Like democracy, managed care is a great idea. It’s just that its rarely been tried.

Even so, my guess is that its about to re-emerge in a new, improved form, and possibly with some other name. If the signs around us now have any meaning, it will be different than our experience of a couple decades ago, and much truer to the original principles and possibilities that first caught our attention.

Last week the New York Times’ David Leonhardt ran another pop health economics piece, exploring several presidential candidates’ notion that the savings captured by providing better care could fund the uninsured. He explains better care as really being prevention – making sure that patients get services that stave off illness – and better management of the care process once they do get sick. And then, quoting a variety of health care experts, he takes issue with the notion that these approaches actually produce returns-on-investment. The problem, you see, is that while you may save money on the diabetic who avoids hospitalization to get his foot removed, you’re spending money taking care of all those diabetics who wouldn’t ever have had a costly problem.

He also worries that doing care correctly mostly amounts to telling
patients “No,” that they can’t have certain treatments that they want
or might need. He apparently isn’t familiar with the doctor as
expert, saying, “Uh, No. The science says that what you’re asking for
is not the best treatment.”

Mr. Leonhardt is the NY Times’ resident economist and, well, I’m
not. And he is correct that the jury is still out on whether wellness
and disease management programs always save money. (Although there’s compelling data
showing that when chronic conditions are managed in the field,
face-to-face and consistently over time, those programs can have a
significant impact.)

Still, despite his impeccable credentials, I have a different view
than Mr. Leonhardt about where the recoverable savings are in health
care. Yes, there are some savings in preventive care and chronic
disease management. But there are much larger savings in eliminating
the financial conflicts and perverse incentives that pervade virtually
every area of health care.

There is no concrete number for or consensus on the amount of waste
in the system. Health care is mind-bogglingly vast, with nearly an
infinite number of processes. So no comprehensive inventory has ever
been undertaken. But there are notions. Don Berwick at the Institute for Healthcare Improvement and Jack Wennberg from Dartmouth peg it at about a third.
I recently spoke to two very experienced physician administrators, one
from a major health system and one from a large health plan, who each
guessed half or more. When you start ticking off all the ways that care
is compromised by financial conflict or, for that matter, old-fashioned thinking, it is difficult to not side with the physician
administrators.

There are endless nook and cranny stories. Take diabetes, which
currently consumes about $165 billion per year, or 7.5% of the nation’s
health care spending. We know, for example, that we’re able to identify
only two-thirds of America’s diabetics. We don’t know who the other
one-third are, because they show up only occasionally at Emergency
Departments or doctors’ office in dire need of treatment. Of the 2/3 we
know about, though, the claims data show that only about half get a
HbA1c test every six months, the minimum protocol for stable diabetics.
The other half of known diabetics, who also see physicians regularly,
don’t receive this test. (Their doctors apparently missed that class.) This means that 2/3 of our diabetics – the 1/3 who
aren’t getting regular care and the 1/3 who are but aren’t being
monitored properly – almost certainly have exacerbated conditions that
push our bills for diabetes care way beyond where they ought to be.
There’s probably a $50-100 billion savings in that group alone.
The upper figure is enough to replace our national health care IT
infrastructure in 2.5 years.

Then there’s diagnostic imaging. Physician ownership of these
devices has created terrific incentives for self-referral, a trend that
industry-watchers say has fostered a 35% over-utilization rate, and has
given rise to several imaging management firms that help health plans
enforce appropriate application of these tools.

Or cancer. Many community oncologists now make twice as much (or
more) from the rebates they receive from drug companies as they do from
being physicians. There is good data showing that many oncologists alter their prescribing behaviors to optimize profitability rather than adhere to best practice.
By contrast, academic oncologists, who work in settings that don’t
allow them to profit from their treatments, appear to have different
prescribing patterns.

Or sloppy and unsophisticated purchasing practices. The
Sisters of Mary Health System in Springfield MO saved millions of
dollars and 176,000 drug errors annually by using IT to get better
end-to-end control of their supply chain.

These stories are endless. Of course the best summary work on this topic has been developed by Dr. Wennberg through the Dartmouth Atlas, which shows dramatic cost and practice variation across the US for identical conditions.

Variation in the Average Cost Per Medicare Recipient by Region

My friend Jerry Reeves MD, the national Chief Medical Officer for
the Unite Here Union and a consultant to many health management
projects around the country, shows a simple slide that illustrates this
point dramatically. It was developed several years ago, when he was the
Medical Director for the Culinary Fund Health Plan in Las Vegas. In it,
he takes several straightforward conditions, holds outcomes constant,
and then shows the resources required by the lowest cost, highest cost
and average Vegas physician. The results are startling. The most
expensive doctor often costs 8 times as much as the least expensive one
to get the same outcome.

Physician Costs for Specific Conditions in the Las Vegas Market

Of course, the excess in America’s health system doesn’t just
happen. Its structure creates incentives for waste. Fee-for-service
reimbursement, the prevailing payment methodology for the last several
decades, rewards the delivery of more products and services rather than
the right services. A lack of pricing and performance transparency
makes it difficult to see poor or even dangerous performance when it
occurs and, worse, has created an opportunistic culture throughout the
entirety of the health care sector. And by spending a small but still
significant portion of the largesse – about $350 million out of $2.2 trillion in industry revenues in 2006 – on lobbying, the industry convinces our federal lawmakers that the status quo is worth preserving.

If one is serious about figuring out how to fix health care,
there is no stock in being ideological about it. It is a structural
process, and the solutions are both in the marketplace and in policy.

And it’s complicated. That’s the thing to remember. Single payer
won’t be a magic bullet, because that’s just how the money flows, not
how cost is created in the supply chain or care delivery sectors.
Individual responsibility won’t solve it, because patients need
information that’s currently not available, and the scale of health
care cost has now risen far beyond the ability of most families to
handle it on their own. Simply helping the uninsured won’t help,
because the bigger problem is that the middle class is being priced out
of the coverage market, and that could disrupt both the health care
economy and, because health care is the nation’s largest economic
sector, the larger economy. And despite what Mr. Leonhardt thinks, nor will prevention and disease management, because they’re just a small part of a much larger and more complex set of problems.

There are a lot of interesting and productive new trends in health care, and they’re all converging on the crisis. The Health 2.0 meeting
will explore one. But there is progress with transparency,
performance-based reimbursement, worksite clinics, supply chain
management, health care information interoperability, and on and on.

My sense is that we’re about to see a new era of managed care, where
the market players finally do all the things they promised to do last
time but never did: analyze and reward performance, give patients,
providers and purchasers better information to make better decisions,
and invest in tools and processes that drive waste and
inappropriateness out of the system. All this would be a breath of
fresh air for America.

If we’re going to fix the system, first we have to understand what’s
really wrong with it. And that will provide a basis to understand
whether the solutions that are offered are likely to have a shot at
helping.

Then we have to find leaders who can drive the necessary changes in
Congress. These people will likely be mostly from outside of health
care, and they will drive for change not because they care particularly
about health care, but because they think that a health care economy in
turmoil could poison the larger American economy. Whatever. That could
work.

All this is happening now. The losers will be the old guard, the
people who want to protect their share of the excess at the expense of
a workable health system for the nation. The winners? That would be
everybody else.