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How to Fix Healthcare: First Gradually, Then Suddenly

 |  By Philip Betbeze  
   August 15, 2014

We're in the "gradually" phase right now. The "suddenly" part will be upon us before we know it.


Imagine you built a lemonade stand at which you could sell all the lemonade you could make for a dollar a cup. Wouldn't you do everything you could to produce as absolutely many cups of lemonade as possible?

If you were economically rational, you would. There would theoretically be no limit to your revenue, and by selling each cup of lemonade you simply add to your profit ad infinitum. While the way healthcare is bought and paid for is infinitely more complex than how lemonade is sold, for years, it has operated on a very similar economic model to my theoretical lemonade stand. (Sometimes you have to give the lemonade away for free, for example.)

Economic theory holds little sway in such a business, which is one reason why healthcare is on a crash course to try to inject the right incentives and measures into how decisions are made about healthcare services for individuals.

Now things are changing, but fee-for-service is still the dominant pay mechanism for health plans, government payers, and hospitals and health systems to this day. Many geographical regions seem to have plenty of pilot-type projects going on, but relatively few have gone further, at least up to now.

The lemonade-stand analogy is mired in fantasyland, of course. In no business can you infinitely grow through production alone—even in healthcare, there are limits to how many people you can reasonably say need drug-eluting stents, for example.

But the fact remains that no other business I can think of (except possibly college education, though that may be changing, too) has a system where to a large extent, suppliers have such power to create demand for the products and services they supply.

Of course, such an economic model is unsustainable—it requires a buyer that is as irrational as the seller is rational. But though it must fail, it can persist for a long time, as it turns out.

For a long while, that's what many of us thought about healthcare. Deep down, we knew it was not sustainable over time, yet runaway healthcare inflation was sustained for decades. Long enough that we got comfortable with it, ingrained in it, and maybe figured it would always be that way.

We're collectively finally seeing the bottom of the pit of money required to sustain such a model, so changes must be made.

But how, and how quickly? The major sources in a recent cover story I wrote for HealthLeaders magazine are either smart enough or naïve enough to try to innovate and play a part in changing this economic model both because patients, employers and payers are increasingly demanding it, and not least because it's the right thing to do.


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This transformation is something I ask execs about no matter what the subject matter of the interview I'm conducting. Almost to a person, they freely admit they may be early, but suggest in the same breath that history will be on their side.

We fill the pages of the magazine each month with ideas and solutions from those who are pioneers in moving toward demonstrated value. This story is no exception. These people are betting their careers on change.

We do research that helps them understand where their peers are on the transformation and our daily news is filled with stories of innovative partnerships that may be able to bend the cost curve and deliver a more rational economic model for the provision of an essential set of services that we will all need at one point or another.

My June cover story attempts to profile a few organizations that are taking the operational risk of being accountable for outcomes and cost of care. That's something, I've found in my reporting, that's simple to say, but immeasurably difficult to ingrain in your organization, no matter how insistent the call to change might be.

Yet value is making inroads into this hidebound, expensive, and dangerous historical economic model. As I often think about this transition—a stock question for CEOs I interview is how the transition from volume to value is going—I'm often reminded of what Mike, a character in Hemingway's The Sun Also Rises, says in response to a question about how he went bankrupt:

"'Two ways.'" Mike said. "'Gradually, and then suddenly.'"

I've not had a CEO phrase the healthcare transformation journey in quite that way yet, but I keep hoping. To put a more positive spin on that quote as it applies to healthcare accountability, I suspect we're in the "gradually" phase right now. The "suddenly" part will likely be upon us before we know it.

Philip Betbeze is the senior leadership editor at HealthLeaders.

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