Healthcare’s origins are obviously not as complex or as outrageously expensive as they manifest themselves today. Healthcare has evolved into its current state over the past 150 years with decisions that have altered its sole purpose of caring for the ill to an industry of skyrocketing healthcare costs and lower quality. The latter being the quintessential definition of a dysfunctional marketplace. In 1999, the Institute of Medicine (IOM) reported the annual number of deaths in hospitals from medical errors to be between 44,000 and 98,000[i] – and 12 years later we haven’t seen improvement. In 2004, Healthcare IT News reported that “Preventable medical errors persist as the No. 3 killer in the U.S. – third only to heart disease and cancer – claiming the lives of some 400,000 people each year.”[ii] Healthcare needs dramatic changes to enhance quality and lower costs while expanding patient access – also known as the “Triple Aim.[iii] CMS seeks improvements in quality and financial metrics through its Accountable Care Organizations (ACOs), regulations, Bundled Payments, and other innovations. Despite these efforts by CMS, the question that remains is how do we fix healthcare before it starts consuming even more than 17% of GDP. Before we address the innovation issue in subsequent chapters, let’s first discuss the industry’s business model evolution over time.
In 1909, George Bernard Shaw wrote Preface on Doctors: The Doctor’s Dilemma where he claimed that “the medical service of the community, as at present provided for is a murderous absurdity. That any sane nation, having observed that you could provide for the supply of bread by giving bakers a pecuniary interest in baking for you, should go on to give a surgeon a pecuniary interest in cutting off your leg, is enough to make one despair of political humanity. But that is precisely what we have done. And the more appalling the mutilation, the more the mutilator is paid. He who corrects the ingrowing toe-nail receives a few shillings; he who cuts your inside out receives hundreds of guineas, except when he does it to a poor person for practice.”[iv] George Bernard Shaw’s scrutiny on payment for medical services in 1909 stands as it does today – fee-for-service (FFS).
By all accounts FFS is as perverse a business model as one can imagine. In no other industry does one get paid simply for “doing stuff.” Imagine if we were having problems with our car’s brakes and we took our car to the mechanic and he invoiced us because he “did stuff” notwithstanding that our brakes were no better off when we left than when we first arrived. FFS evolved in healthcare likely because it was the path of least resistance. Without adequate means of tracking quality, and without transparent pricing, there was very little left that a business model could be built upon. As impetuous as this model is, today’s providers are not to blame for a business model they inherited. It was, and remains, the only game in town. If you wanted to make a living as a physician, then FFS is how you were paid. This cobbled together mess that FFS encompasses is not what a civilized nation would design knowing what we know now. The reality is that the answer to this question doesn’t matter, we have to transform from where we are today, all other discussions amount to nothing more than flights of fancy.
Continuing our history, hospitals arose in the pre-1890 era, largely to care for the chronically ill in unsafe environments. Most patients preferred care at home, avoiding hospitals. “In 1908, healthcare was virtually unregulated and health insurance was nonexistent. Physicians practiced and treated patients in their homes. The few hospitals that existed provided minimal therapeutic care. When patients saw a physician, they paid their modest fees out-of-pocket; they were more concerned about the wages they would lose if illness kept them out of work than about the cost of their medical care.”[v] Even so, what doctors got paid was under a nascent FFS model. There was no way to track outcomes effectively. The concept of population health was not even a gleam in anyone’s eye. It was word-of-mouth personal relationships that physicians used as marketing and they did whatever was within their power (i.e. the reputable ones) to save lives and/or ease suffering.
In the 1900s regulation of the health professions began. We experienced the introduction of health insurance by individual payors and government sponsored healthcare provision. In the 1950s and 1960s government expanded use of hospitals nation-wide and introduced Medicare. Since then, we’ve seen rationing of care through Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs). It is hard to use the word innovation to describe HMOs and PPOs because they amounted to nothing more than zero-sum attempts at cost shifting between payers and providers with the patient left completely out of the equation. Medicare and some Medicaid recipients have been introduced to Accountable Care Organizations that seek to improve care and lower costs and out of necessity, put patient engagement at its core. Regulations are now abundant, yet we have not seen significant improvement in quality of care. Nonetheless, we see rising, unsustainable healthcare costs, and FFS still dominates, poised to remain unchallenged for the foreseeable future.
Healthcare’s Business Model, FFS, has not changed in 150 years. Therefore, healthcare executives have zero experience reinventing business models nor any practice introducing new and innovative ideas for improvement, the latter often involving a deep understanding of information technology. Healthcare needs a blood transfusion if it has any hope of eliminating the status quo that leads nowhere. We will discuss what that blood transfusion will look like at more length in the “Talent Wars” chapter; however, it is safe to assume that project teams will look radically different than they do today and that some sort of Agile methodology will be in place.
[i] Kohn, Linda T., Janet Corrigan, and Molla S. Donaldson. To Err Is Human: Building a Safer Health System. Washington, D.C.: National Academy, 2007. Print.
[ii] McCann, Erin. "Deaths by Medical Mistakes Hit Records." Healthcare IT News. Healthcare IT News, 18 June 2014. Web. 14 Aug. 2016.
[iii] "The IHI Triple Aim." The IHI Triple Aim. The Institute for Healthcare Improvement, n.d. Web. 14 Aug. 2016.
[iv] Shaw, George Bernard, ed. The Doctor's Dilemma: Preface on Doctors. N.p.: n.p., 1909. Print.
[v] Moseley, George B., III, JD, MBA. "The U.S. Health Care Non-System, 1908-2008." AMA Journal of Ethics®., 2008. Web. 15 Aug. 2016.