Fixing Health Care Calls for Evolution, Not Intelligent Design
September 20, 2012
It is easy to assume that the future shape of the American health care system will be settled one way or the other by the November election. But in turns out that whatever happens in the election, and subsequently to Mr. Obama’s signature health reform, we will still be far from resolving some basic challenges facing the U.S. health care system.
One challenge is how to move away from essentially unrestrained spending and towards a workable process of cost control. Analysts on both sides of the aisle recognize the deep-seated problem, but there is little stomach for tackling it. One reason for this is that Americans, much more that the residents of most other countries, resist the idea of a real and enforceable health care budget for publicly funded health programs, especially Medicare. They oppose direct spending controls in the private sector even more fiercely. That helped create the conventional political wisdom that the best strategy for achieving major reform—nationally as well as in states like Massachusetts—is to lead with the “dessert” of coverage expansions and leave the “broccoli” of cost control for another day. The hope is that, once covered, Americans will then somehow be more open to the idea of limits. But there is little evidence that any such a public change of heart is taking place.
There’s another core issue, however, that is more subtle but even more basic: how to design a process that leads to continuous improvement and innovation in the structure of the health system itself. Without constant creativity in how we organize and deliver health services, we can’t hold down spending without curbing access or quality, and we can’t keep improving efficiency. It is not that innovation doesn’t occur in American medicine. On the contrary, when it comes to developing new treatments, pharmaceuticals and medical technology, America is a world leader. The problem is not in our research labs but in the environment for continuous structural innovation in the U.S.—such things as how we organize health insurance, or the ways physicians work together in groups and with hospitals.
To understand why this problem exists, recognize that the environment for structural innovation is heavily shaped by two factors. One is the design of public programs, like Medicare for the elderly and Medicaid for the poor. Because of the sheer size of these programs, their payment system and organization play a dominant role in the arrangement of the whole U.S. health market. The other factor is the regulatory structure at the Federal and state level. Like a computer’s operating system, this regulatory system establishes the basic operating rules for health care in America—everything from which facilities and professionals are permitted to carry out which medical tasks to how insurance must be structured and sold. Consequently, any would-be innovator must work within the constraints of the regulatory system and the large footprint of the public programs.
That may seem more of an irritant than a serious problem for an innovator, but the effect is a great deal more than just irritating. In fact, the American health care system is arguably the most regulated system in the world, despite the fact that it is overwhelmingly in private hands.
Why do we constrain health care innovators in this way? Because we try to maintain a “conscious” market, in which the government seeks to manage the market, through a framework of regulation and incentives, in order to get closer to achieving social goals, such as affordable coverage for Americans no matter their income or health condition.
Our energetic, private-based delivery system does indeed respond creatively to the incentives it is given. But as private health managers seek creative ways to operate within the constraints they are given, they will often organize in ways that are good for their own efficiency and bottom line, but not necessarily the government’s goals.
Many years ago I attended a conference of teaching hospitals. A lunchtime speaker updated the hospital administrators on new Medicare payment levels the government had just announced for a wide range of diagnoses, intended to reduce overall Medicare spending. The very next speaker told the audience that his software firm had already developed a new computer program to refine diagnosis descriptions in order to maintain hospitals’ revenues under the new payment system. The government typically responds to this kind of creativity with new rules for the industry, triggering another burst of private sector creativity to live efficiently within the new rules—again, in ways that do not necessarily achieve the result government had in mind. This leads to the next cycle of regulation and reaction. And so both regulation and frustration grow.
So we face this challenge: How can we reach social goals in health care with an industry that increasingly devotes much of its creativity to working with or around a regulatory framework?…