Clayton Christensen: American Health Care Is Sick And Getting Sicker

July 10 01:00 2014 by ushadmin

“We’re in a situation now where American medicine needs stronger leadership,” said management guru Clayton Christensen. “That is, executives who know how to wield power and drive change. If you don’t have a leader who has the instinct, will or skill to wield power, you can’t change.”

Christensen, a Harvard Business School professor and best-selling author of the “The Innovator’s Dilemma,” said leaders in health care have a variety of management techniques at their disposal. He calls them “Tools Of Cooperation and Change.”

But for a health care industry he describes as “sick and getting sicker,” Christensen believes only one kind of tool can drive change: power tools.

That means an approach to fixing American health care needs to be more autocratic. He has concluded that doctors, hospitals and insurance executives aren’t going to embrace necessary changes until those changes are imposed upon them.

“That’s right,” he said, “in these circumstances, democracy just doesn’t work.”

In his research, he has assessed a variety of organizational situations across two dimensions: the extent to which people agree on what they want and the extent to which they agree on how to get what they want. When there is no consensus in either dimension, forceful leadership is the only way forward.

Health care today is no exception.

Although Christensen sees the Affordable Care Act as sound in helping move our country in the right direction, he doubts its full potential can be achieved rapidly enough.

Sometimes, when a problem is severe enough, we need powerful medicine.

But what changes are necessary? Christensen sees a health care system suffering from (a) huge administrative overhead, (b) perverse payment models brought on by insurance companies with too much influence, and (c) employers who have no clue how to keep employees healthy.

In our interview, he discussed these problems and proposed some powerful solutions.

Let’s begin with U.S. health care’s bloated administrative costs.

“An increasing proportion of [health care] cost is spent on administrative and overhead activities that are not productive in any way,” he said. “They exist because we assume every hospital should be able to do everything for everybody. But that’s not possible if we want quality and efficiency. Overhead creep is the result.”

Christensen pointed to progress the British have made in improving outcomes while reducing the number of hospitalized patients. Their approach: specialized venues that focus on specific procedures like total-joint and eye surgeries.

“And by focusing on a single thing, overhead costs can be very low.”

In his home-state of Massachusetts, the New England Baptist Medical Center has become the place many go for what Christensen calls “osteo issues.”

“They do the same procedures for about half the cost of everybody else.”

And not far from American shores, Health City Cayman Islands is performing heart surgeries for a fraction of what they cost in the U.S. – and doing so with outcomes that rival even the best American facilities.

Second on Christensen’s hit list: America’s perverse fee-for-service payment model. Think of a “service” as an office visit, a test or a medical procedure.

Insurance companies pay doctors and hospitals for each service they provide, thereby rewarding them for quantity of services (regardless of whether the extra care adds any value). And in many medical situations, the payers pay twice – first for the unnecessary procedure and second to treat any associated complications.

What we have is a payment model that rewards unnecessary treatments and fails to price procedures appropriately.

He compared the latter problem to Harvard’s tuition model.

“Imagine if Harvard decides to sell education on a course-by-course basis,” Christensen said. “You’d have to put a price on each course and somehow that price would have to represent the expense of conducting the course and also its educational impact. But how should the university price a science class against a humanities seminar? And would the comparative pricing of a Stanford’s Chemistry 333 mean anything in terms of value against Harvard’s 322? It’s impossible to know.”

That’s why Harvard and almost all universities require annual tuition, designed to include the totality of cost and value. Students and parents decide if the price matches the value. Health care, Christensen argues, needs to do the same.

“Right now, the pricing process is disconnected and irrational. And if we don’t get it right, we can’t do anything else. We’re paralyzed.”

And, of course, when hospitals charge by the Band-Aid or aspirin, administrative and billing costs go through the ceiling. In fact, they may account for as much as 10 percent of the total health care expenditures.

In not-so-subtle terms, Christensen thinks employers should stick it to the insurance companies. And insurance companies, in turn, need to demand more of doctors and hospitals.

What he means is that employers should force insurance companies to move away from the fee-for-service payment model toward bundled payments or even full capitation – the latter involves insurers paying care providers a set amount for each enrolled person.

Until that happens, reference pricing would be a step in the right direction. Let’s assume a high quality total-joint surgery can be done for $30,000. Why then should insurers pay two or three times that to the hospitals and doctors who bill at such excessively high rates?

For businesses that are self-funded, Christensen says “employers should negotiate for the types of procedures and hospitals they want and then demand that the rates they pay are no higher than the reference price amount. They should get particular and, in doing so, drive down costs.”

Thirdly, Christensen spoke to the challenge employers face in keeping or getting employees to embrace healthy lifestyles.

The problem, he says, is that employers are approaching this problem the wrong way. They assume their employees have skin in the game.

“People don’t actually want to think about their own health and don’t take action until they are sick,” he said. “Yet employers are very motivated to get their employees healthy, since they bear most of the burden of their health care costs. In response, they spend thousands of dollars per employee each year trying to get them to be healthier with little to show for the investment. And as a result, many employers think they want to get totally out of the system of paying health care costs. That’s wrong too. We’re pushing the wrong levers.”

His solution is for employers to create incentives for employees to exercise, manage their weight and get the preventive screening they need. In that way, they can reduce the burden of chronic illness and flatten the rate of health care inflation.

Christensen’s prescription to improve the health of the American system is strong.

To get there, powerful leaders would need to consolidate volume in a small number of hospitals, which would result in other hospitals going out of existence. His solution demands that doctors and hospitals move from fee-for-service to being prepaid. And they need to take financial accountability when complications occur. It also requires employers to penalize employees who did not invest in their own health.

It’s not difficult to imagine the result: angry communities, outraged doctors and hospitals, and unhappy employees. Putting all these pieces together, it’s clear why Christensen believes powerful and fearless leaders are the only ones who can enforce change.

But the real question is: What will happen if they don’t?

Unless we restructure our care and our payment models, it’s unlikely we’ll improve quality while driving down costs. And until we double down on preventive care and get people to exercise, eat right and obtain the care they need, obesity and chronic illnesses will continue their relentless rise.

Before I left his office in Boston, I asked Christensen the same question I posed during my interviews with Malcolm Gladwell and Chip Heath. I asked him: “What would you like me to write about in a future blog posting?”

His request will be the topic of a future article.