Category Archives: Rational Choice

Day 48: Data Gathering transitions to Information Analysis

Transition (trăn-zĭsh’ən) n.

  1. Passage from one form, state, style, or place to another.
  2. A word, phrase, sentence, or series of sentences connecting one part of a discourse to another.

In the midst of running Medsphere I became aware that we were onto something very powerful. Somewhere along the line I finally “got it” that what we were actually doing was not implementing electronic health records but rather creating the data collection backbone that would enable future clinicians, researchers, and other interested parties to have access to large volumes of data that they could then turn into useful information and ultimately knowledge about health care delivery. This realization helped me move beyond the mere “features and functions” comparative sales pitch to a much more egalitarian view of how most any standardized information system could most likely serve as an effective tool to gather the data and transform it into clinical relevant and useful information. Since we could offer the tool at a fraction of the price of the other guys, it made perfect sense to me why the customer should select us!

The Veterans Health Administration clearly has led the way in this regard with their implementation (begun in 1996!) and utilization of an enterprise wide electronic health record to radically alter their outcomes. I was fortunate to help  transition this technology to the private sector with OpenVista implementation at Midland Memorial Hospital (and have followed with interest their successes with interest).  Kaiser Permanente also endeavored to initiate one of the largest ever civilian deployments of an EHR to the tune of ~$5Billion dollars across their 35  hospitals. This massive investment has paid off in spades, and we are now just far enough along that we are going to start seeing some of the incredible results enabled by a system wide electronic health record (regardless of variety).

Case in point: An embargoed article was just sent to me by my friends at Kaiser who are just publishing a new article in the Clinical Orthopedics and Related Research journal of the Association of Bone and Joint Surgeons. The paper demonstrates how an EHR-enabled, large-scale total joint replacement registry has enhanced patient safety, quality of care, cost-effectiveness and research, and how a national registry could improve clinical practice and reduce revision rates in the U.S.

Key points from the article include:

  • More than 600,000 total joint replacement procedures are performed each year in the U.S., and the volume and costs associated with these procedures are projected to increase dramatically over the next 20 years
  • Kaiser Permanente’s Total Joint Replacement Registry– the nation’s largest such registry with 100,000+ hip and knee replacement cases – allows caregivers to analyze specific data from standardized forms and Kaiser Permanente HealthConnect (Epic software), the world’s largest private sector electronic health record, to help identify best practices, evaluate risk factors for revision surgeries, assess the clinical effectiveness of implants, and study patient demographics, implant characteristics and surgical techniques related to post-operative infections, revisions and re-operations.
  • Data from the registry has been integrated into a risk calculator that surgeons and patients use to make decisions about treatment. Research from the registry on implants and surgical techniques has influenced changes in clinical practice and optimized both techniques and implants.

The article features some of the authors, surgeons, and even a patient case study of how the registry was used to make an informed clinical decision (my friends at Dartmouth would be proud!).  We are clearly just at the front of this curve wherein we actually start getting into outcomes, accountability, and real shared medical decision making with legit data on the various treatment options. It is going to be an exciting journey to be a part of this data to information transition.


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Filed under EHR, Innovation, Quality, Rational Choice, Transparency, VistA

Customer Disservice: Health Care #FAILs again and again

Disservice (dĭs-sûr’vĭs)

  1. A harmful action; an injury
  2. An act that is not just

Our health care system is completely devoid of customer service. It is pathetic.

I took my son to have a simple tympanostomy (ear tubes) procedure this morning. I show up, sign in and take my seat amidsts the throngs of people in the surgical center waiting room. I brought my laptop and some reading materials to bunker down for the long wait ahead.

20 minutes later I get called up front to sign some additional paperwork. Instead of being greeted, 15 documents each complete with a full page of legalese is shoved my way regarding various aspects of responsibility, payment, agreement, arbitration, and host of other information. The grumpy lady has clearly done this a thousand times and she has absolutely no tolerance for any of my questions. She paries my first few skillfully, but I don’t let her blunt my questions regarding the finances.

She shows me that the facility is charging me $5,600 but that fee has been reduced by the insurance to $1,799. This is an all in fee for the facility only (includes staff, equipment, monitoring, etc) and does not include fees charged by the physician and the anesthesiologist. I ask what those charges will be (I already knew ahead of time), but she says she is not responsible for their charges and that I would have to speak with those providers about that. I start asking her why they don’t bundle everything into one price so I can compare across various combinations of facilities and providers. She has no idea what I am talking about and ends the conversation by giving me their phone numbers. Take your seat Mister, how dare you ask a question about pricing comes across clearly as she stares me down to my seat.

I immediately pick up the phone and talk to the physician office. After about 10 minutes, I finally get the billing person who is able to provide me the CPT code (69436) and Zip Code (92691) as well as what they charge for procedure ($345). I tell here I am not interested in her price because it is irrelevant and that Blue Cross has already dictated the price that you are going to get. A little defensive, she then relays to me the the administratively set Blue Cross reimbursement that has been dictated to this particular physician ($208.08).  I then ask her about bundling of services and created an Ear Tube product that would include all the components so that I can compare across facilities and providers. She has no idea what I am talking about. I give her the hamburger example (I don’t get separate receipts for tomoatoes, buns, and burger – I get a single price for the thing I want – the complete hamburger). I refer her to as an example and she thinks this sounds like a good idea.  When I ask why they don’t do it now that she understands, she says that she doesn’t think the physicians would ever agree to work in that way. She tells me she will pass this along to the physicians, and with a laugh that indicates that will never happen, we end the call.

Next, I call the anesthesiologist group. First the lady attempts to tell me she can’t give the pricing because it is a HIPAA violation. I quickly disabuse her of her ignorance and get her manager on the phone. Anesthesia is unique in all of medicine because anesthesiologist charge for their time in increments called units (typically 15 minutes). So they get a “set up” fee and a “time-based” fee for their services, both in terms of units. So I ask them what their per unit charge is and the manager tells me that it is proprietary information. I call him out on it and say that pricing information is not proprietary, perhaps his costs structure is, but he has a duty to tell me the cost of the service I am about to engage him in. I am pretty frothy at this point and really lay into this guy. He still refuses to tell me his proprietary, negotiated per unit rate with Blue Cross but relents on giving me the overall price. He then passes me along to someone else who looks up in their database and tells me the cost will be either $300 or $360 for the procedure for either a 15 minute or 30 minute anesthesia time. So, knowing they go in 15 minute unit increments, I can tell that there is either 5 or 6 units involved, and therefore a $60 / unit price. So, full pricing is 4 units “setup” and either 1 or 2 units for their time. So much for your proprietary formula and negotiated pricing. $60 bucks every 15 minutes or $240/hour for anesthesiologist time. Thats mid-tier lawyer rates for South Orange County but interesting in how at least this type of physician’s time might be valued by insurance companies.

So finally, after about 45 minutes of phone time, by someone who knows the ins and outs, all the secret handshakes and covert codes, and most aspects of healthcare financing, I am able to arrive at an all in price for a very simple surgical procedures:

CPT Code: 69436
Zip Code: 92691
Facility Fee: $1,699.00
Surgeon Fee:  $208.08
Anesethsiologist Fee: $360.00
TOTAL:  $2,267.08

This is great to know the price information for my selected combination of facility and physicians. However, I have no information on outcomes achieved, safety rates, customer satisfaction, or other metrics to determine if I would not be better off with a different combination of facilities and physicians. What do you think the response was when I attempted to ask about health outcomes for my physician?

Pin drop, anyone?

This is not just another rant, but meant to highlight that the very basic, fundamental courtesies expected during a consumer transaction are all but non-existent in health care. Simple things like getting pricing information, like getting helpful customer service, like understanding what you are buying, and the quality features that attract you to purchase something in the first place. Health care should be one area where customer service is impeccable. I believe you begin to see “brands” emerge that get this, invest in it, and deliver it consistently over time. Looking forward to the ongoing retailization of health care – it truly needs it.


Filed under Consumerism, Rational Choice, Transparency

Transcript to Transformation: Twitterview with @Berci

Twitterview (twĭt’ər vyū) n.

  1. A twitterview is a combination of the terms Twitter and interview.
  2. The Twitter medium of 140 characters forces a concise style of interviewing and response.
  3. The public can join in on the conversation and become participants themselves by following along or tracking hashtags.

On March 26, 2009 the leading health care bloggers (see list below) throughout the blogosphere participate din a Blog Rally to raise awareness for public participation in the Healthcare X PRIZE design. Bertlan Mesko, leading Medicine 2.0 Advocate and author of the popular Science Roll blog, also conducted a “Twitterview” in support of the effort.

Berci: Can we start the twitterview now? I’d have 10 short questions, you may have 10 short answers. So everyone can enjoy it.

HealthXPRIZE: Thanks for taking the time. We appreciate your help in getting the word out. This Twitterview will complement the Blog Rally. Ready!

Berci: Great! First, what is the X PRIZE Foundation? What is the X PRIZE model?

HealthXPRIZE: The X PRIZE Foundation is a non profit organization that conceives and operates large incentivized prizes that lead to revolutionary breakthroughs. The X PRIZE model is based on leveraging a large purse, with a clear set of rules, that allows innovators to break through barriers.

Berci: Please tell us more about Healthcare X PRIZE!

HealthXPRIZE: The Healthcare X PRIZE is intended to be a competition to redefine health and demonstrate how new models of care can dramatically increase health value. We chose to focus on health value as opposed to a new wonder drug or device as our sponsor (WellPoint and WellPoint Foundation) & advisors were most interested in a systems prize. Systems prizes are much more difficult to conceive and operationalize than technical competitions like going to space or even replicating the genome rapidly. We are expecting that teams will need to innovate around health finance, care delivery, and individual incentives to increase health value. We are currently developing a clear set of rules, which provide the parameters of competition, as we believe that “creativity loves constraints”.

Berci: Reforming the US healthcare system is quite a brave mission, isn’t it? Why the focus on health value?

HealthXPRIZE: The US Health reform gets serious this summer and the HXP is well timed to actually demonstrate and prove in practice the principles of reform. Value is powerful organizing principle for reform efforts – we cannot just reduce costs, nor can we just attempt to improve quality without financial accountability. The focus on health value highlights the need to focus on both sides of the equation. Since Value =outcomes/cost, we are challenging teams to improve both simultaneously.

Berci: Why use an incentivized competition?

HealthXPRIZE: Incentivized competitions are very efficient, highly leveraged, and create an “X” factor within the competitive framework. Sponsors only pay the winner, a $10MM purse typical spurs >$100MM of investment, and the X factor creates global media attention to a key problem, inspire hero’s, encourage non-traditional thinking, and creates a powerful incentive for innovation.

Berci: And how can you properly measure health value? I guess you need pre-defined parameters. What are these?

HealthXPRIZE: Health Value has never really been measured within the US Health Care system. There are many efforts underway right now to properly define and measure health value. Many innovators are leading the way and we are attempt to build on their work or actively collaborate with new/ongoing initiatives (Dartmouth, IHI, AHRQ, etc) to solidify the health value measurement framework. In the context of competition, we are trying to make our measurement framework as concrete as possible by focusing on outcomes (mortality, specific morbidity, ED visits, hospitalizations, sick days etc.). Effectively communicating the notion of “health value” remains a challenge; we are considering focusing on aspects of health value (like decreased hospitalizations and sick days) as a more effective way to communicate to the public the hoped for prize breakthroughs.

Berci: How are the Teams and Test Communities Selected?

HealthXPRIZE: Teams will be selected by through a series of concept design and testing evaluations. They will be required to demonstrate or model the impact of their proposed interventions against test database provided by WellPoint. Independent judges will evaluate the merit/validity of the concept in order to advance. Communities will be selected based on specific criteria that are still being worked through. Intent is to have a defined population of 10K participants from which Teams will voluntarily enroll in the intervention. Test community will be matched against a geographically adjacent control group. Both the team and community selection requires further design, detailed analysis, and expert opinion which we are soliciting at this time through our network of national measurement experts.

Berci: When does this competition start and when will it end?

HealthXPRIZE: The “competition” has several phases: Design, Selection, Competition. We are currently in Design phase through our anticipated Launch later this fall. The Design phase includes soliciting public comment on how we can improve our initial concept/construct to create the most viable competition possible. After official “Launch”, we will begin recruiting teams to compete. Teams will then be narrowed as described above through late Spring 2011 when 5 finalist selected. After a brief integration period into test community, HXP competition is planned to officially begin in January 2012.

Berci: How does this shift the paradigm? What kind of outcome do you expect?

HealthXPRIZE: Great question – we believe the current paradigm is based on volume not value, on process not results, and incents the wrong behaviors while delivering bad outcomes. We want to shift the paradigm to rewarding the reduction of hospitalization / sick days and begin to pay for overall health improvement (this is the outcome we want!). We also want to not focus solely on disease care, and aren’t interested in just improving health care; but believe that we must move to an entirely new notion of engaged, activated health called “Vitality”. We want to demonstrate that this CAN be done at scale, with new entrants / new ideas, and want to set the HXP up as a framework from which these efforts can be tackled in the real world. By focusing on outcomes, instead of regimenting care processes or dictating care delivery, let providers/patients innovate and create rewards for those who obtain the best outcomes.

We believe incentivized competitions are a great vehicle from which we can accelerate change, shift the paradigm, and be a catalyst for the transformation that is required for the US healthcare system. We hope the outcome is a new way to think about health, measure health value, and demonstration of new models of care that demonstrate how to improve community health and individual vitality.

Berci: My last question, regarding X-PRIZE – first rockets, then genomics, now healthcare. What do you think? What’s next?

HealthXPRIZE: XPRIZE is a mission driven organization seeking to inspire the very best in human kind for the benefit of all – this isn’t just a nice quote. It is inherent in the DNA of the organization. We are attempting to be the catalyst in any “stuck” industry by creating incentivized competitions that can lead to radical breakthroughs to the grand challenges of humanity. HXP is now looking at education, energy (some really cool stuff), and developing world initiatives that can truly have major impacts. Fortunately for me, HXP is our focus for launch this year. It is quite challenging work, deals with multiple hard to think through issues, but includes the privilege to work with great people and teams including our sponsor WellPoint.

I have been thrilled with the level of commitment to this process and this prize development process has been tremendous experience. They have a very talented innovation team, led by Chad Pomeroy, who is fully supported by senior executives all the way up to Chief Executive Officer Angela Braly. They have been driving this initiative forward far beyond the $10MM prize purse; they are providing operational resources, sharing data, working to create appropriate test communities, altering business practices to accommodate the prize, and are committed to transparency as part of the HXP process. Their commitment to the project is the reason I became involved as I saw an unprecedented opportunity to really implement the innovation in an idealized but competitive test environment. We appreciate WellPoints leadership, foresight,and commitment to engage X PRIZE in developing the Healthcare X Prize for benefit of all. Very cool stuff.

Berci: Thank you very much for the interesting answers! I will publish the transcript on in a few minutes.

HealthXPRIZE: Berci, again, thank you for this twitterivew. We hope to have everyone visit our website, download the initial prize design, comment on our blog, and add their input to the Prize Design process.


Filed under Health Finance, Healthcare, Industry, Innovation, Leadership, Quality, Rational Choice, Transparency, Uncategorized

Return of Microcapitation: Condition Specific Capitation Payments

Microcapitation (mī‘kro kăp’ĭ-tā‘sh en) n.

  1. A health care delivery mechanism wherein a service provider contracts with an administrator to provide health care services on a per capita basis.
  2. A financing mechanism wherein a service provider assumes financial risk, is compensated at a fixed per capita rate for predetermined services, and is evaluated based on service performance .

I am having some flashbacks this week to some ideas I introduced long ago that are just beginning to take hold (note to self – even if they don’t catch on immediately there is still satisfaction in coming up with the idea first). I read with interest the recent publication by the Network for Regional Health Improvement describing their suggestions for payment reform entitled, “From Volume to Value” (kudos to Bob Coffield for surfacing!).

It is a great read, complete with some compelling graphics which clearly explain the notion of value. Redefining Health Care helped get me there originally, and this document just confirms the notion that value based competition on results WILL transform the payment mechanism of health care by realigning incentives in such a way that people get rewarded for producing outcomes not procedures. In the new model, the excess capacity that exists (as described by supply sensitive care) will be reoriented around paying only for the outcomes we seek not the procedures or processes required to get us there. But we can’t get there all at once, because as demonstrated in the Innovators Prescription, we can’t pay for outcomes for everything because our clinical science is not far enough along (only 10% of care is Evidence Based).

The paper also shows two examples of a “Capitation 2.0” – one described as “Episode of Care” and the other a “Condition Specific” payment model.  These are examples of what I had previously described as “Microcapitation” previously (including the exact example that NRHI used). In theory, Capitation or other forms of pre-payment, can create alignment between the patient, the physician, and the payer (ie, see Kaiser, Geisinger, VA, etc). But this only works within an integrated system wherein everyone is motivated to help keep the patient healthy and can enjoy the gain sharing achieved through higher performance. “Capitation 1.0” failed previously because it was just a per head model, without any consideration for the disease condition, the health status, or the perverse incentives in a fragmented system.

Doctors foolishly assumed nearly all the risk, having no tools nor technology to understand let alone manage the population they just assumed all the risk for. Patients felt the conflict, and it eventually drove a knife right through the trusted relationship from which most primary care “gatekeepers” have never fully recovered.

Microcapitation holds the promise of more accurately delivering a defined outcome for a defined population in an area of medicine that is fairly well described, understood, and their is sufficient experience / capacity to deliver. Given our understanding of the disease process, it is reasonable to create a microcapitated rate for a specific disease condition – say, diabetes for example – wherein the physician agrees to provide a bundle of services for a defined price over a defined period of time. Within the payment structure for the bundle of services, the physician can innovate in anyway she wants – including adding all kinds of features, benefits, and add-ons that increase value to the patient but that still allow the physician to be profitable.

This aligns incentives, eliminates paperwork, incents communication, and ultimately drives better performance by increasing value [outcome/price].  Simple. Elegant. Beautiful.

Here is are the two case studies referenced in the report:

CASE I: How “Episode-of-Care” Payment Would Work

Ms. Brown falls and breaks her hip and goes into the hospital for surgery to implant a prosthetic hip. Each of the hospitals in the community has defined a price that it will charge Ms. Brown’s insurance company for performing the surgery and providing all of the postoperative care for a woman of Ms. Brown’s age and health status. That price will cover Ms. Brown’s hospital care, her surgeon’s fees, the cost of her prosthetic hip, her care by any other physicians who are involved (e.g., anesthesiologists, intensivists, etc.), her post-hospital rehabilitation and any home care she may need to make sure she can return home safely. The hospital will be responsible for dividing up the payment among all of those providers. If Ms. Brown develops an infection in the hospital following surgery, the hospital and its physicians will be responsible for treating that infection at no additional charge.

The insurance company measures the outcomes (e.g., mortality rate, complication rate, infection rate, range of motion following rehab, etc.) that the hospital achieves for hip replacements on patients similar to Ms. Brown. It then adjusts the payment to the hospital up or down by a certain percentage based on whether its outcomes for Ms. Brown are above or below the standard it has established.

Ms. Brown will be responsible for paying for a portion of her care. The amount she pays will be lower if she selects a hospital that charges a price lower than the average of other hospitals in the area and/or with quality ratings above the average for the region for patients similar to her.

Ms. Brown receives a small rebate on her share of the costs of her care if she achieves the rehabilitation goals and complies with the post-discharge plan that she develops jointly with her physicians.

CASE II: How “Condition-Specific Capitation” Would Work in a Hypothetical Case

Mr. Jones has diabetes. His insurance company pays his primary care provider a monthly comprehensive care payment to help him manage his diabetes and address some of the complications that might arise from his condition. Mr. Jones’ primary care provider has physicians, nurse practitioners and other staff working as a team to help with Mr. Jones. In addition, they have relationships with other health care providers that will need to provide some aspects of Mr. Jones’ care, such as laboratories and ophthalmologists.

Mr. Jones’ primary care provider works with him to develop a plan of care that defines the actions that he can and will take (e.g., exercising, managing his diet, taking medications, etc.) as well as the actions that the provider will take (e.g., contacting him regularly by phone to see how he is doing, seeing him periodically to check his blood glucose and hemoglobin levels, checking his feet at every visit, etc.) in order to successfully manage his diabetes. Mr. Jones understands that he does not need to see a doctor each time he comes to the office for checkups, since a nurse practitioner can perform all of the necessary checks and call in a physician when needed.

The costs of blood tests and any visits to specialists that Mr. Jones needs, such as periodic eye examinations by an ophthalmologist, are all paid by his primary care provider from the monthly comprehensive care payment.

Mr. Jones pays no co-payments for his regular checkups or routine testing. He receives a small cash payment from his insurance company if he meets the goals established in his care plan as measured by objective test results, such as hemoglobin A1c levels. His primary care provider also receives a financial bonus from the insurance company if Mr. Jones meets the goals in the care plan.

The insurance company measures the number of hospitalizations that occur related to diabetes for Mr. Jones and other patients like him who are under the care of the primary care provider. If the rate of hospitalizations is below a predetermined target level, the primary care provider receives a financial bonus, since they have saved the insurer money.

Mr. Jones is free to switch to another primary care provider at any time if he isn’t happy with the care he is receiving. However, if he switches to a provider that has significantly poorer outcomes, rates of hospitalizations and/or higher prices for care, his insurance company  will require him to pay more in order to use that provider.

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Filed under Health Finance, Innovation, Quality, Rational Choice, Value

Ten Fold (10X): Is There Really an Order of Magnitude Difference?

Magnitude  (măg’nĭ-tūd) n.

  1. Greatness in size and extent.
  2. Greatness in significance or influence.

Two recent news items caught my attention. They follow on the heels of some of my recent writings on VistA EHR, MUMPS based systems, and the idea of virtuous cycle investments as a true stimulus in helping to lay down the health care foundation from which a National Health Information Infrastructure can truly be built.The article highlights the approach of the Have’s and the Have Not’s in dealing with transportation on the health care information technology highway:

The Mercedes

The first article is a  Go Live Announcement from West Virginia University announcing the completion of their  $90M Epic Systems Implementation (Fact Sheet).

The 2009 S600 Sedan, price $150,000

The 2009 S600 Sedan, price $150,000

The Toyota

A second article highlights the successfully implementation of life saving Bar Code Medication Administration from the West Virginia Department of Health and its seven facilities (BCMA was final segment of a comprehensive, statewide implementation of the VistA EHR for approximately $9M).

2009 Toyota Corolla, price $15,000

2009 Toyota Corolla, price $15,000

If you are trying to arrive at the same location (Stage 6), which car should you drive to get there? Well, I guess it depends on who you are. But question for the Mercedes driver, or more appropriately the people paying for you to drive the Mercedes:  is your ride really worth the 10X order of magnitude difference? Are those bells and whistle really that valuable? To the four wheels, the transportationPerhaps, but only if you can “afford” it.

But these economic times demand a little more introspection. Certainly within the health care IT world you have to ask yourself can you “really afford” it?  What could you have done with the other $81M dollars? What if you would have spent the $9M to get to the same place, and then use the balance to whack out your Toyota (Supra Size me!) and have a whole lot left over to increase access, reduce costs, and improve quality. Would it be a better decision to divert additional funds to true health delivery – additional vaccines, additional prevention screening, etc?

The Famous "Fast And Furious" Supra

The Famous "Fast And Furious" Supra

Furthermore, what if I told you your spending to improve your Supra would directly benefit others who could learn directly from you. What if every dollar you spent improving your Supra was somehow magically matched (ie, via open source collaboration) to benefit others. What if your investment somehow made it possible for more and more people to actually have a car to go to the same place as you? (OK . . . so my analogy is getting stretch a little thin, but you get my point).

I would challenge anyone at WVU (love to hear from their board, their leadership, their clinicians, etc), particularly if that organization takes public money, to justify their spend when there is a viable alternative that could be selected particular when that selection could be made better and the enhancements made available to others in the future. An “investment” in VistA is an example of the catalytic Virtuous Cycle Investment that I discussed previously.

You can make the argument to justify the extra spend, but you can’t and won’t win it, particularly when the differential fare of 10X gets you to exactly the same place.

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Filed under EHR, Open Source, Quality, Rational Choice, Uncategorized, Value, VistA

Stimulus? What Government Should Learn From the X-Prize

Stimulus (stĭm’yə-ləs)

  1. Something causing or regarded as causing a response.
  2. An agent, action, or condition that elicits or accelerates an activity or response.
  3. Something that incites or rouses to action; an incentive.

I am completely NAUSEATED . . . this entire stimulus package is going to be one of the greatest debacles ever witnessed in history of government intervention. I am surprised that President Obama is spending so much of his political capital on ramming through a 100% partisan, pet project, hasty “stimulus package” that has the lobbyist and beltway bandits lined up from DC to CA jousting for trough time.

We should not let the need to just do something, be the excuse for us to do just anything.

The entire approach to this is absurd. I doubt ANY of these congressional people would make this type of financial decision in their personal lives. We are essentially burying the next generation in an insurmountable mountain of debt. This feels like a no huddle “Hail Mary“. Furthermore, where exactly is the “stimulus”? If this is the “Change We Need” than we are in for quite a ride. I guess the last eight years crashing to the floor was just preparatory to crash right on through to the basement. Isn’t there a better way than this?

I would argue that there absolutely is.

I agree the current crisis calls for bold measures, but none of what I see is truly bold in the “bail forward” mode that I believe needs to happen. We need to make virtuous cycle investments that can spin out additional investments and build momentum in the multiples. We cannot make vicious cycle investments that not only throw good money after bad but demoralize in the process.

One of the coolest models for virtuous cycle investments is that of the X PRIZE. From the X PRIZE website:

The  X PRIZE is modeled after the $25,000 Orteig Prize offered in 1919 by wealthy hotelier Raymond Orteig to the first pilot who could fly non-stop between New York and Paris. The prize was finally won in 1927 by an unknown airmail pilot named Charles Lindbergh. Lindbergh won the hearts of a nation, and his world-changing achievement spawned a $300 billion aviation industry (Now that’s stimulus!)

X PRIZE is a $10 million+ award given to the first team to achieve a specific goal, set by the X PRIZE Foundation, which has the potential to benefit humanity. The X PRIZE competitions capture the imagination of the public and speed radical breakthroughs that can ultimately change the way we see ourselves and how we live on this planet. Rather than awarding money to honor past achievements or directly funding research, an X PRIZE incites innovation by tapping into our competitive and entrepreneurial spirits.  The first X PRIZE for private spaceflight received worldwide attention and the winning SpaceShipOne is now hanging in the Smithsonian National Air & Space Museum.

There are many types of competitions and awards around the world, but an X PRIZE is in a class by itself. What sets us apart from other non-profit organizations is our ability to frame a challenge and incentivize a solution in a way that our efforts and funds are multiplied exponentially by the teams who strive to compete and win the prize.

There are three primary benefits of well constructed prizes and media savvy global competitions: they are a high-leverage and efficient investment, a powerful innovation strategy, and an effective change strategy.

Fascinating. Invest in the things that can generate multiple multiples of additional investment (X PRIZE reports 10-40X multiples beyond the prize money). Think of how this can work in the health care IT space, in the health care delivery sector, and in the health care finance arena. What types of investments, what technologies, what new system designs could you create with this type of focus. What if we spent just a fraction of the stimulus to really try to stimulate the economy?

Perhaps we need an X PRIZE in order to create a real “Stimulus” Bill.


Filed under Rational Choice, Transparency, Value

Cash is King: Differential Premiums as a driver of behavior change

Differential (dĭfə-rĕn‘shəl) adj.

  1. Of, relating to, or showing a difference.
  2. Constituting or making a difference; distinctive.
  3. Dependent on or making use of a specific difference or distinction.

This is the third in a four part series of interviews with the panelist of “The Business Case for Health 2.0” closing session on the opening day of the Health 2.0 Conference.  Ken Shachmut,  Senior VP Strategic Initiatives, Health Initiatives, and Health Re-engineering at Safeway, shares is thoughts on some of the highly impressive results that have been obtained by introducing market based health plans at the company.

SS: Ken, thanks for making time today. Tell me a little about your background?

KS: I have been active as an executive and management consultant for over 30 years. I graduated from Princeton in Engineering and later obtained my MBA from Stanford. In consulting, I worked first with McKinsey & Company, later at Booz Allen Hamilton, and for awhile independently.  I had done some consulting for Safeway. I later joined Safeway and have been there the last 15 years in various capacities.

Due to my consulting background and analytical focus, I am frequently asked to look at new challenges and opportunities for the organization. As health care costs continued to rise, we started looking at ways that we could engage our employees or work with the unions to control costs. The process has been highly successful, and we now have broad participation in “market-based healthcare” (MBHC) plans – starting with our non-union population and evolving into our union plans currently. In consequence, our employees are now much more actively involved in their healthcare and are making better choices that improve their health. As a result of our learning and success, we have helped to create the Coalition to Advance Health Care Reform (CAHR) which is led by our CEO Steve Burd.  CAHR now has over 60 companies as members.

SS: You have an interesting title, can you share with us some of the challenges that led to the work you are doing now?

KS: Over the first half of this decade Safeway’s healthcare expenses were rising at double-digit rates.  The situation was not sustainable, and we had to do something.  I was asked to review the situation, and develop solutions.  I formed our Health Initiatives Task Force (HITF) to undertake the work – which we accomplished in 90 days: situation to solution.

Our response was to move to MBHC healthcare.  (We didn’t feel like we could call it consumer directed, because we didn’t really see a consumer market as we would typically define it within healthcare). Our basic premise was that if people were given responsibility for their decisions, and there was transparency to the financial consequences to those decision (both good and bad, mind you!), that they would choose to maximize both their health and their financial benefit. Since we had more flexibility with our non-union employees, we introduced these ideas to the non-union population first in 2006.  We terminated many of our traditional PPO and HMO plans and replaced them with our MBHC plan. The results were nearly immediate and dramatic. We had hoped to slow cost growth, perhaps even flat-line costs for a short time.  In fact we reduced all-in per capita healthcare spending 13%.  And we shared the saving disproportionately with our employees – their expenses were cut by 25% or more.  By sharing these results with our union leaders we now offer some MBHC elements in union-bargained plans in several key geographies.  These new plans introduce mutual benefits – by controlling costs, improving outcomes, and helping to leave more money into our employees’ pockets through encouraging healthy choices.

SS: What exactly did you guys introduce? How did you measure the results?

KS: We started by encouraging everyone (employees and spouses) to take a health risk assessment (with a substantial reward) – to establish a baseline of health for the employee and his/her physician while also helping individuals realize what specific areas they could work on that would improve health status and help reduce their costs. The plan includes a Safeway-funded HRA, followed by an employee contribution, and then 80/20 cost sharing up to an out-of-pocket maximum.  We also cover the full cost of all preventive care, offer a full range of care management services, and give free access to our Fitness Center and deeply discounted gym memberships around the country.

Since introducing the plan, we have steadily improved it – adding more benefits and asking for increasing accountability and involvement to receive lowest possible premiums.  For 2009 we are introducing Healthy Measures, which looks at four key health indicators – weight, tobacco, blood pressure, and cholesterol.   On a voluntary basis we requested that our employees get tested / measured on these indicators. We then built a benefits package that had premium differentials based on your performance. People who passed the metrics get the benefit of a lower premium right away – and those who did not hit the metric the first time will have the incremental premium refunded to them if they do hit the metrics a year later. So, everyone can earn the lowest possible premiums for 2009 if they take the voluntary measurements – either right away, or within a year through a rebate of the increment.

I want to be clear – we were adamant about designing this program to cover only those things for which our employees had control and which were clearly behavioral in nature. We do not differentiate for genetics, and we did everything prospectively and transparently so that everyone had equal opportunity to improve their behaviors.  And, where there are special circumstances documented by a physician, we authorize exceptions.

We measure results in terms of program participation, by the decrease in costs and trends, and by the overall health of our employees.  76% of our eligible employees signed up for Healthy Measures.  Depending on the metric, 70-85% of those opting in passed the metric and so earned the lowest premiums for 2009.  The remaining 15-30% will earn the differential rebate a year later, if they pass the metrics during next year’s measurement cycle.  It’s all up to the individual.  When the individual modifies behavior and improves health status, then he/she wins – personally in terms of better health, and financially with a sizeable rebate.

SS: What has been the uptake to date?

KS: We have over 70% of our non-union employees (30,000) and about 30% of our Union (170,000) employees plans that include some market-based elements. We have shared our results from the beginning with our union workers by providing summary results to key leaders. The response has been very positive as they have as much a reason to ensure that their members are healthy as we do. We continue to work with our union leaders to adopt MBHC more fully and more pervasively over time.

SS: Everyone knows how hard behavior change really is – what incentives matter in promoting new and more health behaviors?

KS: While the primary objective is to improve people’s health status, we all know that just telling people to do the right thing is not effective.  After all, if “just telling” were sufficient, we would not have over 30% obesity today. We believe the best motivator is likely to be the wallet. Cash truly has been king in our program in the form of differential premiums. Our average difference under Healthy Measures is about $800 per year – for the employee and spouse, so almost $1,600 for a family. This is a meaningful amount of money.  The fact that you can earn the discount immediately when you meet the health metrics, or that you can earn the rebate with better performance next year, really levels the playing field for all.

To complement our program of incentives, we reinforce the message of good health through a holistic approach and mutually-reinforcing programs available to all employees and spouses – access to the Fitness Center, discounted gym memberships, care management programs, health and wellness programs, information seminars to employees, and other related itms..

SS: How did Safeway utilize Health 2.0 tools to accomplish these cost savings?

KS: I have got to be honest – I did not know much about Health 2.0 until recently. However, Safeway had already been using one of Health 2.0’s poster children, Destination Rx, to help us achieve some impressive savings. Most of our program has been programs, information, behavior change, and incentives. We have not really done too much with technology so far, believing real change in this space requires behavior change, and behavior change can be best encouraged with incentives. However, we have learned how technology can surface some of the motivators of behavior change, and in our case, mostly related to financial issues.

For example, since Safeway covers the full cost of preventive care, we look for ways of ensuring that the spending is prudent. We found the cost for a colonoscopy within a 30 mile radius of our headquarters building ranges from under $1,000 to almost $6,000 – without, as far as we can discern, any difference in outcomes or quality. Therefore, we have started to set our reimbursements rates at something reasonable for a colonoscopy . . . lets say $1,500 for the sake of argument today . . .  with any remainder coming from the employee.  This clearly motivates employees to do a little research on colonoscopy providers (which we make easy for the employee), since any increment over the threshold comes completely out of the employee’s pocket, and is not eligible for application against the out-of-pocket limit.  With this approach we can begin to drive people to the health care organizations who provide the best outcomes for the best price (definition of health care value). Beyond just price, we are working with CIGNA, as our admininstrator, to start to incorporate the next level of outcomes data that would help make this even more impactful.

We look forward to the day when we get to those famous four quadrant charts that help us truly answer who is a good provider (price, outcome, satisfaction, etc).  Healthcare is a complex topic and there is no one “silver bullet” – but full transparency on cost and quality comes close.  Technology tools move us towards more transparency – very important for the individual, an employer, and the nation.  And ultimately for the provider as well.

SS: Can you further describe Destination Rx’s role in some of these initiatives?

KS: Destination Rx helped Safeway to embrace and implement therapeutic equivalency to most effectively allocate our health care resources. They had developed the concept and supporting technology, which was operationalized and adopted broadly for the Medicare population through CMS.  Acknowledging DRx’s solid leadership and strong tool set, we asked them to run a full analysis on our pharmacy files. DRx helped us assess the positive financial implications for Safeway and our employees when members switch from an expensive brand drug to a much less costly, therapeutically equivalent generic.  Using DRx’s technology, we redesigned our plan to incorporate pharmacy therapeutic equivalency (RxTE) and thereby deliver superior value. We now have RxTE in place for 11 major chronic drug categories.  The results are dramatic.

Destination Rx’s ability to aggregate the body of evidence (scientific and financial), provide compelling analysis (clinical and financial), and then to provide convincing advice on the benefits enabled us to move forward. The have a host of other tools and technology that we look forward to evaluating as part of our ongoing relationship.

SS: Safeway as a large employer has clearly led out in the Health Reform area – what do you see as the big trends or your big hopes for a reformed health care future?

KS: The employer based insurance system that we have inherited is an accident of history from the WWII era. There are now strongly entrenched interests that will seek to preserve the status quo, and change will only happen with constant pressure over time (political, social, and cultural). So, we have chosen to work within the current paradigm, focusing on ways to improve the system. We have found, and would encourage other employers to consider evaluating for themselves, that we have made a dramatic impact in our company by just injecting market mechanisms into current offerings right now. There is no need to wait for government action . . . we are seeing results today.  Other than culture and / or inertia, there is no reason why all companies and organizations – union trusts, non-profits, etc. – cannot achieve similar results.

We at Safeway believe that meaningful healthcare reform should be based on five basic principles – as described by the Coalition to Advance Healthcare Reform (CAHR):

  • Market-based healthcare system – incorporating full transparency on quality and cost
  • Universal coverage with individual responsibility – every American should be in the system; there should be no “uninsured”
  • Financial assistance for the low-income – so they can afford to be in the system
  • Healthier behavior and incentives – to make the “choice to act healthy” a financially rewarding one for Americans
  • Equal tax treatment – everyone, whether employed or self-employed, should be able to pay for healthcare expenses with pre-tax dollars

We have done the math on this concept.  When the entire nation addresses healthcare in a way similar to our approach at Safeway, there will be enormous savings – in both the public and private sectors.  The potential public sector savings are large enough to fully fund the subsidy required for low-income individuals, and to bring all the 47 million currently uninsured Americans into a health insurance program.  It is one of our objectives at Safeway to help show the way.  When successful, we hope others will say, “We have learned through the Safeway experience that embracing consumerism and putting people in charge and more accountable for their health can make immediate improvements in cost and outcomes.”

SS: Wow . . . remind me to hire some engineers for my next business venture. Thanks again Ken for your time.

Next up, Vita Cassese of Pfizer.


Filed under Conferences, Consumerism, Health 2.0, Innovation, Quality, Rational Choice, Transparency, Value