Magical Thinking in Healthcare

From numbers that don’t add up to faulty assumptions about patient behavior, many in health care believe in the impossible.

By Ian Morrison

We all do it. Magical thinking is about engaging in causal fallacies. It is comforting. Otherwise we’d spend our entire lives going: “Say what??!!” But in our national political discourse (and in health care in particular) we have elevated magical thinking to our basic operating model for the future. Bad stuff will happen, then we will do something to [insert simple idea here], then magical thinking happens and the world becomes a better place. Easy.

Magical Thinking in Politics

Both parties have demonstrated an astonishing capacity for magical thinking in the run up to the election. Republicans confidently assert that cutting tax rates for the wealthy will simultaneously grow the economy and not add to the deficit, even though the dismal economic performance from 2000–2007 suggests that precise strategy failed. (It would also be nice if the closed loopholes were specified: namely mortgage deductibility and health insurance deductibility. Instead the loopholes are left to the imagination, and magical thinking, about how the deficit can be reduced by cutting public broadcasting and foreign aid, both minuscule shares of the budget.)

Similarly, Democrats argue that raising taxes on the rich spurs middle class job growth and returns the middle class to prosperity, when in reality the forces of globalization and technology (beyond the control of even presidents) continue to widen gaps between rich and poor.


Magical Thinking in Health Care

In health care we have raised magical thinking to an art form. Our legislative process creates incoherent mishmashes of unintended consequences, even when the laws are well intentioned and directionally correct. There are too many examples of magical thinking to cover, but here are a few:

Rich people happily subsidize poor people. For five years I have been arguing that the central question in health reform is “Will rich people write a check to cover poor people?” This whole election was really about that. You will know the answer shortly. But, no matter who wins the election, America must solve the riddle that majorities support government taking action to cover the uninsured but those same majorities are unwilling to pay the taxes to make it happen. This is what scholars call the principle-policy gap.

Budget delusions. The deficit matters; national debt in excess of 100 percent of gross national product matters. We can Krugman in the short run, […to Krugman is a verb I just invented to mean run big government deficits to avoid depression as Nobel Laureate and NY Times columnist advocates) but even Keynes recognized you can’t run these deficits forever. Both sides in the budget debate are delusional. Eventually, we have to cut spending and raise taxes (on everyone), and health care has to be a big part of the new austerity — otherwise the arithmetic doesn’t work (even with magical thinking).

Repeal and replace. It is extremely unlikely that anything would replace Obamacare if it were repealed. And even then the proposed solutions are magical. My personal favorite is buying insurance across state lines. Apparently, my favorite out-of-state health plan, Blue Cross Blue Shield of Tennessee, can have enormous contracting clout with my doctors at the Palo Alto Clinic. I just don’t understand this.

States as laboratories for bad science. As the contrast between Massachusetts and Texas demonstrates, states are very different in their politics and culture. Massachusetts’s health reform took place in a small, affluent, highly educated state with very low numbers of uninsured and relatively generous Medicaid and uncompensated pools. In contrast, Texas has over a quarter of its citizens who are uninsured, and the state seems unlikely to aggressively pursue coverage expansion even if federal money for Medicaid expansion and exchanges are available. Imagining that all states will eventually look like Massachusetts seems like magical thinking, given the Supreme Court’s green light to states’ rights on Medicaid expansion.

Single payer. Another area of magical thinking, common on both the right and left, is the idea that eventually we will have a single payer system because either private based reform fails or Obamacare creeps toward a socialist takeover. A true single payer system requires massive income transfer from rich to poor and a standardized fee schedule delivered in a global budget framework. Put that way, it seems unlikely in the current American political context. Vermont, the only state really considering this, has yet to be specific about how the money would be raised to pay for the single payer plan they propose, but as far as I can tell, it does not involve state-based income tax increases but rather magical thinking about flows of funds from employers and the federal government.

Exchanges. The clock is ticking for the exchanges to get up and running. The vast majority of states will not have a functioning exchange up and running on the due date, even with Obamacare intact. Even the states that are ahead are figuring out quickly that it is tough to design a health plan that can simultaneously fit through the precious metal aperture of affordability specified in the ACA, and be affordable and attractive to the humans who will be mandated to purchase these plans. In my state, California, we are further ahead than almost anyone, yet leaders in the state are ruminating that no HMOs beyond Kaiser can fit through the aperture of affordability and the default plan will be a very-narrow-network, very-high-deductible PPO offering. Folks, we may be headed to that future anyway through the widespread creation of private exchanges which have all the features providers hate about state-based exchanges (narrow networks, low effective provider reimbursement through consolidated purchasing and competitive bidding, and high deductibles and the resulting bad debt problems). It’s Obamacare without the subsidies.

Low-income folk will sign up. Massachusetts had an aggressive social marketing campaign to explain to the uninsured that they should avail themselves of coverage. It worked well. It takes some magical thinking to assume that 15 million-plus newly eligibles will sign up in every state across the country, especially when in many states there is no aggressive outreach, no social stigma to forgoing coverage, and no state leadership behind coverage expansion.

Block grants. When you hear the phrase “block grant,” it is code for “less money.” Few people propose block grants with more money. It defeats the purpose. One battle to watch for after the election is reframing block grant proposals for Medicaid as self-imposed per capita caps on Medicaid spending (states would agree to a cap on federal contribution). This sounds sensible to me, but it may be magical thinking to assume that conservative politicians will take that deal if spending increases as enrollment in Medicaid increases.

Spending the Medicaid managed care dividend before you’ve earned it. Across the country, states are converting their Medicaid programs to managed care. Others, like California, are aggressively pursuing waivers to expand managed care to special needs populations, the disabled and dual-eligibles. While I applaud the move, many states including California seem to be banking the expected savings before they actually earn them. As one CEO of a local Medicaid plan in California told me this week: “I’ll eventually get the 30 percent savings, but it may take three years to get all the care coordination, medical home and population health infrastructure in place for these patients.” Dual-eligibles present a special opportunity (and challenge). Many commercial players (including health plans and at-risk provider groups who thrive on Medicare Advantage) are salivating at the prospect of managing these dual-eligibles. Plans and providers can deliver better care at lower costs and benefit financially in the process. But the magical thinking comes when you have to deal with all the segments of the dual-eligible population. The target population of dual-eligibles for these commercial interests is what one local plan CEO dubbed “the nice old,” namely the little old ladies with chronic conditions that can be managed much better in a coordinated care platform. The commercial players are less interested in the disabled, the institutionalized, the seriously mentally ill and those with serious substance abuse issues, which represent significant sub-segments of the dual-eligibles. The recent transfer of special needs populations into managed care as part of California’s Medicaid waiver provides a small window on this problem nationally. Players in the field estimate that costs for caring for the population were 10 percent to 15 percent higher than anticipated by their actuaries.

The Smith conundrum. My friend Mark Smith, M.D., M.B.A., CEO of the California Healthcare Foundation, has identified a key conundrum in American health policy. The paragons of delivery excellence for value, whether it be Kaiser or at-risk Medical groups, cannot make money on the Medicaid level of reimbursement. So the question becomes, What is the delivery model for the bottom third of the income distribution when Kaiser and other high-value delivery models to which we aspire lose $100 per member per month on these patients, and no one is volunteering to make up the difference in taxes?

Reimbursement reform. Everyone in wonkworld agrees that changing the reimbursement system to align incentives is the key to system transformation. However, Harris Interactive surveys of physicians and hospital leaders consistently show extremely low levels of enthusiasm for new payment models such as bundled payment, global budgets and capitation. Let’s face it. Fee for service is like crack — it’s tough to get off it.

Accountable care organizations. Hospitals and doctors are huddling together for warmth as they face the new future, many under an ACO umbrella. But reality is dawning on these fledgling new organizations, in particular, that structure doesn’t automatically confer performance. Just because you are legally a clinical integration organization doesn’t mean you are integrated clinically. That actually requires hard work…or magical thinking.

Shared savings. Much of the transition from the first curve to the second curve, from volume to value, is enabled through shared savings models. What happens if there are no shared savings, only shared losses? What if a combination of budget cuts at the federal and state levels, organizational intransigence, and poor management fail to yield savings? If that’s the case, where is the fuel for transformation? Right now the principal fuel for much of this is provider-based reimbursement (you pay a cardiologist more in facility fees when the practice is owned by a hospital), which seems to me to be a policy accident waiting to happen.

Patient-centered medical homes. Everyone should have a medical home with a highly integrated team of caring professionals hovering over my medical record, ready to pounce on any deviation from health. Well, that is magical thinking. Even the fathers of the movement concede that really what PCMHs are about is creating the mother of all triage systems, where you identify and concentrate resources on the heavy users to improve care, while automating the primary care and wellness initiatives so that the nagging to maintain health is done by your iPhone, not by the entire cast of Grey’s Anatomy. It’s all about segmentation and focus.


Migrating the Business Model

All these examples point to the critical challenge we keep cycling back to in recent columns, and that is migrating the business model. It needs to be done systematically but urgently, with compassion for those we serve, and commitment from those who deliver care. We need to make the system work better and we need to be clear headed about this transformation. And not just succumb to magical thinking.

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