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Five Things Hospitals and Health Systems Have to Get Good at Fast

There is a way to avoid a collapse of healthcare in this country.

It’s getting scary.

We are facing, before the end of this decade, a bifurcated future. The way things are going now—with the economy wheezing, doctors bailing, chronic disease rising fast, boomers sliding out of the Viagra years into the Depends years, reimbursements getting squeezed ever tighter, Medicaid sputtering on fumes, and 30 million or more new people soon swarming our doors with insurance cards—if we don’t pull a rabbit out of a hat real soon now, we’re in serious trouble.

If we just muddle along, the best we can hope that “trouble” will look like is horrifying gridlock, no options, no exit. That would be the good outcome. The bad outcome would be the destruction by strangulation of all these great institutions, the utter collapse of our ability to serve this society with real medicine, real healing, real help.

The good news? There is a hat, and it has a rabbit in it.

Here at Imagine What If, we survey healthcare and its environment all the time: talking to, brain-picking and consulting with major employers, healthcare vendors, hospital systems, entrepreneurs, creative start-ups, doctors, big health plans. In this survey we have picked up an encouraging pattern, one that grows increasingly solid with passing months—so encouraging that we have posted a detailed special report on it on our Web site, ImagineWhatIf.com.

Here’s what I am seeing: There are things popping up across healthcare, here and there, particular programs, business models, experiments, that lead me to believe there is a way out. The way out leads not just to survival, but actually to better healthcare for everyone. It leads not just to a drop in inflation, a “bending of the cost curve,” but to a substantial drop in the cost of healthcare.

The path out of our dilemma is not simple or fast. It is complex and difficult and will take years to build, yet it is absolutely workable. It is already being done.

There are five parts to the strategic toolkit necessary to get on this path. You need all five, and you need only these five. They are both necessary and sufficient to the task. They are interdependent: Each of these five strategic tools needs the support of the other four.

Five Strategic Tools

1. Explode the business model. The great majority of healthcare is delivered under one business model: the insurance-supported, fee-for-service model. As I explored in my last column, “The Problem with Free Market Healthcare,” this model makes it hard for the seller to deliver value to the buyer, and for the buyer to find value.

New business models are popping up month by month: retail care, urgent care, free clinics (yes, that’s a business model with a positive ROI), online medicine, “concierge” medicine, onsite primary-care clinics for employees, fee-based disease management and specialty clinics with bundled products, all of which, in one way or another, route around the dominant model.

Most hospitals over the decades have been far too insistent on avoiding any business-model adventurism, any experiments to see what might actually make them some money beyond just begging for higher reimbursements and trying to get more patients in one door and out the other. This single-focused strategy has helped lead the industry to the financial straits it is in today, making it strongly dependent on a few large payers.

It is possible, and usually necessary, to mix multiple business models in one institution. It is neither necessary nor usually possible for everything in the institution to get out of the insurance-based fee-for-service system. Rather, a balance of different revenue streams helps shape the institution to better serve multiple types of customers.

2. Integrate. One way or another, hospitals and doctors need to work together more tightly—clinically, administratively and financially. They need to be on the same team.

There are multiple ways to get the docs on the team. We don’t all have to be Mayo, Kaiser, Virginia Mason, Group Health of Puget Sound or Geisinger. Anything that seriously does not fit the culture of at least some good portion of the physicians in your area will not work. You can integrate more closely with docs through joint ventures in specific areas like backs, cardio or urgent care; through a properly conceived and run physician-hospital organization (PHO); by helping physicians digitize their practices; by putting nurses in their practices to track chronic patients; or by hiring specific specialists in key areas and buying specific primary care practices.

It is not necessary nor necessarily helpful to get all the docs to work in one big team in the same way. It depends on the business model—and we need multiple disparate business models.

3. Share risk. Risk and rewards drive behavior. If players in a system are not doing what you think they should be doing to make the system work well, chances are they are not getting rewarded, or put at knowing risk, in a way that matches their effect on the system.

A patient who over-uses the system has no financial risk. Patients’ costs don’t change whether they use it or not. Patients who under-use the system do not see how they are hurting themselves. A healthcare system that does its best to drive maximum use of the system, getting the most bodies into scanners and beds and surgical suites, is not at risk for the health of those patients, and is given incentives only for doing stuff to them. Balancing risk appropriately across the system allows the system to drive itself toward value.

Ways of sharing risk more appropriately across healthcare are cropping up swiftly. Intelligently designed high-deductible health plans matched with health savings accounts and the right set of incentives are proving to be a workable way for the consumer to accept some financial risk. A fully capitated system like Kaiser, of course, transfers most of the financial risk to the system (though even Kaiser has introduced deductibles and co-pays on most plans).

But there are many other ways to take on appropriate risk. Bundling, with published prices, is a way to take on risk. The system is saying, “We are willing to take the risk that we can deliver, say, an uncomplicated birth as one package for this price.” Warranties are another way. The system is saying, “We are willing to take the risk that we can deliver quality on demand.” “Mini-caps,” such as diabetes care subscriptions, transfer risk. The system is saying, “We are willing to take the risk that we can deliver all the services you need for a set price—because if we do it right, we can actually drive down the cost of those services.”

There is no need, and it may not even be helpful, for fully capitated risk to become the single model for healthcare. Such monolithic models tend to transfer all the risk to the providers, or to the government, and they have no traction with which to drive toward value. Taking on some risk, in ways and in areas in which that risk can be intelligently managed, exposes providers to the discipline of the market.

4. Build from primary care upward. Every healthcare system worldwide that delivers healthcare better and cheaper than the U.S. system has a stronger primary care sector. This is by design. Specifics in the policies of other governments support the primary physician.

Our primary physicians have been left to languish. Here are some numbers. The difference in income between primary care physicians (PCPs) and specialists is huge: The average PCP earns 55 percent of what the average specialist earns, and a mere 30 percent of what (for instance) an orthopedic surgeon does. Only 27 percent of PCPs describe their practice as “robust” and satisfactory. PCPs are flocking to sign on with hospitals, and hospital employment is rapidly becoming the norm, with 40 percent of active PCPs estimated to be on hospital payrolls by 2012.

Every year medical schools produce fewer doctors who elect to go into primary care, at the very time when demographic shifts and the reform act mean we are facing a massive shortage of primary care docs. But the money, relatively poor as it is, is not actually the main thing burning docs out of primary care. It’s the burden of the work.

The key rubric for supporting primary care is the “medical home,” but the medical home can come in many forms, funded many different ways. The key questions are, Can we find ways to pay doctors to do what we most want them to do? Do they use registries aggressively to track their patients? Are they operating in a team environment, with everyone doing most of their work “at the top of their license”? Are they evidence-based, measurable without th
e “measurability overhead” burden?

5. Rebuild the production system constantly. Healthcare is a production system, a massive one with high demands and expectations, huge and exacting transfers of information and material, meticulous manufacturing and processing needs—and until recently almost no introspection about processes.

In most healthcare even now we do things the way we do them because that’s the way we’ve always done them, or that’s the way it’s convenient for this or that doctor, or for thousands of other reasons that have little or nothing to do with “that’s the most efficient, effective way to get this done. We know because we have tried other ways and measured the result—and we’re still looking for better ways.” Healthcare, in its core processes, is enormously wasteful, simply because most of its processes in most of its environments have never really been studied and improved.

Lean management, the theory of constraints, benchmarking, six-sigma process quality, checklists, continuous performance improvement—a whole array of tools have been tested and refined in other industries, and are beginning to gain a foothold in healthcare. Their successes, when applied diligently and enthusiastically over time, have been remarkable and measurable.

The Payoff

The core problem in healthcare is pretty neatly expressed by the fact that while I can say to the customer, “If you did these five things, you would be in better health,” I cannot say to them, “If you did these five things, you would get better healthcare for less.” In most of healthcare, the customers can’t find value, don’t know how to, and don’t get rewarded in any way if they do find it. There are no real “products” to compare, no real prices that relate to how good the product is and no real useful measurement. To a great extent, this applies just as well to the customer’s representatives in shopping for value (the employers, the health plans and the government).

These five strategic tools (and the similar toolkits I am laying out for health plans, physicians and physician groups, and employers) are all about how we in healthcare create real value (cost per benefit), prove the value through real measurement, present it to the customer in packages from which they can pick and choose, take our lumps in the marketplace, and constantly improve through competition?

People say, “But what about those darn (patients, health plans, employers, pick your villain)?” What about them? Healthcare is a complex adaptive system with all players at static local optima in a “Nash equilibrium.” Translated, that means 1) All players feel helpless to change anything about their situation without being punished and feel it’s everyone else’s fault, and 2) any player who changes, changes the incentives and forces acting on every other player. If the providers shift their strategies, they change the rules of the game, and suddenly everyone is looking for a new way to get this thing done. Now’s the time.

With nearly 30 years’ experience, Joe Flower has emerged as a premier observer on the deep forces changing healthcare in the United States and around the world. He has written for a number of healthcare publications including the Healthcare Forum Journal, Physician Executive, and Wired Magazine. You can find more of Joe’s work at his website, imaginewhatif.com, where this post first appeared.

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38 replies »

  1. Hi to every one, the contents existing at this web page
    are truly awesome for people knowledge, well, keep up the good work fellows.

  2. Insurance dictates so much of what patients do. Not only that it has completely affected how they accept treatment. It is always on the tip of my tongue to tell a patient “WE’RE not in a big high rise building on the coast. WE are in a strip mall. THAT’s where your money is going, to the insurance company.”

  3. You can certainly see your enthusiasm within the paintings you write. The arena hopes for more passionate writers like you who aren’t afraid to mention how they believe. Always go after your heart.

  4. Elinor Ostrom is an economist who received the 2009 Nobel Prize in economics. She has authored or co-authored 9 books begining with “Governing the Commons” in 1990. If you believe that our nation’s healthcare is suffering from a Tragedy of the Commons as I do (i.e., 13% of the GDP rather that 17.5% in 2010), then healthcare reform should be planned based on the concepts developed by Professor Ostrom. The tragedy of our nation’s healthcare is not only its colossal inefficiency. It is also its poor quality.

    In 2008, the maternal mortality rate for our country ranked 41 among the 43 developed countries of the world. Between 1990 and 2008, the rate changed from 12 to 24. Incredibly, it doubled. By comparison, the 11 nations with best maternal mortality rates averaged 6. This is basiscally about accessibility. Our nation’s entire healthcare suffers from inequitable problems with accessibility. It is also very unlikely that creative reimbursement systems will solve the accessibiltiy problem. In fact, all of the essential traditions characterizing our nation’s healthcare will need to change.

    I have proposed one alternative for such a process of change.

    Paul Nelson

  5. Doctors aligning with hospitals will mean even higher costs for health consumers. Docs will channel test through the hospital, which is the most expensive environment for services. I’ve gone to a hospital aligned PCP who ordered a blood test. The test turned out to be 7 times more expensive if he had sent it to an independent lab.

  6. Primary care is evaporating. No one wishes to pay for it and no one wishes to provide tort reform, so there will be no physicians providing it.

    Good luck to the nurse practitioners.

    There will be no gate keepers. That has been tried and it has failed. There was nothing in it for the patient.

    Only by giving all the money to the patient will the system change and be sustainable.

  7. David, thanks for your post. Hospitals are indeed suffering. There is nothing magical or easy about these “Five Things,” but I do believe that they are the path out.

  8. Gary, I pretty much agree with your post, though you express it perhaps more vividly than I usually do.
    I include the employers because there they are: They are a big part of our system of procuring healthcare. We can imagine a system without them, but for the present, that’s what we have, and I am 100 percent about finding the best, most actionable path forward, rather than talking about the way things should be. There is a true urgency to these questions. We have to start from where we are.
    And employers have more options than most of them think they have, and they have more flexibility to try different possibilities than most players in healthcare. That’s why I have a special “Framework” addressed to them on my website, ImagineWhatif.com. They can actually do a lot not only to get better healthcare for less for their own employees, but to push the whole system to doing it better for less.

  9. > Trying to brand Medicare as a failed single-pay system
    I never called it “failed.” I said it was wasteful, which it is. The best studies, from a variety of sources, show some 30 percent is wasted. And I said it is not good at driving toward value, which simply follows from the waste. In many ways, though, Medicare is better on both counts than most private insurance, as helpfully illustrated by one of the posters above.

  10. Employers should not be the third party that providers and insurers. The employees bare the largest burden and Employers continue to agree to insurance that sheds responsibility and costs from themselves. The Member needs a seat at the table with providers and insurers!
    When you buy a car.Does your employer negotiate the price and pick it up for you?
    People are not as stupid as some would proclaim and actually pretty savvy. So where is the transparency in pricing? Why are providers and insurers playing charades with the population. Stop the artificial inflationary rates and the lies. What is wrong with Hospitials providing cost of proceedures so members can choose which location? However,insurers and providers are not interested in lowering overall costs because they refuse to allow patients to have control to SHOP for reasonable prices! Nor has the provider negotiated with pharma,medical device manufacturers and so on to drive down costs. It is quite the opposite as they accept them without question.
    No! it is NOT the consumers Fault when they are NOT Permitted to make that Choice!
    You get what you pay for?…….Right? No!!!!! Today,Getting bang for the buck is very illusive and in many cases non exsistant.

  11. Joe,
    Current healthcare statistics suggest that the hospital financial crisis is indeed severe. The American Hospital Association (AHA) recently reported a number of gloomy statistics for hospitals:
    • 30 percent of hospitals had negative total margins thru 2009.
    • Hospitals provided approximately $175 billion of uncompensated care since 1997.
    • Uncompensated care increased 16 percent annually since 1997.
    • Emergency departments in 62 percent of all hospitals report operating at, or over, capacity.
    • 33% of hospitals reported liability premium increases of more than 100 percent, since 2002.
    • The average hospital facility age has increased 21%, from 7.9 to 9.6 years in just a decade.
    • Hospital bond downgrades outpaced bond upgrades by 5 to 1 since 2006.
    • Costs are soaring as traditional technology like X-rays are replaced by CT and PET scanners.
    Dr. David Edward Marcinko MBA
    http://www.HealthcareFinancials.com
    [Editor-in-Chief]

  12. Why is it that dental is so poorly covered on most health insurance plans — and only routine care, but not the preventative care, such as flouride treatments. Seems no one is looking at the long term benefits (to the patient and the expense side).

  13. This should be said:
    One thing about the Medicare system that does work effectively, and if copied the under age 65 major med world would immediately be more efficient, is standardization.
    MA Plans (Medicare Advantage) have made Medicare more confusing and cloudy to seniors and providers, but as a whole the Medicare market is standardized and therefor operates with some efficiency. The private insurance products that are sold are also completly standerdized. For example, each company can offer 6 or so different plans. Those 6 plans have a standard set of benefits. So you have 10 companies that are offering apples to apples and the only difference in policies is the company offering the plan and the premium. It makes it much easier on the consumer to make an educated decision on their insurance selection. Not only are the benefits standardized, but also the networks and billing methods. This is the best insurance model for sure.
    For example, if you take 3 different major med plans (private or group) you will have differences in co-pays deductibles, covered treatments and non covered treatments, exclusions etc. That is because there are no rules and regs that make standardization mandatory. This not only makes it difficult for the consumer to figure out which plan is best, but complicates the billing process for providers. There are untold billions of dollars wasted in providers billing departments trying to figure out how to bill, get paid, what are benefits, etc.

  14. Dental is also a great example, as is Vision, see davis, VSP, etc, of providers taking risk and assuming the role of insurance company. For services like primary care it could be a model to be copied, it is also being looked at in Pharmacy

  15. Peter grow a brain. Becuase some people stand in line for free dental care the entire market is imperfect? Your ability to day in and day out rise to a new level of stupidity is commendable.
    Drive through a bad neighborhood and see the direct to consumer marketing. Look at the state and regional dental pratices like Western Dental that are forming mega pratices with low prices. Growing DHMOs.
    Stop being such a simplistic tool, reading one or two MSM stories then thinking you have a clue what your talking about.
    Dental is an excellent example of how medical care can be delivered outside of insurance.

  16. “Care to point to a health care system in the world where this occurs?”
    Dental, Vision, Cosmetic Surgery, eye surgery, breast augumentation, India & Costa Rica medical tourism
    to name a few

  17. “The ideal market has many buyers and many sellers, with market power balanced on both sides, so that the sellers compete to provide what the buyers actually want and need at the lowest possible price.”
    Care to point to a health care system in the world where this occurs?
    Trying to brand Medicare as a failed single-pay system shows you don’t understand single-pay systems. Just writing the checks is not single-pay.

  18. As usual, several commenters have proposed some version of “single payer” as the obvious solution to which we are somehow inexorably trending. But “single payer” is not a complete solution, though it may seem so. Neither monopoly (one
    seller) nor monopsony (one buyer) is ideal in any economic market in trying to get the best value for the money. Medicare, though more stingy than private insurance, is still hugely wasteful and not good at driving providers toward providing real value.
    The ideal market has many buyers and many sellers, with market power balanced on both sides, so that the sellers compete to provide what the buyers actually want and need at the lowest possible price. This is not some “free market” fantasy, especially in healthcare, because healthcare is a universal necessity, and because it is extraordinarily complex. This makes it unusually susceptible to market manipulation—everyone is ultimately your customer, whether they sign up for it or not, whether they can afford it or not, and it is easy to conceal the real value from your customer. This means that government must set the goals and mandate the transparencies, give subsidies where needed, set the rules of transaction. That’s actually why the ACA is so long and complicated, because (despite its flaws) it is actually trying to do the right thing, not the simple thing.

  19. > why did you just take #4 from “Every healthcare system worldwide
    >that delivers healthcare better and cheaper than the U.S.”?
    >Surely those systems do many other things differently then the
    >U.S., none of which made it into your 5 must have strategic tools.
    Yes, they do everything every which way – single payer, socialist, mixed, all private. There is a tremendous variety out there—so there is no obvious model that says, “If we just did it like everyone else, it would work better.” There are only two obvious ways in which all these major national systems that are cheaper than ours and get better results are the same: They cover all their citizens, one way or another. And they have, relatively speaking, a stronger primary care sector. There is plenty in the comparative literature to show how this makes healthcare better and cheaper.

  20. In my experience at times as a professional in the industry, and as a patient who is missing when there is a hand-off of a department or entity of care to another. Hospitals have done an admirable job in the implementation of LEAN in the various departments, but had little success in inter-service coordination services.

  21. Just curious, Joe, why did you just take #4 from “Every healthcare system worldwide that delivers healthcare better and cheaper than the U.S.”?
    Surely those systems do many other things differently then the U.S., none of which made it into your 5 must have strategic tools.

  22. “The only time that things are substantially reformed in the US is when people die”
    So true, that is the only reason liberalism is still alive. If you took all the people public housing has murdered and turned it into a single event it would dwarf 9/11 and the two wars currently going on and probably every other American catastrophe but the civil war.
    If we actually had journalist in this country and they ever reported on the passage of Medicare and how badly it has failed it would have been repealed 40 years ago.
    Medicaid and Welfare the same. Because of the slow pace and cover from the media they destroy tens of millions of lives and are praised for it.

  23. This is just rearranging the chairs. Nothing more. The end game is either a voucher system or tax credit or a single-payer system. We just aren’t there yet and aren’t quite as close as people/analysts/wonks think. I give it several more years and until the costs of the Baby Boomers retiring becomes that much more apparent.
    The only time that things are substantially reformed in the US is when people die (usually lots in a singular event that can’t be swept under the rug) and/or it literally something is literally threatened with running out of money.

  24. “I could pay to send you and your wife to Iowa or Kansas or someplace, put you up for the whole stay and still save a fortune.”
    You’d be better off flying me to India.

  25. a number of plans, and gorwing every day, will pay travel cost to see a more cost effective provider. If your in a Metro area like NY or MA I could pay to send you and your wife to Iowa or Kansas or someplace, put you up for the whole stay and still save a fortune.
    People need to stop saying we can’t do this or can’t do that and start asking how do I do this. Nothing is that complicated that alternatives can’t be found.

  26. “Now that the patient has the incentive to choose a hospital with cost in mind they force the hospital to be more cost effective.”
    Only if the patient knows how quality/treatment/cost relate to the appropriate medical treatment and only if the hospital is concentrating on cost reduction with same quality. You can’t order medical treatment over the internet. There is not always more than one hospital to “compete” with. In my area the high priced leader is Duke setting the price ceiling with UNC having formed alliances with area hospitals to cover competition issues. Like other industries, the private hospital industry has the ability to buy market share and stifle competition. “If the “poor” are really the ones who need cost control incentives, they are the ones with the least resources to get there.

  27. Hospitals had their chance to position themselves to provide care under DRG’s from the early 1980’s until today. Their choice was to go for the profits and overnight threw all quality considerations out the window, switching all procedures to either one day surgery or pushing patients out of their doors when they were not healthy enough to be “on their own”. It was a nice touch as they made more money as patients came back “quicker and sicker” with higher paying DRG’s. Then for tax purposes, they organized as for-profit holding companies so they could “enjoy the benefits offered to all these organizations while operating not-for-profit hospitals”.
    So now the hospitals are “buying up” all the docs and nurses, both of which are in short supply and the shortages will last a long time; as the “newbys” will work 40 hour weeks because they “want a life” and high pay, while “boomer” docs will be phasing out as their careers are over and they don’t need much income as they retire or semi-retire an don’t need the hassel of Medicaid, Medicare or “pools” operated by government. Their bottom line is they don’t “need” any government program patients, so why accept any non-cash patients.
    The “model” hospitals will have to use is that of clinics set up to handle lots of patients and running themselves like assembly plants, MASH units and VA hospitals. That’s the only model that works when patient demand doubles and supplies of people needed to take care of them stays the same or lower!

  28. Before Peter you said HDHPs where insurers attempt to hold onto their insane profits, now it is providers, at least your getting closer.
    A patient with an HSA would not go to an inefficient provider. We offer a website where memebrs can shop the cost and outcome of procedures at PPO providers. Now that the patient has the incentive to choose a hospital with cost in mind they force the hospital to be more cost effective. HDHP is not the end result, its one tool that leads to the desired result.

  29. “Intelligently designed high-deductible health plans matched with health savings accounts and the right set of incentives are proving to be a workable way for the consumer to accept some financial risk.”
    I can only agree to PCP based system where PCPs are the gatekeepers for hospitals and specialists. High deductible is workable for who? They don’t force hospitals or insurance plans to accept any of the new risk, they only force well income’d patients (who can pay the deductibles) to play doctor and assume the risk while providers get to keep the profits. Where’s the plan for hospitals to be forced to give care within budgets? Government single-pay where hospitals are community owned and boards are held to operating within budgets and rewarded for doing so will prove to be the only plan that will actually work. HDHPs is only the providers’ attempt to keep getting the same ROI while looking to be doing something. The risk does not change, x people with x disease at x rate has not changed.

  30. It really does come down to who is holding the money and who decides what to spend it on.
    So give the money to the employee. It is their wage. Let them be the object of desire of the insurance companies. Let the insurance companies try to sell them a competitive product which the consumer, the employee, values. Get rid of the insurance mandate so crappy policies are not thrust upon them.
    As for Medicare and Medicaid, no matter how you try to hide it, these programs are toast. They have never been “insurance”. They always have been about politics. They must die a political death. I am sure they will be repackaged and revamped, but they are dinosaurs crushed under their own weight.
    Medicare disability? Don’t make me laugh. This is pure politicl payola. It preceded giving people houses they could not afford, and it is just as wrong-headed.
    Social security? Exhibit number one at the trial of government unreliability and thievery. It also must die a political death.
    Pass the popcorn. This should be good.

  31. I have been telling my clients things are going to blow up and they have a small window to get on the right side of this three way relationship. Providers and Insurers have been feasting on employers, employers need to take the providers out to dinner real soon and make amends and work together going forward. I think both providers and employers would be very happy to split the potetnial excess money going to insurers right now. Throw in some competition to take money from overpriced providers and inefficient ones and there is more then enough money to make both happy.

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