What is ailing the healthcare market? Why do we(Americans) pay higher per capita for treating a disease condition? Is it just because we have access to the most innovative solutions? Do we have misaligned incentives? Is all the work that is done in the healthcare value chain value added work? Or are we classifying busy work as value add when all it’s doing is to sustain an over complicated system that existing players have an incentive to maintain.
Let’s talk about what ails healthcare. Why is it fundamentally a different kind of product? Why do the normal rules of market competition and capitalism not apply here?
- When someone needs acute treatment, the consumer usually does not have the time to shop around. For e.g. when a patient is in an ambulance for being treated for a heart attack – its not the time he/she checks the scores for the nearby hospitals about how cost effective they are or whether they provide value for money.
- It appears to be a zero sum competition – In which gains of one system participant come at the expense of others. This kind of competition does not create value for patients, but erodes quality, limits access, fosters inefficiency, creates excess capacity, drives up administrative costs among other nefarious effects. Why can providers of diabetes meters and wheel chairs advertise to the Medicare eligible patient community offering free stuff at Medicare’s expense. Why does CMS not have the ability to negotiate rates for common services given the volume it commands?
- Who is the consumer and who is actually making the decision on consumption? Healthcare products are not ordered by end consumers – Orders by workers on the frontline of healthcare delivery such as physicians, nurses and so on. Purchasing is thus not an organizational competence, let alone a core competence but rather the domain of non-business people.
- The provider industry is largely based on non profit ownership – No real emphasis on budgeting, process improvement or IT optimization. Also since a large portion of provider revenues flow from federal and state governments, some believe that providers have developed a welfare mentality rather than strong profit and loss mindset.
- Fragmented Industry – Despite consolidation, it is still a fragmented industry with no real leadership at any stage. Fragmentation complicates the task of connecting thousands of parties involved at each stage in the chain, and standardizing the format and content of their business transactions.
- Providers made investments in patient care rather than technology – Procurement and other functions are based in dated legacy systems with little direct connectivity with manufacturers. Product master catalogs are often paper based, and their contents (product descriptions, prices) typically differ across players in the chain due to time lags in relaying and uploading new product and contract information.
- Treating the value chain as a supply chain and the focus of manufacturers on creating demand for a product using a push model rather than a pull model.
- Lack of transparency through negotiated contracts, pricing agreements and no easy way for a patient to tell what a healthcare product should actually cost.
Let’s imagine alternate models – one based on capitalism and competition (but unfettered and unconstrained). Another socialist but efficient universal healthcare.
To choose we must define what our core principles are as a society – do we consider healthcare a “right” or a “privilege”.
If it’s a privilege then why do we insist on the Hippocratic Oath – why can’t emergency rooms turn away dying patients unless they can pay upfront?
If it’s a right, then why should we not use the most efficient way delivering and paying for healthcare? From a payment perspective, having a single payer for basic services is probably the most efficient, given the benefits of scale.
A combination of the two may be best suited for us – where basic healthcare and pursuit of the Hippocratic oath may be a base guarantee by the government (basic healthcare as a right), while add ons are optional and at the patient’s discretion for which they can choose to procure insurance – for e.g. the type of room or facility you check into when being admitted for a procedure. Or the choice of a certain brand of a product that may be above and beyond what basic coverage is available for free.
Also allow for vertical integration across the value chain and let larger end to end entities compete. Remove the incentive of manufacturers to push product, instead they become a part of competing value chains they may compete in treatment levels that are simple, standard or complex.
In addition, the following steps should help make our healthcare delivery systems effective, efficient and outcome based for the patient.
- Establish the right (and mutually agreed upon) objectives for each player in the market.
- Simplify the market, regulations and system to only allow value added activities rather than the labyrinth of activities in current state for e.g. managing rebates, claw backs, pay backs as a way of keeping incentives for all players in line.
- Build transparency and an easy objective way of comparing value.
- Move from a manufacturing supply chain to a value chain way of operating.
- Analyze 3 critical flows – product, money and information for driving towards efficiency.
- Set up profit incentives for all players to become efficient and effective in their operations.
This is an extremely complicated topic and two of the books that have greatly influenced my thinking are Redefining Healthcare by Michael Porter and Elizabeth Teisberg and Healthcare Value Chains: Producers, Purchasers and Providers by Lawton R Burns at Wharton in addition to my own experience navigating this space in various roles at a PBM.
There may not be a silver bullet, but through debate, discussion and action we could move our healthcare system to a place where it delivers for its main beneficiary – “The Patient”.
Happy to receive feedback and look forward to a meaningful dialog…
