More, More, More — Make More Stuff

There are three ways businesses solve problems:

  1. Make more stuff / provide more services.
  2. Optimize existing stuff / services to be used more effectively.
  3. Redefine the problem and solve it in a different way.

To provide context, let’s look at a few examples in healthcare.

Make more stuff: the city of Austin is growing rapidly, so HCA decides to build a new hospital to support a growing patient population.

Optimize existing stuff: most doctors have open schedules that are costing them hundreds of dollars per month. ZocDoc builds a search engine to help doctors fill empty times and patients to get appointments more quickly.

Redefine solution: why pay a doctor to take your blood pressure and look at a rash when a physician assistant or a nurse practitioner can perform the same job at a lower price point just as effectively?

Most of healthcare delivery has traditionally been defined by solution #1, the making of more stuff / providing of more services: ICUs, robots, oncology centers, and a plethora of medical disciplines and subspecialties. After adhering to this philosophy for the better part of 40-50 years, healthcare now accounts for 17 percent of the nation’s GDP.

The ACA and HITECH are attempting to shift focus to solutions #2 and #3 to drive quality, cost, and access:

Telemedicine falls at a cross section of solution types #2 and #3 and that’s exactly why it’s so profound. Telemedicine will help match the right doctors to the right patients across geographies (#2) and perform medical care with virtually no administrative or retail overhead (#3). In an ideal world, let’s say healthcare costs as a percentage of GDP are directly proportional to the percentage of waking time the average person spends actively fostering their own health. Let’s optimistically call that 5 percent. To reduce healthcare costs from 17 percent of the nation’s GDP to 5 percent, telemedicine will have to be the standard, not the exception.

Health insurance exchanges (HIX), the individual mandate, and pre-existing conditions . The simplest solution to solve the access problem is to litter the country with even more providers (#1). This solves the access problem across two dimensions: (a) distance / physical accessibility and, (b ) cost by increasing competition (assuming healthcare works per traditional supply-and-demand economics). However, the ACA has instead opted to promote HIXs. The logic behind mandating health insurance, building health information exchanges, and asking payers to price high-risk patients has been to encourage low-income and uninsured patients to engage in proactive care as opposed to reactionary care (#3). Because of the way payers have reacted to these three changes, the ACA has unfortunately created the side effect of increased premiums and loss of old plans and providers for many patients. It’s still too early to know if these sacrifices are (rightfully) justified.

ACOs and bundled payments. Providers know the average cost of care per patient per year within a given geographic area based on health statistics of the population (BMI, percent smoking, percent with diabetes, etc.) Thus providers should manage a fixed revenue stream to care for their known patient population. This stands in stark contrast (#3) to the traditional FFS model – do more, bill more. To manage costs, ACOs are driving care from higher-acuity environments to lower-acuity environments (#2). Furthermore, many of the HITECH and Meaningful Use measures, particularly those centered around patient engagement, are providing financial incentives to providers to figure out how to deliver care more cost effectively (#3). Unfortunately, ACOs tend towards geographic monopolies, which have in many cases created significantly more cost than savings.

The ACA rightfully receives a lot of criticism. It has created problems. But despite these shortcomings, I believe in the future of the ACA because it’s trying fundamentally different solutions. The traditional free market of healthcare hasn’t worked. We should try novel approaches that theoretically can curb costs and create value.

Kyle Samani

Kyle Samani is a health IT enthusiast, technologist, and founder and CEO of Pristine. Learn more about me.

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