It wasn’t the first time I got depressed by a speaker at a forum on health innovation, and it was only when a friend turned to me as we were applauding and said “That was depressing” that I realized what had happened.
It was actually a very fine lecture at the University of Washington by Joseph Gifford, MD, CEO of the Providence Accountable Health Organization. He explained the risks to each financial stakeholder in the healthcare financing chain. “You can’t understand the lake unless you understand the spring up in the mountains” was one of his more pleasant and memorable one-liners. His refrain, however, was not so pleasant: “It’s all about cost, cost, cost.” Dr. Gifford sees a lot of pitches. He made it quite clear that there is not much appetite within his ACO for funding innovations that improve quality or the patients’ experience unless it demonstrably saves money, and fast.
Dr Gifford’s message to innovators was to “know who has the risk and is served by your innovation”. Both conditions must be met. The most important insight I got from Dr. Gifford was this: “Innovation value is captured by the entity that bears the risk.” He cautioned us not to waste our time selling innovations to entities who cannot capture the value the innovation brings to other stakeholders. Nearly missing from this talk was mention of patients as risk-bearers, but his point on value capture still stands. He also said that quality (i.e., quality metrics) “is table stakes”, not a differentiator. I hope he’s wrong about that. He repeated “It’s all about cost, cost, cost.” He went on to point out that “there is extreme resistance to paying any more in hopes of getting slightly higher quality”. Boom.
“Entrepreneurs must understand who has the risk and how the money flows”. Damn. That means each piece of the value chain has to optimize for their own little piece, system-wide costs are not their problem. What’s most disturbing is that this is the perspective of a highly intelligent physician leader and CEO of an Accountable Care Organization, the silver bullet of health reform.
Here’s the problem. Just as biological processes occur at multiple levels- from molecular to systemic, the cost structure of healthcare is an evolving multiscale system that no one quite understands. We pay smart people to optimize their organization’s piece. Nobody is accountable for the performance of the whole system. Two weeks ago I was at another healthcare forum and a health benefits consultant dismissed a question about the expenses of end of life care as mostly “irrelevant” to employers, because it’s a Medicare problem.
The illustration above is from a seminal article by Yaneer Bar-Yam on “Multiscale analysis of the healthcare and public health system: Organizing for achieving both effectiveness and efficiency” (2004) It was drawn years before the Affordable Care Act, before the HITECH Act, and before the mass adoption of smartphones and consumer digital health. It still mostly reflects the world described by Dr Gifford’s lecture. The payers divide the large scale flow of money from employers (or the government) into smaller financial flows to healthcare systems and healthcare providers. Information about what services were performed goes back, and services are rendered to the patients. Bar-Yam likens what happens in this system as “turbulence” just as in physical systems of fluid dynamics. “Turbulence occurs when a simple coherent flow is broken up into many smaller flows. It can be observed in the swirls and eddies in a fast -flowing river…”
Contrasting with this turbulent healthcare system is a hypothesized “high efficiency healthcare system” in which a stronger public health capability is deployed to improve health and wellness of the population through regular vaccinations and routine diagnostic tests.
Today we’re about 10 years beyond the time these analyses were first developed. Some of these ideas are now being tested via the Affordable Care Act, albeit with the strum and drag of a partisan knock-down/drag out culture war over the future of healthcare. I wish the nature of this debate were not so ideological because the stakes are just too high.
The analysis of cost in the system across many dimensions and organizational boundaries is needed before we really get a handle on how to optimize the effectiveness of our healthcare system. The National Institutes of Health has announced a funding opportunity that “seeks to promote interdisciplinary collaboration among health researchers and experts in computational approaches to further the development of modeling- and simulation-based systems science methodologies and their application to important public health challenges.” I believe we are in the early days of applying multiscale models to the understanding of the cost structure of our dysfunctional and misaligned healthcare environment. It may provide new insights into the creation of service “bundles” that avoid the “cost,cost,cost” myopia of smart health administrators. It may also offer new ways of looking at a constellation of other services that are valuable to the system as a whole.
The Health Innovators’ Multiscale Dilemma
The “Innovators’ Dilemma” theory described so well by Clayton Christensen, explains how large organizations can “fail by doing everything right” by optimizing according to their traditional cost and profit structures and thereby miss the disruption from below as upstarts work their way up the value chain. Ever since I first saw this I have wanted to be a disruptor because it looks like a lot more fun.
What I find is most energizing about working in a health startup is the clarity that comes from having only opportunity ahead. As the poet said, “When you got nothing, you got nothing to lose. You’re invisible now, you got no secrets to conceal”.
In my view, the most exciting and least depressing thing about our chances to positively disrupt the healthcare system is the active participation of individuals- i.e., patients, consumers, caregivers. Consumer technologies are increasing the flow of information to everybody and are creating new service models (Uber anyone?). It is already all around us. We’ve watched as the retail, transportation, and entertainment industries have embraced (or resisted) customer empowerment. Healthcare is one of the last bastions of paternalistic, easy-does it gradualism and may eventually give way.
Dr. Gifford is right that innovation value only exists when there is an entity that bears the risk and also captures the benefits. I got it. Health innovators who save their institutional customers money will have an easier road than those who don’t. But keep an eye on the consumer. It’s ultimately our future.