Transforming Public-Private Enterprises: Healthcare

Healthcare presents a major challenge for the U.S.  We pay twice as much per capita as any other country; yet achieve much poorer results in terms of health and longevity.  The current system can be characterized as a federation of millions of entrepreneurs with no one in charge.  Even assuming that everyone is well intended, we have the overarching problem of everyone trying to optimize the system from his or her personal perspective.

Patients feel entitled to care and providers of care feel entitled to reimbursement for their costs.  Insurers and providers of medical equipment, devices, and supplies all feel entitled to profits.  These entitlements, both mandated and assumed, tend to be enormous barriers to change.  Everyone one wants the problem of healthcare costs solved, but no one is willing to compromise their entitlements.

All of these stakeholders have premised their business models on the assumption that the economic system will continue to operate as it has been since they made these commitments.  These business models will only be changed if these stakeholders have no choice.  We need a “burning platform” to motivate the needed changes.

I suggest that two changes of the incentive system will create this burning platform.  First, providers of care, as well as equipment, devices, and supplies, should be paid for outcomes in terms of improved health and decreased risks of disease.  They should not be paid for the costs of their procedures or the number of procedures conducted.  Their payment should be linked to the extent to which a patient is better off than they would have been without the providers’ services.  Ideally, we would create market mechanisms that would enable and motivate people to determine the extent to which they are better off, and then pay accordingly.

Second, it should be illegal for providers to charge patients with employer-based insurance more than they are allowed to charge Medicare and Medicaid patients.  If such “cost shifting’ was illegal, the system would have to change because either all providers would soon go out of business or Medicare and Medicaid patients would not receive any care.  The invisible tax embodied in cost shifting has significantly depressed wage levels across the U.S. for the past two decades.  Making this practice visible – and then illegal – would force change.

One might argue that these two suggestions would result in poor and elderly people receiving inadequate care.  However, the opposite would happen.  If one is only paid for improving people’s health, then one needs to finds lots of unhealthy and at-risk people.  That is where improvements can be achieved and money made.  Focusing on healthy, low-risk people would be a poor choice as one cannot improve their health sufficiently to stay in business.


  1. Akshay says:

    There is an inherent barrier to your first solution. According to IOM-Crossing the quality chasm report, it takes 17 years for research to be used in practice. Without a process that can help regulate the conversion of research in to practice in a shorter time span it is very difficult to implement the pay per outcome method.

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  3. Thanks for finally talking about > Rouse on Transformation

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