We need to talk about healthcare, the role of funding, the need for healthcare teams, and core infrastructure from workplace culture to technology. Parts of this post began as a comment in Employee Benefit News, a LinkedIn group. Let’s start with the money.
There’s a pattern here—banks collect a 5% margin on health insurance cash flow. This is not small potatoes. Healthcare insurance, mostly self-insured employer costs, was about 33.5 percent of the $2.3 trillion spent on healthcare in 2008, i.e., almost 70 percent of the half of health cost not paid by Medicare and Medicaid (see National Health Expend Data). This annual $770 billion allows the 5% margin to feed some $38 billion into the banking sector’s P&L statement. And, the annual $770 billion flow is money banks can invest in securities markets, or can lend.
In Snake Bit, I took a different look at annual health insurance evaluation and the danger of getting Snake Bit if we don’t dig into the details, compare plans, and consider our historical and anticipated medical costs.
Due to fractional reserves (banks can invest or lend all but a fraction of underlying deposits, or borrow against them), the health insurance cash flow running through the banking system supports the investment banking business with leveragable deposit volume that can be further leveraged by securitizing assets; or in making loans. Banks make more money on a transaction basis by taking investment banking risks—very profitably, as long as the music plays. As a result, banks tilt the huge insurance deposits toward leveraged securities investments; less so toward lending so long as lost jobs, constrained wages, underwater mortgages, and debt repayment limit non-luxury consumer demand and overall business hiring.
As for healthcare itself, the banks have no direct dog in the healthcare cost problem stemming from craft-based operations in the healthcare provider world. If anything, insurance volume for costly health care feeds the deposit volume for banks.
And like banks, the health “insurance” (subscription) firms also don’t really have a dog in the healthcare cost problem as long as they pay out 80% of their revenues to hospitals and other providers. The 80% is the minimum subscriber firm payout under the Affordable Care Act (ACA), and thus of course is the target maximum payout.
As provider health bills rise, subscription firms just need to hike their rates to hit the 80% payout target. However, recently subscription firms were near a 75-78% payout ratio. Therefore, current subscription firm rate hikes indicate they anticipate continued billing hikes by providers struggling to use craft-based work units to handle previously uninsured low and middle income patients. By the time the ACA payout target takes effect, the subscription firms will be close enough to paying out 80%, such that provider billing increases will soon render subscription firms compliant with the ACA’s 80% payout. And then the tit-for-tat provider billing pass-through to subscription firm customers will continue.
Upshot—the healthcare billing and payment cycle is a process with no brakes, even under the ACA’s 80% payout basis. The only way to apply brakes on health costs is to deal with the craft culture at the healthcare operations level. Even Medicare for All, while ameliorating healthcare access problems, could not alone address the operational cost bias built into underlying craft medical practices.
Toward this operational craft practice issue, it’s important to note that hospitals have worked hard to modernize their work. However, what has taken place is an abundance of excellent tools wielded by individual craft practitioners in very small-team environments (the term “silo” often applies here).
The work tool ramp-up in an expanding work place that continues to apply processes rooted in standalone craft skills is a perfect recipe for aggressive unit cost growth. Patient care accountability needs a preventive care population culture, healthcare teams, team hand-offs, and transparent HIT resources including analytics, remote monitoring, voice and image telemedicine, and public key performance indicators. Especially for specialty and hospital care, teams need process coaches (Atul Gawande in Personal Best, The New Yorker, October 3, 2011) and bundled payments adjusted for severity (Jeff Goldsmith).
Let’s look a bit more closely at the connected ideas of healthcare teams, team hand-offs, transparent HIT resources, and process coaches. This array encompasses patient-centered and geographically transparent operational team support and hand-off capability from public health teamed with primary care docs, through potentially dispersed specialist support teams and hospital and clinic team operations.
Here’s the message – what is needed are location independent healthcare teams and team hand-offs as the core entities of accountability for patient care. This refines and extends an operational viewpoint from ideas also discussed by Arnold Relman in the New York Times Book Review for October 27, 2011.
The team accountability process builds on a sequence of team-based activities. Appropriate teams need to be engaged from early in the public’s entry in prevention and wellness action, before matters become chronic or involve hospitals. This means applying teams that connect prevention, public health, and general practitioners to stop a population’s emerging chronic conditions, one patient or population group at a time. For patients whose diseases progress into mature conditions requiring specialty care and perhaps acute hospital care, the specialty and hospital stages need a patient navigator team, a care coordinator team, and a meds management and treatment discharge-followup team (30-day recidivism, anyone?), enabled by end-to-end global EMR resources and whole-treatment episode analytics. The specialty care and hospital stages may enter a penultimate team care zone in OR and ICU activity.
Across the whole sequence, especially for specialty and hospital care, the stages will need process interpretation and continuous learning. This means a funded coaching resource.
More about coaches and payment, then we’re done for the moment. Coaches enable the healthcare team members to continue growing in situational skill and refinement across the whole team care process, from prevention-wellness to public health to surgery. If coaching seems both pointless and admitting to a lack of skill that will induce lawsuits, it’s useful to see the reference above to Atul Gawande and his New Yorker article, Personal Best.
The other matter—payment. In a team environment, each whole specialty and hospital care episode needs to be funded as a bundled payment adjusted for severity (as above, see Jeff Goldsmith). Why? Because the overall care process needs to be paid for as an efficiently integrated built process that generates production function value as a joint product, not for each disaggregated nut and bolt in the process. For example, key care components include transparent EMR resources and multiple whole-episode analytics that enable seeing each team episode in context with others. And to address costly outlier episodes, team-based care organizations will need stop-loss insurance (a form of reinsurance) at the individual and group level, incentivized by premium discounts for groups with better actuarial performance records.
Real payoffs stem from smarter systemic prevention-wellness action and healthcare for regions, residents, workers, and employers—better health, reduced benefit expense, reduced absenteeism and presenteeism, increased work team productivity and more focused learning capability, a more resilient and competitive global presence, leading to more jobs and better pay.
So, this has been quite a trip. The point being that prevention-wellness care and healthcare are a major Wicked Problem, i.e., with many moving parts and participants. Absent a serious effort to approach the task with humility, curiosity, determination, fortitude, and respect, from the inside as much as from the outside, we could end up poking the shared bear until it eats us up.
David Morf is a Partner with US Adaptive Health Solutions and Founding Member with Center for Adaptive Solutions. As an applied economist and organizational practitioner creating systemic operations connecting strategy and tactics, he has worked for 40 years to foster innovation, collaboration, transition and growth in business, regulatory, technological and working environments. He enables firms, agencies and organizations to recognize and benefit from emerging scenarios with new tools and fresh perspectives for effective action.