge that divides organized systems of care.

Similarly, the two capital-intensive megatrends of information technology (IT) and hospital construction, each anticipated to consume between $15 billion and $20 billion per annum in capital over the next decade, while positive for the system, may further widen the gap between rich and poor institutions and create more atomization, not less. Hospitals with the capital for IT and new construction tend to be those with positive operating margins derived from high proportions of well-insured commercial patients and lower numbers of Medicaid and uninsured patients. These margin-enabled institutions may put further distance between themselves and the pack over the next decade, perversely rewarding the trend to focus on the rich and well-insured at the expense of the sick and poor.

Nowhere is the threat of atomization greater than in the creation of specialty hospitals and outpatient surgery centers that, left unfettered, could completely eviscerate the cost-shifting engine that powers the typical community hospital. Profitable service lines like cardiac catheterization and orthopedic surgery subsidize unprofitable services like general medicine and behavioral health. As medical entrepreneurs, fueled by technology and venture capital, extract the profitable lines to create specialty hospitals and clinics, the remaining community hospitals can spiral down economically, physically, and in their service to the community.

Consequences of Atomization

This trend toward atomization has a number of consequences – some positive, some negative. On the positive side, specialization may yield the kind of service excellence that focused factories have long promised. Atomic-level measurement and incentives will similarly increase the accountability of patient and provider alike. However, there are also worries: the administrative complexity of healthcare is going to increase; disparities will rise; there will be winners and losers at the atomic level, both among patients and providers; there will be greater challenges in the coordination of care; and there will be significant treatment compliance issues.

Implications for Hospital Leaders

There are a few obvious initial responses hospitals can make to capitalize on the trend toward the atomization of healthcare:

  • Focus on the individual patient experience. Hospitals should invest in physical plant, IT systems, and patient care and service processes to make the patient care experience positive and competitive for the motivated individual patient.
  • Attract the high-end, well-insured patients and focus on profitable service lines. Hospitals should be diligent in segmenting markets and creating service lines to cater to the well-insured.
  • Excel in measured performance. In a world of atomic measurement and transparency, hospitals and their medical staffs must deliver on that which is measured and reported.

To focus solely on the atomic self-interest, however, may backfire in the long run if hospitals do not think beyond their own individual economic success. Hospitals, individually and collectively, must:

  • Create meaningful new delivery platforms for coordinated chronic care. Hospitals can and should be active in designing new systems of care aimed at managing large populations of chronically ill patients.
  • Design new reimbursement systems to reward coordinated chronic care. We need a new system of reimbursement for chronic care that rewards such new delivery platforms. P4P initiatives are a starting point, not an end point.
  • Reinvigorate community. Hospitals need to revive their interest in community-based, population health initiatives; otherwise, chronic care will swamp us all. We cannot solve the obesity epidemic with bariatric surgery and dialysis alone.

The trend toward the individual, atomic level of healthcare needs to be balanced with a sense of community in both financing and healthcare delivery. Enlightened leaders must operate at both the atomic and system levels to truly succeed.

Note

* Alain C. Enthoven, a Stanford University economist, designed and proposed the Consumer Choice Health Plan, a plan for universal health insurance based on managed competition in the private sector, in 1977, while serving as a consultant to Department of Health and Human Services Secretary Joseph Califano and the Carter Administration.

Futurescan Survey Results: Atomization of Healthcare

How likely is it that we will see the following on a widespread basis (i.e., in the majority of geographic marketplaces) by 2011?

Very Likely (%) Somewhat Likely (%) Somewhat Unlikely (%) Very Unlikely (%)
Cream-skimming by insurers (i.e., selecting individuals with expected losses below the premium charged in order to increase profits) 42 40 17 1
Adverse selection by patients (i.e., individuals with low expected expenses dropping out of the insurance pool, leaving only individuals with high expected expenses) 25 46 28 1
Disappearance of community rating (i.e., insurers setting the same premium for everyone in the community regardless of age, sex, or previous illness) 15 37 38 10

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Bricks and Clicks

Thursday, April 6th, 2006

Bricks and Clicks was a popular phrase back in the New Economy of 2000 that was used to describe the integration of web-based information technology (clicks) with physical buildings and real estate infrastructure (bricks). The argument was that successful enterprises would have to thoughtfully deploy physical and IT assets to serve customers more effectively and to improve organizational performance.

In health care, we are spending a lot of time, money and attention on the clicks part. We have a National Healthcare Information Technology czar in Dr. David Brailer, as we should. He is galvanizing the field to lead us toward implementation of an interoperable, national healthcare information infrastructure.

Achieving a workable National Health Information Network in five years would require $156 billion in capital investment and $48 billion in annual operating costs, according to estimates by an expert panel published in the Aug. 2 Annals of Internal Medicine. That includes an estimated $50.7 billion in capital and $12.8 billion in operating costs for hospitals over 5 years, or approximately $10 billion per annum capital investment in hospital IT. Remember this is a goal not a fact.

Ironically, hospitals are anticipated to actually spend $15-20 billion per annum in capital investment for new construction over the next decade (almost twice the run rate of the estimated goal for IT). In a recent unpublished Harris Interactive poll, 86% of hospital executives anticipated making significant investments in hospital IT over the next 2-5 years, but an equally impressive 85% anticipated initiating new construction projects. We are obsessing about the clicks and forgetting about the bricks.

I recently joined the board of the Center for Health Design an impressive group that has brought together prominent healthcare architects, designers, researchers, academics, healthcare experts and hospital CEOs on its board to help advance the field of evidence-based design for healthcare facilities. The goal of the Center is to promote safer, more effective, more beautiful and more healing hospitals and facilities, by applying research evidence primarily through a network of more than 30 Pebble partners (as in pebbles creating a ripple effect) of hospitals actively involved in building new facilities. My fellow columnist Joe Flower did a wonderful job reviewing the findings of a recent research report done for the Robert Wood Johnson Foundation by Roger Ulrich and Craig Zimring (also members of the Center’s Board) so I won’t repeat it here, suffice it to say that there is good science to support the conclusions that single patient rooms, proper location of hand washing facilities, greater attention to issues like light and noise, make substantial differences in the outcomes for staff and patients alike. (The entire Ulrich/Zimring report can be downloaded from the Center’s website at www.healthdesign.org).

We need to pay as much attention to the built environment (the bricks) as we are to the IT infrastructure (the clicks). Organizations like the Center for Health Design and its partners and projects are making a major contribution to advancing the state of knowledge and the quality of hospital construction that results. But the entire health field and hospital CEOs in particular, need to focus on the investments we are making in both IT and buildings. The goals are the same: to reduce errors, make patients safer, improve clinical processes, reduce waste and waiting, make patients healthier faster, in an environment that is humane and pleasant for patient and staff alike. And, by the way, perhaps the biggest pay-off of good design and good IT systems may be in improving the life of the nurse.

My plea is that we think about these two massive areas of investment as equally important, complementary, and deeply connected. They are two critical building blocks (pardon the pun) in the required transformation of health care delivery. My only concern is that both construction and IT are hugely expensive when done right. Where is the 50% price point breakthrough that Charles Schwab delivered in financial services largely through a bricks and clicks strategy? If we could do this right and save money that would be fantastic, as yet I don’t see it. Healthcare delivery is going to be much better because of bricks and clicks, but it’s not going to be cheaper.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California.

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Pearl Harbor, The Tipping Point, and Glacial Erosion

Monday, March 6th, 2006

I have been a student of structural change in society for thirty-five years. I started as an undergraduate at Edinburgh University studying how the Scottish Highlands were transformed by a combination of political, economic, and cultural forces in the 18th century (not exactly a degree you could get a job with). As an urban planner, I studied how cities develop and change, and how they can be changed for the better through public and private investment and leadership. As a futurist and consultant, I have analyzed trends and developed scenarios, and tried to help my clients prepare for and respond to change. As I always say, you cannot predict the future but that doesn’t mean you can’t think systematically about it.

Change happens in many ways, of course and for many reasons, but in thinking about the prospects for structural change in health care (such as big health reform or a shift in paradigm toward prevention or a rise of true consumer directed healthcare) three simple models might help.

Pearl Harbor. The dreadful attack on Pearl Harbor on December 7th, 1941 brought a reluctant US into World War II and changed the course of world affairs. American blood and treasure helped liberate and reconstruct Europe and transformed Japan to a modern state, fundamentally altering the global economy. At a recent global healthcare meeting, a senior British health official remarked that health care in America would not fundamentally change without a “Medical Pearl Harbor”. He speculated that it would take avian flu, SARS or some event-driven crisis or disaster to totally transform the health care system. This has been a popular notion in health policy: that Americans respond best to crisis and that it will take an event-driven form of change to really move the system in a meaningful way.

The Tipping Point. Malcolm Gladwell changed our vocabulary forever with his excellent book “The Tipping Point”. In this form of change, circumstances, trends, and people conspire to create a Tipping Point where complex social systems go off in a different direction and change rapidly to a new state when the Tipping Point is reached. Again in health policy, Tipping Point theories and metaphors have become popular. Hey, I have used them myself. In one Tipping Point model of change, aging baby-boomers, burdened by ever escalating out of pocket costs and the looming financial chasm of retirement, reach a point where they tip toward asking for a bigger role for government funding and regulation. Similar Tipping Points have been argued with regard to drug prices or even a backlash against overweight unhealthy people by the well-behaved and buff who refuse to pay the subsidy from well to sick that is implicit in all health insurance. (The concept of disruptive innovation, or discontinuous change brought about by technology falls into this general Tipping Point category).

Glacial Erosion. A third model of change is glacial erosion: huge forces that move slowly and inexorably with great power but that can grind down mountains, scoop out valleys, and totally alter the landscape. I would argue that this is the most common form of change in American healthcare (okay, a wee bit quicker than glacial erosion but play with me here). For example:

  • Demographic Change. We get older one year at a time. It’s a pretty slow process. The percentage of population over age 65 in the US has moved from 11.2% in 1980 to 12.5% in 2000 (compared to 9% and 17% in Japan in the same period) admittedly when the baby boom starts turning 65 in 2012 we will see a bigger jump to 16.6% in 2020 but that is still a way off. In addition, all the respected academic literature shows that aging per se, has a very small impact on the growth in utilization (a 1-2 % per annum increase), that doesn’t nearly explain double digit cost increases.
  • Cost-Shifting. While it is true that cost-shifting to consumers might wake them up and cause them to go to the barricades to demand major health care reform, we see little evidence of this in the polls. The reason may be that these changes are incremental, diffused, insidious, and experienced very differently depending on your circumstances. We could have a lot of coverage erosion before the ice dam breaks.
  • The Rising Costs of High-Tech Care. One core driver of expense is our unwillingness to control, harness, regulate or suppress the use or profitability of new medical technology. Americans like the idea of technology and innovation. Many of our leading economists tell us we are getting good value from this innovation in terms of life extension and quality of life (even though Koreans spend less than one fifth per capita what we do on health care and live longer) and we seem incapable individually or collectively to say no at the margin to the new hi-tech interventions whether they are cost-effective or not. I do not anticipate that we will suddenly get tough on technology any time soon. We may ask for discounts, or even some price controls, but in general we want the new stuff, and we have no institutions to limit the spread of marginally effective but expensive technologies.
  • Healthcare as a Superior Good. The international comparative healthcare data tell us that the richer a nation gets, a higher proportion of its GDP goes to healthcare. (This argument breaks down at the micro-economic level in the US, because of the regressive-premium rather than taxes-nature of our financing. Rich people pay a much smaller share of their income on healthcare as they get richer, but let’s not let data interfere with the general point). As costs rise and more costs are shifted to consumers, the top 10% of households based on income are probably going to be fine (meaning they can pay for both medicine and merlot), even the top third of households may be OK, but the rest of us may be trading off healthcare for cars, or vacations, or maybe even food.

Together these long-term, glacially slow processes may accumulate and radically alter the landscape just as glaciers did in the physical world. If the glacial processes of change come to dominate over the event driven (Pearl Harbor) or the Tipping Point models of change, here is what to expect: huge and widening disparities in cost, quality and service based on income of the patient; large and growing out of pocket costs for all, regardless of income and wealth; higher taxes for everybody (because on the one hand the ranks of Medicare and Medicaid must grow because of the glacial demographic forces we describe and because we are not heartless bastards, yet and we will not leave people with absolutely nothing); lower reimbursement and profit per unit (maybe, but you technology vendors enjoy the inverse trend for the moment); and a perpetual sense of system in crisis.

I have been in America twenty years, anticipating structural change. Eli Ginzberg formerly of Columbia University, was a mentor and colleague to many of us students of structural change before he passed away, and he always counseled us to not over anticipate massive structural change, as he said, the system may just “schlep along” forever. We will spend more, we will complain, and nothing will stop it. He was thinking glacial erosion, not Tipping Points or Pearl Harbor. And I think he was probably right.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California..

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Patient Zero

Friday, January 6th, 2006

Bird Flu is everywhere. Nobody has it in Europe or North America, as far as we know, yet everyone is worried about it. Bird flu is the cover story in all our major national magazines. The threat is so severe and imminent that President Bush clearly stated (at the height of his troubles with Harriet and Scooter, no less), “The reporting needs to be not only on the birds that have fallen ill but also on tracing the capacity of the virus to go from bird to person, to person. That’s when it gets dangerous, when it goes bird-person-person.” Well said.

Bird flu is a problem in the bird population. It has not crossed species barriers in great numbers, but of course the fear, worry, and paranoia stems from the extrapolation of the threat that the virus will mutate and infect humans as it has done in a few isolated cases in China and Vietnam.

Birds fly, so the virus has moved, according to the Wall Street Journal: “It is currently being spread across continents along the flyways of birds. It was confined to Southeast Asia until this spring, when birds carried it north to Qinghai Lake in China, and then to Siberia in July, where the north-south flyway meets the east-west flyway, thereby broadening its reach to places like Greece and Turkey, by October.” That’s where I come in.

In early October, we were on a spectacular trip with a bunch of friends on a Gulet (a big fat Turkish sailboat) down the Lycian coast of Turkey from Bodrum to Fethiye (where the Aegean officially meets the Mediterranean). At, the risk of sounding like a shill for the Turkish tourist board, let me say you can rent the boat, (food, drinks, and crew included) for less than $150 per day per person. It must be good, Bill Gates was cruising the same waters at the same time we were, only in a much larger vessel.

On the trip, my brother-in law, Fred was fretting about avian flu. His Canadian investment guru, at one of Canada’s banks, had done a thought piece on the economic impact of the coming pandemic. The thrust of the report was that the economic impact of pandemic would be devastating, and that the safe bet was to hold on to Canadian mining stocks (say what?). Anyway, I was trying to have a nice break and did not particularly want to get lathered up about the bird flu. I was aware of the awful mortality rate among the few humans who have contracted it, I was aware of the spread among birds, and vaguely aware of investments in and difficulties with vaccine production. In the wake of Katrina, I am deeply skeptical that our healthcare system is prepared for pandemic, or much else, for that matter. But, with 45 million uninsured, soaring healthcare costs, and uneven quality, I am not sure that bird flu is the number one healthcare priority.

Then, on our trip home via Istanbul, the lead story in the Istanbul papers was about the culling of sick Turkish chickens in Akbaslar, a village in Bursa Province, because of suspected avian flu.

We flew home via London’s Heathrow and LAX. In the next two weeks, I was in LA, Tucson, New York, Boca Raton, Boston, Palm Springs and San Diego and had been through Denver, Chicago, and Las Vegas airports en route. I managed to avoid floods, hurricanes, pestilence, and No Limit Texas Hold ‘Em along the way. But I had an infected bug bite on my arm, and got treatment in Tucson (antibiotics) and then in Palo Alto (the reaming out of what would have been a boil in Scotland, but is an infected sebaceous gland in America). The ER doctors smirked about Turkey, bug bites, and avian flu, but we reassured each other that I had not been anywhere near the farm where the infected birds were culled. But then, I thought about Wall Bay in Turkey, a magical bay with a semi-submerged ruin of a Roman bath, that I had visited a week before, where coincidentally ducks and humans were in close cohabitation. Fast forward a week to Palm Springs and a fancy resort (where I was speaking) and again ducks and humans in close and profoundly unsanitary co-habitation. In Turkey we call it dirty, in Palm Springs it’s cute.

Then I thought about Gaetan Dugas, the gay French Canadian flight attendant, who was credited with being Patient Zero in the AIDs pandemic, according to Randy Shilts’s excellent book “And the Band Played On”. Gaetan was a gorgeous, promiscuous, frequent flyer who apparently spread the virus through his liaisons in gay nightspots from San Francisco to New York. I am not drawing an exact parallel, here, please understand, but to point out simply that both birds and people fly. If this virus mutates and crosses species, if it is passed through airborne contact or through people and birds being in close proximity, then it will spread like wildfire, as my recent travels attest. Many of the experts and all of the alarmists agree that it is when not if. But, for the moment they are still ifs. As the President says we must be vigilant, in monitoring the transmission patterns, we must invest in public health preparedness, we must invest in vaccine development and production. (It is cruelly ironic that vaccines are produced in chicken eggs). And we probably should have a little bit more separation between the people and the poultry in our fancy hotels.

I am an optimist about these things: bird flu has been around five years or more, and we have not seen huge numbers of deaths in humans, yet. Still, my family is putting together the flu protection kit: masks, water, granola bars, and cash. And quietly I am hoping that AFLAC comes up with bird flu insurance. We need to be prepared, and we are not.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California.

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Tiers, Transparency, and Transformation

Tuesday, September 6th, 2005

We know there are enormous variations in medical care across the United States and even within small geographic areas. Dr. Jack Wennberg and his colleagues at Dartmouth have painstakingly documented these variations over the last 30 or more years. Most of the variations can be explained by two factors: 1) larger supply of providers (facilities and specialists) driving overall higher utilization, and 2) provider preferences in use of diagnostic tests and procedures, where doctors simply do more for a given patient with a specific condition. These two factors combined can result in three- to fourfold variations in utilization and costs without any apparent differences in quality and outcome.

Fresh off the boat as an immigrant in Canada, I got my first health care job as an analyst for a consulting group that served the Vancouver teaching hospitals. One of my first projects (which turned into a seven-year gig as a researcher) was focused on clinical laboratory utilization. My boss was a pathologist interested in a few simple questions: Why do doctors order lab tests, and do they really need them? In a global budgeted world, these were prudent questions. We found a threefold variation in use of lab tests across a whole range of diagnoses (DRGs before they existed).

We presented our data to the clinical chiefs of Vancouver General Hospital: “Ya, but did you adjust for severity?” No, like dolts we hadn’t. Off we went, hat in hand, and spent six months developing a case-mix adjustment index. Same answer: a threefold variation and a 5 to 10 percent per annum escalation in lab use for the same diagnosis. I have called this the “Ya, but” defense ever since: When doctors are challenged about their patterns of utilization they always balk.

From Variation to Tiers

Fast forward to today’s threefold variation in use and costs that is not tied to quality. Tiered networks of hospitals, specialists, primary care, reference laboratories, you name it–are all becoming the rage. From Aetna to Wellpoint, health plans are defining skinny networks where as few as 25 percent of the providers in a particular area are included. The goal of the proponents is to drive patients to these efficient, high-value providers through incentives. However, most doctors and hospitals are busy enough; they may be short of payment, but they aren’t short of patients. If the high-value providers don’t have the capacity to absorb more patients, at least the poor performers might be embarrassed into shaping up and emulating the high-performance folk in their clinical behavior. That’s the theory.

But, like my colleagues in Vancouver 25 years ago, the delivery system will not go quietly. Hospitals and doctors who get placed in an economically disadvantaged tier (where the patient has to pay significantly more out of pocket for care) will bitch and complain. If the tiering is not based on transparent, scientific evidence, the provider system has a legitimate beef. This was the case in St. Louis recently, where United Healthcare hastily constructed a narrow network for General Motors employees that omitted a large proportion of specialist and hospitals, including the large, prestigious and enormously ecumenical Barnes Christian Jewish Health System. Specialists in St. Louis went nuts.

In this case, United screwed up. It doesn’t normally do that; it is usually pretty smart. But under pressure from a desperate GM–which had no other health care options, given the generosity of the UAW contract and the prohibition on cost sharing–network design was the only choice GM had, and United listened to the customer. (Advice: Don’t listen to your customers if they ask you to do something stupid.)

From Tiers to Transformation

Tiered networks can shake up the game in a positive way. But we must be very careful that the tiers are based on evidence, that the evidence is transparent and that it passes the laugh test. You can’t exclude the provider that everyone agrees is the best in town and say that your network is based on quality.

The greatest problem with tiered networks and all the variation research is that the punch line is always the same: We need to re-engineer all clinical care to be higher quality and lower cost. Why? Because you can’t actually move all the patients to the 25 percent best providers. They don’t have the capacity, and the other 75 percent will be pissed.

Similarly, you can’t take all the Medicare enrollees from Florida–where medical care utilization is apparently profligate, excessive, ineffectual and larcenous–and move them to Minnesota for the nice, decent, conservative and effective care that the variation folk tell us exists there. The elderly retire to Florida and other warm places with high utilizing doctors, not to cold, northern Midwest states with conservative physicians. (Remember, before you “Ya, but” me, all these sweeping generalizations are backed by data that is on a per capita, risk-adjusted and quality-adjusted basis.)

The real question is, Who will do the clinical transformation? Dr. Don Berwick and his valiant colleagues at the Institute for Healthcare Improvement are teaching hundreds to make these changes. But we have hundreds of thousands to go.

We are seriously deluded if we expect doctors in ones and twos to spontaneously redesign their clinical practice as a result of exposure to tiered networks. They are more likely to complain their way to inclusion (or actively bamboozle their patients that the tiered networks are meaningless rubbish) without embracing the transformation required.

The clinical redesign requires a set of actors with the organizational, financial and clinical scale as well as the resources to pull this off. Integrated delivery systems, large-scale medical groups and community hospitals that are constructively engaged with their medical staffs are the most likely candidates to lead appropriate clinical transformation that will reduce variation, improve quality and safety, and reduce the rate of cost increase.

Ian Morrison is an author, consultant and futurist. He is also a regular contributor to H&HN OnLine.

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Oh Canada, Again

Wednesday, July 6th, 2005

Across the country, state legislators frustrated by the rising costs of health care and the 45 million uninsured are proposing their own state solutions for the health care mess. One interesting twist is a proposal for mandatory catastrophic insurance purchased by individuals.

California has a bipartisan bill (AB1670) sponsored by Keith Richman, a Los Angeles Republican, and Joe Nation, a Democrat from San Rafael, that got shot down recently in committee, because big labor didn’t like any proposal in which employers were not compelled to offer benefits. A bill to do just that (SB2) was initially passed and then narrowly repealed in a special ballot measure in California’s last election. Such American-style alternatives seem to get rejected because of special interest pressure; either big labor or big business take offense and end the debate before it really starts.

Perhaps as a consequence of this failure of incrementalism, many states have their own single-payer advocates. In California the torch is being carried by State Senator Sheila Kuehl, a Democrat from Santa Monica, who has sponsored a single-payer proposal called the California Health Insurance Reliability Act (SB840). The act is estimated to save money and expand access largely through administrative simplification and the bulk purchasing power of a massive single payer system. Many opponents of Canadian-style health care who advocate market-based models worry that continued cost shifting to consumers may lead to a backlash and growing support for such state-sponsored single payer systems. (Although passage of such legislation would require a massive change in the politics and values of America as measured by opinion polls.)

At the same time, Canadians are having enough trouble keeping their own health system afloat amidst demand from sophisticated consumers who want more and better technology and specialty care and who are resisting the pressure to raise taxes that an adequately funded single payer system inevitably creates. Canadian Prime Minister Paul Martin has been forced to ally with the left-leaning NDP and pump more money into the health system to shore up political support and quell the rising tide of complaints about underfunding of the health care system.

There is no perfect health care system; every country has made an ugly compromise among quality, access and cost. But Canada still keeps popping up as an irritating comparison in that it is close, has American-style doctors and spends almost 4 percentage points of GDP less than we do.

Most Canadians believe there should be only one payer because that’s the way to get a good, equitable bargain for patients and taxpayers. I was always trained that there are three equal components to the Canadian difference in spending, each derived from the single-payer structure:

Use of high technology. Canada does not have as much high tech. It’s not that they don’t have fancy hospitals and ICUs; large teaching hospitals are pretty similar. But the typical small hospital is not as extravagantly equipped in Canada as it is in the United States. Canadians are constantly moaning about the fact that they can’t get timely access to MRI and other sophisticated technology. But, you can buy a lot of MRIs for 4 percentage points of GDP.

Incomes of health care professionals. The United States has a higher mix of high-priced specialists and pays those specialists more than in Canada. This is not just doctors, but nurses, administrators, consultants and futurists. Remember: Health care cost equals health care incomes. When you talk of containing costs, that’s someone’s income you plan to contain, and normally they don’t like it.

Administrative waste. Estimates are that 25 percent of American health care is administrative waste: armies of clerks are upcoding, downcoding, adjudicating, faxing, scribbling and kvetching over payment. In Los Angeles County alone there are 1,900 people who do nothing but fill out forms for Medicaid eligibility with a productivity target of two such forms a day. In Canada all doctors in each province are paid based on a standard simple fee schedule. There are no discounts, no pay for performance, not much utilization review and very little faxing (one would think).

While it is unlikely that we in America will give up the high technology and the high incomes without a big screaming fight, we could still learn a lot from Canada on the administrative simplicity front. Streamlining our claims systems, standardizing our forms and formats, encouraging Regional Health Information Organizations and supporting electronic health records could move us down this path. But unfortunately, many of the shifts we are seeing–including HIPPA implementation, consumer-directed health care, pay for performance and quality reporting–make the American health care system even more complex and administratively expensive. Canada may not have a practical solution but it will be a constant benchmark against which our dysfunctional pluralism will be judged.

Ian Morrison is an author, consultant and futurist. He is also a regular contributor to H&HN OnLine.

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Pimp My Ride

Monday, June 6th, 2005

If you have teenage kids, you end up watching a lot of MTV or you have nothing to talk to your children about. My kids are both in college now, but I have watched a lot of MTV in my time. My favorite show of the moment is “Pimp My Ride”. The show is in the genre of all makeover reality shows. In this case a rapper host introduces a poor kid and their beaten up old car (the ride). The car is taken from the young adult and transformed by a team from West Coast Custom (a body shop and customization company in LA).

Each episode shows a different kid and a different car: clapped out Pintos, beaten up Suburbans, and a plethora of ugly, weird, old and dilapidated camper/truck hybrids. The process is always the same: they strip the car’s interior and install an unbelievable array of stereo equipment (woofers and sub-woofers included), video displays (even laptops) and the whole thing is topped off with an amazing paint job in vibrant blue or dazzling yellow, topped up with custom painted flames on the side. They never seem to do anything to the engine, drive train, or chassis of any of these vehicles. At the close of each episode the youngster is shown the transformed vehicle that has been “pimped” and they can never contain their excitement. They are deeply grateful.

The prevailing vision of quality in American healthcare is “Pimp My Ride”. We take a really bad chassis and engine and bolt on unbelievable amounts of high technology on a frame that is tired, old and ineffective. We spend extravagantly on buildings, machines, drugs, devices, and people at West Coast Custom Healthcare. The people who own the rides are very grateful because they don’t have to pay for it in a high deductible catastrophic coverage world, once you are over your deductible and ensconced in an American hospital the sky’s the limit. It all looks great, has a fantastic sound system, and nice seats but it will break down if you try and drive it anywhere.

Pimp my Ride is a perfect metaphor for the healthcare system as a whole, but it also applies to the individual patient. We take the morbidly obese, the terminally ill, and the very old and throw fabulous technology and unbelievable paint jobs at the human subjects. (Apparently, a young resident at Harvard made the observation on NPR about treating the terminally ill that it was like “Pimp My Ride”. I am not above stealing ideas from my friends at Harvard, but in this case it was great minds think alike).

From the system as a whole to the treatment of individual patients, we need to break the “Pimp My Ride” mentality. First, we need to transform the basic engine and drive train. We need a new system of medical care delivery and the reimbursement system to support it.

Second, we need to examine what level of technology, facilities, services and intensity of care yields the optimal outcome. We keep throwing money and technology at problems without asking basic questions: what should be done, how much, for whom, when?

Third, we need some intelligent consumer engagement. The kid who gets his beater fixed by MTV could care less how much it costs. Just as we patients could care less about the cost of excessive esoterica we receive in hospital. While I have been a critic of dumb-cost shifting and simplistic high deductible health plans, I do believe we have to engage the consumer intelligently in understanding and participating in the financial consequences of high technology interventions that are marginally effective.

Finally, we have to break the public perception that the medical equivalent of a good paint job and a fancy sound system makes for good quality. The Institute of Medicine and their followers have a long way to go because the prevailing vision of quality healthcare among most doctors and most patients is closer to “Pimp My Ride” than to the IOM’s vision.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California.

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60 Minutes

Wednesday, April 6th, 2005

You don’t want to be on 60 Minutes. Bottom line, unless you are the hot new celebrity, technology, or world leader, generally speaking being on 60 Minutes is a pretty good signal that you are in trouble as an institution, industry, or individual. In the 1990s, managed care was the prime target. I used to joke back then if it wasn’t for managed care, 60 Minutes would be called 30 Minutes. Now it is the drug companies taking the heat, whether because of excess profits or concerns over safety of drugs like Vioxx and Celebrex. Being exposed on 60 Minutes is the epitome of demonization.

But demonization is a complex process, in the words of my colleague Humphrey Taylor, Chairman of the Harris Poll, “the media is a mirror, a magnifying glass and a prism: it reflects, amplifies and distorts public opinion”. The Harris Poll has documented the plummeting fortunes of many industries that become demons in the eyes of the media and the public, particularly in health care. But demonization really matters, as I pointed out in my book “Healthcare in the New Millennium: Vision, Values, and Leadership”, because it has a profound effect on both public policy and private strategy. In the 1990s, the managed care industry faced the threat of regulation and a potential enactment of a Patient’s Bill of Rights, in the public policy arena. Similarly, the public’s reaction to restrictions on choice of specialists and second-guessing of medical decisions by managed care “bureaucrats” led directly to the open network, consumer-directed, world we now enjoy where we can have any healthcare we want, as long as we pay for it out of pocket. I’m beginning to miss the bad old days of managed care.

It is quite possible we will live to regret the current demonization of pharmaceuticals, (brought about by their own pricing, safety performance, and marketing track records), if we end up whacking the industry through price controls. The industry’s naïve defense to date: “pay me or I will stop developing new medicines” has worn-thin and has developed an almost Tony Soprano like tone with the media and the public. Obviously, we could regulate the industry to be like a utility, as some like Marcia Angell have argued, and we would still have drug companies doing research. But just how innovative is your local electric utility? My neighborhood still has poles and wires put up shortly after the Ohlone Indians and the Mexican ranchers left Menlo Park.

Better for the pharmaceutical industry to heal itself, lower its prices, change its business model to be better, faster, cheaper, and safer not more expensive and worse. We need innovation and we should be willing to pay for it, but it has to be real improvement, not just statistically significant but not very important steps forward.

Oh, before the hospitals and doctors out there start gloating, let me suggest that you all are next. One of the reasons industries get demonized is that when consumers have to pay more they get very, very cranky. In the new world of consumer payment and retail care, how will we feel about our doctors and hospitals when we are writing big checks with our own money? Doctors are still trusted and revered so they have a lot of falling to do if the patients and the public turn on them. For hospitals, the demonization has already started. Class action lawsuits about price gouging of uninsured patients are just the beginning of greater public scrutiny and political pressure on the economics of well to do, non-profit hospitals. Medical errors, fraud and abuse and patient safety concerns, have made 60 Minutes already. All of this negative attention may lead to public policy aimed at whacking hospital reimbursement or redefining tax-exempt status, if the hospital sector does not try to manage the emerging public mood.

What do you do about it?

First, prepare to be demonized when you make consumers pay more. You have to articulate value to the customer, before during, and after the service is being performed and you have to be very smooth, efficient, warm, and fuzzy on the collections process. Does this sound like your collections process? Healthcare organizations of all types are absolutely horrible at bill presentment and payment systems. We have Explanation of Benefits (EOBs) but they don’t explain anything. Maybe the Consumer Directed Healthcare pioneers can actually teach us how to do this stuff properly.

Second, you have to build, constantly reinforce, and continuously measure reputation and trust. I have said it before in this column, hospitals that lose the trust of their local community are toast.

Finally, think about your behavior before you act, whether it is a big strategic decision or a small step in a business process, and ask the question: How will this look on 60 Minutes?

Ian Morrison is an author, consultant and futurist based in Menlo Park, California.

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Daughter of Capitation

Sunday, March 6th, 2005

If you listen to the experts, you’ll hear that chronic conditions account for the vast majority of health care costs and that the number of people with chronic conditions and the attendant cost of treating them is going to explode as baby boomers age. So what’s our plan? It’s consumer-directed health care and catastrophic coverage, all delivered through discounted fee-for-service reimbursement systems paid to siloed, disconnected providers frantically trying to optimize their incomes while the patients wander back and forth in search of continuity of care. That should all work really well, eh?

Consumer responsibility for payment hurts the poor and the chronically ill the most, causing huge non-compliance problems with the resultant impact on health status. People forgo the Lipitor and end up with heart disease. Catastrophic coverage is a green light for providing the nearly dead with excessive acute care, but it is not particularly helpful for chronically ill patients who have to spend through the deductible corridors and doughnut holes to get to the promised land of acute care catastrophic coverage. And Medicare, bless its heart, is emulating the private sector PPO market (with a little faith-based and for-profit disease state management thrown in) rather than re-energizing the capitated Medicare HMO market. This is all goofy.

I was a fan of Medicare HMOs in the late 1980s and early 1990s because I observed the transformative effects of capitation on the organized medical groups of California. The best of those doctor groups, especially the pioneers who took full capitation risk, looked at the capitated seniors as whole patients, examined all the medications their elderly patients were taking, even fixed their patients’ loose carpets so wobbly seniors wouldn’t go boom-fall-down and end up needing hip replacement. Why did the doctors care? Because they were at financial risk for the acute care consequences of bad chronic care management.

Capitation failed because it was under-funded in the mid- to late 1990s as Medicare HMO penetration grew and these groups started to attract more, and much sicker, patients–and as reimbursement failed to keep pace with the rising cost of technology. Journalists demonized capitation as bribing doctors to under-treat patients. Medical groups exhausted the strategy of reducing hospital bed days per thousand members as PPOs with preadmission certification quickly emulated the hospital utilization profile of the medical groups. And to be fair, a lot of capitated medical groups abused the system or were incapable of managing the risk. But the real reason capitation stalled and failed was that there were not enough willing and able medical groups that were sophisticated enough to transform care delivery, reduce hospital use and manage within a capitated budget. Nevertheless, as an incentive, capitation caused delivery system transformation, experimentation and organizational innovation. In contrast, fee for service is a reward for doing more regardless of the outcome, and is a particularly toxic incentive for the management of chronic care patients. We can do better.

I don’t predict a return to capitation, but I do believe we need to design Daughter of Capitation, a reimbursement system aimed at paying providers to maximize the efficiency and effectiveness of care for the chronically ill population. It should be designed and promulgated by CMS (the artist formerly known as HCFA), and should be copied by the private sector as the way that chronic care is reimbursed. It should encourage providers to coordinate their care all the way from primary prevention to hospice. It should be evidence- and outcome-based. It should allow innovators to experiment and design new delivery systems that improve performance, and the innovators should enjoy the surplus or profit of their innovation—provided it is based on true innovation, not because they are cream-skimming healthy patients. It should all be enabled by 21st-century IT and bioscience, and it should reward constructive redesign of the entire health care delivery system. Not much to ask.

Early signs of this can be seen in the pay-for-performance experiments around the country. Large medical groups and integrated delivery systems from HealthCare Partners in Los Angeles to Kaiser to Sentara Health Systems are structuring themselves to be willing receptors of such payment mechanisms. Let’s get a new set of incentives out there so that these folk and other innovators can come up with a 21st-century health care delivery system for the effective management of chronic care. Before it’s too late.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California.

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