Next year should be a very interesting one for the U.S. health care system. The election of a new president will bring the hope that someone will finally address the longstanding problems of high cost, uneven quality and the growing ranks of the uninsured in this country; however, because the vast bulk of American health care is privately owned and operated, the new president and Congress can only directly address government programs such as Medicare. They also can potentially develop some new federal polices to reduce the number of uninsured despite having very limited tools to impact the major drivers of costs and quality. The major change in the U.S. health care system will come not from government but from market forces and the response of sophisticated integrated health care delivery systems.
A stagnant health care systemA number of my colleagues mention that health care today feels much like manufacturing in the 1970s. In that era the focus was on local competition, concern for unionization and the need for raw materials. Then two major forces changed manufacturing forever – globalization and automation. Those companies that did not embrace these environmental factors perished. Even today, this sense of urgency is still very apparent. These companies rapidly adopt the newest technologies and advanced business practices.
This is not true in health care delivery. It still takes more than decade for clinical innovations that have been tested and proven effective to be used by the majority of physicians in the country. Only 28 percent of primary care providers use electronic medical records and only 19 percent have advanced IT capabilities. Between 2000 and 2007 the administrative cost of private insurance rose by 109 percent, while medical outlays rose by 65 percent and workers’ earnings rose by 24 percent. [1]
Clearly the urgency for change is not as profound in health care as it is in manufacturing because in the last 40 years, health care system leaders havefound ways to acquire more funding and to remain immune from scrutiny; however, no system can continue to exhibit this behavior forever. Health care, too, will be subject to the fundamental pressure for reform. This change is beginning to occur today as the major purchasers of health care begin to aggressively reassert their roles as major drivers of system change.
Buyers will force changeThere are three major purchasers of health care; the government; private health plans; and the consumer. Because government budgets are very strained, governmentagencies are beginning to demand value in their purchasing of health services. Medicare and Minnesota Medicaid are implementing “pay for performance” systems that reward those providers who use the most current evidence-based methods of treatment. Minnesota also recently enacted legislation to provide incentive payments to providers who coordinate care of patients with chronic disease. Pay-for performancesystems could soon constitute up to 20 percent of how the government pays for health care services.
Private health plans also are becoming increasingly creative with new programs such as worksite wellness plans, disease management programs and new forms of paymentfor electronic visits. Minnesota Blue Cross recently announced that it would waive copays for patients who visited convenience clinics such as Minute Clinic. Even with awaived co-pay, Blue Cross will save money compared to paying for the traditional visit in a doctor’s office.
Finally, consumers are now becoming engaged in their health care purchasing decisions. Through the use of high deductible policies and health savings accounts, many individuals now have a strong role in how they purchase their health care. Consumers are shopping for medications, outpatient imaging services and even other more complex procedures. Even medical tourism is growing. In 2007, an estimated 750,000 Americans traveled abroad for medical care; this number is anticipated to increase to six million by 2010. [2]
Systems will respond – some will failJust as many manufacturing companies faltered in the 1970s, it is likely that many health care organizations will fail as well. Operating margins for medical groups arenow on the decline. Competition for market share is intense. Hospital margins also are declining and access to capital is constrained. This is particularly problematic forhospitals as they need to purchase and implement extensive, new electronic medical record systems. These environmental pressures will certainly result in some health careorganizations ceasing their operations and selling or merging with other, stronger organizations.
The successful organizations that survive will have three major characteristics. The first is an effective organizational structure that can deliver the best evidence-based health care. The health care industry must move from a cottage industry (small practices, independent hospitals, etc.) to integrated systems of care. Although these systems cantake many forms, they will be able to coordinate care among all providers, oversee and coordinate preventative care, make the patient’s clinical information readily availableat the point of care through electronic records and develop systems to reduce administrative costs.
The upper Midwest is fortunate to have a long history of care provided through integrated delivery systems. These systems have become very efficient while delivering very high quality care. A recent study by the Dartmouth Atlas of Health Care comparing regions of the country found Medicare spending for patients treated at the Mayo Clinic was 50 percent less than patients treated at UCLA. [3] The upper Midwest almost always scores the highest when clinical quality is measured.
And although these integrated systems must be developed locally and from within an organizational structure, both Sens. McCain and Obama have endorsed many of theseoperating principles in their health care platforms. They both realize that real system change must include these key system components.The second characteristic is the use of advanced business practices. Leading health systems have begun to recognize that although health care is different from other businesses, it is not that different. Once this is understood and a sense of urgency to make change is present, the current tools and techniques of modern American businesscan be adapted to fit the delivery of health care.The final characteristic of a successful health care organization is the growth and nurturing of future leaders. I recently participated in a meeting with a health care delivery organization that was considering contracting for training services with the Center for Business Excellence at the Opus College of Business. The medical director asked two common questions: “What do I do when I ask a physician to lead a clinic when he now is in charge of his former ‘partners’?” And “How can you lead effectively in a highly collegial and professional environment?”
This is the key leadership challenge in health care today, and those organizations that develop leaders who can conquer this challenge will succeed. The relationship ofphysician leaders to non-physicians also is critical to successful organization performance. Fortunately, there is a growing body of knowledge about the best methods to approach these challenges. [4] Leadership can be taught and successful organizations will identify, educate and support their leaders for the future.Where to look for reformGovernments, both national and state, have a role to play in the needed change in the nation’s health care system; however, government cannot move rapidly and hasdifficulty making needed change while trying to satisfy many diverse and vocal constituencies.
In contrast, market forces and the actions of integrated health care organizations will be a much stronger force for positive, long-lasting change. So, don’t look to Washingtonto solve our heath care problems – the answers are much closer to home.
About the author: Daniel B. McLaughlin is the director of the Center for Health and Medical Affairs at the Opus College of Business.
[1]Commonwealth Fund, A High Performance Health System for the United States, November 2007.
[2]Deloitte Center for Health Solutions Medical Tourism: Consumers in Search of Value, 2008.
[3]Wennberg, John E, Tracking the care of patients with severe chronic disease, The Dartmouth Institute for health policy and clinical practice, April 2008.
[4]Conbere, John Campion, Brian et. al. Preparing Physicians to Lead, Minnesota Medicine, August 2007.
