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Building a Better Mousetrap

The story was front page and above the fold in The New York Times. Six teachers in Newark are leaving the traditional school system to start a public school of their own.

If the product was something other than education, this would have been no news at all. I would guess that the vast majority of businesses in this country were started by people who walked away from an employer, convinced that they could make a better product on their own. Teachers rarely have the opportunity to do the same, however. They are usually trapped in a system that does not allow innovation or experimentation and is ordinarily hostile to entrepreneurship.

What does all this have to do with health care? A lot. Doctors are just as trapped as teachers. And that is the most important defect in the health care system.

This, of course, is not the conventional view. The received wisdom in the health policy community is that doctors have too much freedom, not too little. Witness the wide variation in medical practice patterns — from city to city and region to region — all seemingly unrelated to medical outcomes. How can anyone defend that? Certainly not me. Where I part company with so many of my colleagues is that they blame the doctors for this problem — I blame the third-party payers.

Were we to look into the matter, I’m sure we would find wide variations in the practice of teaching from school to school, district to district and state to state. Yet I still maintain the teachers are essentially trapped. This may appear to be an oxymoron, but it’s really not. Both in education and in health care, the practitioners have a great deal of freedom to waste resources. But they have virtually no freedom to profit by discovering innovative ways of lowering costs and raising quality.

Practitioners in both these fields have no ability to do what Michael Porter and Elizabeth Teisberg in Redefining Health Care say is essential: to repackage and re-price their products in customer-pleasing ways — the way that producers in just about every other market can.

Could we learn something from the teachers? Newark is not alone. There are teacher-run public schools in Boston, Detroit, Los Angeles, New York and in the state of Minnesota. In some cases, they have the backing of the teachers’ unions. In general, I am very skeptical of the ability to solve this problem by dealing with third-party payers. But if the teachers can try it, why can’t we do the same in health care?

The health care analogue to all of this is something I have proposed for Medicare. Let doctors, hospitals and anybody on the provider side of the market be encouraged to propose ways of repackaging and repricing their products. Medicare should be open to any deal, so long as:

1.    The cost to the taxpayers does not go up;
2.    The quality of care to the patient does not go down; and
3.    The provider suggests a credible way of measuring outcomes six months or a year into the arrangement to make sure that rules 1 and 2 have not been violated.

To get us jump-started, I even propose to begin right away paying centers of excellence (that have already been studied to death) 50 cents for every dollar they are saving Medicare and then broadcast widely that Medicare welcomes more opportunities to re-contract with others.

What I imagine is a hustling, bustling cauldron of entrepreneurial activity — as provider energies are channeled into generating cost-reducing, quality-improving ideas, instead of focusing on how to maximize against Medicare’s reimbursement formulas.

Will it work? I don’t know. But I’m sure it has a better chance than the idea of D.C. bureaucrats dictating to doctors how they should practice medicine.

John C. Goodman, PhD, is president and CEO of the National Center for Policy Analysis.  He is also the Kellye Wright Fellow in health care. The mission of the Wright Fellowship is to promote a more patient-centered, consumer-driven health care system. Dr. Goodman’s Health Policy Blog is considered among the top conservative health care blogs on the internet where pro-free enterprise, private sector solutions to health care problems are discussed by top health policy experts from all sides of the political spectrum.

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Carla JonesWomens MultivitaminFertility Centers Los AngelesPaoloExhaustedMD Recent comment authors
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Carla Jones
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I found this article very up-to-date and informative as it provides excellent tips to obtain the best possible health insurance rates and quotes. With this handy information, you are able to make your decisions more wisely and obtain the best health plan for yourself.

Womens Multivitamin
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Fertility Centers Los Angeles
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Nate
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Nate

Paolo….actually no it doesn’t. If total expenditures stay the same, i.e. price paid for care delivered, but instead of insuring some portion of that members paid it directly, premium would drop, carrier profit might or might not, and no one else would be making it up. There is money to be made in the more efficient delivery of healthcare, transationally speaking. You can reduce carrier expense, taxes, and other expenses and not touch profit. ” Rebates are not disclosed and the pricing paradigm of PBMs is extremely murky. I have a close family member who does this for as a… Read more »

MG
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MG

Nate – Some relevant counterpoints. 1. Rebates are not disclosed and the pricing paradigm of PBMs is extremely murky. I have a close family member who does this for as a pharmacist and you are flat out wrong on this topic. It is not a transparent process or what of much a PBM does would go by the wayside. 2. I actually just called my nursing advocate and several other departments with Aetna to get pricing info for an MRI I need and guess what – they gave me little to nothing that was of use. I was reduced to… Read more »

Paolo
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Paolo

If total health care expenditure does not change, then any decrease in premiums seen by one group must necessarily cause either (i) lower profits for the insurer or (ii) higher premiums for another group. It’s a zero-sum game.

Nate
Guest
Nate

“completely disclosed/transparent especially around rebates.” Why would rebates and discounts not be transparent and disclosed? The only place that happens are in the plans Obama is trying to force everyone into. My clients know where their Rx money is going. Heck some of our plans are even passing rebates to the member at time of filling. “Are there significant information sources available on cost/quality/transparency available to make high-deductible plans work as advertised?” Yes we have access to plenty of information to make them work. And the information doesn’t always need disclosed directly to the member to be successful, by using… Read more »

ExhaustedMD
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ExhaustedMD

Maybe off topic, but for the recent posts, I think this comment fits best here: Obama and all the supporters for this disgusting legislation we have been debating here, during the alleged debate to pass it, clearly said this was not a tax. And yet today, the defense by the Attorney General of the US Government, per the lawsuit filed in Florida by 20 states and heard in court TODAY, their defense was this was a tax, and thus out of the jurisdiction of states’ attack. What god damn hypocrisy, and you want these people to continue representing you in… Read more »

Peter
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Peter
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Peter

High deductible plans don’t reduce the overall cost of healthcare, they just transfer risk to the insured away from the insurance company. People who take high deductible plans don’t ever envision having to pay the deductible, or at least don’t understand the risk of not being able to pay it, while getting some assumed peace of mind having at least some insurance. This is like offering a higher down payment for a car to reduce monthly payments, the cost of the car however is the same.

Paolo
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Paolo

The problem with very high-deductible policies is adverse selection. Very healthy individuals or small groups will obviously save money by partially self-insuring. But if every young and healthy group does this, then the only individuals/groups purchasing low-deductible policies will be the old and sick, making their policies a lot more expensive. Unless high-deductible insurance changes the behavior of small group participants, then the total spending on health care does not change. All you are doing is shifting cost from one group to another. And since the group that gets to pay more is the sick one, you can actually making… Read more »

inchoate but earnest
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inchoate but earnest

MG, if Nate spent 1/2 as much time sharing data on what he & his groups have accomplished re: better health/lower cost as he does ranting about the political boogeymen under his bed, he’d be in line to take over that radical communist/socialist/fascist/anarchist/totalitarian/nazi Berwick’s job.
I dearly hope the results ARE what Nate boasts of; and I sure wish he would do so with a teaspoon of honey rather than his buckets of vinegar.
As for Dr. Goodman, here he seems uncharacteristically to be grasping at straws, rummaging for solutions he hasn’t sweat over much himself.

MG
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MG

Talking out of both sides of your mouth which is usual. The one area where tiering and transparency have generally worked is in pharmacy although there are still several problematic issues here especially around stuff that isn’t completely disclosed/transparent especially around rebates. I can believe that you are saving bucks here if you work aggressively with small employers. As for the other parts, you still didn’t answer my question. Are there significant information sources available on cost/quality/transparency available to make high-deductible plans work as advertised? As for the deductible issue, the reason this was enacted that you generally just saw… Read more »

Barack
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Obama and his pretty confident possy is just installing their health agenda over the american people… but they’re no exactly thinking of the people…
how’s that for irony?
http://healthcareindustrynews.pipeno.com/

Nate
Guest
Nate

I have 600 total small groups, 2-300, lives doing it. They reduce the premium they pay to the carrier minimum 20% usually closer to 50% and sometimes even higher. We are constantly below what the carriers can offer becuase we work with the employees. We teach them how to pick cost effective providers, we show them how to shop for Rx. We share discount info. All the stuff you say isn’t being done we are doing. The Irony in all this, the real laugher, is your left as far left as left goes brainless President basically outlawed what we are… Read more »