Our Health-Care System Needs a Bypass

Obama's campaign can show us a way to fix health care: with an "institutional bypass" that makes an end-run around a broken-down system

By Shoshana Zuboff

Hope was to be the headline of the Inauguration. Now we're broke. Just when we planned to finally address the challenges of health care, education, global warming, and energy, we ran out of cash. Optimism is giving way to a new logic of scarcity and sacrifice, as we are told to tighten our belts and lower our expectations.

There is hope, but it now resides in the unconventional—not business as usual. President Obama can use his leadership and influence to create incentives for the kind of innovation I call an "institutional bypass." These innovations transform scarcity into abundance by circumventing old cost structures and reducing prices by 40% to 60%. They connect people with what they want at a price they can afford. Historically, it's the institutional bypass that has driven changes in the evolution of capitalism, igniting new cycles of accumulation and economic growth.

Think of a coronary bypass in which a healthy blood vessel is transplanted to replace a diseased vessel blocked with plaque. Doctors used to focus exclusively on fixing the damaged vessel. Then some began to realize that the vessel itself wasn't important. What mattered was how to nourish the heart with blood. This insight redefined the problem from repairing what is damaged to creating a life-enhancing alternative.

The Premium Puzzle

That's how an institutional bypass works. Economies exist to connect people with the resources they want. Problems arise when people develop new wants and needs faster than institutions can adapt. Every century or so, that mismatch becomes so acute it reaches a crisis expressed in something I call "the premium puzzle." That's when a majority of people want things that are priced at a premium under the old regime. The administrative and technological legacy systems in those old models are clogged with overheads, outdated assumptions, and value-destroying practices that keep costs high.

Solving the premium puzzle means figuring out how to get people what they want at a price they can afford. Henry Ford's mass production was an innovation of this magnitude. He didn't fix manufacturing as it was then practiced; he bypassed it with a wholly new model. That made it possible to drop the price of a Model T to an unimaginably low $260, when most cars sold for between $1,000 and $4,000.

Here's the catch: It's impossible to solve the premium puzzle in the old institutional context. I don't mean it requires better leadership, management, strategy, execution, vision, technology, efficiency, or cost-cutting. I mean it is impossible. Nothing in the old tool kit will make enough difference to explode the logic of scarcity. That's when the solution requires an institutional bypass.

A Crisis in Elder Care

One year ago, a highly admired local doctor came to speak with my co-author and husband, Jim Maxmin, and me about the failed state of health care, specifically elder care. Dr. Allan "Chip" Teel is an Ivy-League graduate who came to Maine decades ago committed to serving a rural community. "After 25 years of medical practice, I've come to the conclusion that the system is so broken it can't be fixed. We need a revolution. Will you help me?"

U.S. health care today is a premium puzzle on steroids. At a time when most people want individualized holistic care, most of what's on offer is fragmented and impersonal. Too many can't even afford basic insurance. There is by now widespread agreement that the system produces stratospheric costs and substandard results for nearly everyone.

If health care is a train headed for a brick wall, then elder care is a high-speed train stuffed with our parents and grandparents racing toward a steel-reinforced concrete fortress. Today it's them. Tomorrow it's us: According to the U.S. Census Bureau, the 65-and-over population is expected to double by 2030, reaching 72 million—that's one out of five Americans. The over-85 age group is now the fastest-growing segment of the U.S. population. That's the train.