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These are times for great humility.  Ours has been revealed as a society unwilling to prepare for a long predicted deadly storm.  When it came, we sent our healthcare providers into the battle without armor.  Neither our public, private, nor non-profit sectors could produce and administer the tests we needed to identify the scale of the invasion. We failed to protect the most vulnerable citizens among us, our seniors and the low-income workers who attend to their daily needs.  We mustered up the will for shared national sacrifice only after the coronavirus beast locked its jaws onto our neck.  (That will waned very quickly in many quarters, and now we suffer a relapse.)

America is not alone in these failings. But other countries possess neither our great wealth nor gluttonous mostly “fee-for-service” healthcare system, by far the world’s most expensive.  Our national outcomes during this pandemic—lives lost and cases per capita--are among the world’s worst. 

Before the coronavirus swept our shores, anyone who cared to look knew the many dark truths about America’s “system of health.”  Underinvestment in public health and social determinants. Middling patient outcomes.  Overuse of ineffective care.  Underuse of effective care.  The opioid epidemic. Declining lifespans.  High infant mortality.  Increasing maternal mortality. Venereal disease at an all time high. Tens of millions uninsured. Mega-thousand dollar health insurance deductibles. 400% price increases on old drugs.  Sky high prices on new ones.  Exorbitant management compensation. Surprise medical bills.  Go Fund Me care financing.  Healthcare-related family bankruptcies.  The American Shakedown.

Our system of health fails to produce the outcomes any rational person would desire.   America is exceptional, but not in a way we should trumpet.

There is no shortage of reform ideas.  They are to varying degrees informed by interest group politics, historical analysis, market theory, comparative international experience, and the stubborn realities of health economics.  There is vitriolic debate: Medicare for All, Public Options, Repeal (or Improve) Obamacare.  The cacophony produces little in the way of understanding or progress.  It is downright wearying to anyone who still bothers to pay attention.

Finally, there are the optimists who fervently believe innovation will guide us to the promised land of better public health at lower costs.  Such advocates have the faith of a child (but often not the innocence).  Decades of experience teach us of the notion’s folly. 

Turning over a third of the Medicare program to private insurers by the Clinton and Bush administrations led to increased federal spending, not savings.  The Obamacare-spawned Center for Medicare and Medicaid Innovation chewed through $10B, launching 40 different pilot programs.  Officials found the results of only two cause for nationwide implementation. 

Federal subsidy of the purchase of electronic health records (to the tune of $36B) by private hospital systems and physician groups produced fat information technology budgets, demoralized clinicians, little evidence of quality or cost improvement, and, most tragically, a national patchwork of systems that are not helping solve the current crisis.  “It’s absolutely hampering our ability to understand and react to COVID,” ruefully commented Dale Sanders, chief technology officer of Health Catalyst.

It is easy to go on here. Disease state management and care coordination demonstrations failed to recoup their costs.  Only 1 of 23 “bundled payment” programs generated statistically significant improvement in cost of care.  The entirety of savings attributed to Accountable Care Organizations come from the minority of enterprises bold enough to accept downside risk.  As Yale Professor Theodore Marmor has argued for decades, American healthcare is replete with “fads, fallacies and foolishness.”

The latest flavor of innovation is digital healthcare.  Investors in recent years poured over $30B into this space, financing telemedicine platforms, artificial intelligence engines, digital therapies, wearables, and hundreds of thousands of health and fitness apps for every conceivable purpose.  The value of digital platforms has been amply demonstrated during the coronavirus lockdown. But will digital healthcare drive down costs and improve quality in the future?

The answer is, as with most questions, it depends.  If we merely layer digital health on top of the wide, deep fee for service system most of America inhabits, we will just add costs to an already fragmented system.  Some digital health companies will win big.  Incumbents losing revenue to digital health companies will increase prices or induce demand elsewhere.  No serious health care analyst questions these long observed phenomena of American healthcare. 

“In most industries, competition leads to greater efficiency and lower costs,” University of California Berkeley Professor James Robinson writes, “but in healthcare it (leads) to lower efficiency and higher costs.”  Increasingly concentrated hospital markets push prices upwards. Over 650 hospital mergers occurred in the past decade.

What works in other markets just does not work in healthcare.   Yale’s Howie Forman, MD reflects, “we keep investing in the best and most novel and most exciting technology, some of which has very high value and some of which probably doesn’t.”  What other industry gets away with such a standard?

What if instead of more cost layering, we follow the lead of a few successful American outlier examples and most developed nations in Asia and Europe?  We would insist on implementation of a key feature that drives their success: hard global budgets.  These can be at the level of the health plan, county, region, state or nation.  Within those budgets, providers and patients together make care decisions.  We can choose to end the inexorable growth of American healthcare spending. 

Will this lead to unacceptable forms of rationing?  Again, it depends. Do stakeholders set global budgets at today’s average U.S. health expenditures of 18% of GDP?  Or at closer to the 34 nation Organization for Economic Cooperation and Development average of 9% of GDP?  The latter would produce a great deal of rationing in America (and a lot of cost savings too).  We need not go anywhere near that level.  We are the richest nation on Earth in all of human history.  We can (and should) insure everyone’s health, maintain (or reduce somewhat) our spending levels and buy better public health.  Providers--like American families—must work within hard budgets.  Savings can be invested in public health enterprises: the reduction of health disparities, emergency preparedness, contact tracing, vaccination research, and universal health coverage.  Covid-19 will not be the last pandemic America faces.

Will such a plan work?  It works all over the developed world.  And, it already does in parts of America, too.  Why does the average Californian spend 25% less today on healthcare than the average New Englander?  The high penetration of capitated payment models—with global health plan budgets--on the West coast.  It is that simple.

The flagship California model--Kaiser Permanente--encourages doctors to see patients in the most efficient manner.  Sometimes a patient’s condition requires an office visit; think of the poking and prodding of the annual physical.  Other times a video visit will serve the purpose, saving the patient precious hours and reducing the chance of a medical office-acquired infection.  Occasionally, a quick phone call or email is enough to meet patient needs.  The goal is to prevent high cost hospital admissions and unnecessary care. Kaiser has been doing this for years.  Quality of care and patient satisfaction is high, costs low.  Hospitals are a cost to be avoided, not a profit center.

The beauty of global budgets is that a vertically integrated Kaiser model, a British public healthcare system, or a Canadian provincial payer approach is not required.  Some states, such as Vermont, will employ public payer models. Private insurers and health systems are beginning to partner in risk-sharing models in many regions of America.  America’s largest health insurer, United Healthcare, is building its own physician group with the goal of managing care within a budget.   Other innovative partnerships in which stakeholders take on and manage risk are emerging for dual eligible and intellectually disabled citizens. There are a multitude of models in which global budgets are a foundational element.

We have been moving as a nation at a glacial place in this direction for years.  The mantra of the last decade among the health policy wonk class has been “moving from volume to value.”  It is time for the federal government to mandate this transition.   

The time for talk and excuses has ended.  It is time for action.  A reckoning of our stewardship is at hand.

John Pakutka, July 3, 2020, jpakutka@thecrescentgroup.com