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.