Wednesday, July 11, 2007

Costs, Only Consumers can Reduce Costs, Why Selling of Innovations and Consumer-Driven Care as Reform Measures is So Hard

I support innovations and consumer-driven care as effective measures to cut costs and reform care. For in the end, only cost-conscious consumers can contain costs. As long as third parties promise comprehensive care with hidden or unknown costs to the consumer, health inflation will roar. Consumer-driven care is beginning to have an impact (there are now nearly 300 consumer-driven organizations, and employers offering nearly 700 different high deductible plan premiums), but that impact is marginal in the larger scheme of coverage.

The political voice of consumer advocates is small. Proponents of universal coverage have a strong emotional argument combining pleas for compassion and equity. Unfortunately, as every reform minded politician and crusader for universal coverage now knows – from presidential candidates to governors of Massachusetts, California, Illinois, and Pennsylvania - you can’t reform care unless you first bring down costs, or you will overwhelm the Federal and State budgets. Superimposing single-payer on the present system will not work without first cutting costs.

No Quick Fix

There is, in short, no quick fix, at either the State or national level.(1) Because of their diversities and variation in the number of uninsured, and lack of resources, State-based universal coverage plans may not be the “laboratories of democracy” that will serve as models for national reform (2) In the reform process, reform experiences everywhere indicate you will alienate hospital, physician, health plan, business communities, and even those who are uninsured and don’t want to be obligated to pay for insurance. Participation of these parties is necessary for reform to succeed. When stakeholders’ oxen get gored, health reform may end up stillborn.

Innovation and Consumer-Participation Needed

Proposals to cut costs need innovation and consumer participation.. Some proposals to cut costs involve innovation and consumer-participation, some do not.

•Ban on smoking in public places

This is something government can do, but it isn’t innovative. Those 20% of consumers who still smoke have their own form of innovation. They smoke outside. Human behavior is like a balloon. Push it down from the top, and it will pop out elsewhere down below.

•Reduction in rates of hospitalization for controllable chronic diseases, such as diabetes, asthma, heart disease.

Innovations like telemedicine with home monitoring markedly reduce ER visits and hospital admissions. Home monitoring requires active patient participation, and chronically ill patients have shown they are up to the challenge.

•Expansion in nurses’ roles in disease management, telephonic and personal follow-up, and retail clinics.

These roles require innovative restructuring and decentralization of delivery systems. Consumers have responded positively to increased attention to their needs. Hands-on home care works especially well.

•Taxing revenues of hospitals, doctors, and small businesses to cover costs of universal coverage.

It doesn’t strike me as innovative to raise costs to cut costs In fact, this may be counterproductive. The response seems to be, “Not on my back and not in my business backyard.” Gore someone’s ox, and they will gore back.

•Reducing hospital infections and medical errors.

This is often innovative and takes the form of systematic, hospital-based educational and monitoring programs.

•Stopping health plans from excluding people with pre-existing coverage.

To health plans, this is punitive, not innovative.

•Expanding IT systems to cut costs by promoting efficiencies and including only those high-performance physicians and hospitals that are cost-effective.

So far these ideas, which have existed for at least five years, have mixed results.

Innovation Not Highlighted

Politicians behind government–sponsored, cost cutting measures are reluctant to highlight the role of innovators and consumers, perhaps because innovation distracts from politicians as the movers and shakers of reform. Besides, innovators are businessmen who do not have roots in government sector. Government officials tend to think of themselves of protectors of the sick, the elderly, and the poor from the private sector and do not believe consumers are capable of making intelligent health care decisions and prudently spending their own money.

Hard Sells – Hard Steps to Create Ecology of Innovation

Innovation and consumer-driven care are hard sells when it comes to reforming the system. This is true even though a culture of innovation is absolutely indispensable for the progress of the U, S in the global economy. (3) According to William Wulf, president of the National Academy of Engineering, America must step back and encourage innovation by

•Adjusting patent processes for quicker and more flexible acceptance of patents relating to information software, snippets of DNA, medical devices, and business processes. In health care, government rules and regulations are strangling the business processes needed to advance care.

•Changing intellectual property and copyright laws to accommodate the ubiquity needed to speed the spread of digital technologies by allowing copying of web pages, A web page "would have zero value if it hadn't been copied," Wulf said. "If it was just stuck on the hard drive of the server, it would have no utility whatsoever." The power of the Internet and search engines like Google are their ubiquity.

•Change tax policy to remove the "idiocy" of reviewing and renewing the credit on a year-to-year basis, Innovation requires systematic long term investment in research and brain power, not diversion of monies into non-innovative government policies.

•Change manufacturing policy to promote manufacturing in the U,S, .The United States has effectively "ceded manufacturing to low-wage countries," but that's "both dangerous and unnecessary,” Wulf says "I have real trouble with the notion of a robust economy that doesn't produce something, even if the something produced is ephemeral, like software. I just don't see an all-service economy."

Innovation Turn-Offs

A friend of mine, who works with corporate benefit officers, tells me minds automatically shut down when health care consumers hear the words “$ 2000 deductible.” Subsequent language about tax deferred income, more portable choices, free preventive services; savings for the employer simply falls on deaf words. Convincing health consumers to be responsible for their own care isn’t easy.

Regina Herzlinger, professor of business administration at Harvard Business School and godmother of consumer-driven care has written that health care innovation may be turned off because of these forces (4)

1.Friends and foes, often competitors, who help or destroy innovations through passive or active resistance.

2.Difficulties finding funding, the raising of which differs from other industries.

3.Policies and regulations, e.g., the Stark Laws and Certificate of Need, HIPPA regulations, and anti-trust lawyers which handicap and sometimes make impossible innovations.

4.The slow adoption of technologies, e.g. EMRs that make other industries more efficient and offer more convenience to customers but in health care are sometime blocked because of concerns about privacy and costs to doctors.

5. The slowness and inertia of consumers in transitioning to market-based care requiring their active participation and even partnerships with physicians.

5.The often unreasonable demands of health plans, consumers, and government that every innovation must be proven absolutely safe, cost-effective, and accountable.

Public Difficulties in Understanding Innovation

There is another factor as well – difficulty of the public in understanding how incremental innovations, – be they in the realms of technology, service, new delivery models, new types of practitioners, new forms of financing – or how an innovative economy can reform the overall system.

The public wants a universal “fix” to bring down costs, not piece-meal innovations – not matter how good, no matter if these innovations help the U.S. maintain its reputation as the “best” urgent system in the world. Innovations simply do not fit the mindset of those who yearn for an instant government mandated fix...

The concept of a market-driven system is simply much harder to grasp. It doesn’t lend itself to political sound bites. It is perceived to reward entrepreneurs, innovators, and businessmen rather than the public at large, the chief benefactors of innovation. By the way, I define a health care innovation as doing something quicker, better, more conveniently at a lower cost – whether or not government or the private sector initiates the innovation.

Add to these various obstacles the image, fostered by some, that the U.S. has a cruel health system. It is a system, they say, that drives people into bankruptcy while letting them bleed, even die in the streets. It is a system, driven by HMO denial of services in pursuit for profits that punishes the sick and rewards the greedy. It is capitalism at its worst, so say the progressives.

Universal care advocates believe all people everywhere are morally entitled to “free care.” These beliefs pose political, psychological, and financial barriers to market-based entrepreneurship and innovation because there are only so many resources to around in the public and private sectors, a fact which may account for a general lack of entrepreneurial and innovative activities in single-payer nations.

Market-based care, and consumer-driven care, depends on consumers making their own decisions, spending their money, and it depends on innovators and entrepreneurs coming up with ideas that save money, expand choices, and provide convenience.

But as with all things human and non-governmental, such care depends on persuasion not force. As such, it may fail to protect all, may let a few people fall through the cracks, and may provide an incomplete safety net.

It is an illusion, of course, that government systems provide a complete safety net, particularly for the costly sick. A seldom mentioned truth is that single-payer systems are politically potent because they protect the healthy (95% of the voting population), but ration care for the sick (only 5% of voters).

It would be great, of course, for all health care participants, government technocrats, and consumers would join together for the common good, not their own self-interests, but that would require repealing the laws of human nature and of Adam Smith.


1.Sack, Kevin, “A States Finds No Easy Fixes on Health Care,” New York Times, July 10, 2007.

2.Klein, Ezra, “Over States: Why The ‘Laboratories of Democracy’ Can’t Achieve Universal Health Care,” Washington Monthly, July 10, 2007

3.Dean, Cornelia, “Determined to Reinspire a Culture of Innovation,” New York Times, July 10, 2007.

4.Herzlinger, R.E., “Why Innovations is Health Care is So Hard, “Harvard Business Review, volume 84, pages 58 to 66, 2006.

No comments: