Medicare, time to replace the model


Problems, by in large are man-made.  Humans, among all living beings, are the only ones who actively make their own environment, and specifically the cultural constructs of that environment.

Sure animals show similar behaviors, birds build nests and ward off other intruders; but animals don’t prosecute killers, nor does the animal kingdom employ different species  to build out their environment.

Unemployment or the Federal Deficit are both human problems  of our own making.  Irrespective of the choices made,  passive or  active, logically motivated or merely “the right thing to do,” problems arise from some break down  in objective  reality.

Today David Brooks , New York Times column  entitled Where Wisdom Lives, describes the philosophical choices the Republican Party and Democratic Party must face to resolve the Medicare problem and present political  logjam.  For all his brilliance and clear understanding of the interdependent pieces that have brought Medicare to this looming state of insolvency, he uses his answer to define the problem.   Good  technique for effective communication, but not a good fit for problem solving.   His mention of  Medicare’s basic structural flaw–reimbursement as pay for service model, suggests an alternative assessment.

What problem exactly was Medicare intended to resolve?  Wikipedia describes Medicare simply as a social health insurance, providing those eligible to receive “covers 80% of the Medicare approved amount of any given medical cost.”   So is the problem the insurance or the costs? or social coverage?

The Pay for Service model, a wonderful cultural construct and mental model of  healthcare delivery  matches the model used in the care and health of automobiles.  Auto insurance policies are structured very similarly to health insurance plans.  Correspondingly, these models also shape government regulations that curb the practices of the insurers, mandate coverage and resolve claims.  Fundamental differences between cars and people seem  entirely irrelevant when choosing or defining the problem that Medicare in its current model solves.

Cars are disposable and replaceable; and the marketplace  determines both reimbursement limits and clear, directional prices that consumers and insurers incorporate in their choices.  Where is the human depreciation schedule, or  the human after market and blue brook valuation equivalent  to those that exist in the automobile market?  No matter how abhorrent an idea, these do exist in part created by Medicare and the Federal government.  In the automobile insurance market, there’s no philosophical debate about when to send a  car to the junkyard or rebuilt.  Not all body shops’ repair or service estimates match nor do every insurer’s reimbursement.  The insurer establishes the limits of what it will pay, and the insured chooses replacement or repair.

In the healthcare system, insurers may expect a co-payment or ask that you obtain  pre-certification before a procedure, but people rarely, if ever, are given a cost estimate.  Most health practitioners couldn’t give one  if they wanted to.  Billing departments set the price and the invoice reflects what Medicaid, or the insurers have negotiated for reimbursement.   At the auto shop, if it’s an insurance related claim, sure there is some pricing adjustments.  But for the majority of service, maintenance or repairs, the repair shop provides the estimate. Then based on an understanding of the cost and relative perception of value, its possible to negotiatewhat work  is done   When our body may  need “repairs,” or “servicing” doctors increasingly review the pros and cons of the different alternatives with us, but cost does not enter the conversation., other than whether insurance may or may not cover the procedure.

In short, the pay for service model is NOT the model of healthcare in the US , because the choices we make are not based on price, they are based on a higher ethical or moral standard of care.  For Automobile service, price is directly linked to the  election of a transaction for service.  Choices for obtaining healthcare services are often made for us, not by us.  Who is making the choice for whom?  Perhaps the idea of Medicare was to make it clear that eligible people would get the healthcare they need.  Philosophically the burden for charitable care was shifted to society, the public and off the care providers…for both medicare and medicaid.  The arrangements for payment preceded the mechanisms for pricing and though adjustments have been made,  the absence of clear market signals compromise the objectivity of any proposed change. Market signals may be inappropriate for healthcare services, and the recent downturn have demonstrated that even a well established market system like the automobile industry couldn’t respond swiftly enough and required governement assistance.

David Brooks  points to the  two parties opposing philosophies that pit wider market driven control against central planning.  What it doesn’t do however is help us use our experiences with a very broken pay for service system to recognize how badly this model fits the consumption process of health care delivery. Rather than getting stuck in a philosophic debate, or stoking the fire of fear, can’t we find a better fitting model?

Goodness of fit test for a model?

Ever been asked to solve a story problem?  Fit, is crucial  when  choosing a method, or evaluating which  different math  model best matches  the information and situation presented in the story or problem.  Wikpedia on solving math problems explains :

“This question can be difficult to answer as it involves several different types of evaluation.”

Likewise, here is a more complete explanation of matching models and problems that teachers:

” In this step a chose of how to solve the problem will have to be made. The choice could be as simple as writing a math equation. More complex problems may require the formulation of an algebra problem or the use of a problem solving strategies. Strategies such as guess and check, draw a picture and work backwards can be used on many types of problems. Sometimes more than one strategy will work on problem in which case the solver can select their favorite strategy or use the easiest one.
Read more at Solving a Math Story Problem: Five Easy Steps for Completing Any Problem

Much of the debate continues to focus on philosophy. The  insurance model  doesn’t fit the larger understanding of the problem.  Evidence points to runaway costs, or services untethered to a cost based evaluation where there is no market mechanism  to help providers and recipients  make a service choices. Just as a car that goes in for regular maintenance is cheaper then the breakdown on the road, the missing cost signals have also compromised  both our attitudes and service mechanisms to provide lower cost maintenance health regimens.  Likewise, it is difficult to discuss quality of care in the absence of cost.  Not every investment to prolong life may prove qualitatively appropriate, yet insurance companies are making the call for us.  If that is morally repugnant, then let’s find a some common ground and then move forward before it’s too late.

Costs of Care , a social venture non-profit organization committed to greater transparency of costs in healthcare delivery offers this model:

In the American political system, our ability to get mired in philosophic debate is  ever present.  Our ability to find the best frame , or clarify our intentions and find the best model match is imperfect at best.  But there’s no time to waste if we are serious about tackling ticking time bombs like Medicare.

I’d be pleased to hear further thoughts or  suggestions that might help either redefine the problem or be a better fit for the problem as defined.

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There are always consequences


Whatever your politics, health care was on a collision course and few players have willingly taken on these challenges in the last 10 or 20 years, or even attempted to create and champion  true innovations in care. That’s what I concluded from last night’ s consulting round table at Chicago Booth on the meaning of health care reform.

From a series of short presentations by local  healthcare consultancies, SG2 and Kaufmannhall, and providers,Advocate Healthcare and Northwestern Memorial Hospital,   I learned how major players in healthcare are both  unprepared and ill-equipped  to usher in the changes embodied in the recent passage of Federal legislation.    Last night, the brief overviews shocked me. I was disappointed to hear that the information technology revolution has somehow skipped the health care sector, that major providers appear largely unaffected in the basic information delivery and  back office processes.  The health care delivery system has largely been observers, not leaders, in adopting or championing  technology applications   used in other sectors  to spearhead  change, drive enormous efficiencies as well as disrupt the fundamental economic structure.  Today,  deadlines to carry out electronic health records are forcing health care providers to face challenges that other prominent industries resolved decades ago. We don’t think twice about the ubiquitous acceptance and the ease of using bank cards anywhere.  The  transaction systems , payment processors and equipment long ago reached an agreement on standards.  Similarly, moving data from any PC to another and across the Windows, APPLE divide to effortlessly transmit  data in voice, or digital format over the telephone or cable lines.  But  the platforms that some doctors, and or hospitals, have used to record patient visits, tests and physician notes are untested at scale necessary and need to evolve much further to allow the ready transmission of data.

As this realization penetrated, I began to consider the broader implications.  For years, this ”  interoperability gap” prevents  basic efficiencies and simple improvements in service .  Pharmacies have managed to overcome this with insurers and even their suppliers, the natural extension of retail market supply chain efficiencies.  So why haven’t the core of the health care system–hospitals and provider systems followed?  Can we really blame these failures on the government’s failure to spend more of our tax dollars to upgrade  basic computer hardware and platforms upon which Medicare and Medicaid reside?  If you recall Y2K as the IT industries shortsighted take on date formats and what a  big deal investment that cost to repair.  Well, healthcare has its own upcoming crisis in records management.

Analytic thinking won’t save us

Now Booth and of course the University of Chicago’s unwavering belief  in market theory, is synonymous with their reputation for applied analytics to problem solve.  All but one of last night’s five presenters were Chicago schooled (one Harris, my alma mater, and the rest Booth). As I listened,  I hearkened back to another recent discussion of Booth alums that I chair and focuses on issues in strategic management practices. Last week, we reviewed Michael Porter’s Competitive Five Forces Framework,  and wondered why so few managers seem to take the strategic offensive and proactive approach.  Last night’s  emerging insights into healthcare, helped me understand how the very qualities that make doctors incredibly good diagnostician is exactly what keeps them from taking a broader systemic approach. The US relies on an evidence based medicine framework.  This approach is used by physicians to treat patients, how pharmaceutical companies win FDA approval, and how insurance companies compute their reimbursements. I’m not suggesting this is a poor model, but it is not a management model. One of the respondents made this point clearly when he asked “What other industry gets away with charging at every turn as you make your way through the system?” When we shop at a store, the price we pay  assumes and integrates the total operating costs from labor to distribution to supply chain and technology support. In health care, provider service fees rarely integrate or absorb  other related costs. Instead , the activity or related service  charges  are billed  individually, often by multiple parties. No accountability, no coöperation and no integration of activities toward  the outcome  merely increase the overhead for each provider in the chain, driving up the inefficiencies and resulting in ever rising costs.

IT needs outstrip available resources and the impact on GP

Accenture estimates, on average, that the technology spend in most industry sectors approximates 7-8% of their annual expenditures. In contrast, physicians spend only 2-3%.  Accenture also  estimates that  medical records will make up 50% of all data storage by 2020 . This is a sea change that will impact not just the health care sector, but begs larger questions about available programming and maintenance resource support, and raises security and privacy concerns.  In health care the availability and anticipated ease of record transmissions across the health care delivery network will usher in changes that few providers have fully imagined, or begun to plan. All the panelists agreed, that no one has thought through what a connected health care delivery systems looks like.  Well I think IBM has, or at least they have smart technology videos that suggest they do. But IBM doesn’t deliver the care, they merely sell the systems that I’m speculating few health care providers have bought.

What is most incredible to me is that systems and technology providers who specialize in health care systems are poorly equipped to support the ramp-up of the technology upgrades  funded by the stimulus package and health care reform legislation. Today, there is no interoperability across platforms…what? These problems, long ago addressed by banking and many other industries show how far  health care systems lag behind. I guess the market was to blame. Doctors weren’t spending and developers weren’t getting enough volume to test and improve their offerings. All I can say, is thank goodness for Health care reform. Nothing was making this sector realize the benefits and processing efficiencies,  data security and  fraud prevention solutions that have been a significant growth sector for other industries especially the technology sector. If you are worrying and agonizing about what health care reform is costing the  American taxpayer, take a look at how much its delay  has reduced the overall GDP. Why is it a tragedy for doctors, or  cardiology specialists to experience a downturn in their income when they squandered their advantage  rather than in investing in change or the future delivery of care?  We should be crying and outraged at the dearth of innovations in how patient care is delivered, or the missing standards for sharing medical information . OK, maybe that is too much to ask from any one profession, but it is precisely the arrogance and  culture of  the medical profession that has prevented the growth of capable management and innovation.  So I’ll hold my tears as the doctors undergo the inevitable consolidation and shakeout and begin to experience what I and many other professionals and laborers  in other sectors underwent in an earlier era or are currently experiencing.

The market will continue to drive the face and structure of health care delivery

Guess what, it seems that  few, if any, health care provider teams are capable, or know how to give care in the information connected world.   Health care is close to 20% of the US GDP. The sources of innovation in health care  have been in the corridors of the equipment manufacturers who continue to push the envelope.  The rapid advances in  digital imaging, diagnostic and even mobile monitoring tools continue to enhance quality diagnostic support and treatment tools but where is the advancements in the actual delivery of care?  The minute clinics are a start, and progress in remote monitoring is another; but the vast majority of services are controlled through the same channels and it’s time resources were put to re-imagining them in the internet era.    Advocate explained how little an impact the passage of health care reform made on their strategy;  because nothing in the bill changes these wider market dynamics.   The anger unleashed by the recent passage appears  misdirected at the government when the same providers who have ignored the larger , less sexy innovations happening in the back office  stymied the advances in  efficient payment and patient record transmissions. Why aren’t we as outraged when we have to pay for a xerox hard copy of our medical records or be responsible for  keeping copies of old x-rays or  mammogram films to share with the technicians when we return for followup or annual screenings?  The costs of our visit increases because few providers were willing to apportion more of their income stream to invest in developing these systems and championing the delivery of care in a fully connected world.  You may have seen and heard how little of Medicare and Medicaid’s budget goes into research and development. That means those systems have not been updated to take advantage of the tools and efficiencies that we take for granted daily when we use our ATM or credit cards.  The fairness of whether doctors should or shouldn’t get improved reimbursements for these patients is not the question.  Doctors need to look at the larger picture, and not obsess about the current and impractical fee based approach to service but to roll up their sleeves and address the much more challenging systemic issues in the overall system that brings suppliers and providers to collaborate and find or create alternatives that are economical for everyone.

I’m merely reiterating, that whatever your politics, the familiarity of the collision course to other  industry sectors has spared health care and cost us plenty.  Doing nothing was the plan for the majority of  players when it came down to willingly assume the risk and challenge to automate,or even attempt to create and champion  true innovations in care. Like the banks, not all the providers were capable or had the size, scale  and spare resources to effect  these changes.  Like banks, only government payment incentives and regulations are helping hospitals  to meet the needs of customers in riskier and less desirable neighborhoods.  The rise and crash of the HMO marketplace and managed care efforts of the early 1980’s made them all gun-shy. The American public reacted as visceral as they did this past summer. But sometimes we don’t have a choice, we have to endure some pain see improvements. If you have a broken limb that is hurting, a doctor may have to inflict more short term pain to reset it. If the doctor has complete information about you and at his fingertips imagine how quickly you might be able to get treated, and how much more assurance you have that there will be less post op risks and even better, you’ll get one bill not a series of separate ones from the surgeon, the hospital the radiologists and the pharmacist. It will take a lot of bravery to get us through what is the inevitable and long overdue system changes. Stop fighting and start cooperating.