“Every system is perfectly designed to get the results it gets”
Paul Batalden, MD – Senior Fellow, Institute for Healthcare Improvement
This quote sets the perfect entry point into a discussion of perspective and value.
What better way to start us off, than to delve into fee-for-service (FFS) payment model; a healthcare reimbursement structure, which has for over fifty years generated results matching perfectly with its design.
FFS removed much of the risk out of expectations for payment, for both the patient and provider. This allowed for greater consumer access in becoming patients for physician care and hospitalization services. Moreover, it furthered specialization within the medical profession, with accompanying growth in the drug and health services health sector industries.
But this growth occurred outside the normal confines of a consumer-based market. One which circumvented the expected free market industry forces of pricing and quality – and the ability for consumers to both impact and benefit from normal product and service business competition.
This has eventually come back to bite us hard. Detrimental effects including unchecked high costs, skyrocketing prices for care, coverage, and drugs. Additionally, healthcare companies have no clear incentive to improve the quality of care outcomes, or bear accountability for any success or shortfall.
IN THE BEGINNING…
Some talk about the 1960’s (pre-Medicare) being a ‘Golden Age’ for health care. A then practicing Dr. Ron Paul noted, “It worked rather well, and there was nobody out in the street suffering with no medical care.”
Politics aside, nothing could be further from the truth. Rosemary Stevens, a historian and sociologist at the University of Pennsylvania, wrote :
“In the early 1960s, the choices for uninsured elderly patients needing hospital service were to spend their savings, rely on funding from their children, seek welfare (and the social stigma this carried), hope for charity from the hospitals or avoid care altogether.” (1)
Back in 1964, the Social Security Administration published a study known as the ‘Survey of the Aged’. It focused solely on Americans 65 and older, concluding:
“The cost of medical care is high for the aged, principally for those requiring hospital care. Many aged persons never recover from the economic effects of a single hospital episode….even for the insured, there is no present guarantee against dependency in old age caused by catastrophic medical expenses.”
They mention those covered by insurance because in that time, health insurance often did not cover the full cost of care services.
In fact, a 1963 general population health survey gave people a list of symptoms and asked whether they had been able [to afford]to see a physician about them. This study shared by Ronald Andersen, an emeritus professor of health services and sociology at the UCLA School of Public Health
Among those who reported NOT seeing a physician (symptom – percent):
“Pains in the heart” – 25 percent; “unexpected bleeding”- 34 percent; “shortness of breath” – 35 percent; “abdominal pains” – 31 percent; “repeated vomiting”- 40 percent; and “diarrhea for four or five days” – 38 percent. (2)
IT TAKES AN ECONOMIST
In 1963, a fast-rising economist named Kenneth Arrow was sought after for his neo-classical, theoretical efforts. He published groundbreaking work on competitive equilibrium as the foundation for then modern economic thinking.
That same year he was approached by the politically powerful Ford Foundation to examine medical markets. This was a part of the foundation’s larger effort to tap policy areas with substantial public-private overlap…such as health, education, and welfare.
Arrow had no background in health care or health insurance services. Yet he wrote a paper entitled, “Uncertainty and the Welfare Economics of Medicare Care.” Fifty years later, it remained the second most popular referenced work in healthcare economics.
Arrow sat on President Kennedy’s Council of Economic Advisers, and later go on to receive a Nobel prize in economics, for non-healthcare related work.
In this landmark paper, Arrow explained that the market for medical care was unique because [unlike normal consumer markets]outsiders could not judge the quantity or quality of services provided. He concluded, “behavior expected of sellers of medical care is different from that of business men in general.”
Arrow argued that patients had to implicitly trust doctors, with the presumption that their altruistic instincts and actions would be placed before their personal motives. Moreover, that the delivery of health care deviates from a normal free market, and such deviation could and should only be corrected by government intervention.
All this culminated in a wholehearted adoption by government healthcare policy creators that free market forces couldn’t and wouldn’t work for health care. These conclusions led to, on July 30, 1965, establishing Title XVIII and Title XIX of The Social Security Act – creating the entities known as Medicare and Medicaid.
As a historical point, the very first Medicare card was issued to its very first recipient – former President Harry S. Truman. The total cost was $3 per month/per member for both Part A and Part B coverage – and there was no secondary coverage.
A major effort was underway to sign up the country’s seniors – and it worked. Of the 19 million seniors eligible for Medicare, a stunning 93 percent enrolled by the summer of 1966.
It was widely believed that the $10 Billion starting budget and the growing coffers of the Social Security Administration would more than cover expected growth for the new health program.
It should be made clear that as far back as the early 1930’s, the American Medical Association (AMA) was the biggest detractor against any type of health insurance. It’s staunch opposition based on grounds that “no third party must be permitted to come between the patient and his physician in any medical relation.”
That same mindset, which intermingled the financial and the clinical aspects of health care, was front and center in the 1960’s. A time where decades of healthcare expansion had clearly outpaced the affordability of care, and social program change was at the forefront of President Lyndon Johnson’s Great Society.
Knowing the AMA’s obvious opposition to Medicare and Medicaid, the government wanted to make sure that they had the trust and buy-in from the organization and its then-significant membership representation (70% of all doctors).
For this reason, the Social Security Administration’s Bureau of Health (forerunner to HCFA) decided to pay physicians and hospitals on a profile of fees deemed “reasonable and necessary.” They also permitted physicians and hospitals to directly bill the newly created payer for services rendered.
Additionally, doctors did not have to accept Medicare’s fee as payment in full (i.e., “take assignment”) for any individual patient. With professional self-control as the sole control, the rate of increase in doctors’ fees doubled. Some even charged Medicare up to four times what they accepted from commercial carriers.
HEALTHCARE COSTS, PRICING, and PERSPECTIVES ON VALUE
Fast forward to 2017.
Average industry costs in the U.S. have risen eight times from their 1950 levels. While healthcare costs rose a mind-numbing 274 times. Public spending consumes 27% and 30-40% of federal and state budgets. Medical bills are the number one reason for bankruptcy, while 46% of Americans now forego needed care. (3)
Fee-for-service and its results have been widely accepted as broken and unsustainable for the health system. Hence the triple aim – to bring down costs, increase quality of care, improve patient satisfaction…and improve care coordination. And the ever-increasing cherry on top, through fixing large levels of physician and care staff burnout.
Okay everyone…that said, we’re all onboard the value-based care train. Let’s roll!
Not so fast.
This week’s news on putting the brakes on CMS bundle programs just hit; and it tells me quite a bit.
No, it doesn’t make Secretary Tom Price, CMS leader Seema Verma and the Republican administration evil and uncaring to America’s masses. On the contrary, I see it revealing a tremendously hidden flaw in our healthcare system.
That is, the essential needs of the healthcare system and the essential needs of healthcare businesses are opposed. While many providers want to see value-based care work – they cannot support it, if it would ‘trump’ their own values for sustainable profit.
NOTE: This is a point that I cannot make strongly enough. Hospitals, health systems, providers, payers, and even drug companies certainly have caring motives and good-hearted people leading and working for them. Many of them are actively working on, and succeeding with value-based care initiatives and integrations, such as PCMHs and ACOs.
I have many colleagues and friends in this space. To think of them otherwise, would be a tremendous disservice and a mental misstep.
However, the primary goal of any for-profit company is sustaining growth in profit. That is a major value for them.
This is true in all business sectors – and healthcare is no different. Especially if that company has public shareholders. It’s also true in the case of private or even non-profit healthcare provider companies, who must continue to generate numbers in the black, allowing them to gain and retain top-level leadership, administrative, and clinical talent.
Value-based care is incredible noble and desperately needed. But look at the history and the actions:
Did a majority of providers ever create or support patient portals, mobile health applications, and a desire to obtain regular patient generated health data?
Did a majority of providers ever make it a major priority to engage patients and make patient experience an operation worth investing into heavily? Even hiring leadership around it?
No. The majority of providers didn’t – UNTIL the use of portals, better monitoring of patients remotely, and patient satisfaction surveys attached themselves into the provider’s reimbursement and profit potential.
Once value based care, its outcome and satisfaction mandates and bonuses became important to the business and what its primary value was – then these facets became important and necessary to share with patients. This is precisely why so many providers are scrambling to find better patient portal numbers and are hiring patient engagement teams/consultants/vendors.
They didn’t want to spend the money…they HAD to spend the money.
Get it? It’s not evil…it’s not mean…and I’m not saying that healthcare providers, payers, and drug companies don’t care about helping their customers and patients.
The simple fact is that as a business, their core value is in profit growth and remaining competitive to stay in business. If they can do that WHILE engaging in value-based care, then we will see less push back and more willing changes toward adoption.
Here’s another great example that few are noticing. I’ve spoken about it on my healthcare leader podcast.
Everyone is talking about lowering costs in healthcare – drugs, services, and coverage. Presumably lowering costs will help payers successfully transition into value-based reimbursement, which would certainly be lower than today’s FFS model.
Hence, the profit margins for providers would remain similar…or perhaps improved, depending on many factors, including their risk management.
You know what you don’t ever hear with all the talk, politics, and articles on reducing healthcare costs?
That lowering of these costs will in part or whole, be passed down from healthcare businesses to their valued customers and patients, in the form of lower pricing.
This is what happens when you remove the full force of consumerism from an entire industry segment. I will give providers credit…they are using price transparency, quality of care, and patient experience. Everything except lowering prices…which today is the biggest value to consumers and patients (See West report below).
A non-consumeristic market worked for Kenneth Arrow and the federal government in the 1960’s – when they made the assumption of reasonable interests aligning for the good of patients. However, I think we can safely say that we’ve put that myth to bed.
Without the necessary free market forces in place, healthcare consumers eventually got hit with hyper-inflated costs, higher prices, and lower levels of quality.
Why would providers, payers or drug companies ever want to willingly change this…unless they truly were putting the consumer and patient at the center?
Drug companies, health providers, and third party payers grow their costs, add pricing margin to their true customer (the payer) for continuous profitability – and everyone passes the costs and buffers down the line. That line has always ended, and still ends with taxpayer, individual, and business healthcare consumers.
Again, I would fault the system and our politicians for not having enough spine to put a stop to this far sooner – but I wouldn’t blame the players of healthcare. As discussed earlier, they were just fulfilling what they were built to do…and what this system allowed for.
Now we must ask ourselves if our political leaders in each state and Washington can truly solve healthcare’s crisis. Or are they simply re-shifting monies and allowing health payers to continually serve the same role and activity that brought us here?
A FUTURE OF PULLBACK
In fact, I believe that health care is eventually going to hit a bubble.
If that shocks you, then I would strongly suggest that you take a step back from what may be a mouth full of confirmation bias and swallow a healthy dose of economic reality.
Overheating business segments eventually have to digest – especially when they are unsustainable and carry significant levels of consumer debt. This one has been going strong for 50+ years with plenty of cost can-kicking. Those costs ended up on the steps of companies, taxpayers, and individuals that have continually footed the bill, with no ability to affect pricing or quality change.
We certainly saw such overheating with the housing bubble, and now we see mounting medical debt with consumers, as well as pricing that cannot remain at current levels. A.I. and automation is also entering the picture, which as an extension of capitalistic society and business models, serves as a necessary extension to lower cost, improve quality, and scalability.
Salaries and benefits are the two largest costs to any business. More than 25% of all hospital costs come from administration, which carries far too much human processes and system limitation. As an example, Duke Hospital has 900 beds and 1,500 billing clerks.
Okay, I’ll grant you that doctors and nurses aren’t going to be replaced by robots (vs. augmentation)…but if the job can be done faster, more accurately, with far less cost and perhaps even greater patient satisfaction, why not automate more of the back-office administration (registration, claims, billing)?
That goes double, especially for drug manufacturers. I not only want to see drastic surges in efficiency and decreases in cost, but I want to see an extensive breakdown of where all those R&D monies go. The ones they rely upon so heavily to justify the pricing – especially of specialty drugs.
I’m not trying to be glib or belittle those hard-working, dedicated employees with jobs. These people matter, but we’re in a crisis here.
It is not the core role of companies to keep people employed, it is to make a growing, sustainable profit so the company can remain competitive and stay in business. If they can do that with less risk, better quality, lower cost, and greater customer/patient satisfaction, then it’s a logical extension of business growth.
Separately, one of the latest concerns I have is a new consumer report released two days ago from CNBC. It shows that for the first time in a long time, the share price of consumer giant Amazon, as well as the XRT (retail ETF) are both going down. (see video below)
Even though a recent report on consumer sentiment and a confidence study from University of Michigan have come in better than expected, the fact remains that a recent New York Fed report puts consumer debt levels at all-time highs, eclipsing even 2008 levels.
Couple this from a soon-to-be released report from West on Optimizing Revenue. The statistics are sobering, especially surrounding healthcare costs and pricing (4) :
- 79% of patients say affordability is the biggest problem with healthcare
- 93% of healthcare consumers believe healthcare is too expensive
- 67% of patients say their financial situation makes it difficult to pay medical bills on time
- 95% of providers recognize that patients may delay bill payments because of their financial situation
While many healthcare providers and payers have introduced technology and the means to start effecting value-based care…few are considering that pricing is another strong value that should be tapped, rather than avoided. This comes from a strategy that benefits from the current payment model, while also capturing the underlying, future swell of greater consumer forces, as patient payment responsibility is not dropping down anytime soon.
And when I say pricing…I don’t mean just transparency in pricing.
I mean working on ways to make care, drugs, and coverage less expensive – while concurrently gaining greater health consumer loyalty, patient acquisition, increased medication adherence, data-sharing responsibility, and greater levels of personal care management.
AN OPPORTUNITY TO ACQUIRE AND INSPIRE PATIENTS
Whether we have a shift to value-based now or later, there is a clear opportunity for health systems, providers, and the trusted vendors/advisors that call upon these companies. Bold, efficient expansion is the right play here; and it works in FFS, value-based care, or a blend of both.
Over and above tackling common triple aim endeavors, MACRA, cybersecurity, re-admissions, and patient risk mitigation, I’m talking about leaders willing to expand their vision with an active hunger to compete for, and acquire more pools of patients. One which recognizes for the first time, that patients and consumers are, in true free market fashion, meant to have their loyalty won.
There are many tactics to support this type of growth strategy including investing resources in: telehealth, technologies for increasing operational, administrative, and care efficiency, smart consumer/patient marketing & service pool growth, personalized care, integrating coverage and direct contracting with self-pay organizations, as well as strategic M&A activity.
I wrote about this in my last featured piece on leadership and consumerism, which gained strong support from many health provider and health tech vendor senior leaders. Some wrote and/or spoke to me personally and privately…and I thank them for their candor.
Many healthcare experts, politicians, and pundits talk about shifting our system from volume to value. Health providers have an incredible opportunity to seize upon the shifting dynamics today, and capture greater patient service market share – while other providers wait around for change.
This is in fact a volume play to win the loyal hearts, minds, and actions of many millions who want and need better care.
Over time, the smartest and strongest growing providers will eventually be able to transfer some of their lower costs and increased efficiency to eventually crack the longstanding taboo of lowering prices to more affordable levels.
When the value of truly affordable and quality care hits the tired and financially weary health consumers and patients, coupled with an empathetic outreach, you’ll have closer multi-party value alignment. It will result in a greater positive feedback loop to acquire and engage more consumers and patients.
Healthcare will set a new series of roots, perhaps into a blend between safety net third party coverage, and utilizing consumerism forces for strong growth.
While other providers wait for politicians and payers to determine their course…smart providers will benefit from having set their own; and in riding the time-tested winds of a true consumer and patient-centered vision. One that recognizes not only the easy, but often the difficult value-meets the public has long waited for.
DRIVING IT HOME
We’ve come a long way since 1966 and the first fee-for-service program. A half century of winners, losers, accomplishments, mistakes, monies gained, and monies lost. All the while, many different players in healthcare made all levels and sizes of decisions, based on what they determined of value and worth.
Our healthcare system and its underlying industry players may be entering perhaps the largest game of financial music chairs in the history of the United States. Some players will to find a chair when the music stops. Others may find remnants of their old chair. Some will see only the bare floor…while others who boldly venture into new opportunity, could find themselves with their chair…and others.
This is a time for growth, boldness, and delivering scalable, efficient, and well-coordinated care. Meeting health consumers and patients at their needs and values, with the ’empathetic flexibility’ to recognize how to gain their loyalty and activation.
As more Americans suffer with a greater shift of financial burden, it reminds me in many ways about the story of the boy and the starfish. All the health consumers and patients, baking on a hot beach, having their health and quality of life be less than it could and should be.
These individuals need to be reached out to, have their loyalty competed for, and be able to extend out their minds, hearts, trust and action. A world of expanding reach and service, as providers help deliver them back into the cool ocean waters of better health and life.
As I continue to review opportunities to lead growth for health systems, hospitals, or the health vendors who serve them, I look forward to finding myself and my future organization knee deep in that ocean. One full of cool, refreshing care, genuine empathy; and the waves of care we will help deliver to those consumers and patients whose bodies thirst to come back into the healthy, healing water they once knew.