1994 v 2014: deja vu or brand new day?

It’s a good question that deserves a good answer: “How can it be a good idea in 2014 to organize the provision of healthcare within a unified delivery system, then pre-pay for that care (a.k.a., population health), when that strategy failed in 1994?”

  1. Population Health was NOT Tried in 1994.  The business premises for the two eras are different: in 1994, revenue was considered variable and unlimited (recall, 13% GDP), so all provider interventions of the time focused upon increasing revenue: buy the doctor’s practice in order to raise billable events per encounter (e.g., implement in-office ancillary testing), raise encounters per day (e.g., change office workflow so the doc sees more patients per day, while spending less time with each patient), and raise cash collected per event (e.g., rev cycle in its totality).  In 2014, revenue is more likely fixed (18% GDP, likely limited by US macroeconomics, and millions of debt-laden households are unable to take on more healthcare debt).  The macro-economics of 2014 demand our industry lower expense trends per person, rather than raise revenue per healthcare event (1994), which Population Health can and will do.
  2. The Root Causes of High and Rising Healthcare Costs are Now Known.  In 1994 the prevailing wisdom asserted that doctor’s professional fees were the root cause of unsustainable cost trends, which led to the capitation of professional fees for a cohort of patients (short-lived popularity of HMO plans). But as I’ve written before, our industry and my profession have always been more successful increasing the number of units of care, than public and private payors have been in reducing the payment per unit.  Indeed, pro-fees per office visit have fallen by 30% during the last 20 years (in actual dollars), while the number of units of care per person per year has risen more than that (scripts per year, imaging per year, ER visits per year, surgeries per year, etc). Unless and until an entity (think health-system behaving as a true ACO) is pre-paid for all care (population health 2014), rather than just the professional fees (1994), care transformation won’t occur, and we’ll be forced to resort to “rationing” healthcare in the US. I’ve written previously about the effects of FFS and obesity on the country’s cost trends.

Some health systems mistakenly believe they can create the recipe of Population Health by buying everything said to be on the ingredient list: employ physicians – check; implement an EMR – check; create the legal structure of a Clinically Integrated Network – check.  But prepayment of healthcare can be financially successful ONLY if one addresses how those physicians are organized (salaried, group practice, with a patient-centered culture), how that EMR is used (just-in-time decision-support tool to empower shared-decision-making rather than a poorly searchable repository for documentation), and how care is actually coordinated across the continuum (simple, but comprehensive and reliable, communication channels and workflows that close the knowing-doing gap).  If wide-spread prepayment of healthcare is successful in the second half of this decade, it will be as a result of deeply understanding how healthcare cost is created in the moment of decision between patient and provider, then designing highly-reliable workflows and aligned payment systems that begin to eliminate the 30% of waste and overtreatment buried in that 18% GDP.



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