Stop Demanding Too Little of the Health Care Industry

April 8, 2010

by Peter Neupert

For too long we've held health care to a different standard than other businesses — a lesser one. Patients complain they are paying too much while doctors complain they are being paid too little. They're both right — it's time to shift the value chain in health care, fundamentally changing the business of health care.

Imagine if health care could be transformed like nearly every industry that touches our lives — more choices, more services, more convenience, and more value. Not only would the quality of our lives improve, but skyrocketing costs would be brought back in line as providers and consumers could find the appropriate "package" of value (convenience, price, outcome, risk). While there are some unique characteristics surrounding the market demand for health, transformation is possible — but it will only be possible if we stop pretending that economics and incentives for consumers and other stakeholders don't matter or can be managed via insurance alone.

In the last 30 years, the health care industry has evolved around providers, insurers, the government, employers — with hidden pricing mechanisms and a perverse payment system that can't keep pace with the changing nature of disease and opportunities in delivery systems. Most stakeholders have no idea what anything costs — let alone having anywhere near the kind of services and support to make informed decisions that we do in every other aspect of our lives. The regulations and mindsets governing health care have simply inhibited the kind of broad–scale innovation that's happened in other industries. We've been locked into the past with a fee–for –service model that's out of date. We need to reward and drive "value" based upon innovation to drive better health outcomes.

Why not let consumers and other health professionals like nurse practitioners or even software do some of the work that the most costly physicians should not and cannot be doing anymore? Physicians should focus their unique expertise on the things that require very specialized knowledge and skills, like treating top–priority, chronic diseases. As Clay Christensen points out in The Innovator's Prescription, every industry that touches our lives has been transformed — complex, expensive products and services once only available to few are now accessible and affordable to the masses and provided by those (people or even software) with far less training. Why not health?

We have to engage consumers in their own health economics — providing incentives, tools and information to support informed choices, to hold consumers more accountable and to create real economic 'value' for wellness. Today, there is no economic value for wellness — providers don't get paid for it, and insurers can't really value it either. This is why there are so many failed experiments that focused on getting consumers engaged in their own wellness. Yet, lots of people pay lots of money for vitamins or other 'wellness' products and services. The supplement industry alone is roughly a $30 billion business. There's a huge market for drugs that aren't "reimbursed" — Propecia and now all the off–patent drugs like Claritin, Prilosec and so on. There are examples of new types of "practices" like Qliance (an all you can eat model that doesn't involve insurance) resulting from doctors and patients voting on a new type of value exchange. And there are clearly segments of health — dentistry, veterinary, cosmetic surgery — where the marketplace is rewarding innovation and the discovery of better value equations built around a price, quality and service equation.

Regrettably, today's health delivery system and payment framework does not reward innovation around health management, prevention, and real–time consumer engagement. There are many entrepreneurs and great ideas: New market entrants — virtual care over the Internet to a patient's home from American Well, new delivery channels like CVS Minute Clinic, new types of programs and services for behavior–intensive disease management like Redbrick. These new entrants can help shift the business of care, enabling physicians to focus on using their unique expertise on areas that require their very specialized knowledge and skills. The real challenge is that the path to unlock the economic value and reward innovation is blocked by the perverse, rigid market structure created by the third–party payment system and a consumer mindset that health care is "free".

To truly shift the business of health, we need to drive the right combination of structural change, innovation and use of technology to create a better system — essentially, drive real value for every dollar spent.