Companies & Industries

Lessons for Obama's Health Care Team


President Obama's goals for health-care reform are similar to Massachusetts'. The Administration should take a good look at what is and isn't working

Posted on On Innovation: January 22, 2009 5:23 PM

One of the primary features of President Obama's health care plan is the establishment of a National Health Insurance Exchange.

It has three primary goals:

1. To serve as an unbiased source of information for consumers

2. To establish minimum standards and monitor performance of participating health plans

3. To form a marketplace and increase competition among insurers

The creation of this Exchange is an important step forward in the reform process, but other elements in the value network need to be fixed in order for the Exchange to succeed. In fact, a similar scheme known as the Commonwealth Health Connector has existed in Massachusetts since July 2007, and this decidedly experimental prototype has uncovered some important shortcomings. We ought to address these before applying a similar model on a national scale.

First, Massachusetts citizens have had little incentive to seek out and use information about their health care services. Why? A lack of true information transparency. Information transparency is vital to an optimally-functioning market, because it allows for rational decision-making by all stakeholders. These circumstances almost never exist in health care, since insurers, hospitals, and doctors have historically been highly resistant to releasing data that could suggest pricing or quality disparities. In this respect, the Exchange can only help, as long as the information being disseminated is accurate, relevant, and suitable for use by a layperson—no small task.

More important, however, is the fact that patients must have a reason to use this information and make rational purchasing decisions. Employer-based insurance in the U.S. and single-payer systems worldwide have disenfranchised patients for so long that true shopping behavior is rarely observed, even for discretionary services like LASIK eye surgery. We need corresponding changes in the system, such as a proliferation in health savings accounts and personal electronic health records that put more control of the dollars, data, and decision-making into the hands of patients who want it.

Next, we need to ensure an abundant range of services in the marketplace so that motivated consumers armed with information will have viable options that meet their needs—in other words, give them choice. This raises another problem with the proposed Exchange. The enforcement of minimum standards is typically meant for the good of the patient, but these regulations often end up only protecting the providers. Even after certain standards have become outdated or unnecessary, incumbents will continue to argue for their existence under the pretext of public safety. That's because these regulations serve as an effective barrier to entry, particularly against disruptive businesses that focus on ignored or less profitable markets like the uninsured.

However, these disruptions are essential to bringing more affordable care to more people by creating options where there were previously none. In Massachusetts, for example, the decision to add prescription plans as a minimum requirement for participation in the Connector shut down what could have been an important foothold for generic drugs and the low-cost pharmacy pricing models introduced by Wal-Mart and other retailers. While we would not advocate a completely unregulated health care system of caveat emptor, we urge regulators to account for the hidden cost of delayed innovation as a common unintended consequence of establishing minimum standards and to ensure that such regulations are repealed quickly once they become obsolete.

Finally, the Exchange promotes a misplaced faith in the notion that simply promoting direct competition among existing health plans will suddenly drive down costs and deliver increased value for our enormous health care spending. But history tells us otherwise. Direct competition among U.S. automakers did not give us more affordable, quality cars—disruption by Japanese (and now Korean) companies did. Breaking up AT&T to induce competition among the Baby Bells did not bring more affordable telephone service—disruptive technologies like Voice Over IP (VOIP) did. Likewise, the hope in Massachusetts of pitting Blue Cross Blue Shield, Harvard Pilgrim, Tufts, and others against each other to drive down costs has not been realized. The reason is that the state (at the encouragement of powerful incumbent organizations like the Massachusetts Medical Society) did little to encourage the entry of disruptive business models, and in many cases, hindered it. For example, CVS's MinuteClinic has been around since 2000, but its retail clinics were not permitted in Massachusetts until January 2008 (and the first one did not open until September). Even if insurers wanted to, they could not direct patients to more convenient and affordable options. In a system with a severe shortage of primary care practitioners, patients were forced instead to turn to costly and crowded emergency departments for routine care.

Creating a marketplace that propagates information and promotes appropriate tradeoffs is the right start, but the Exchange will not reach its lofty goals without the corresponding changes to our information technology, payment, delivery, and regulatory systems described above. We should learn from Massachusetts's experience with the exchange model and recognize that there's a specific type of competition that drives value—disruptive competition. And if we can use the Exchange to harness the best of what disruption has to offer, then we can begin to create a much-needed health care system that is capable of delivering higher quality and performance at a lower cost.

Provided by Harvard Business—Where Leaders Get Their Edge

American Apparel's Future
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus