Release 0.9: Washing Health Care Clean

Health care is too expensive, and the problem is not who pays for it. It's what they pay for.

Just imagine that we paid for housecleaning the way we pay for health care -- by load of laundry, for example. And that homeowners weren't generally responsible for the costs. It would change everything. Housekeepers would suddenly respond to a whole different set of incentives. First of all, they'd do a lot of laundry. Every time you left a shirt on a chair -- whoosh, into the washer! They would probably encourage you to get washable rugs instead of carpets -- for easier cleaning. The kids... well, the housekeepers would be happy to see the kids track dirt into the house -- more laundry to do!

Pretty soon the housekeepers would notice that there's too much laundry to do it at home -- and so many special kinds of cleaning possible -- that they would start sending it out to commercial services. Next thing you know, you'd discover that your housekeeper has an interest in the local laundry, and a consulting contract with a detergent maker...

Sounds like health care, doesn't it?

So how do we solve it? We don't throw out the insurance companies and private health providers, but we start paying them to keep us healthy -- not to perform (or pay for) procedures. Then they can make money not on the volume of care, but on the difference between what we pay them and the cost of keeping us healthy (including necessary procedures but also low-cost prevention measures). To be sure, that will require a lot of record-keeping and actuarial tables and predictions and comparisons of outcomes to predictions and some oversight to ensure that the cost savings come from keeping us healthy, not from denying care. But we're going to do all this record-keeping and monitoring anyway (including consumer feedback), so let's do it in a system where the incentives of the payers and the patients are aligned.

There are some good examples out there, and they come in two overlapping forms. The first are Integrated Delivery Networks (or IDNs), in which an entity comprises all the major cost centers including primary care physicians, specialists, hospitals, and imaging centers. These include Mayo, Lahey, Kaiser Permanente and Cleveland Clinic. They typically employ physicians on salary and use systems-design principles to enable doctors to enjoy more of a "9-to-5" existence. Many of them favor long-term relationships with patients and focus on their health rather than charging for instances of care.

The second form is in an emerging crop of new health maintenance organizations (or HMOs). These organizations deliver the coordinated care of the IDN in the open, heterogeneous marketplace. Call them commodity concierges. They use contracts that pay per-head (capitation) rather than per-procedure, and make heavy use of information technology to weave together a "virtual IDN" comprised of primary-care physician group practices, specialists and hospitals. Their contracts reward the primary-care physicians for leading and coordinating prevention and management of chronic conditions as well as care, resulting in more health (as opposed to just care).

The HMOs got a terrible reputation among policy people and consumers in the 80's and 90's for two principal reasons. First, neither academia nor the government had developed a practical risk adjustment system prior to the work of NancyAnn DeParle at Health and Human Services that was at the core of the original Medicare Advantage model produced under Clinton (in a second try at health care reform!) in 1999. Without risk adjustment, which would give the HMO more money to fund the care of a chronic patient and less for the septuagenarian marathoner (at a zero-sum impact to society at large), the HMOs quite sensibly served only the lean and healthy (since they were paid the same for every patient). Thus, early HMOs went to great and unethical lengths to reject diabetics, the overweight, smokers, cancer patients, etc.

Once you set up a system that properly compensates an IDN or HMO for taking care of sicker people, you can fix that problem. Unfortunately, the re-design of Medicare Advantage enacted by the Republican congress in the Medicare Modernization Act of 2003 went too far. It adopted the Clinton/DeParle risk-adjustment model but gave the HMOs an additional average 14 percent overpayment above the government's own per-person cost of care, presumably to attract more consumers to the managed-care model. This 14 percent was partly used to fund attractive additional benefits to base Medicare, such as preventive vision and dental care -- which stuck (and sticks) in the craw of Democrats who think taxpayers should not subsidize better benefits via private insurance than they can get through plain old Medicare. But little of it was spent on creative, preventive efforts rather than just more care.

That has led to the current conundrum: Medicare Advantage is probably the best model we have for what Obama wants, but it's poison to mention until the 14 percent premium is eliminated. Nonetheless, an innovative crop of insurers and clinicians are using MA as the vehicle to fund coordinated, technology-enabled, evidence-based care, and many believe they will be able to do so even when they are paid at parity with traditional Medicare. They provide risk-adjusted subsidies for Medicare patients who prefer to get their health care from a private HMO such as Healthspring or Essence Healthcare; they deal with the inequities of fate (or behavior) that make some people sicker and costlier to care for than others, yet still allow for individual choice. Around 10 million seniors have chosen MA plans, out of more than 40 million overall on the Medicare rolls.

Wash the system clean!

It's clear that government can and should get more involved in ensuring that everyone can get appropriate care and that the care should be effective. Insurance coverage is not the issue; it's what the insurance actually delivers in the way of health. Nowadays, there is more data available to manage risk adjustment, with increasing regulation and the rise of "evidence-based medicine." So let's use all the data to enhance the market with proper incentives, rather than to create a data-bound bureaucracy.

We could do this right easily enough. We need to pay for health and we need to find a way to get insurers and providers to think longer-term by compensating them for keeping healthy populations (not individuals who move from place to place) over time. A different alignment of incentives won't solve every problem - including individuals' own propensity to ruin their own health through eating and drinking too much and exercising too little - but it would go a long way to reversing the perverse rise in costs that has done little to improve the nation's health.

Esther Dyson is involved with a variety of health-care companies, none of them an insurer or general health-care provider. They include 23andMe, HealthDataRights.org, Organized Wisdom, PatientsLikeMe, PatientsKnowBest, ReliefInsite and Voxiva.

Comments

[martinspringfield]

"Proper incentives" - seriously? The system works perfectly for health insurance companies NOW. If they were making hard drives or mobile phones we'd be cheering them on. But their "product" is denying healthcare, not providing it; no incentive is going to outweigh that fact.

Healthcare cannot be subjected to the same market forces that drive commodities for many reasons, but one principal reason is that it's not based on consumer demand; demand is created in many if not most cases by the producer, and if not by the producer then by "acts of God."

Nor is healthcare like other forms of insurance. You WILL need your health insurance; you WILL use it. The only analogues that make sense are utilities. We all pay to have power and water and mass transit and we all benefit from having these readily available.

Single payer is proven worldwide. We tried "market" experiments starting in the 1970s with Nixon's HMO schemes and since then we've seen healthcare as a share of GDP go from 7% to 17%, from on-par with the rest of the world to the highest in the world. And our healthcare coverage has declined from world leader to world travesty. It's time to face facts and admit that healthcare is one of those few services, like police and fire and water and electricity (coming from California, Ms. Dyson surely must appreciate the L.A.'s energy solution to Enron's), where government really does do a better job than supposed "markets".

[martinspringfield]

Or... we could choose NOT to try all these untested, illogical schemes based on the idea that health insurance companies would "pay to keep us healthy" - something they have demonstrated for 40 years doesn't work for them - and just see what they do everywhere else in the world where healthcare is not destroying industry, say France, GB, New Zealand, Germany, and yes, the undeservedly maligned Canada.

Even China swallowed its millenia-old pride and decided to try what worked: free market, Western industry. American Exceptionalism didn't work in foreign policy for Bush and it hasn't worked with regard to healthcare since Reagan, so can we swallow our pride and stop destroying what's left of our industrial base and fix this mess with a proven solution?

[lastpost]

We have the need. We have the ingenuity. We have the expertise. We have the technology. We have the ability.
What we do not have, is the will.

[JanusDaniels]

"Health care is too expensive, and the problem is not who pays for it. It's what they pay for."
No, the problem is who pays for it, since the insurers refuse to pay their commitments when we need the money.
"... houseclean­ing... Sounds like health care, doesn't it?"
No, it doesn't.
"... The HMOs got a terrible reputation among policy people and consumers in the 80's and 90's..."
Since the insurers refuse to pay their commitments when... Oh, why bother.
Ms. Dyson, you have a well deserved reputation in your field. I feel confident that you can contribute to this discussion after doing your research.
You can start here:
Wendell Potter on Profits Before Patients - Bill Moyers Journal - PBS
"Last month, testimony in front of the U.S. Senate... a former health insurance insider... made news... the industry scrambled to do damage control... corrupted by Wall Street expectations and greed... insurers have every incentive to deny coverage — every dollar they don't pay out to a claim is a dollar they can add to their profits, and Wall Street investors demand they pay out less every year."
http://www.pbs.org/moyers/journal/07102009/profile.html

[CynAnne]

You can also watch Wendell Potter's interview from last night: http://www.msnbc.msn.com/id/3036677/#32484421 ..how those executives can sleep at night, knowing the pain and suffering their callousness was bound to cause, is beyond me...

[bgoodric]

No, the housecleaning analogy doesn't sound like healthcare at all. Healthcare involves needs, not just markets. The "wash it clean" analogy is even worse. If you're willing to get as complicated as the stats you mention, what has cleanliness to do with it? And why are you opposed to letting a government program set it up? THAT would be accountable to us, the public, the patients, in a way NO private program is.

You want to "enhance the market with proper incentives, rather than to create a data-bound bureaucrac­y." Why the hell should private corporations be better than a government program? Why are you assuming that that would "data-bound" and the corporations wouldn't be? The last few decades are overwhelming evidence that private corporations are far less trustworthy and far less efficient than Medicare.

We don't need more funky bad arguments distracting us from what we need to fight for now. We need a truly public Public Option. Please support that, Ms. Dyson, or at least be honest that you have a superstitious reverence for the noxious Invisible Hand. Then we'd know not to waste our time reading your columns.

[ProgressiveVoice]

People are not cars. Yes, a car, if tuned up regularly, oil changes, immediate service if any problems are indicated, yes, a car can theoretically run forever.

My brother-in-law exercised, maintained a healthy weight, ate low on the food chain - much of it organic from his own garden - in short, everything the medical community said to do to maintain his health. He died of colo-rectal cancer at the age of 48.

[Mixpixlix]

People have short memories. Wellness was all the rage in the 90s. And guess what...it didn't take long for the insurance companies to balk at paying "for nothing." When the physical exams and other procedures found the person to be in good health.

There's lots of talk of prevention but our collective mind set needs to be reshaped. We need to rethink how we see health (wellness) and medical (sick) care in this society and really recognize and accept that "paying for nothing" might be the smartest thing we've ever done.

[martinspringfield]

Wellness was the rage in the 70s and 80s too. This is trotted out every couple of years as if it were some great new concept. It appeals to the Calvinist side of the American psyche.

[WilliePilgrim]

Hmmm. I never thought of it that way, possibly because it's so complex that unless one has actually worked with the system and know its genesis, it's not obvious and/or I'm not a genius who can follow the intricacies on which success or failure...­or bankruptcy ride...whi­ch is part of the problem with the pubic's perception of that seething mass of legislation and lobbying which is so inter-twined it cant help but resembel a pit of vipers.
I don't know if it's true but I've heard it said that in ancient China doctors were paid when the patient got better, which sounds pretty good to me, and applying that concept to populations instead of the individual's circumstances seems like a smart choice, but it might not be an easy sell to a buying public whose primary suspicions of what's wrong with everything is somehow related to a mindless system that is everywhere and unresponsive to the individual when they need it fast or in just a certain way. The inertia of large systems is scarey without some kind of human scale apparatus at the interface, like a friendly clinic in one's local business. I'm starting to see that in my local supermarket, and I hear it's coming to Walmart. Your dad suggest gene tech will be like computers via the home user and hobbyists. it will be among those who are concocting home cures for cancer or making their own stem cells to cure diabetes at home.

[notb observer]

Great article ! I think there have been far too many red herrings and other absurd distractions in this reform non-debate, and we've lost track of the important issues and questions. I suspect this is exactly what the health lobby was aiming for anyway.
Affordable universal health care must be impossible if we haven't managed to do it.... Right ?!
The fact that every advanced democracy has had various flavors of this concept in place for decades is simply a fluke... Right ?! It's simply impossible to make it work... Right ?! I mean, maybe if these other countries would just throw twice as much money per capita at the problem, they would see how unaffordable it really is... Right ?! If they just made an honest effort to ration their services, they'd know it's wrong to have Death Panels... Right ?!
Why is it always up to us to fix other country's problems ?! Fixing the health care systems of France, Great Britain, Canada and the rest is simply not in our national interest ! Let them take care of their own problems !

[feo]

The premise is flawed. So far, at least, no one has suggested that we "throw out the insurance companies and private health providers.­" If these entities were so great we wouldn't have 50 million uninsured in the US.

[WilliamBradford]

I don't understand this line of "reasoning". There are millions of people without automobiles in the US, does that mean that car companies are flawed?

Health Insurance is a product that some people want and/or can afford. It doesn't make sense to somehow imply that insurance companies have an obligation to sell their product to everyone.

[martinspringfield]

Health insurance is simply no longer affordable by most Americans. For a family of four you are looking at $11,000 per year. If the average income is $50,000 that means you simply cannot afford it, unless you choose to go without food, clothing, housing, or some other essential. If you are young and single, possibly. Even then it will cost you several hundred dollars a year.

This is a national security issue, because it is wrecking American business. Our entire economy is threatened by a system we cling to for religious and not practical reasons.

[LindaSherman]

Emphasizing preventative care and rewarding people for doing things that keep themselves healthy is an excellent approach. My coverage should be cheap.

[pdxcarl]

LindaSherman - your coverage right might be cheap right up until you get in that accident or come down with cancer.

[martinspringfield]

That's the illusion. But all it takes is one accident, one pregnancy gone the slightest bit less than perfect, one bout of cancer and you might be royally screwed.