30 October 2015

Dear Interested Readers,

What’s Inside This Week’s Letter?

The honest answer to that question is some stream of consciousness thinking and a rambling discussion of some pretty wonky stuff. I have tried to introduce some interesting angles to provide relief for those who want to challenge themselves to read enough of it to tell me that I do not know what I am talking about. Sometimes my letter just develops a life of its own and I seem to have little control over the outcome.

I had planned to give you some excerpts from some really great responses to last week’s letter about the history of polio and the iron lung as well as the controversy over the utility of the annual physical. Maybe next week I will find the space to report them. I have had robust conversations with those who did comment. I hope that many more of you will give me your thoughts about the issues in this letter.

Please give strategyhealthcare.com a glance every now and then. The hits look good to the Gods at Google who will move it up on their searches. It would be great if you told your friends there is a signup window for these weekly musings on the site.

Healthcare Insights From Behavioral Economics

When you live in a small town that is at least a half hour away from “big box stores” and other commercial outlets you begin to develop some shopping efficiencies. My wife and I love where we live on a lake in New Hampshire. New London is about 40 miles up Interstate 89 from the shopping areas of Concord. We usually shop for the items we can’t find in our little town by heading a half hour North toward the more commercial areas of the Upper Connecticut Valley in Lebanon and Hanover where we also enjoy poking around the shops in Hanover and coupling our shopping with a movie and dinner. If we can’t find what we want there, we can pop across the river to White River Junction and Norwich. Whenever we make a trip North or South on the Interstate we ask ourselves about other activities that we can bundle with the trip to make our time on the road a more efficient investment.

Monday we were heading South so that I could attend some meetings in Boston. The question that we asked ourselves was what other tasks should we accomplish going that way. There are many options in Concord, Manchester and Nashua. I was a little surprised when my wife said that we needed to stop in Concord to buy a refrigerator before stopping at Costco in Nashua to restock our supply of ibuprofen.

It may seem that her answer was a little impulsive but after a second’s thought I realized it really wasn’t. She is working through her “punch list”. We have just renovated our home and have all new appliances and a lot of new furniture but there are still some holes to be filled before her vision is complete. It may be an extravagance but we would like to have a new overflow refrigerator-freezer in the garage to replace an old one that is a very tired twenty year old veteran. She had purchased all of our other new appliances at a store in Concord and had liked their service. We had gotten the builder’s discount and we appreciated the ease of the transaction.

As is usually the case, the item we decided that was best for us was a little more expensive than we had expected but we bought it anyway. As we left the store we were asking ourselves why we had made the purchase. Had we been rational? We were headed to Costco to buy ibuprofen to save a couple of bucks? We might have saved a couple of hundred dollars if we had gone to a discount store. We could have gone online and looked for  a bargain. We knew that we would pass several other places to buy appliances like BestBuy and Sears between the store in Concord and Costco in Nashua; but we chose to pay more.

Classical economic theoretical considerations would have predicted that we would have made the purchase that was in our best financial interest but we did not. Obviously, the decision to buy is weighted heavily toward price but we all know that economists have a hard time predicting our behavior in the market. There are factors other than price that drive our behavior. Our defense to ourselves was that we trusted the store. We knew our new refrigerator would be delivered efficiently and they would take away the old fridge. We were coming off a very positive sales and service experience with them. We knew them by their reputation for service if problems were to rise in the future. If need be, they were willing to come to us which is a positive if you live in an out of the way place. In that context our economic behavior was understandable and rather easy to defend, despite the fact that most of the advantage that we were buying was based on trust that was derivative of only one previous direct interaction but also a reputation earned over many years with other people we knew and trusted.

The conference that I was attending in Boston was called ATLAS which stands for the Annual Thought Leadership on Access Symposium and is presented by Kyruus, a rapidly growing software provider of technology to optimize the referral process for patients, physicians and health systems. If you thought about the product in terms of websites like Kayak, Orbitz or Travelocity you would not be far off. If you wanted to understand your provider network better and track its usage to remove waste, improve the quality of initial referrals or overcome defects in the referral process you would be interested in Kyruus. If you realized that PCPs and other referring clinicians have little knowledge these days about the interests and skills or the particular capabilities of subspecialists in a diffuse CIN (clinically integrated network) where docs never meet face to face, you would wish that there was something like Kyruus. If you wanted to help patients find “the right PCP for their needs”, Kyruus can help. If your CFO keeps telling you that the system needs to reduce leakage if you are to succeed as an ACO or in contracts where there are financial incentives for keeping PPO patients in your system, then you would be interested in the various products that this young company offers. If you were concerned about consumerism and competition in the future of healthcare, you would also be interested in their products. If you have a hunch as you think about the competencies and assets that your organization will need to develop as it prepares for value based reimbursement, then these products would be interesting to you. If you realized that more and more the new healthcare payment systems contain touch points that will force you to better understand the preferences of the “customers” that you would like to help as patients, then you surely would be interested in learning about what Kyruus is developing. Truth be known, as Kyruus is evolving, it is possible to imagine many more applications.

As a disclosure, I have been affiliated with Kyruus as a member of its clinical advisory board for about a year and a half. This was to be my second ATLAS conference and I new if it was as good as the first one, I was in for a treat. The agenda of individual presentations and the panel discussions that were planned was exciting to anticipate and was noteworthy for its blend of subjects that ranged from social media to healthcare economics, with a clearly demonstrated awareness of the importance of judging everything from the point of view of creating value for patients. At the end of the two days of presentations with a third day added on for a meeting of the clinical advisors with senior Kyruus leaders, I must say that my expectations were exceeded.

I cannot reproduce the experience here. It would just take too many words. I do want to report the two moments that meant the most to me. I was curious as the day began because the keynote speaker was not identified. In that slot was the name of the CEO and Co-Founder, Dr. Graham Gardner who is a BIDMC trained cardiologist and former Chief Medical Resident of the BIDMC. The keynote speaker was a patient named Ed, who was healthy and happy as a small business owner without health insurance in New York City before he was left on the street near death after being mugged and stabbed multiple times by four gang members who needed to kill someone as part of an initiation process.

Somehow, despite bilateral pneumothoraxes and multiple lacerated abdominal organs, he survived because of heroic efforts of bystanders, EMTs, and skilled surgeons. He survived to lose his business, become homeless, and descend into an almost inescapable depression. As I looked around the room during the presentation I saw many faces that were streaked with tears. I was moved because I have been to many conferences and have sat in many meetings where someone says, “We need the voice of the patient”. I have never seen the voice of the patient so dramatically presented and so effectively used to put everything that was to follow in such an appropriate perspective.

The second event I want to report was a conversation presented under the title of “Dr. Right: The Clinical Imperative of Patient-Provider Matching”. It was actually a conversation between Dr. Bijan Salehizadeh, who is the Managing Director of NaviMed Capital and Professor Amitabh Chandra who is an economist and Director of Health Policy Research at the Harvard University Kennedy School. If you are a regular reader of these notes you have seen his name before. Most recently I reported his thoughtful presentation at the 2015 Massachusetts Cost Trend Hearings.

In the opening minutes of the conversation Dr. Salehizadeh asked Professor Chandra to discuss a paper that he had recently published in the economics literature. What was described was what we would call in healthcare a “natural experiment”, something like the moment in time back in 1969 when the entire Holy Cross Football team was simultaneously exposed to hepatitis A via a contaminated water source dispensed during a mid-practice water break during their preseason workouts. If you want that story from a lay perspective, click on the link. If you would like a review of what was learned about hepatitis infection in young healthy men, click here.

The “natural experiment” that Professor Chandra studied was the impact on the purchase of healthcare by the employees of a large company that decided to put every employee and their dependents on a high deductible health plan coupled with a health spending account of about $3500 and a cap on maximum out of pocket expenses of about $6500. There was total equity. The CEO got the same benefit as the receptionist at the front door. The sample size was large enough to give statistically significant sample sizes at all income levels and the medical status of employees was known. Here was an opportunity to see how personal income, disease status and coverage interacted in “the wild”.

I was miffed because they did not cite the article immediately so I missed some of the depth of the discussion as I dove deep into Google trying to find the paper. I was successful. It is working paper 21632 of the National Bureau of Economic Research. It is a robust 78 pages long and hardly what I expected to find, but I can guarantee you that there are some interesting graphics and if you want to peruse it, you can find it at:


Here is the abstract. The bolding is mine. The message is scary because people avoided the expense of care they needed.

Measuring consumer responsiveness to medical care prices is a central issue in health economics and a key ingredient in the optimal design and regulation of health insurance markets. We study consumer responsiveness to medical care prices, leveraging a natural experiment that occurred at a large self-insured firm which forced all of its employees to switch from an insurance plan that provided free health care to a non-linear, high deductible plan. The switch caused a spending reduction between 11.79%-13.80% of total firm-wide health spending ($100 million lower spending per year). We decompose this spending reduction into the components of (i) consumer price shopping (ii) quantity reductions (iii) quantity substitutions, finding that spending reductions are entirely due to outright reductions in quantity. We find no evidence of consumers learning to price shop after two years in high-deductible coverage. Consumers reduce quantities across the spectrum of health care services, including potentially valuable care (e.g. preventive services) and potentially wasteful care (e.g. imaging services). We then leverage the unique data environment to study how consumers respond to the complex structure of the high-deductible contract. We find that consumers respond heavily to spot prices at the time of care, and reduce their spending by 42% when under the deductible, conditional on their true expected end-of-year shadow price and their prior year end-of-year marginal price. In the first-year post plan change, 90% of all spending reductions occur in months that consumers began under the deductible, with 49% of all reductions coming for the ex ante sickest half of consumers under the deductible, despite the fact that these consumers have quite low shadow prices. There is no evidence of learning to respond to the true shadow price in the second year post-switch.

Professor Chandra’s discussion suggested that decision aids and price transparency were in place. When patients did purchase care many of them reacted like my wife and I did at the appliance store. They made choices that were not always explicable in purely economic terms. The message to me was that a future that is significantly determined by the economic choices of patients may be quite chaotic. We must consider ways to reach populations under these plans with tools that help them make better decisions and not avoid the care they need. It has been clear for some time that even the most superficial discussions of the barriers to the Triple Aim usually quickly become a discussion of economics and resource utilization. The lessons in this data need deep consideration. I predict that thoughtful people will reconsider some of their long held ideas and positions.

This train of thought brought me into rethinking much of what I hold to be axiomatic. The process is not over, but continue reading to discover some of what I have been thinking about. So far my conclusion is that everything I believe to be true is generally true but there are barriers to success in the details and complexity that will force us to be better than we are and develop tools and attitudes that are in very short supply or still evolving at this time.

The destination or the BHAG (big hairy audacious goal) has not changed. It is still the Triple Aim. What is clear is that we have a lot more work to do on medical markets, understanding the mind of the consumer, managing evolving workforce challenges, optimizing insurance plans and benefits, and improving our ability to price care as a function of outcomes rather than current cost. Universal coverage and improved primary care and behavioral health are goals that are vulnerable to pricing and cost.

Markets, Consumerism, and The Triple Aim Plus One: Connected or Conflicted Ideas?

The Affordable Care Act (Obamacare) and its “pilot” predecessor, the landmark Massachusetts Chapter 58 of 2006 (Romneycare) which produced near universal coverage in Massachusetts were both built with hopes founded on market principles. There has been a longstanding belief, most frequently articulated by business oriented think tanks and politically conservative theorists, that the “market forces” of consumerism and competition could “fix” healthcare.

Blumenthal and Morone point out in their book, The Heart of Power: Health and Politics in the Oval Office, that the conversation about markets and healthcare has been going on since the fifties when the “public-private” partnership was first described by Eisenhower’s administration as an alternative to a national health service or single payer approach to healthcare finance that had been advocated by Harry Truman. The passage of Medicare and Medicaid in 1965 constituted the “public” part of the solution. The importance of considering the role of the “market” in the search for the solutions that plague healthcare probably arises from America’s belief in the power of markets. The importance of market considerations was made even clearer by the failure of Clinton’s “Hillary Care” (the link is to an article written in 1994 by Paul Starr detailing how and why the Clinton plan failed).

The Clinton’s plan represented some compromise with the demands of the status quo and the market because it was a combination of the creation of a mandate for citizens and employers to have and provide coverage, as well as an expansion of Medicare to those without an employer source of healthcare. Compromises generally make few people happy because they focus on what they gave up and what it cost them. Mandates feel oppressive to those on the libertarian right who might prefer to “live free or die”, as we say in New Hampshire, and simultaneously are something less than perfect that angers many on the left who believe in the moral imperative of an entitlement and still want a single payer model, if not a national health service.

The principle goal of the Clinton plan, as as well as the goal of “Romneycare” and “Obamacare”, was universal coverage. Any mention of universal coverage is always followed by financial questions. How much will it cost? Who will pay for it? Can we afford it? Those who believe in markets speak up at this juncture and point to how competition in a true market drives invention, innovation and customer alignment that no bureaucratically controlled process has ever achieved. We all have personal experience with the good that markets can yield. Our entire society is built on what markets can produce for us. We easily forget the pain we feel when they fail.

Perhaps it was a bold leap of faith to imagine that forcing a marriage of the market with public funding for the old and the poor could solve our enormous problem. Clinton’s plan was ultimately defeated by those who were afraid that they would lose the coverage and care they valued or the business advantages they enjoyed if the marriage did not work. Much of the current resistance to the ACA is based on the same fears plus the significantly more polarized political environment that has emerged since the introduction of new levels of political distrust that we began to see in Congress that was initiated by Newt Gingrich in the years following the failure of the Clinton healthcare initiative.

President Obama’s effort started with an analysis trying to understand what caused the failure of the Clinton plan. It appears in retrospect that the strategy that evolved from that evaluation had at least two arms. First, gain the support of the defenders of the status quo like the AMA, the insurance industry, and the suppliers of the “stuff” of healthcare, e.g. drugs and devices with conversations and reassurances even before the process started. Second, reassure a skeptical insured base that their care, and the price of their care would only improve after passage of the ACA. Infamously, this reassurance did not turn out to be true since many patients liked their coverage that did not meet the internal care standards of coverage under the ACA and they found that the care levels mandated by the ACA for everyone either caused the plans that they enjoyed to be cancelled or the price to be increased.

There has been so much noise around the ACA that most people do not understand the grand compromises which created Romneycare and Obamacare, and certainly do not appreciate how the compromises are a reaffirmation of our core national belief in the power of the market to produce improvement and spawn innovation that is ultimately good for consumers. Good markets are good for consumers and depend on consumer trust, interest and understanding to be maximally effective. Five years ago most people in healthcare did not fully understand the role of the public, as consumers, in the shaping of the future of healthcare, even as we talked about the need to focus on patients. Simultaneously, powerful forces within healthcare, specifically hospitals and providers more than insurance companies, often seem not to appreciate that the decisions in the marketplace and the economic activity of patients will ultimately be the drivers that enable us to reach the Triple Aim Plus One.

To many it seems ironic that we see our salvation in “market” forces. As we have watched healthcare costs accelerate at a pace that is a multiple of the GDP, the bias has been that “market forces” do not work in healthcare. How do we resolve our previous experience that markets in healthcare do not hold down costs with our future expectation or at least hope that we should place our trust in markets to provide better care for everyone at an sustainable expense without destroying the lives of the caregivers?

We have learned over the years that markets need just the right amount of regulation to balance human tendencies for self aggrandizement. Experience has also shown that transparency in any market makes for better consumers and favors those businesses that do a better job. Consumers in any market are driven by a broad range of variable interests and objectives but generally speaking they are looking for high value which is some combination of quality and cost. Quality in healthcare we all know is defined as care that is patient centered, safe, efficient, effective, timely, and equitable. Measuring quality in a way that satisfies both producers and consumers is almost as elusive as trying to catch the wind.

In his new book, The Second Curve:Thoughts on Reinventing Society, Charles Handy, the venerable British business guru, futurist and philosopher has a chapter critiquing the current state of markets in general and their current complexities and challenges. He briefly reviews the history of the evolution of market thinking and concepts, the experience with the successes and failures of markets, what they can and cannot do, and projects the changes that they will be required to negotiate as the world continues to change at home and abroad. Since the ACA is an expression of our hope that the market will fix healthcare, there is benefit in reviewing what Handy has to say about the complexity of markets and the future considerations that will be the difference between what works and what can not work, if we hope to avoid further disappointment.

Handy begins by reminding us that the market is the best place to balance supply and demand. He adds that markets encourage competition and competition promotes innovation. We take it as Gospel truth that progress is a derivative of improvement and innovation driven by the demand in the market.

Sadly, he adds that some among us also exploit markets. Handy points out that if we treat everything as a market, money becomes the measure of all things and turns everything, including parts of ourselves into commodities for sale. I would have to say that most of the sad stories that I hear in healthcare have elements of this reality embedded in them somewhere. This last week the Boston Globe presented a very complex history and account of how surgery is scheduled at one famous AMC. The story focuses on a minority of practitioners who are allowed to perform in a way that raises questions about the cost to patients of market driven attempts to increase productivity. It is a story that underlines concerns that patients have based on the non transparent ways hospitals function. It may be as simple as a story about the potential for damage from imperfect informed consent. One can also argue that it is the story of how what doctors do to improve revenue and efficiency has the potential to result in a patient feeling like a commodity rather than the single focus of a doctor’s concern during surgery.

Handy also points out that our fuzzy thinking about quality leads us to use price as a surrogate for quality. The surgical literature and much of the comparative information about hospitals uses volume as a surrogate for quality. Both price and volume may be generally accepted by practitioners and consumers to be ballpark truths. The link is to a recent article suggests that certain “hobbyist” physicians should not be doing procedures that they infrequently do. Such a policy will undoubtedly improve outcomes but are price and volume our best shots at market based quality metrics in healthcare?

Handy asserts that markets that compare costs but not prices are “illusory”. In Massachusetts this is a present and growing problem. Price variation seems to be based on prior contract experience, reputation, market power and influence more than by measurable quality, outcomes or true costs. As a result of our confusion about “price” the artificially high payments to some hospitals and providers undermine the efforts of those not paid as generously to lower the cost of care by better managing production costs through waste elimination and the reduction of unnecessary volume. The huge variation in reimbursement that is not a function of outcomes will largely negate the current and future performance of the Massachusetts healthcare market as a mechanism for improving the quality and cost of care.

Handy asserts that it is possible and perhaps likely, as the story from the Globe may illustrate, for poorly functioning markets to have a very expensive item be of low quality. He also points out that you can’t create a “quasi-market” where none can exist naturally. Our urban environments do offer great possibilities for competitive markets but much of the country is lucky to have a single reliable provider of care and issues of market come into play only when high levels of care are required and complicated care is usually provided on referral to distant competing facilities.

Perhaps the point most pertinent to healthcare that Handy makes in his general discussion of the current and future states of markets is that:

“Markets don’t work where the true outcomes are unpriced”.

He makes this point not only in regard to healthcare but to other endeavors that are also sources of current public spending and concern like education and prisons. Here he is arguing for value over volume with the realization that without outcomes or defined objectives, consumers and providers are left with very poor substitute mechanisms for determining value.

Handy quotes the “McNamara” fallacy. First, measure whatever can be easily measured. Second, disregard what can’t be easily measured or give it an arbitrary value. Third presume that what can’t be easily measured really isn’t important. Finally, assert that what can’t be easily measured doesn’t exist. To quote Handy, “This is suicide”. To McNamara’s second point Handy says that he would add “… to assume that what can be measured accurately leads to the desired outcome even if that cannot be measured”. His point seems to be that living with ambiguity and continuing the search for ways to effectively measure outcomes is a better strategy than replacing uncertainty with misinformation. Without outcomes customers and policy makers remain in the dark, relying on hunches, not evidence, and that is dangerous and not very productive.

Handy rebuffs Alan Greenspan who commented in his memoir after the financial collapse of 2008, that “he and other economic forecasters did not understand that markets are prone to wild and even deranging mood swings that are uncoupled from any underlying rational basis”. In his continuing discussion Handy takes us back to Adam Smith to review whether or not Smith really meant that the “invisible hand” would permit the single minded pursuit of self interest to work for the good of all. He points out that Smith did say that competition would return the price of anything to “its normal price”. He points out that Smith also said that “by acting according to the dictates of our moral faculties we necessarily pursue the most effectual means for promoting the happiness of mankind…to restrain our selfishness and exercise our benevolent affections…” Smith actually suggested that it was in the best interest of business to work for the self-interest of their customers. Finally Smith said, that markets need good rules and strong government if they are to work in the interest of all.

Handy concluded his review of the future of markets by agreeing with Adam Smith, “…markets are essential but they need careful regulation and tight rules…” He continues by saying “…they do not work in all situations; trusting to intermediate measure can be misleading; that an unquestioning belief in the power of the market to organize our lives is dangerous; and, crucially, that the value of much of life cannot and should not be expressed in financial terms.”

I began by saying that the ACA was designed to use the market to transform healthcare and that the deal included accepting a public/ private partnership with mandates to produce something that might eventually give us the Triple Aim Plus One. The understanding is consistent with Handy’s analysis. Time will tell if we can manage the deal to the outcome we desire.

We will not know what we have done until we can more effectively measure outcomes. We must avoid thinking only in terms of finance because thinking only about finance makes it is easy to treat patients like commodities. We all have used terms like “heads in beds” and “cost of year of life saved”. Any of us might lose perspective, as in the Globe report about surgical scheduling when we focus on efficiency and revenue while discounting the possible negative effects of our actions. If we are blinded by finance and don’t question the safety of increased time under anesthesia and the possible distraction of doing too many things at once while rationalizing an imperfect form of informed consent, we are inviting the distrust of consumers and even worse, the possibility of harm.

We need markets and it is right to focus on what that can give us; but, we must also expect to be held accountable when self interest leads us away from our highest professional responsibilities, our original intents and core values. We must accept that we all need rules and we all will benefit from accountability and transparency, if we ever hope that a real market will transform healthcare.

Halloween and the Last Leaves

I have four sons and some of my fondest memories of their childhood years, now long past, were the twilight and early evening walks with them on Halloween. I did not really conceptualize trick or treating as a “special family walk” at the time but it often was, even on those Halloweens when we had awfully cold weather or rain. Trick or treat never has a rain delay. Who cares about soggy costumes or a cold chill if you are filling up an old pillow case with the things your mother will usually not let you buy?

If you live a little South of New Hampshire this weekend may be the peak of your fall color. Next to Professor Chandra’s talk one of the things I enjoyed this week was walking on the Boston Common and in the Public Garden. As the picture in the header shows, the leaves on the trees in the Public Garden were not quite at peak on Tuesday, but I made a trip to the western suburbs later in the week and was treated to a wonderland of color.

Thanks for reading this far. Until next week…

GeneL160 Be Well,
GeneDr. Gene Lindsey