Negawatts and Negabeds

The last months have brought home to the American public the critical importance of markets and how they are structured. So as President-elect Obama looks beyond finance to two of the other major challenges we face -- health care and energy -- he would do well to consider the following riddle:

Q: How is a kilowatt-hour of electricity like a day in the hospital?

A: Nobody wants either.

That's easy to see for the kilowatt-hour: it has absolutely no intrinsic value. We care about electricity only because it gives us things we want, like hot showers and cold beer. With high fuel prices and a warming planet, the less energy we use to get what we want, the better.

A day in the hospital is the same: it has absolutely no intrinsic value. We care about it only because -- only if -- it does something else for us, such as relieve our pain, restore our health, lengthen our life, or improve our death. The fewer days we spend in the hospital to get what we really want, the better. After all, unnecessary health care has some nasty side effects, like wasting our time, exposing us to infections, warping families' lives and ruining the public treasury.

In both cases, it is the end that matters, not the means.

If we want to achieve our ends with fewer resources, then why do we create market structures that link profits directly to volume? Rewarding energy providers for delivering more kilowatt-hours or hospitals for putting more patients in beds, as we do now, drives both to try to increase use, rather than to find more efficient ways to achieve the end-use goals of cold beer and good health.

This insight has begun to transform energy markets from California to Massachusetts; it could do the same for health care.

In energy, fast spreading market and regulatory innovations are rewarding "negawatts" (saved electricity) as highly as megawatts. With support from utility companies, environmental groups, and firms like WalMart, these market reforms have three key ingredients. First, utility company profits must be "decoupled" from the volume of energy they produce, allowing companies to survive even as total energy production falls. Second, utilities are given a share of savings they achieve by raising end-use efficiency, rewarding them for helping consumers improve efficiency. Third, regulators monitor performance to make sure that they don't profit by skimping on needed services.

Decoupling works. California has held per-capita electricity use flat for 30 years while per-capita real income rose 79%. The approach: help consumers and businesses change their energy behavior, create greater efficiency in the distribution and delivery processes, build alternative sources of energy, and partner with community leaders.

So what does this have to do with health care?

We know that it is possible to achieve equal or better health outcomes with much less money than we spend on health care today. For example, health care spending would fall by 30% or more if we simply adopted nationally the patterns of practice already being used in the highest performing one-fifth of our regions. Our best practices reduce unnecessary hospital stays (create "negabeds") and eliminate unnecessary physician visits and diagnostic tests.

How can we encourage interest in such "end use efficiency" among health care providers?

Some models of health care payment reform head exactly in that direction. Traditional health maintenance organizations, for example, paid on a per-capita basis, effectively decouple payment from utilization. Rochester, NY used regional planning in the early 1980s to slow hospital spending growth; and both Vermont and the Medicare program are experimenting with comprehensive shared-savings payment models.

Consumers will worry about incentives that could reward providers for withholding needed care. Rewarding end-use efficiency in health care requires that we measure how well our health care systems achieve what we want: health and resilience, better function, and improved quality of life, without skimping. Measurements like that are already in use routinely in some health care systems, like the Geisinger Health System (in Pennsylvania) and Dartmouth-Hitchcock Medical Center (in New Hampshire). It is now feasible to safeguard consumers' interests while we decouple health care profits from volume.

Most hospital leaders today would find ludicrous the suggestion that they should seek to empty their beds. The current payment system has them trapped; to thrive, they need to grow and fill their beds with profitable patients. Construction cranes abound on medical campuses. In this environment, the last thing a "smart" hospital can do today is to make its own services unnecessary. That could get the CEO fired.

These perverse incentives need to change. Policy and payment should reward providers for keeping people healthy and restoring them to function rather than for filling hospitals and expanding services. We suspect that America's health care leaders -- doctors and hospital administrators -- would prefer to play a more sensible game. Change the rules, decouple profits from volume, reward better health achieved through an elegant frugality of means, and these same leaders can thrive under those new rules. Why make ruinous overuse their only route to success?

Imagine if U.S. per-capita health care spending were flat for the next 30 years.

Comments

[IGNSTHMD]

I'm not very educated on this subject, but your last statement seems intriguing in that it doesn't quite mirror your reference to California's energy spending ratio. past that I have a hard time understanding how a more complex system of organization will "benefit" The health care system as it stands because as I understand it expidiation holds sway on most captialistic structures. and there are the under-insured to consider; collective medical spending as your final statement implies (to me) would lead to a number of the previously not insured receiving treatment, in my view this would create an increase in healthcare provisions just for the increase in hospital visits. I was also wondering what challeges stand in the way of accomplishing these goals; I mean if they should be common practice why aren't they? where are the intrinsic compliance catalysts. any insight would be helpful.

[EyesWideOpenAZ]

I am always impressed in this country at the amount of brainpower that is used for what Dr. Berwick knows well as "work-arounds". They are interesting proposals and might provide some improvements to our current healthcare disaster zone and employ a lot of MBAs and economists to figure out the pricing structures. I even enjoy thinking about them much in the way I enjoy solving a well-constructed murder mystery before the author declares it solved. Makes for good bedtime reading but really does nothing for underlying structural issues involved that have less to do with pricing and more to do with seeing healthcare as best delivered using a capitalistic, private enterprise driven model.
Dr. Berwick's work has long suggested we look around us to see what works and adopt those "best practices" ourselves. Seems like a short step from that to looking at our international peers where dramatically better healthcare/wellness outcomes are already being delivered at half the US cost . . . or are we going to insist that the emperor's clothes still exist? I guarantee very few of them have the labyrhinthine payment structures we currently accept as necessary.

[Mark Bartosik]

Absolutely!

One thing you need to know in a market is how much something costs. Do you know how many KWh a satellite decoder is using while on standby ("off"), it could easily be 60W (x24x365 is 525 KWh or enough to power a typical house for 21 days). For markets to work we need information.
We need is energy labels on most (if not all) electronic­s/electric­al devices.

So how can we get things changed?
Visit http://change.gov/newsroom/entry/open_for_questions_round_two/

I just submitted the following question a view hours ago, and already have 133 votes for it, if you agree please vote for it too.

"Energy labeling: Will you extend federal rules to require the majority of electronic devices to be labeled with the amount of electricity they use. This has already been a huge success with refrigerators, and will help focus public debate."

[tompoe]

Seems to me, if we move to single payer, reallocate profits to third party payers, everyone benefits. Third party payers can reallocate their marketing to other pursuits, and know that lives and health of former customers are enhanced. Or, we can continue to place profits above our health and well-being.

[sheila]

all "decoupling's" done is shift the disincentives to RATEPAYERS, because we see a much lesser reduction in our power bills if we consume less power because a lesser percentage of our power bills are based on consumption. if that's "progress," i wonder what "failure" would look like? never mind, we are seeing it now, with Big Energy killing off our wilderness for monopolistic control over renewables, while load centers bake and sprawl and are held hostage. ugh!

having utilities in charge of consumer-side conservation incentives and ratepayer-owned solar generation has meant failure for both. These should be state programs. efficiency has improved exponentially but consumption has remained flat, which means we are getting nowhere. seriously, do you think utilities will leave if we require them to participate in clean, democratic energy distribution and generation? why can't they become distribution networks instead of generation monopolies?

this pathetic pandering to utility profiteering is the root of all our energy problems. if we had German-style feed in tariffs in this country, we would be installing nearly 8,000 MW of ratepayer-owned rooftop solar in 2009 instead of in the low hundreds because policies there are geared toward democratic, free market energy production, not towards bolstering a failing model of utility monopolies in a sun and wind era.

let's get serious. time to de-sanctify utility profit margins and start working harder on point of use generation, owned by US and compensated fairly.

[joebhed]

Or, turn all utilities into electric cooperatives, and accomplish the same result.

[JScott]

Or non profit muni utilities like LADWP, good reliability and lower rates, same for Cities of Burbank, Glendale, Anaheim, Riverside, Azusa, Colton and Banning. But NOT true for San Diego Gas & Electric, one of the more poorly run investor owned utilities.