Design Matters - Healthcare Systems Edition

Design Matters – Healthcare Edition

In his book The Opioid Crisis Wake-Up Call, Dave Chase quotes Dan Munro by writing, “The [healthcare] system was never broken, it was designed this way.”

 

I’m a fan of Debbie Millman’s podcast, Design Matters. When we are making something that other people will use and engage with, it is important to think about all the various aspects of how the thing will be used and how it can meet the needs and expectations of others. Whether what we are producing is art, a branding campaign, or a national healthcare system, design matters.

 

Unfortunately, the Untied State’s healthcare system wasn’t built on a design matters philosophy. We see inefficiencies everywhere, with some people getting care they don’t need while others can’t get routine basic care that could save their lives. Dan Munro says that the system was built this way, meaning that the inefficiencies, the inequalities, and the high costs were part of the system from the beginning, intentionally built in. The dysfunction we see in the system, according to Munro, is not so much a bug but rather a feature, helping someone make a profit or get priority access to the healthcare they want.

 

I think Munro is a little wrong. I think the system is a hodgepodge of pieces smashed together over the years. It is an incoherent patchwork of tools and players that has been haphazardly assembled over the years, with some working to truly do good, and others taking advantage of design flaws for their own aims. The system, in my argument, was never designed at all.

 

Design matters and what needed to happen decades ago was a real conversation about how the country would design a healthcare system that could innovate, that could meet the needs of citizens, that could ensure basic access to medical services, that could help provide preventative care rather than just emergency interventions, and that could be sustainable. Instead, doctors went about providing medical services, insurance companies popped up to help pay for some pieces here and there, and eventually businesses got in the mix and offered health insurance to employees. Each new step in healthcare in the Untied States has happened almost randomly, without a lot of deliberate planning.

 

Now the system is so large and complex that planning feels impossible. Legislation to address the challenges of the system is thousands of pages long, and because the most comprehensive law to restructure the program adopted the namesake of the nation’s first black president, a Democrat that became a polarizing figure, half the country derided the attempt to design something better. We can try to reshape bits and pieces of the system now, but design matters, and I understand why so many want to hit a restart button and rebuild a system from scratch.
Healthcare Profit and Subsidization

Healthcare Profit and Subsidization

Medicaid simply doesn’t pay enough for many medical providers to make a profit. The reimbursement rates often cover only fixed costs, and don’t really cover the full operating costs of a service. Medicare pays slightly better, usually covering operating costs and sometimes providing just enough for a small profit. Private insurance, however, pays a lot more than the two main public funding sources for health care in the United States. It is in private insurance that profit is to be made for medical providers.

 

As Dave Chase writes in his book The Opioid Crisis Wake-Up Call, “While employer and union health plans are roughly one-half of all health care spending, they likely represent over two-thirds of health care industry profits because they often wildly overpay for health care services.”

 

Think about who is most likely to need healthcare services: elderly and disabled individuals. Our system of Medicare pays just enough for providers to make a tiny profit, most of the time, for elderly patients. Our patchwork of state Medicaid systems, which many poor, minority, and often disabled individuals rely on for health care coverage, pays below operating rates for many procedures. While we have more elderly people utilizing the healthcare system and while we have more low income individuals with disabilities relying on healthcare, services for these two groups is not where profit is generated in healthcare. Instead, profit is generated from the reasonably healthy people who work steady jobs and heave employer provided insurance. The charges to private insurance companies are so high that even though their patients use less care, they provide a much greater percentage of the providers’ profit margins.

 

The first implication of this system that I want to highlight is the inequality in terms of access that arises within the system. If you rely on Medicaid, you may have trouble finding a provider who will take you. That is because the provider knows that while they will get paid for treating you, they might not actually break even for their time. There are other patients out there who offer more profit to the provider than what your Medicaid coverage will offer.  Because of the low reimbursement rates of Medicaid, many providers cap the number of Medicaid patients they see, making it harder for people on Medicaid to receive any services at all. For Medicaid patients, care is strictly rationed.

 

The second piece that I want to highlight is a way of framing the costs in this scenario. Providers lose money on Medicaid, maybe make money on Medicare, and jack up their prices for private insurance to ensure they make a profit at the end of the day. A lot of times providers will justify this approach by describing their high rates to private insurance patients as subsidizing the meager rates they receive from seeing patients covered by public plans. In a country that hates the idea of government redistribution and direct subsidizing of healthcare for the poor through taxes to support universal healthcare, we are already subsidizing the care of those who can’t afford care.

 

Most healthcare providers generally want to help people, it is usually a big part of what pulled them into their work in the first place. And even without Medicaid, many of them would likely still treat some people with no means to pay, writing off the free care they provided and potentially charging other patients more so they could afford to take on some charity cases. In a system built on empathy and care for the health and well-being of others, there is no way to avoid subsidizing other people’s care, at least a little bit.

 

I think we should be honest with the fact that we are already subsidizing healthcare to a large extent through our private health insurance system and the charges from providers for patients with private health plans. The incredibly high charges to private health insurance means higher premiums for everyone on those plans. For some reason we hate the idea of having to pay higher taxes for free health care, but are willing to shove out unreasonable healthcare premiums for expensive health insurance.
Value in Healthcare

Value in Healthcare

A common complaint about healthcare in the United States is that it has traditionally operated on a fee for service (FFS) based model. It is a natural and easy to understand system, and generally the type of system that both patients and providers prefer. The idea is that you pay for the services you receive from a healthcare provider. So if you need a tooth extracted, you go and have the tooth extracted and pay for the extraction. If you need a skin check, you go and get a skin check and pay for it. However, this FFS model can encourage a lot of waste through unnecessary medical procedures, and the value in healthcare is sometimes lost when we wait until someone has a problem before we help them with their health.

 

A lot of government programs, employers, and insurance companies are making efforts to push against FFS in an effort to provide greater value in the healthcare services we pay for, but it is worth asking, what is value and how can healthcare systems provide it? Is value just better health? Is it services that a patient said they were happy about? Is it care that saves a life or can it just be care that makes a life somewhat more comfortable? Dave Chase helps explain one aspect of value in healthcare in his book The Opioid Crisis Wake-Up Call, “Value is defined as the ratio of quality to cost. Value increases as the quality of the care increases or the cost of care decreases.”

 

FFS encourages short appointments where doctors cram as much as they can bill for into the shortest possible time before moving on to the next patient to do the same. Value based models, on the other hand, seek to improve the quality of the care provided without adding more costs to the patient and their insurer. As opposed to simply cramming in more tests, treatments, and procedures to get more money, value based systems that increase quality focus on improving health outcomes while keeping costs stable.

 

Alternatively, value based models might seek to keep quality the same, but reduce overall costs. This can wade into territory we don’t necessarily want to support, such as cutting nurse management staff to keep overhead low, but it could also look like more comprehensive care to reduce costly re-admissions after a procedure. When we think about value and try to build systems around value, we ultimately have to think about quality and cost, and how those are related. We can cut pieces out of the system that are just meant for signaling and cut pieces out that might be unnecessary without diminishing quality. But at the same time, we really need to examine whether the pieces we want to cut really do help with the quality of the care, especially over the long run.

 

Thinking about value in healthcare isn’t entirely new, but it is receiving increased focus, which is important if we want to have a healthcare system that people actually trust and are willing to engage with when necessary.
Status Quo in Healthcare

Status Quo in Healthcare

How can we really make change to the United States healthcare system? Dave Chase, in his book The Opioid Crisis Wake-Up Call argues that changes to the system need to come from private businesses, because private businesses are responsible for the health insurance coverage for over 50% of American’s. If business don’t take action and demand changes, Chase argues, then the system will not have enough strength to push against the status quo of rising costs and stagnant productivity within healthcare.

 

A quote from Chase about changing the American healthcare system reveals something larger about public opinion and the status quo in American public policy in general. Chase writes, “This book focuses on non-legislative strategies since the politics of health care are fraught with pitfalls. As we know, the best way to perpetuate the status quo is to politicize a topic – and nothing is easier to politicize than health care.”

 

I think Chase is correct about politicization and the status quo in the United States. Our country has deeply internalized ideas of liberal and conservative and wedded those ideas to the Democratic and Republican parties. This means that if an idea is taken up by a party, if it is politicized and adopted by a party, then it instantly becomes an identity marker, and people who might not have had a strong reason to care about an issue, suddenly find it to be a maker of who they are and what groups they belong to. Politicizing an issue in this system virtually guarantees gridlock, preventing any legislative action on the issue.

 

Private businesses, however, can make changes without relying on a 50% majority vote (or 2/3rds majority vote in congress). Throughout the book Chase presents economic and moral arguments for businesses to take the nation’s opioid crisis seriously, and uses it as a wake-up call to show businesses how our healthcare system is failing individuals, and ultimately failing the companies that hire those individuals and provide for much of the healthcare that individuals receive (or fail to receive). Public action is hard, so in many arenas, private action is the best chance for making the changes we want to see in the world.
Health Care Supply

Health Care Supply

Dave Chase makes an argument in his book The Opioid Crisis Wake-Up Call that healthcare has a substantial supply side drive, not just a demand side drive. This argument doesn’t align with standard pictures of healthcare, the idea that people seek care when they are sick, and don’t use care when they are well. Its troubling, but evidence does support the idea that the healthcare market is in some very important ways a supply driven market, meaning that as supply and capacity increases, demand also increases.

 

I’m not completely sure I understand this idea, but it is important for us to acknowledge and think about, especially if we live in growing cities, gentrifying regions of the country, and areas of the United States that have real opportunities for reinvention. When looking to the future of healthcare in the United States, Chase includes many elements from Bruce Katz and Jeremy Nowak’s book The New Localism and thinks there is an important role for new models of city and local government to play in shaping local healthcare ecosystems. He is also heavily influenced by Jim Clifton’s book The Coming Jobs War and the importance that local communities invest in sectors that are likely to be highly productive in the future. Chase writes,

 

“Sooner rather than later, we can expect other developments along the same 3.0 spectrum [More info on Economic Development 3.0 here]. Cities will incorporate true health needs into mater planning and review building permit applications with a deep understanding that health care is a supply-driven market. The more supply there is, the more demand will increase, with little regard for value and community well-being. Approving more health care build-out virtually guarantees a massive burden on local citizens.”

 

It is important that we think about what it is in healthcare that actually provides value. If simply adding more healthcare capacity will lead to greater demand and utilization, then we need to take steps to ensure that an uptick in services is actually accompanied by improvements in health. When communities are redeveloping and growing, they should be focused on upstream social determinants of health rather than just hospitals and healthcare service buildings. Designing communities that will have ample green space for outdoor activity, that will control noise, and will have well lit parks and outdoor areas will help build healthy communities. Plopping a hospital in a space that doesn’t include these elements might give people a place to go when they are stressed, overweight, and injured by debris in the streets, but it will not help people actually live healthier, it will capitalize on a broken environment that fails to support health.

 

I think that is part of the idea that Chase argues for. We should maintain the healthcare capacity and services which actually improve health, and we should be weary of systems that provide healthcare but fail to demonstrate real health improvements for citizens and communities.
Fiduciary Healthcare Responsibilities

More on Fiduciary Healthcare Responsibilities

Yesterday I wrote a little bit about the fiduciary healthcare responsibilities that employers hold given that companies invest our healthcare dollars in plans and structures that can be quite costly. In his book The Opioid Crisis Wake-Up Call, Dave Chase writes, “Given the wide cost differentials, CFOs and CEOs are failing in their fiduciary responsibility if they do not move to modern health care delivery models that are proven to save money while maintaining or improving health outcomes and patient satisfaction.”

 

Chase’s book is all about current structures and systems for healthcare coverage, delivery, and access that are within the control of employers. Healthcare is a complex field, and for years, employers have not had a hands-on role in shaping and creating the models they work through to provide health insurance to their employees. Chase argues that the result has been increasing costs without pressure on providers or insurers to make sure that the quality of care matched the costs.

 

Innovative and truly caring companies have shifted the status quo and shown that quality healthcare can be affordable. They have shown that preventative medicine can be supported and promoted by thoughtful employers, saving healthcare dollars and improving employee health in the long-term. Companies that ignore these models will effectively be wasting healthcare dollars and hindering the health of their workforce. This exposes companies to liability for not fulfilling their fiduciary healthcare responsibility.

 

When we talk about health policy and improving the healthcare system in the United States, we usually talk about government policy, about hospital charges, and about minimum standards for insurance and rising insurance premiums. Chase thinks we need to spend more time talking about our employers, and about what they can do to help improve the system, without requiring laws to be passed or companies to make policies that go against their own best interest. Employers have a lot of leverage if they take their fiduciary healthcare responsibility seriously.
Fiduciary Healthcare Responsibility

Fiduciary Healthcare Responsibility

For many Americans, their job provides them with some type of retirement savings account. Historic legal action, laws, and regulations require that companies who offer retirement savings vehicles responsibly manage the money they invest on behalf of their employees. The investment options that employers chose must perform at a reasonable level. A company can’t push all of its employees to invest back in the company (as Enron did in the 1990’s) and a company can’t just take employees retirement savings accounts and put them in a low return savings account at a bank – the return to the employee in interest would be so small that it would be meaningless. Employers fiduciary duty requires that they offer legitimate retirement savings options that are in the best interests of their employees and will likely achieve a reasonable level of return on the investment. We understand this fiduciary responsibility for employers when it comes to our retirement savings, and now, some leaders are starting to look closely at the fiduciary healthcare responsibility of employers in the same way.

 

In his book The Opioid Crisis Wake-Up Call, Dave Chase explains his concerns regarding wage stagnation in the United States. He shows that real hourly wages in the United States, across all education groups, has fallen since 2007 (the book was published in 2019 making the time period of falling wages 12 years). At the same time that wages have fallen or stagnated, healthcare costs and expenditures have soared. With out of pocket spending rising, employer contributions to health plans going up, and patient premiums also getting more costly, Chase argues that the lost wage increases for American’s have been channeled into an under-performing healthcare system.

 

This is where the fiduciary healthcare responsibility of our employers becomes an important issue. Our employers are offering us (for about 50-65% of Americans) health insurance at the expense of higher wages. The money used for purchasing the plans offered to us and helping us access care, can be thought of like a retirement savings account. It is our money, and the company has a responsibility to ensure it is used in our best interest and that the products and services purchased with our money are safe, effective, and likely to provide us with a reasonable return on our investment. The healthcare dollars spent by our employers for health insurance today does not measure up.

 

Chase predicts a series of lawsuits targeting the fiduciary healthcare responsibility of employers in the near future. Lawsuits could target ever rising expenditures for diminishing or stagnant healthcare quality. They could address limits in services that hinder health outcomes for individuals. Companies could be on the hook for failing to do background checks on brokers or failing to shop for the best insurance plan for their employers. All of these issues are addressed by Chase in his book, and he believes that if employers took their fiduciary healthcare responsibility seriously, they could be a major asset in changing the future direction and costs of healthcare in the United States.
Buying Insurance

We Don’t Buy Insurance for Ourselves

Why do we buy insurance of any kind? Is it really for ourselves and our own benefit, or is there something else going on with insurance decisions? According to Venture Capitalist Chris Brookfield, as quoted in Dave Chase’s book The Opioid Crisis Wake-Up Call, there is something beyond our own self interest at play when we decide to buy insurance.

 

Brookfield is quoted as writing, “Persuading individuals to buy insurance is kind of backwards. I saw this in India all the time. Individuals do not value their own risks – their relatives and neighbors do.” 

 

Buying insurance is actually more about our loved ones and our responsibility to our community than it is about ourselves. It is about protecting the financial standing of our relatives and those who would help us if we were down as much as it is about protecting our own financial standing. The standard story tells us that insurance shifts risk from ourselves to a group of individuals, but as Brookfield continues in the book, it really shifts risks from our immediate known allies, into a broader group of people that we don’t necessarily know.

 

If I don’t have health insurance or auto insurance and die in a terrible car crash, I am not the one who will bear the costs of the accident. My loved ones and other people in the community involved with the crash (other drivers or the owners of any private property that was damaged) are the ones who will face the costs. On their own it would be hard to manage the costs, but pooled together, the costs and the risk could be shared. In a situation where my death occurs, it is other people who derive the value of the insurance.

 

I’m sure there are some insurance products that are pretty solidly just about the individual buying the isurance, but it doesn’t seem to always be that way. Buying insurance seems to be an act of signaling, as Robin Hanson discusses in his book The Elephant in the Brain. Buying insurance isn’t all about sharing risk, it is also about showing others how much you care about them and about showing the community how responsible you are.
Scaling Local Networks

Scaling Local Networks

Dave Chase presents an interesting idea about local networks in his book The Opioid Crisis Wake-Up Call. Local networks, Chase explains, grew from the small groups and tribes that humans evolved within. The systems and structures that allowed for cooperation in small groups, have evolved into complex structures of institutions like government, insurance risk pools, and social media. Chase focuses on the health insurance side of these local networks, and considers whether scaling local networks is really the best thing for today’s societies.

 

Chase writes, “When local networks are scaled up, you add hierarchy, says Brookfield [Venture Capitalist Chris Brookfield], and this creates opportunity for theft and redirection.”

 

The idea from Brookfield that Chase is getting at is the idea that many of our systems were formed in small groups and tight communities where social accountability and trust were easy. Everyone knew each other, the community had many close ties and interactions, and it was not hard to keep track of personal debts and obligations. As societies grew, and as our cities, nations, and global structures became more complex, we brought along the same structures of the systems that served our evolutionary tribal ancestors well.

 

However, as complexity grew within those structures, the pitfalls of scaling local networks became apparent. There are too many transactions, too many opportunities for theft and fraud, and too few people who have real oversight and understanding of how the systems work. This allows for abuse of the system and for people to get away with cheating.

 

In healthcare it might look like increasing premiums year-over-year, without a clear explanation as to why premiums are increasing. It might look like unnecessary healthcare expenditures, unnecessary healthcare procedures performed and billed by providers, and opaque systems of approving or denying medical claims. No one knows anyone anymore, no one is accountable, and no one has a clear accounting of debts and obligations. Some outright fraud occurs, a lot of abuse of the system occurs, and even more common, a lot of fudging things and pushing boundaries takes place. Our healthcare insurance system is built on a structure and idea that doesn’t fit the complex high scale realities of the world we live in today.
Scale versus replication

Replication Versus Scale

I used to work for a healthcare tech company based out of San Francisco, and the word scale was almost a mantra. Whenever we did anything, from a small policy to the introduction of a new product or service, the question was always, will this scale? It is an important and crucial question for a growing organization. Before anything was introduced, we always considered the future, whether the new process would work if we had more customers, more covered lives, more emails, and more work. If the amount of effort, oversight, and individual contribution was too high, then we new we were not looking at something that would scale. We needed processes where the amount of additional work would be negligible as we grew, that was the key to scale.

 

For many organizations, however, scale isn’t necessarily the most important goal. Instead, the focus is on replication, to grow and expand in new spaces, new markets, and new products. Replication is something different than scale. While scale sought to reproduce the same outcome, the same process, and the same expectations in all settings, replication takes a slightly different approach to the same end goal. We still want the same successful outcome, but the goal doesn’t include having mirrored consistency in approach with diminishing marginal effort for each new customer. Replication is adaptable to changing local conditions.

 

Dave Chase describes it like this in his book The Opioid Crisis Wake-Up Call, “Replication varies from application to application; scalability seeks to apply the same things everywhere. This distinction is a subtle but absolutely critical success factor.”

 

In retail, social media, and chain restaurants, scale is crucial. You want every coffee you order at Starbucks to be the same, regardless of whether you are at the first Starbucks in Pike Place, or a brand new Starbucks in a Las Vegas suburb. You want your eggplant Parmesan at Olive Garden to be the same today and next month, and social media companies want everyone to have the same account set-up and access settings so that it is easier to manage all the companies, individuals, and organizations that create accounts. Scale makes things consistent, reduces administrative burden, and keeps costs down.

 

Replication is more adaptable from region to region, setting to setting, and industry to industry. The goal might be very similar, say to reduce healthcare costs, but the organizations and spaces might vary dramatically, say from nursing homes to companies offering remote medical second opinions. What Chase argues is that many healthcare organizations shouldn’t get too caught up on scale, and should focus more on replication. Hospitals can learn from nursing homes and replicate the approaches they take to improve patient adherence to medication regimens, knowing that there is some overlap and some divergence in their patient populations. Health plans can replicate patient education models that hospitals find successful, even though the patient education from the health plan will take place in a different form and space.

 

Scale dictates what should be done to create exact copies of a process with diminishing marginal costs, but replication is necessary when dealing with multiple confounding variables in dynamic and ever changing spaces. Scale might be needed for economic success at national and multinational levels, but replication provides the flexibility and creativity needed for success when a cookie-cutter model can’t be followed.