Why we need to stop waiting for the other shoe to drop on health care

Americans face crucial moral and economic choices in health care. The results of those choices will be enormous, both for the United States’ economic future and the public’s health. This is the message of Michael Leavitt, former U.S. Secretary of Health and Human Services, Environmental Protection Agency administrator, and governor of Utah, who gave W. P. Carey’s eighth annual Mark McKenna Lecture.

The consequences of the moral and economic health-care choices Americans make will be enormous for both the United States’ financial future and society's health.

This is the message of Michael Leavitt, former U.S. Secretary of Health and Human Services, Environmental Protection Agency (EPA) administrator, and governor of Utah, who gave W. P. Carey ’s annual Mark McKenna Lecture on March 14.

The nation is amid a massive transition away from the traditional fee-for-service model, said Leavitt, who now runs a consulting company dealing with health issues. This transformation began around 1990 and will take about 40 years, he estimated.

The fee-for-service model, in which “there’s a price for every function,” is giving way to a “value-based” model where “we begin to pay essentially for what works and pay more for what works the best,” Leavitt said.

Because the country’s population is aging, with payments for Social Security and Medicare mounting, the health-care system must become more efficient. Otherwise, the country will be forced to give up its compassionate instincts or surrender the world’s economic leadership.

“Neither of those are acceptable as an alternative,” he said. “This is the challenge, I would suggest to you, of this generation.”

A revamped health-care system “can’t be a system that provides deficient care. We have to get better at this. We have to figure out how to use this remarkable amount of money we spend and provide better care for less. And that is the American challenge.”

Leavitt took the audience on a historical tour of health care, starting with the passage of Medicare and Medicaid in 1965. Since then, “Virtually every major piece of health-care legislation that’s been passed into law or implemented has come as a result of our sense of compassion.” That sense is among the main reasons people decide to join the health-care field in the first place, he pointed out.

An unwieldy payment system known as the CPT code ensued, which “unleashed a set of incentives that simply caused people to want more and more health care, and then allowed people other than them to pay for it because we had Medicare and Medicaid and third-party insurance. It set off a trend that simply began to eclipse non-medical inflation.”

This was a period of “enormous chaos,” one that started the movement away from fee-for-service, he said.

Eventually, an alternative payment system was developed, along with the concept of “managed care” in its most visible form: health maintenance organizations.

“By the time we got into the middle '90s, more than half of all employees in America, the non-government patients, were on some form of managed care.

“The problem was people hated it. Patients hated being told what kind of care they could get. Physicians hated being told by insurance companies what kind of care they could give.”

The public revolted, with the backlash resulting in the Patients’ Bill of Rights.

The lesson learned: “Patients simply weren’t going to put up with a gatekeeper,” for medical care, Leavitt said. The hard choices were left for another time.

Today, “I would suggest we have not lost our compassion in any way,” he said. Yet now, economic forces – Leavitt calls this “global economic dispassion” – is now requiring Americans to recognize there are practical limits in how compassionate instincts are executed.

Why will this transition take 40 years?

The nation’s political polarization is a major factor, along with the human tendency to procrastinate, he argued. “If we didn’t have to do this, we wouldn’t. The truth is, we’ll put it off as long as we can because it’s too hard. We’re not 100 percent sure how fast it’s going to happen, so why am I going to rush to get it done?”

He compared the situation to the tale of Cinderella who dallies at the ball, even though she knows her coach will revert to a pumpkin at the stroke of midnight. “The wine is flowing, the music is playing, the men are handsome. Why would you abandon the fee-for-service system at a moment like this?”

One difference: There’s no government timer set to go off at a certain time. But those who delay will be at a disadvantage, he suggested. “This is something that is being driven by the force of markets with a glacial-like force that moves and goes faster and then slower … But it’s happening.

“How do you manage this? I would suggest it’s a pretty good idea to start dancing toward the door…”

Though change is being driven by economic forces, polarized political philosophies also play a role, he acknowledged. “That’s one of the reasons that this is taking 40 years.

“My own view is there is a very important role for government to play. But it’s not to prescribe and it’s not just to leave things alone. It’s to create an ordered marketplace where this can play out.”

An audience member asked Leavitt about the influence of greed, saying, “Everyone in this room wants to get paid. How are we going to spend less when we have greed involved?”

Leavitt replied, “We have to acknowledge that this is part of the capitalist environment. Part of what has made this country great is we are driven by a set of incentives. It doesn’t mean we can’t do well and do good at the same time.”

Leavitt also expects health-care costs to be an issue in this November’s elections, not just the question of access to health care.

Criteria for organizations that want to run health care

Traditional organizations such as hospitals, insurance companies, and multi-specialist physicians’ clinics are now vying for the right to oversee health care in markets across the country, Leavitt said.

Leavitt suggested seven criteria these sorts of groups should be judged by before being granted control of future health-care dollars:

• A health contractor needs the capacity to change patient and physician behavior.
• The contractor will need to have a brand recognized by consumers.
• It must have enough capital to assume risk.
• Another criterion is what Leavitt calls “the aggregation of lives,” the ability to come up with a large enough group so that care can be provided in an efficient way.
• They must be able to manage risk.
• They must have a “clinical footprint of sufficient size that they can care for populations and keep them happy and healthy.”
• “Finally, and put a star by this one, they need the collaborative IQ to bring all this together.”

A drawback is that, for example, a leading hospital will have a big brand recognized by consumers but doesn’t really have the power to change patient behavior. That’s left to doctors visiting the hospital.

An insurance company would have capital and know how to manage risk, but also would struggle at other criteria, he said.

In addition to the traditional providers, Leavitt proposes a fourth type of health contractor, “something of a mystery entry. I refer to them as strategic aggregators.”

These could be any organization that can meet these criteria but isn’t a hospital, insurance company, or physician’s clinic.

Perhaps a firm that owns thousands of drug stores and health-care clinics that could combine with an insurance provider. Or perhaps a pharmaceutical company that provides services and not just devices. The trick will be to find contractors who can meet all seven criteria.

Suggestions for change

One general idea is to encourage people to give incentives for people to buy into healthier habits. In the end, they may come to believe this is their own idea as much as that of health contractors.

For example, if a person’s body mass index exceeds a certain number, “Then your premium is $1,300 per month,” Leavitt said. But if they hit low numbers, then maybe their premium is, say, $800 monthly.

Rural communities may want to subsidize a local hospital, much in the same way they tax residents for a community swimming pool.

Leavitt says he has seen examples of doctors with individual offices who, realizing they need to be more efficient, merge into a group practice. Evaluations of the best medical providers also are improving, he said. Ultimately, “I’m optimistic we can get through this. The beauty here is we’ve got time. But not much.”

By 2030 – the theoretical endpoint of this 40-year transition – the United States will have a record number of 80-year-olds with fewer workers than today to support them, he pointed out. So, the health care system will have to become substantially more efficient.

“We find ourselves today in a very difficult dilemma. If we lose our sense of compassion, we lose this sense of ourselves. We are compassionate. We are caring for our families, our fellow man. If we ever lose that, we have lost part of the ethos of the American psyche.

“On the other hand, if we were to lose our economic leadership, that would be unacceptable, too.”

Previous generations of Americans have had to deal with wars and depression, he pointed out. Today’s generation must solve the health-care question because the statistics are “dauntingly real, and this pressure is dauntingly real.”

In Leavitt’s view, “There are only three ways we can approach” the inevitable changes. “We can fight it and die; we’ll be overcome by events. We can accept it and have a chance. Or we can lead it and prosper.”

The free lecture was made possible thanks to the supporters of the Mark McKenna Lecture Endowment Fund. Details about giving to the fund are available here.