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Dr. Taylor Dickinson's articles and essays discussing his ideas on tax-preserved Universal healthcare...

Counterpoise Solution: The Gordian Knot

Posted: Tue, Dec 25, 2012

By Taylor Dickinson

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Healthcare is a Gordian Knot.

Healthcare in this country is a Gordian Knot of aberrant interwoven incentives. The complexity of healthcare's problems obscures the origins of the divergent interests driving these incentives. In th U.S. Supreme Court decision which upheld The Affordable Care Act of 2010 (ACA), "the chief justice distinguished the health insurance market from the healthcare market, concluding that they 'involve different transactions, entered into at different times, with different providers.' There are, in fact, two competing definitions of healthcare. There is the definition, maintained by insurers, both government and private, in which healthcare is described by actuarial predictions of the insured’s needs. If you can predict when a population will die, why not predict their healthcare needs while they are alive? Healthcare becomes an actuary’s best guess at everyone’s needs. In essence this means that third parties predetermine the desired distribution of care. They will then set targets. The second definition says that patients’ need for care is determined by their individual health. Its cost becomes a secondary result of this concern. Physicians live by this latter definition. These two definitions are fundamentally incompatible. The motives that drive the implementation of both definitions are predictable. They lead inevitably to the Gordian knot.

This problem lay dormant until health insurance profits began to suffer. Analysis led insurers inevitably to the realization that rising cost was their problem. Tolerant coexistence with providers was no longer prudent. Their business plans now called for control. To pursue this they made two untenable business assumptions. They assumed that cost follows a linear pattern like that of General Motors. In industry, companies establish the cost of their product as they build it and then add a margin for profit. Adding a new engine that reduces gas consumption to every car changes the cost of every new unit equally. As long as they sell enough units they make a profit. From this analogy they concluded that if healthcare followed efficient business and manufacturing practices, cost could be controlled. The second assumption was that they control the product. This means that if they exert pressure on the system it will respond to their needs. Unfortunately for everyone this business model does not in any way resemble the organization of medicine in America. Insurers, both government and private, only own the actuarial assumptions about the theoretical cost of healthcare. The assemblage of the "product" healthcare, is the ultimate responsibility of the medical profession. In addition, the number of units sold remains the same, no matter what. If universal care is the goal, then that means everybody. In healthcare, cost varies with each individual unit. Actuarial assumptions are meaningless in the face of the seismic changes that can occur in medicine. Critical diagnostic advances, like CT scans and MRI technology, radically altered the practice of medicine. They had far reaching effects on every aspect of diagnosis and treatment with both positive and negative effects on the cost of practice. The insurer’s response was to resist implementation because, to them, each use of the technology was a new event and seemed to increase their cost. Insight into both the fiscal and medical reconciliation of each new technology is beyond the capabilities of any third party. A new disease like HIV, or the introduction of new modalities of therapy like immunotherapy for cancer or chronic diseases have similar effects on the economics of medicine. Each change to the definition of healthcare disrupts the actuary’s assumptions. To be successful the payor must ultimately recognize that the end game in their model of healthcare is to never allow anything new to be introduced into the system. Nothing can ever be allowed to change. That is the problem. Medicine does change: constantly. It is change that ultimately drives cost.

This year is the 200th anniversary of the New England Journal of Medicine. To celebrate they have published a series of retrospective articles, not only on advances in medicine and medical thinking over this time span, but also upon its cost. In chronicling historical changes in the treatment of diabetes, the effect of immunizations upon the practice of pediatrics, or the evolution of surgery from the primitive exercise of brute strength to the finesse of minimally invasive surgery, they make it clear that medical science made life better. Along the way a lot was discarded. Recognition of obsolescence is part of the process of change. Effective management of healthcare must include a mechanism to “retool”.

Demand drives cost.

Understanding demand is critical. “Cost” is driven by demand. But physicians do not create this demand. Patients create demand, or rather, their illnesses do. Physicians accept responsibility to manage it. “Profit” in healthcare is threatened by the variability in the cost of each unit*, or patient problem; not by failing to sell enough units. It is an entirely different problem. The solution must address this issue. This juxtaposition of patient need and physician responsibility points the way. It suggests the existence of a relationship upon which a price for healthcare may be built.

The ACA describes several models of healthcare delivery that will be tested. They are designed to start as small experimental economic units that will share their profit with government. The successful models will then be replicated into the national medical community. Given the diversity of the general population and of its medical communities this will prove to be a difficult task. In considering this problem Bohmer suggests an alternate approach. In evaluating the business practices among members of the High Value Healthcare Collaborative (HVHC) he cites four organizational “habits” that they all share. He suggests that it is these habits that are more readily transposable and should form the basis for reform.

These observations need to be taken one step further. Members of the HVHC share other characteristics. They are all fully mature healthcare systems like the Cleveland Clinic, and Scott White Healthcare. Their practices, usually started by one or more visionary physicians, evolved over many years. They all made the same critical choices. They expanded both the size and scope of their practices. They all founded their own Health Plans and thereby assumed fiscal responsibility for the insurance they provided to their patients. This more complex business structure led to the formation of charitable foundations to facilitate the accumulation of capital necessary to fund their growth. In these mature organizations the care of patients is provided by physicians with full fiscal responsibility for the welfare of the total enterprise. If they do not provide excellent care for the price they establish, they will fail. These are the conditions that produced HVHC behavior. Despite differences in geographic, social and local economic conditions, the desire of these physicians to provide the best possible care ultimately led all their organizations to the same place. This is the portable structure reform seeks. Rather than attempt to prescribe behavior to be transported and hammered into whatever local conditions may exist, fund a business structure that will produce the desired result.

It took these organizations 50 years, on average, to accomplish this task. In the ACA the government expects to establish multiple small experimental healthcare organizations, reduce cost by confiscating part of there profit, and then replicate the successful experiments across the country. They then expect to build these models into a system for universal care. Time is not on the side of this experiment. But time will expose its flaws. As long as cost remains the mantra of government and its insurers there will be a steady attrition in the systems ability to sustain the cutting edge in medicine. The methods open to them to control medicine’s inevitable growth all lead to the elimination of access. It is the feeble minority that will suffer.

THE profession"s Choice.

The profession faces a choice. To continue its passive acceptance of the events around them, or to access its responsibilities within these events and act where it is appropriate to do so. Science has altered the nature of the physician’s relationship to society. The individual physician is no longer all knowing and all wise. Caring for patients includes a complex interplay of knowledge and resources. These resources emanate from every aspect of education, research, and investment. In short, the physician is now the emissary for society’s greatest achievements. Physicians no longer enjoy a simple unencumbered patient relationship. Their expertise reflects society’s expectations of life. Those expectations change the social compact. The physician’s responsibility is no longer just too each individual patient but to the society as a whole.

There is an alternate solution to the economic crisis in medicine, one that is entirely within medicine’s purview. Reorganize medicine around the concept of full fiscal responsibility. Actively build risk assuming medical groups. There are over 1000 medical organizations in this country of sufficient size to actively pursue this objective. To do so they need to raise capital, either from their own members or from philanthropic sources. It is imperative, however, that they retain ownership of their own organization. There is another potential avenue toward this objective. Insurance companies face major challenges under the ACA. Their long term viability is in jeopardy. Managing “cost” will become increasingly more difficult. Forward thinking insurers may be open to joint relationships that secure their own future. It makes sense for them to partner with a fiscally responsible physician group in exchange for the ability to write and sell their policies. Their profit then depends entirely upon increasing enrollment. This is clearly to the advantage of both partners. Similarly, medical organizations should consider partnering with existing insurance agencies to form a joint health plan patterned after existing physician owned examples. All aspects of the delivery of care now become the fiscal responsibility of the physician group. They control the cost. All the rules become their own. To succeed they must forego fee-for-service. They also need to establish a culture of transparency in the outcomes of their practices. Once this is accomplished a price for healthcare will exist. When they succeed, that price is verified. Existing Integrated Healthcare Systems (IHS) currently provide care at a cost 25 -30% less than the national average. This potentially translates to a healthcare system that consumes between 12% and 13% of the GDP. There is no need to “bend the cost curve” when all incentives flow through such a single focus.

Leadership by physicians will channel these organizations toward an enriched healthcare system. The same dedication to patients that allows individual physicians to place their patients’ welfare above their own will drive them collectively to develop the four characteristics of high-value medicine. These organizations need the freedom, both medically and economically, to evaluate new knowledge as it becomes available so that they may safeguard their patient’s future. Their need to deal with constant change will be an incentive to recognize obsolescence and discard its cost. Their common incentives will make reform work, both for themselves and their patients.

To marry fiscal responsibility to physician owneership achieves the most important step toward the reorganization of healthcare. These organizations will overcome the major hurdles that hinder meaningful reform. By fostering their acceptance of risk they become the critical component of a price for healthcare.

Passage of the ACA cut the Gordian knot in a most decisive manner. Such a blow brings power to him that wields the sword. But the puzzle in the knot remains. Left unresolved, the outcome will be unchanged.

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