Transforming Healthcare Delivery to a Service Industry

Jerome H. Grossman, MDDirector, Health Care Delivery Policy Program

American Re Healthcare

March 29, 2004

Economic and Societal Changes

• Zuboff (1988) – In the Age of the Smart Machine

• Giddens (1988) – The Third Way: The Renewal of Social Democracy

• Rabin (1998) – Psychology and Economics (Behavioral Economics)

• Rivlin (2002) – Challenges of Modern Capitalism

• Christiansen (2003) – The Innovator’s Solution

• Zuboff (2003) – The Support Economy

Elements of Healthcare Delivery

• Starr (1982) – The Social Transformation of Medicine

• Fuchs (1996) – Individual and Social Responsibility

• Institute of Medicine (2000/01) – To Err is Human, Crossing the Quality Chasm

Future Hopes Existing “Trends”

Financing Purchasing

Regulating Providing

Catastrophic Account

Cash Account

HSA(Consumer Defined Plans)

Behavioral Economics

Productivity SystemsManagement

Network Creation

Health Value Added Tax

Universal Health Plan Voucher

Based on Clinical Condition

Monitoring

HEALTH FEDERAL RESERVE

Safety/Safety Improvement

License and Monitoring

Vocab/Reporting

Transparency

Licensure

Arbitration

Malpractice

SEPARATE FEDERAL AGENCY

Financing

Health Value Added Tax

Based on Clinical

Condition

Monitoring

Universal Health Plan Voucher

HEALTH FEDERAL RESERVE

FDA Productivity Clinical Conditions

Regulation

Safety/Safety Improvement

License and Monitoring

Vocabulary and Reporting

Transparency

Licensure

Arbitration

Malpractice

SEPARATE FEDERAL AGENCY

FAA/NTSB FASB SEC/NASD

Federal Reserve

METAPHORS

•Performance Based Regulations•Management Based Regulations•Risk Based Regulations

RESEARCH

Providing: Complex Interdependent Systems

Data Exchange 7 x 24 x 365 The PatientCustomized Protocol Front Line TeamFlexible Management OrganizationPost Introduction SurveillanceBioterrorismRegulation

Environment

Productivity

Reengineering

Human FactorsJob RedesignOrganization

Scanning the Environment - Costs

• Increasing at a steep rate

• Increased uninsured – increased middle class concern

• Employers pass increasing cost to employees

• Employers pass increase onto retirees – not new employees

• Government passes increase onto retirees and states (Medicaid)

• Medicare Bill includes medical savings account

• The beginning of 401(k)

• Employers/govt. decreasing responsibility for health insurance

Quality

• Quality focus dominates media and legislation

• However progress stays neutral

– Scattered successes balanced by new revelations of error

• Strategy shifting from projects to “systems thinking”

• Lack of transparency and safety oversight becoming larger issue

– Finance has SEC

– Civil Air Transport has FAA

– Health has JCAHO – malpractice (mainly self-regulation)

What Hasn’t Happened

Very little progress has been made.

Source: Wall Street Journal

Medical Injuries CostBillions Every Year

Researchers studying health-care quality have concluded that medical injuries caused during hospital stay kill tens of thousands of patients annually, requiring at least 2.4 billion extra hospital days resulting in potential medical charges of $9.3 billion.

The work underscores both the scope of the problem and the relative lack of action in solving it. In 1999, for instance, the Institute of Medicine recommended the creation of a “nationwide mandatory reporting system” for medical errors. That hasn’t happened. Very little progress has been made.

“A” Perfect Market

• Large numbers of consumers and firms

• Free entry and exit

• Marketability of all goods and services including risk

• Symmetric information with zero search costs

Key Failures in Health• Asymmetric information/costly search

• Marketability of risk

Bearing More of the Burden15

.7%

16.7

%

16.8

%

17.1

%

18.0

%

19.5

%

9.6%

9.1% 9.

5%

8.6% 10

.9%

12.0

%

12.8

%

15.5

%

0%

5%

10%

15%

20%

25%

30%

35%19

98

1999

2000

2001

2002

2003

2004

proj

ectio

n

Employees, out ofpocketEmployees, payrolldeduction

Employers Costs Rising TooBetween 1998 to 2003, annual healthcare costs paid by employers rose from about $3,000 to over $5,000 per employee.

Source: New York Times, Hewitt Associates

Employees annual healthcare costs, paid by . . .

In 2004, healthcare costs are projected to rise to about $8,000 per employee.

The New 401(HEALTH)

Must buy catastrophic insurance

Medical “Savings Account”

Rollover

Portable

401(HEALTH)

Corporation Government SelfDefined Contribution

Risk Tolerance

“Auto Insurance Points”

+ for healthy behavior

+ for preventive tests

+ for chronic disease compliance

Result – Lower “rates” next year

Distribution of Costs

1998 1999Medical Expense Category in 1998

Average Per Capita

Expenses, $

Total Enrollment, %

Total Expenditures,

%

Average Per Capita

Expenses, $

Total Expenditures,

%

Low (<$2000)

324 87 23 1191 58

Medium ($2000-$24999)

5658 12 56 5385 35

High (>$24999)

49032 1 21 15800 7

Source: Dove, HG, et al, “A Prediction Model for Targeting Low-Cost, High-Risk Members of Managed Care Organizations.” The American Journal of Managed Care, May 2003.

Catastrophic Insurance

x 1,000,000 lives

Epidemiologic (Incidence & Prevalence)

x Predictive Risk Modeling (Disease Severity and Comorbidity)

x Normative Resources (From Productivity)= Outcomes (Outputs)

•Technical•Functional•Trust•Service

Keeping Patients Connected

Source: Boston Globe

Digital Camera

Speaker Phone

Microphone

Built-in modemSends data toVA computers

Video-touch screenFor video-conferencing

HOW THE SYSTEM WORKS

A portable monitor equipped with a digital camera and devices such as a blood pressure sensor and stethoscope is set up in the patient’s home.

Every Home an ICU

Source: Boston Globe

Sequential Information Experiments

Data Analysis Hypothesis Validation