The Coming Health Care
Transformation
David M. Cutler
Harvard University
May 2010
Disclosure
• Speaking: US Oncology, MedImpact, IMS,
AHIP, Brokers and Reinsurance, HFMA,
chaindrugstore.net
• Government: Senior advisor to Obama
presidential campaign, advised Administration
and Congress, CBO Board of Health Advisors
2
What is reform about?
1. Getting everyone covered
2. Improving the value of care
3. Addressing the US fiscal
situation
3
The premise of health reform
• Medical care is inefficiently provided, and this
both lowers quality and drives up cost.
• Therefore, we should be able
to improve the value of care by
modernizing the health system.
• Fundamental issue: lack of
coordination.
4
The Care Experience
Healthy
person
Continued
health
Chronic
illness
Integrating the
care episode
Primary care
physicians
Successful
management
Acute
episode
Post-acute
care
Hospitals
Post-acute
providers
Specialist
physicians
Primary care
physicians
Pharmacy
Specialist
physicians
Labs
Pharmacy
Specialist
physicians
Pharmacy
Labs
Labs
Examples of low productivity
• Overuse of
administrative personnel
• Too many and too costly
acute care episodes
• Medical errors
Source: US Department of Labor
6
The Drivers of Productive
Industries
IT and its use
[ARRA, 2009]
Appropriate
Information
Compensation
Arrangements
Empowered
Employees/
Consumers
Move from
pay-for-volume
to pay-for-value
[PPACA, 2010]
Engaging employees
and consumers in
continuous quality
improvement
7
Medicare Compensation Changes,
PPACA
• Bundled payments
– Hospital + Post-Acute
– Chronic conditions at the patient level
• Accountable care organization
• Value-based purchasing
– Chronic disease management
– Surgical quality
• Care transitions/coordination
8
Who Should/Will Integrate Care?
Healthy
person
Continued
health
Chronic
illness
Integrating the
care episode
•
•
•
•
•
PCP (medical home)
Insurer
Google/Microsoft
iPhone developers
New firms
Primary care
physicians
Successful
management
Acute
episode
Post-acute
care
Hospitals
Post-acute
providers
Specialist
physicians
Primary care
physicians
Pharmacy
Specialist
physicians
Labs
Pharmacy
Specialist
physicians
Pharmacy
Labs
Labs
9
Three Implications of
Organizational Reform
• The information industry
• Size of organizations
• Profits
10
1. The Birth of a New Industry
• Data organization, retrieval, and analysis are
key areas
– Patient encounters
– Cost-effectiveness
analysis
– Learning which
providers are better
and worse
• Look for a data/quality assessment industry
11
2. Increased consolidation
• In every industry where
information has become a
key commodity, firms
have gotten bigger
– Retail trade (Wal-Mart,
Target, Best Buy)
– Banking (Bank of America)
– Legal services
• This has happened,
and will continue in
health care.
12
12
What do the following people
have in common?
Name
William Cook
Barbara Piasecka Johnson
Ronda Stryker
Jon Stryker
Thomas Frist Jr.
Alfred Mann
Pat Stryker
Patrick Ryan
John Abele
Gary Michelson
John Brown
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They are health care people in
the Forbes 400
Num Name
Net Worth
(bn)
Source
68
William Cook
$5.0
Catheters, stents, etc.
123
Barbara Piasecka
Johnson
$3.3
Pharma
134
Ronda Stryker
$3.0
Stryker (joints, surgical tools, etc.)
215
Jon Stryker
$2.1
Stryker
246
Thomas Frist Jr.
$1.9
HCA
262
Alfred Mann
$1.8
Insulin pumps, cochlear implants
262
Pat Stryker
$1.8
Stryker
301
Patrick Ryan
$1.6
Re-insurance broker
321
John Abele
$1.5
Boston Scientific
321
Gary Michelson
$1.5
Spinal implants
355
John Brown
$1.4
Stryker
14
Retailers on Forbes list
Num
Name
6
Wal-Mart
5
Home improvement (2 Home Depot)
3
Gap
1
Best Buy (Richard Schulze)
1
Supermarket (Federik GH Meijer)
1
Real estate development (E. Stanley Kroenke)
1
Global outsourcing firm (Victor Fung)
1
Hobby Lobby (David Green)
1
Urban Outfitters (Richard Hayne)
1
China sales (Roger Wang)
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3. The next healthcare billionaires
• Whoever figures out how to:
–
–
–
–
–
Coordinate care
Streamline medical practice
Overhaul administrative processes
Ensure proper care combinations
Manage information
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