We spend over $2.3 trillion on healthcare annually, but our most serious financial problem is long-term spending on Medicare and Medicaid. Our future funding obligations for these federal healthcare entitlement programs are in the tens of trillions of dollars. This rate of spending is unsustainable.

An old friend from residency, Casey Fitts, was known to say, “Yep, I played football at Harvard. I was small, but I made up for it by being slow.” Perhaps a similar observation could be made about our healthcare system – we don’t do a great job of keeping people healthy, but we make up for it by being expensive.  

Most people in healthcare realize that we do not do a good job with population health.  Sure, we seem to do pretty well within some areas, such as childhood vaccinations.  But considering that we have a growing epidemic in diabetes and obesity, one must admit that we have a long way to go with public health.

So how can we spend $2.3 trillion on healthcare annually and still not be healthy? The answer is found in a basic economic principal: people respond to incentives. For decades, the “payers” (i.e. Medicare, Medicaid, and private insurance plans) have paid us largely on productivity. Therefore, we do more procedures, prescribe more drugs, perform more tests, admit more patients to the hospital, and schedule more follow-up visits. This is rational economic behavior.

And patients are motivated by similar rational economic behavior. Low co-pays and deductibles have disconnected patients from the economic consequences of their actions. Why work hard to maintain your health when you have doctors and hospitals to take care of you when you inevitably get sick? Why not choose more treatment and testing when you are paying for it, particularly when you are under the assumption that more is better? 

But more is not necessarily better. Jack Wennberg and his colleagues at Dartmouth demonstrated this years ago. The care one gets is largely dependent upon the culture of the local medical community, and treatment outcomes are not better in areas of high utilization.

Some things we do quite well. We are the best at “rescue care” for people who are very sick. We can do a lot for a critically ill patient, but we are not so good at preventing them from getting sick in the first place.

Variations in care, poor population health, and exploding costs are pushing our healthcare system to financial ruin. Consequently, these factors are the driving forces for healthcare delivery model reform.  Accountable care organizations, bundled payment schemes, medical homes, and other models represent policy makers’ best attempts to change the economic drivers in healthcare, and thus, improve outcomes and reduce costs.  

Each of these risk-based models represents a different form of capitation whereby a payer contracts with a provider network to provide healthcare to a specified population of patients for a fixed payment. The provider network accepts a projected profit margin for providing these services but is at risk for the costs occurred for avoidable complications, over utilization, poor health maintenance, poorly coordinated care and other expenses.

Herein lies a problem for hospitals, doctors, and other healthcare providers. In Mississippi, for the most part, we are still working in a productivity-based system.  But what happens if/when payers migrate to these risk-based payment schemes?  How are you going to manage this highly disruptive change in the way you provide healthcare?

Fortunately, we can learn from the experience of institutions such as Intermountain Health Care, a true pioneer in healthcare delivery. You should begin with leadership. Success is going to be dependent upon clinical process improvement, and success will depend primarily upon leadership. Here are some ideas that might help you get going:

• Create a culture of change.  It doesn’t matter if you are one of three physicians in a family practice group or the CEO of a large hospital system.  Culture is the most important factor in successful change. Leaders must realize that it is impossible for them to understand what really happens in their institution. Therefore, they must push decision making down to the front line workers (i.e. “fundament knowledge team”), and help them to feel safe when they have to deliver bad news to leadership. If you do nothing else, do this.
• Change your thinking from an administrative/financial model to a clinical process model.  You must decide what business you are in. Unwittingly, most leaders spend their time and energy figuring out how to get paid more. Rethink that. Get into the business of developing clinical processes that result in better, more efficient care.  That’s where you will make your money.
•  Prioritize education.  Study the work of Brent James. Understand Don Berwick’s concept of the Triple Aim. Make the health policy journal “Health Affairs” required reading. Read The Improvement Guide, also The Team Handbook.  Learn Edwards Deming’s principles of process improvement.  Familiarize yourself with Shewhart’s SPC charts.
• Focus on data. Measure what you do. Identify areas of high cost and variation in care, and then develop processes to improve them.  For example, a primary care clinic might find significant variation in treatment of diabetes amongst its providers. A hospital could identify opportunities for improvement in operative times, resource utilization, and complications in its joint replacement center. These efforts are where you can realize the most savings and have the greatest clinical impact.
• Don’t be fooled by government programs like value-based purchasing.  These are simply compliance programs that are not going to have much effect in reducing healthcare spending. These programs are fundamentally flawed, because you are measuring the outcome instead of the process, a major observation by Deming. Therefore, you can easily be fooled into accepting a quality metric that satisfies the government when you really do much better. Focus on the processes, and your outcomes will exceed the government mandated standards.

Thomas W. Prewitt Jr., M.D. is a senior management consultant in health care services for HORNE LLP. He leads HORNE's efforts in health care quality improvement and delivery model reform after practicing surgery for more than 20 years. HORNE has served clients across the nation for 50 years. Ranked as a Top 50 CPA and business advisory firm, HORNE has offices throughout the Southeast in Mississippi, Tennessee, Alabama, Louisiana and Texas. For more information on HORNE,   visit www.horne-llp.com.

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