Book Review, Healthcare

On the Cost of Healthcare

Cure sometimes, heal often, comfort always.

15th Century Health Care Aphorism

The other day my father called me and said, “You’re never going to believe this!” I’m easily surprised, so it was a shock to me that my stoic father, who seemed to be unfazed by anything, would be outraged. “Guess how much your Aunt paid for a single night of staying in the hospital?”

If your first response, like mine, was, “Do you mean the list price or how much she actually owed?”, then you’re probably really into American healthcare and all of its pricing trials and tribulations. This week’s read: “The Price We Pay: What Broke American Health Care and How to Fix It” by Marty Makary, MD, is going to provide you with a lot of great anecdotes and easily cite-able data, but it’s not going to radically change your viewpoint or understanding of the situation. The good doctor, an incredible writer and deep thinker, provides a sweeping narrative about the broad strokes of what is wrong with American healthcare. I will focus most here on his prescriptions for success and why I think they are flawed or sound, plus share my take on what’s to be done.

By the way, the answer to my father’s question was $17,000 (list price). Given my past experiences with inpatient bills for childbirth, I thought my Aunt got the deal of a century.

Solution #1: Create the Tesla of Healthcare

Dr. Makary poses the reader a question: “Do you like buying a car?” For most people the answer is clearly no. Salesmen are impossible to haggle with, want to slip you into some car on the lot that you don’t want, and change the terms at the last minute. As someone who has gotten into it in the middle of a showroom floor, I can attest that the experience is awful.

By contrast, go and buy a Tesla (no, not the stock, it’s too expensive now anyway). Teslas cannot be bought in a showroom. They don’t have salespeople harassing customers and independent dealers selling service warranties. Instead, an online portal allows potential Tesla owners to customize cars and have them delivered directly to their homes. The showrooms are just that: showrooms. Places to test drive cars and fall in love with the brand.

To Dr. Makary, this model is clearly working for Tesla and should be replicated by the healthcare industry. He cites as a model company Iora Health, a Direct Primary Care (DPC) regional Medicare Advantage-focused insurer. As he relates:

Iora’s founder and CEO, Dr. Rushika Fernandopulle, a Harvard-trained primary care doctor, didn’t like what he was seeing in the health care industry: the assembly line method of seeing complex patients, rushing them through the exam rooms, ordering large swaths of tests, then chasing down insurance companies for payment… At the core of the model is time. Iora carves out a lot of time for each patient… They coordinate care and strive to achieve the best health outcomes.

I want to be absolutely clear: I believe this is the correct model of health care. Not only does it belie the shift in narrative (changing from “insuring downsides” to “providing care”), study after study shows the increasing importance of considering Social Determinants of Health (SDOH) in creating a healthy population. Therefore, the entire picture should and must be taken into account in any future vision of primary care.

“Your zip code can affect you more than your genetic code. For example, for people living in the Chicago Loop, life expectancy is about 83 years. On the other hand,those living 3 train stops south of downtown, in Washington Park,have a life expectancy of only 69 years. The gap in life expectancy between these two neighborhoods is larger than the life expectancy gap between the U.S. and Honduras.” – Healthbox, Root Causes of Health Report

However, the industry has not yet proven that DPC will result in better, more efficient care across all populations. Companies like Iora Health have started by selling Medicare Advantage plans which, much like Tesla[1], cater to wealthy individuals with choice and time on their hands. DPC has been challenged in rolling out to lower-income populations and the 150 million Americans who get insurance through their employers, although companies like Wal-Mart and CVS/Aetna are starting to show promise in reinventing primary care.

Solution #2: Price Transparency

The second solution Dr. Makary puts forth is transparency. As Justice Louis Brandeis famously remarked, sunlight is in fact the best disinfectant[2]. And on this again, I agree with Dr. Makary[3]. He highlights a company named Healthcare Bluebook that aims to bring exactly this level of insight to the everyday patient experience. It’s also worth highlighting, in my opinion, some of the great state and local efforts like New Hampshire Health Cost.

I wrote about this topic in relation to a personal experience in a previous post entitled “Price Transparency: Healthcare’s Silver Bullet?” Briefly restating my counter-argument to Makary here: yes, transparency will absolutely help consumers comparison shop when there is an elective procedure that needs to happen eventually and there is time on the patient’s side (e.g., childbirth, knee/hip replacement). But as I learned firsthand, when there is an emergency and/or emotions are involved (e.g., ER visit, cancer, pediatric anything), sometimes price is not the problem. The lack of time combined with the indirection of a provider -> hospital -> insurance -> patient loop means that choices are not actually being made with rationality in mind. In this case, price transparency would do very little toward creating an Econ 101 competitive market with maximum consumer/producer surplus. The Atlantic said it better than I could, when describing a $94,000 prostate operation to prolong a terminal cancer patient’s life by two weeks:

The problem with these straightforward economic calculations is that they involve real human beings who have friends and relatives. That 94-year-old cancer patient, after all, may have loving children or grandchildren at the bedside; hardly anybody is willing to let Grandpa die just to save money for the overall health-care system.

T.R. Reid, “How We Spend $3,400,000,000,000”

Solution #3: Eliminate the Kickbacks and Middlemen

This is a bit of a catch-all, so I want to get a few specific players lumped in here. Dr. Makary (as many doctors do) feels that insurance brokers, pharmaceutical benefit managers (PBMs), and wellness consultants (among others), provide very little (or no) added value to patients and payers while at the same time massively inflating the cost of healthcare.

Let me start with the last one first: wellness. As Dr. Makary puts it:

America’s love affair with workplace “wellness” is costly and dangerous… We all should eat sensibly, exercise, stop smoking, moderate our alcohol consumption, drop excess weight… That’s not what I’m talk about. Today’s wellness movement is a $6 billion industry run amok… There’s an army of companies and consultants who can’t wait to get their hands on American workers.

Most of the author’s proof to back this up relies on a survey study done by Tufts Medical Center that evaluated over 2,000 wellness programs and concluded evidence for any positive impact was limited and inconsistent. And while this is compelling, I was not persuaded by the rest of his “anecdata”. For instance, he recalls berating a wellness consultant for promoting a low-fat diet, touting the controversial book Good Calories, Bad Calories as the bible for how every diet should be. To me, this smacks of arrogance, as recent work by researchers (shown in the incredible documentary Game Changers) is showing evidence that a high-fat, animal-based diet may actually be contraindicated by the fossil record and our evolved anatomy. Perhaps money being spent on the wellness industry is fueling research and evaluation of different diets, even if they come to conclusions Dr. Makary disagrees with. Plus, I would make the argument that the wellness industry (especially the burgeoning Wearables category) will be vital to a consumer-driven health care system that goes beyond the four walls of the traditional hospital.

Now how about insurance brokers and PBMs? How do these middlemen inflate the cost of healthcare? Well, as the argument goes, middlemen seek to enrich themselves by having their clients select the most expensive options, collecting high fees, and calling themselves “Value-Added” without actually adding any value. In fact, this is the exact same criticism that the Trump administration leveled at PBMs (and then later withdrew).

According to the National Health Expenditures Account (NHEA) Table 04, the 2018 Net Cost of Health Insurance[4] was $258.5 billion (7.6% of NHEA). This is no small amount. By contrast, retail sales of pharmaceuticals totaled $335 billion for the year. Unfortunately, we don’t know how much of that subset is fees/rebates going from the premiums paid to insurers back down to “value-added middlemen”. Without this knowledge, it’s unclear what the true cost – or true benefit – of all of these middlemen is, no matter how morally repugnant their job may be.

By the way, many have argued that we should just remove that line item from the NHEA entirely with nationalized medicine! That’s a valid argument, but not in line with Dr. Makary’s calls for price transparency reform and direct primary care which only are needed in competitive, privatized systems. For privatized systems, the answer is probably “smarter regulation”. But beware, even the best-intentioned regulation like limiting profits creates its own problems.

Thad’s Solution: Yes, And… Focus!

I have talked at length in this review about all of the things that Dr. Makary has laid out and where I agree or disagree with them. But what if I were king for a day? Don’t oppose, propose!

So here it is: combine direct primary care, price transparency and kickback/middleman regulation to create a privatized system where high-cost populations can be more efficiently. Target Americans 55 and older who spend $1.9T on healthcare every year (56% of all health spend for 29% of the U.S. population). Aggressively manage diabetes, kidney disease, and other cost sinkholes. Use taxation sticks and carrots to actually drive behavioral change.

My only problem really with Dr. Makary’s solutions are that they are too broad-brush in their application. Remember the “Willie Sutton Rule”: look where the money is.

Sidenote: we could easily make this bipartisan: Medicare-for-All-who-want-it and the abolition of federal debt. Given that federal health entitlements account for 29.4% of the U.S. Budget, it turns out that better caring for our nation’s most vulnerable is actually sound fiscal policy. Who knew.

Me Discussing A Weighty Topic Like Politics

Living Outside the Beltway. On the next installment, I am going to talk about “Beyond Peace”, Richard Nixon’s final book before he died. Given the impeachment saga in Washington and the upcoming Iowa caucuses, I thought a politics-themed review was in order!

About “Executive Book Report”. This is a passion project brought to you by Thaddeus Diamond, a Computer Science and MBA grad currently working in the Kansas City area.

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[1] Not to be the party pooper, but Tesla still has barely turned a profit. In addition, the Model 3 retails at $39,990 with zero customization or packages, more than 10% higher than the average full-size sedan competitor.

[2] I don’t think Justice Brandeis ever had bleach.

[3] Although I will say I find Dr. Makary’s argument a little suspect because he himself admits that price transparency wouldn’t help in End of Life care. Specifically, he calls out that his Improving Wisely project helped predict overtreatment based on the proportion of oncology patients in a physician’s care dying while on chemotherapy and/or radiation. If 10% or 20% were dying on chemo or radiation, that’s probably normal, but 80% to 100% might suggest poor discretion on the part of the oncologist. According to the National Cancer Institute, the initial treatment of cancers in 2018 was $46.6B nationwide (1.37% of U.S. NHEA).

[4] “Net cost of health insurance is calculated as the difference between CY incurred premiums earned and benefits paid for private health insurance.  This includes administrative costs, and in some cases, additions to reserves, rate credits and dividends, premium taxes, and plan profits or losses.  Also included in this category is the difference between premiums earned and benefits paid for the private health insurance companies that insure the enrollees of the following programs: Medicare, Medicaid, Children’s Health Insurance Program, and workers’ compensation (health portion only).”

Book Review, Healthcare

On How We Die

Do not go gentle into that good night,
Old age should burn and rave at close of day;
Rage, rage against the dying of the light.

Dylan Thomas (1951)

Global life expectancy has risen from less than 50.0 years circa 1900 to 72.0 years today largely due to improvements in nutrition and public health. In the 1950s, people over 80 were only 1% of the U.S. population. Today that has quadrupled to 4%. China has more than 100 million elderly people.

The global aging crisis is real, and here. Global prosperity has inverted our traditional population distribution from a bell curve to a pyramid. As a result, the specter of old age is causing global governments to shore up their safety nets, revamp their policies on immigration, and make systemic changes to how we treat the dead and dying. Dr. Atul Gawande, in his sweeping opus Being Mortal, does no less than narrate and propose solutions for the entire issue. In his own words:

This is a book about the modern experience of mortality–about what it’s like to be creatures who age and die, how medicine has changed the experience and how it hasn’t, where our ideas about how to deal with our finitude have got the reality wrong… neither I nor my patients find our current state tolerable. But I have also found it unclear what the answers should be, or even whether any adequate ones are possible.

Though modest, his book is actually a stunning piece of work, and instantly became one of my favorites. Weaving data from demographic, medical, and popular sources with personally touching narratives of his patients and family, Being Mortal tackles the weightiest of all topics and leaves the reader incredibly satisfied.

When discussing this book, it is important to take it in three sections. First, the overarching narrative around “how we age and die”. Dr. Gawande charts the evolution of societies from Pre-Industrial to Developing to Industrial, and the mirror evolution that our treatment of the elderly takes. Second, Dr. Gawande tells a lengthy, complex narrative about his first exposure to caring for a loved one: the death of his grandmother-in-law due to natural mental and physical decline. Finally, Dr. Gawande closes with a very touching (yes, I cried!) discussion of his father’s struggle with, and eventual death from, a rare form of invasive spinal cancer.

The Practice of Aging – Dr. Felix Silverstone

Throughout the first half of the book, Dr. Gawande uses the narrative of Dr. Felix Silverstone, an eminent geriatrician experiencing his own physical and cognitive decline, to talk about the history of aging.

Societies pass through three stages: Pre-Industrial, Developing, and Industrial. In the Pre-Industrial phase (e.g., America before the Civil War, China before accession to the WTO, India in Dr. Gawande’s grandfather’s time), families care for the elderly. A relative lack of geographic mobility, combined with a human predilection to respect the elderly, leads tight-knit kin groups to care for their elders through their final declines. The Farewell, an upcoming movie starring the hilarious Awkwafina, actually touches on the Chinese tradition of surrounding family members in their final days.

Old age is a continuous series of losses. – Dr. Felix Silverstone

Economic development radically changes this familiar formula. As the wealth of a nation increases, the mobility of its citizenry tends to increase as well, leading to families dispersing geographically. In addition, reduced infant mortality rates actually lead to the average number of offspring declining. This combination leaves the elderly either partially or entirely alone late in life. In turn-of-the-20th century America, in the wake of the Gilded Age, 2/3 of United States poorhouse residents were elderly. In India today, a similar situation exists (which Dr. Gawande describes as “straight out of Oliver Twist”).

The moral outrage of these conditions in a fully developed society (in combination with surplus wealth from a now-mature economy) leads to the emergence of social safety net programs like Social Security (1935), Medicare (1965) and the ability for people to die in their homes again. In the U.S., a clear majority of deaths occurred in the home at the turn of the century. Although this figure dropped to 17% by 1980, since cementing our status as a fully Industrialized nation in the 1990s this number has steadily climbed.

The job of any doctor, [Dr.] Bludau later told me, is to… [provide] as much freedom from the ravages of disease as possible and the retention of enough function for active engagement in the world. Most doctors treat disease and figure that the rest will take care of itself. And if it doesn’t… well, that isn’t really a medical problem, is it?

Trying to Age Alone at Home – Alice Hobson

To explore how a society undergoes the shift from Developing to Industrialized, the author relates the story of his own grandmother-in-law, Alice Hobson. Born on a farm in a rural Pennsylvania town, Alice had a quintessential 20th century American life, marrying a civil engineer named Rich, and raising two children in Arlington, VA. Sadly, Rich preceded Alice in death due to a sudden heart attack in 1965. At 56, Alice was a widow.

Alice was a strong, self-sufficient woman. For years after Rich’s death, she lived on her own in the same neighborhood as her children. As the author recalls, “she mowed the lawn and knew how to fix the plumbing”. However, the writing was on the wall. In 1992 at the age of 86, Alice began having falls and experiencing visible confusion. Her family worried: was it really safe for her to live at home anymore?

I asked [Felix Silverstone, the former senior geriatrician at Parker Jewish Institute] whether gerontologists have discerned any particular, reproducible pathway to aging. “No,” he said. “We just fall apart.”

With nothing clearly medically “wrong” with Alice, the family had few options. Alice wished to remain in her own home, but it was clear she was unable to. She despised leisure-focused “retirement communities” like those Del Webb pioneered in the 1960’s. After searching with her son Jim, Alice ultimately chose to use the proceeds of selling her home to secure a spot in Longwood House–a pseudonymous senior-living facility that had private units combined with a Skilled Nursing Facility (SNF) ward for residents who could no longer live on their own.

Unfortunately, when Dr. Gawande visited her a few weeks later, “she [didn’t] feel at all happy or adjusted.” Rather than feeling that Longwood had provided care and amenities for her to continue living, Alice ultimately felt that Longwood had completely replaced her life. “She never got used to being there or accepted it”. After falls in her own living room forced her into the SNF ward of Longwood, Alice became dejected. She remarked to her son Jim, “I’m ready” and passed on quietly during the night.

Decline on Your Own Terms – Dr. Atmaram Gawande

The final section of Being Mortal is devoted to the moving story of the author’s own father, Dr. Atmaram (“Ram”) Gawande. In 2006, after experiencing neck pain and hand numbness that won’t subside, Ram gets an MRI and is presented with startling news. A slow-growing tumor has invaded his spinal canal and is beginning to compress all of the major nerves that control his bodily functions. Consultations with leading neuro-oncology surgeons present Ram with an option: open the spinal canal, remove as much of the tumor as possible, and create space for the tumor to grow without causing total paralysis.

“My father came to his end never having to sacrifice his loyalties or who he was, and for that I am grateful. He was clear about his wishes even for after his death.” – Dr. Atul Gawande, Being Mortal.

The possibility of undergoing such a drastic procedure frightens Ram, who then begings to ask probing questions: “Do you use a microscope? How do you cut through the tumor? How do you cauterize the blood vessels?” The first consultation – at Dr. Gawande’s own institution no less – is with a surgeon who quickly becomes peeved. After deciding that this was not the man to cut him open, Ram visits with a Cleveland Clinic neurosurgeon named Edward Benzel. Dr. Benzel answers all Ram’s questions and then presents an alternative: what if we keep an eye on the situation without surgery? When you decide it’s time to have the surgery, we’ll schedule you right away. Ram and Dr. Gawande are both incredibly relieved, and agree to follow this course of action. A year later, a repeat MRI shows the tumor has grown significantly, but Ram’s quality of life had hardly been impacted at all. No surgery is on the horizon, and life moves on.

But the good run does not continue forever. Although avoiding surgery had allowed Ram to maintain his quality of life, in 2009 his symptoms begin to change. He retires from his practice, but continues to delay surgery. By 2010, Ram struggles to walk, and Dr. Gawande sits him and his wife, Sushila, down for a talk. Using tactics he had learned from palliative care expert Susan Block, he begins:

“I’m worried.” [Atul Began]. “What are your fears if you should become paralyzed?”

“That I will become a burden to your mother and be unable to take care of myself.”

“If you could still eat chocolate ice cream and watch football on television, would that be enough for you?”

“That wouldn’t be good enough for me at all. Being with people and interacting with them is what I care about most. I can’t accept a life of complete physical paralysis, of needing total care.”

“Your advancing quadriplegia will mean twenty-four hour care, a ventilator, and a feeding tube. It sounds like you don’t want that?”

“Never. Let me die instead.”


With this framework in place, Ram finally undergoes the spinal cord decompression surgery. It is a success, and seven hours later, his spinal column had been opened, small bits of the tumor removed, and general decompression performed. Ram would stave off full-blown paralysis.

But not for long. Unfortunately for Ram, oncological specialists press him to take a course of radiation and chemotherapy over the next several months, leading to severe side effects and frustrations (especially for Sushila, Ram’s primary caretaker). Finally resigned to his fate, and understanding that even the state-of-the-art treatments will not extend his expected lifespan beyond 3 years, Ram makes the decision to enlist home hospice care.

Dr. Gawande (being the elitist Bostonian he is), fully expects the Appalachian nurse from hospice to be completely incompetent. Instead, she is concise, direct, and caring. She sets an action plan in place, provides Ram with support to live his final days, and actually improves his quality of life.

Together, the family and caretakers string together good days, good weeks even, but troubles remain. Struggles walking, talking, writing, and even using the bathroom plague Ram. Dr. Gawande comes to Ohio to stay with his father full-time, along with his sister (who is able to introduce her father to her future husband). Finally, Ram’s time comes. The author writes:

[At the end], he asked for the grandchildren. They were not there, so I showed him pictures on my iPad. His eyes went wide, and his smile was huge. He looked at every picture in detail. Then he descended back into unconsciousness… [Finally], we went to him. My mother took his hand. And we listened, each of us silent. No more breaths came.”


How do we conclude our lives? What is the “right” answer? The book’s epilogue includes a touching (and funny) tribute to Dr. Gawande’s father, describing how after Ram’s death, the family travels along the Ganges river to spread his cremated ashes, as per Indian tradition:

The Ganges might have been sacred to one of the world’s largest religions, but to me, the doctor, it was more notable as one of the world’s most polluted rivers, thanks in part to all the incompletely cremated bodies that had been thrown into it. Knowing that I’d have to take those little sips of river water, I had looked up the bacterial counts on a web site beforehand and premedicated myself with the appropriate antibiotics. (Even so, I developed a Giardia infection, having forgotten to consider the possibility of parasites.)

But for the rest of us, Dr. Gawande has no single prescription. The path forward it seems is for us to move toward a post-Industrialized state where we can use creative, non-institutional forms of medicine to improve our quality of life in the final years. He cites a study by Dr. Chad Boult, a geriatrician with the University of Minnesota, that found that simply having a team of geriatric nurses and doctors see high-risk patients over the age of 70 resulted in a 25% reduction in disability, 50% reduction in depression and actual cost savings by reducing home health service utilization by 40%. Although mortality rates among the control and treatment groups were equivalent, there can be little doubt this points to the possibility of reducing costs and improving outcomes in tandem. Marching toward the Triple Aim through innovative medical treatments and more compassionate care is as good a solution as any.

Next Time: War Plan Orange by Edward S. Miller

Immigrants: We Get the Job Done

Next time: we go to war! I will be reviewing War Plan Orange by Edward S. Miller, a fantastic treatise on the process of planning a war against Japan in the pre-World War II era. If you liked this, don’t forget to sign up below to get this analysis delivered straight to your inbox!

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Corporate Strategy, Healthcare, Software Development

Governing AI and Us

Heart of the Buddha, hand of the demon.

– David Lee Roth

Artificial Intelligence has come a long way in the past decade.  When I first started in comp sci, my AI professor started off every semester with the same story

Imagine an AI-powered bomb-squad robot.  This is the latest and greatest equipment.  The robot goes into a shed to defuse a suspicious package that we know will blow up in T-MINUS 10 MINUTES.  The task is simple: drive through the open door, find the package, and encapsulate it so the explosion is contained.  The robot rolls forward through the doorway and stops to re-plan the detonation.  By the time the robot figures out that the walls in the shed are blue, the bomb blows up.

A decade ago, path planning was slow, object recognition largely manual, and AI as a whole much much further behind than our sci-fi dreams would hope.

Then came cloud computing and deep learning.  By throwing pattern matching algorithms against massive web-scale datasets, we could begin to tackle previously intractable problems.  Want to identify cats? Sure, just show a computer a billion cat photos and boom, cats found.  Want to understand the English language? No problem, just send in billions of hours of voice data and computers will find out when you want to jam out to “Britney Spears”.

AI Can Bluff, But Smiling is Still Hard

And then, the room got dimmer.  AI was scary and not understandable, with many famous folks warning of a coming AI apocalypse.  The end was nigh, and Elon Musk and Sam Altman wanted us to know that everything was not okay (for a fee).  I believe the truth is this: much of what humans do boils down to simple pattern recognition and the early applications of AI are low-hanging fruit that will be over soon enough.  Driving is about recognizing the patterns of the lines on the road, the patterns of street signs out there, etc.[1]  Chess is about making strategic moves within the rules of the game.  Pattern recognition is fundamental to how humans operate in the natural world, and with enough data and advanced statistical algorithms, computers can start to mimic humans in an interesting way.

When I sent an article about AI algorithms being able to bluff in Poker to a colleague, he started to panic.  Oh no! They’re acting human.  Once I gave him my opinion that most poker players actually bluff predictably and this is just another form of pattern recognition, his mind was put at ease and turned elsewhere: if AI is just advanced pattern recognition, and a lot of humans’ interactions with the natural world revolves around pattern recognition, how do we govern the interaction between AI and humans in the natural world? Should an AI behave differently if it’s screening a mortgage application versus recommending shows on Netflix?  If you (like me), think that a lot of the AI fear is overblown and we are just seeing more of routine human behavior being classically disrupted by cheap computing power, then you should want to develop rules around how this technology can be harnessed without causing societal damage.

My response to my colleague was that as a techie, my inclination is that the fewer rules the better for advancing a disruptive innovation at this early stage.  But, given that AI is beginning to have real impact in tangible sectors like healthcare, real estate, and energy, we should define a governance process based on the following principles:

  1. Reuse of Existing Legislative Precedent.  Existing societal problems have existing (albeit imperfect) solutions.  For example, the Fair Housing Act sets out boundaries outlawing the racist redlining practices that were so prevalent in the pre-Civil Rights Era.  Rather than define our values and implementation at the same time, we should look to existing regulations as a basic set of values, and define 21st-century AI-specific implementations.  This would probably lead to regulations such as “input data must be representative of the broader population or be proven to not have any adverse effects on specific protected groups as laid out by the FHA.”
  2. Tax-Free Innovation.  I am a major believer in having carve-outs for small companies or safe harbor for firms that abide by certain rules.  Although this has proven problematic when scammers set up shop as small “whack-a-mole” entities or big companies exploit loopholes (like YouTube avoiding regulation of explicit content on its platform), putting in place compliance frameworks often weakens investor appetite for startups, thereby curbing innovation.
  3. Be Whitelisted to Specific Industries.  The web is permeating through every avenue of our life.  There is no longer such a thing as a “traditional” firm, all firms invest heavily in technology.  In order to avoid broadly dampening harmless activities (such as Netflix’s machine-learning-based recommendation algorithm), the governance should apply to an explicitly chosen set of industries rather than being the default for any algorithms running on “big data”.

Tech firms are coming around to the idea of regulation and there seems to be plenty of precedent for it.  Microsoft recently called for advanced regulation on facial recognition, though the skeptic in me wonders if this is to cement their position as a cloud market leader via a regulatory moat.  Regardless, tighter governance is a better approach to battling AI’s societal disruptions than trying to put the genie back in the bottle.

[1] In fact, the biggest barrier to wider adoption of fully autonomous vehicles is getting humans (who can be inherently unpredictable) off of the damn road

Entrepreneurship, Healthcare

Weaponizing Natural Selection

This weekend there was a fantastic article in the Journal about building antitrust momentum against Big Tech and the rising Techlash of 2016-2019.  It’s an incredible read and really shows you how far we’ve come since this puff piece about Chris Hughes’s second “startup”: the ’08 Obama campaign[1].

Review of “The Moral Animal”… or my take on Chris Hughes

At the same time, I just finished an incredible book on evolutionary psychology, The Moral Animal.  An oldie but a goodie, this book gave me insights about the Theory of Natural Selection that I had not encountered in any of my college psychology courses or other readings (Dawkins, Wilson, Etcoff).  It is pretty amazing the play-by-play of Darwin’s life that Wright lays out while simultaneously weaving in an explanation of the theory of natural selection and its many consequences[2].

One passage in particular toward the end of the book really piqued my interest.  As Wright details, despite it’s simplicity the Theory of Natural Selection has major implications for one of the most nagging questions humans have asked: is there such a thing as free will?  If all of our reward and punishment systems are biochemically-driven, “designed” by natural selection to promote fitness, do we really have any volition in the actions we take? Or are we all just justifying actions post-hoc as if we were a “rider atop an elephant”?

The sustained momentum of the Techlash is, I think, in large part driven by the fact that Americans at some level feel it deeply unfair that Big Tech is profiting off of our deepest impulses in ways that the broader public didn’t understand until now.  As an example, a former Facebook executive implicated “dopamine-driven feedback loops” in Facebook’s destruction of our society and comity writ large.

I can’t answer the question of whether we have free will and/or whether it is moral that companies are profiting off of their weaponization of natural selection.  But what I want to start to answer is, what if natural selection were weaponized for good?  What if all of the addictive impulses of our reward and punishment systems were leveraged by technology to promote social good?

Let’s take the healthcare industry as an example.  Most players in healthcare are driving toward the Triple Aim: lower cost, higher quality, better experiences.  What if we:

  1. Simplified Consumer Healthcare Apps to Drive Positive Feedback Loops?  People are really embracing the wearables trend[3], but counting steps has diminishing returns above a goal of 7,500 per day.  How do we as an industry gamify the treatment of chronic diseases like renal failure, diabetes, and obesity? Companies like Livongo lead the way toward reducing the overall costs of these chronic conditions, which represent up to 90% of all U.S. healthcare spending annually.
  2. Made Lower Cost Options the Default?  Research shows that defaults are perhaps the most important factor in creating long-lasting changes in human behavior[4].  However, when we sign up for health insurance plans, finding coverage and establishing a primary care relationship are among the most difficult things to do!  What if during the annual enrollment/renewal process payors automatically enrolled patients at the lowest cost (e.g., CVS HealthHUB, Walgreens VillageMD, local family medicine) clinic to deal with routine disease management conditions? Combining this with the ability to opt-out via a single button click would simultaneously lower cost and preserve consumer choice.
  3. Provided Better Visualizations for Probabilistic Outcomes? In his book Thinking, Fast and Slow, Daniel Kahneman describes how he and Amos Tversky moved the psychological mainstream from viewing humans as “probability calculators” to “heuristics users”.  Subsequent research has shown that humans are notoriously terrible at interpreting probability.  How can we advance the visualization aids and tools used in the delivery of healthcare to help people better understand their choices and what outcomes are likely to occur from various treatment pathways?[5]

I’m really excited to see announcements from CVS that they are continuing to disrupt healthcare with the introduction of “HealthHUBs”.  Structural changes that improve how we pay for and deliver healthcare is always welcome in my book.  However, Wright’s book opened my eyes to the fact that we are going to have to have more nuanced answers for how to fight millions of years of evolution that intentionally drives behaviors that, while once evolutionarily adaptive, are now being exploited by industries from Tech to Pharma to Food/CPG to drive sub-optimal outcomes.

[1] For Chris Hughes’s latest reversal into anti-tech crusader see his NYTimes op-ed on breaking up Facebook.

[2] Is self-delusion actually a wonderful trait for natural selection? Likely so.  The more authentic a deluder’s belief in their own delusion, the greater their ability to persuade other chimps of this delusion as “truth”.  What implication does this have for the definition of “truth”? This is left to the reader to ponder.

[3] For more on this see Apple’s CEO Tim Cook predicting that their company’s greatest contribution to mankind will be in healthcare.

[4] Shout-out to Richard Thaler, last year’s Nobel Laureate in Economics and a teacher at my dear alma mater!

[5] A lot of the momentum in this area was blunted during the push for the Affordable Care Act.  Patients confronted with “probabilities” were most often end-of-life patients and their families trying to understand treatment options and/or palliative care.  Reviews and explanations of evidence-based medicine protocols were labeled “death panels” and ended up politically DOA (no pun intended).  Now that we know that 25% of all Medicare spending occurs in the last year of life, the issue rears its ugly head again.

Entrepreneurship, Healthcare

Is Healthcare Innovation Different?

Capitalism without bankruptcy is like religion without sin. Bankruptcies and losses concentrate the mind on prudent behavior.

– Allan Meltzer (rephrasing of an old adage)

Last weekend, I binged through an incredible podcast (thanks Alexa!) called The Dropout about the saga of Elizabeth Holmes and her ill-fated biotech venture Theranos.  It made me look forward even more to when I get to read Carreyrou’s Bad Blood, based on all of the WSJ articles I had read before.  Her’s is a very compelling saga about our insatiable desire as Americans to be pioneers and frontiers(wo)men of the 21st century while simultaneously making billions.

Before I get into the meat of my latest thoughts, I want to be very clear on one thing: I am of the belief that Theranos was an unjustifiable criminal enterprise.  Putting millions of patients’ lives at risk through fraudulent behavior is not “flying the ship and building the ship”.  Real-world decisions have real-world consequences, and I think that this case seems more clearly a case of right and wrong as time goes on.

However, one of the questions that the podcast explicitly brings up is this: what role does Silicon Valley’s “win at all costs” and “fake it till you make it” have when it comes to disrupting healthcare? More broadly, what role does capitalism have in healthcare? Is it corrupting? Should we just listen to the 2020 Democratic candidates and accept that Medicare-for-All (single-payer or some safety-net alternative) is the right way forward and enough with healthcare as a money-making venture?

I’ve written before about how private markets are an incredible technology that help focus the whims of many to align to simple, achievable goals.  I’ve hinted at how complex our healthcare system is (largely driven by anachronisms in how we pay for and deliver it).  But now I want to answer the question directly: should innovation in healthcare be different than for existing industries Silicon Valley has disrupted?

Yes, but Tech can actually provide a model for how we have our cake and eat it too.

Healthcare approach to #Disruption

Let me explain this by way of analogy.  Let’s say you are about to buy a home.  Congratulations! You’ve signed some papers, found the perfect neighborhood, and lined up a lender.  The offer was accepted and you are about to close.  Just one small process: the inspection.  The inspector is walking through your soon-to-be-home and as he sees the outside of your house he says, “Hrmm, uh-oh.”  You wait for him to continue his walk-through, and just before he finishes he goes to your basement foundation wall and says, “Hrmm, uh-oh.”  Which of those worries you more? If you’re like me, probably the foundation wall.  The foundation of your house crumbling is a far costlier, scarier proposition than a small leak or missing piece of vinyl siding.

And that’s how we have to approach Silicon Valley disruption to healthcare.  There are varying degrees to which healthcare must continue to evolve.  Core phlebotomy and related lab work that is the basis for clinical diagnoses needs to be treated with infinitely more care than improved teeth-whitening products.  Some of the FDA’s guidelines on real-world evidence have been really illuminating on this topic and frankly, hearten me that our government agencies are being responsive in the Age of Tech.

However, these lines are going to get blurred very quickly.  For example, Amazon’s recent acquisition of PillPack shows that it is getting serious about disrupting healthcare logistics.  This is less concerning in cases of delivering vitamins.  A missed day of vitamins won’t have major adverse impacts.  But what if Amazon misses a shipment of at-home chemotherapy pills? How about if Amazon becomes the primary supplier for a hospital’s perioperative department and misses a day’s worth of disposable surgical instruments?[1]

In my opinion this is a solved problem.  At major tech companies, product capabilities are segmented into one of two major “buckets”:

  • Platform and Core: These are software solutions and services that should be very rarely modified and undergo extensive review/testing when they are
  • Applications and Non-Core: These are portions of the software stack where it will not cause undue burden to the business or to users if they are non-functional; they can be updated at a daily/weekly cadence with ease

This segmentation is the reason that you will see far fewer upgrade to the GMail core encryption protocol than you will to the “One-Click” integrations GMail has for airlines, car rentals, tickets, etc.

Prudent leaders of 21st century health systems are going to have to be clear in drawing these lines for their own organizations.  For example, modifications to core insurance eligibility checking systems should be performed far less frequently than updates to fitness monitoring apps.  With this in mind, innovation won’t die on the vine for core capabilities, but rather be entrusted to be as advanced as possible without sacrificing patient safety or operational stability.  Silicon Valley is more likely in this model to be successful improving healthcare by nibbling away at the edges of healthcare delivery than providing a grounds-up rethink.

[1] Supply chain risk in pharmaceuticals and medical devices is a huge concern for the modern healthcare organization, leading organizations like Intermountain to develop their own non-profit, named CivicaRx, for generic drug delivery.


I Live in the Future…

If it is now asked, “Do we presently live in an enlightened age?” the answer is, “No, but we do live in an age of enlightenment.”

– Immanuel Kant

The other day I had an odd experience.  As I was doing my normal checkout at Whole Foods (stocking up ahead of the madness from the upcoming price slashes), I double-tapped my Apple Watch, held it to the NFC card reader, and felt the “tap-tap” of a complete transaction.  It’s a Series 1, so I’ve done this dance hundreds of times, and to me now it feels routine.  But the cashier shot me a look and said, “Woah! I’ve never seen that one done”.  His surprise caught me by surprise.

Two things came to mind.  First, it is truly amazing how much we can do these days in a matter of seconds.  Apple Pay replaces something that takes 30 seconds to a minute, sure (fumbling with cash, writing a check, swiping a card), but there is so much more I can do from my devices in general that happen 10-100x faster and I have become completely inured to.  Get a late night email from the boss? No problem.  Open the OneDrive app on my phone, hit the share button, and instantly reply back with the document he needs (and permissions correctly configured).  When I told my grandfather that I do quite a bit of heavy-duty work from my phone, he was extremely surprised.  To have gone from radio broadcasts to connected-anywhere supercomputers in our pockets during his lifetimes blew his mind.

Secondly, I realized that I live in the future.  My guess is that, if you are reading this blog, you do too!  So many people are anywhere from a few years behind bleeding-edge technology (the cashier) to many many years (my grandpa).  Without carefully checking in with other people, it’s easy to become wrapped up in your routine and think your baseline is everyone else’s too.

Me Adopting New Technology

Rather than lament the fact that this new technology is causing a Loneliness Epidemic across the pond or draw out the litany of examples of how major tech companies don’t handle diverse customer bases well at all, I’d like to zero in on our current struggles in the Healthcare IT field.

This week, an influential piece called “Death by a Thousand Clicks” was published on the Kaiser Health Network, highlighting some of the very serious and very shocking struggles major Electronic Health Record (EHR) vendors have had since meaningful use’s launch.  It was an eye-opening article, forwarded to me several times by family members and clinician friends.

I applaud my employer’s timely response at HIMSS19, launching Virtual Scribe and Chart Assist to improve clinical documentation, lessen providers’ cognitive burden, and help solve the problem of physician burnout. It’s an important step in using the latest technologies to solve a real and pressing problem that is causing major unneeded pain in healthcare.

But I think there is a more basic solution that is needed for Healthcare IT companies to be successful: retrain on the clinician workflow.  In “Death by a Thousand Clicks”, the author likens the Meaningful Use legislation that came from the HITECH Act to “asking nine women to have a baby in a single month”.  In the rush to meet legislation and do the right thing, certain tradeoffs were made by HIT vendors so that healthcare could continue to function, providers could get paid, and patient safety would not be compromised.

Now is the time for all of us in Healthcare IT to regroup.  Let’s breathe a sigh of collective relief: the fight to digitize healthcare is over and we won. Today, more than 90% of hospitals across every category use an EHR and 85% of all office-based physicians use an EHR.  Now that the hard tasks of installation, configuration, deployment, change, and ultimately digitization have been done, we need to reflect and heed Kant’s words.  We are not yet fully enlightened, not fully realizing the promise of digital medicine, but we can see the path forward.  I am excited for the industry to make its long-awaited pivot and tackle the basic building blocks (user experience, stability, performance) that will restore joy to the patient-provider experience.  It is a many-sided problem with multiple required solutions, but the blocking and tackling is going to be just as (if not more) important than a lot of the futuristic AI buzzwords we see today.  Put another way, I will continue to use my Apple Watch for contactless payment, but we all have to make sure that “Cash and Credit” is a seamless, joyful option for everyone interacting at the Health IT checkout line.

Corporate Strategy, Healthcare

No Customization Without Differentiation

No one wants to hear Odysseus go to the corner store.

– Alex Blumberg

Recently, I was sent an interesting article about how “Cowboy(/girl)” doctors are driving up healthcare costs in medicine.  The authors cite a study that argues that, when it comes to dying, certain doctors “reject ‘evidence-based professional guidelines for appropriate care’ and… order invasive and costly procedures despite little chance their efforts would delay the inevitable”.  These “Cowboy” doctors, as they are labeled, contribute up to 35% of end-of-life fee-for-service Medicare expenditures, and up to 12% of overall Medicare expenditures.  To give you an eye-popping dollar figure, that would amount to $84.5 billion[1].

Beyond questions of morality and what constitutes “little chance” in the study, this raises another interesting question for patients and providers: should we drive toward standardization of care plans?

On the one hand, the word standardization itself implies, at the very least, a reduction in inequality for all.  But furthermore, recent studies of standardization of care across patient populations shows it cuts costs and raises quality, two front and center goals of the IHI’s Triple Aim.  In business school, we had a saying in strategy: “No customization without differentiation”.  Basically, I took this to mean that unless you could prove beyond a doubt that your special snowflake was far superior to the rest, you should not customize the product/company/service you were offering.  Bundled payments programs like CMS’s Comprehensive Care for Joint Replacement (CJR) aim to use standardization to drive improved outcomes and cost, perhaps implying that they believe current customizations between providers are not differentiated.

However, standardization of care (often through the specter of “socialized medicine”) is a common boogeyman evoking images of “death panels”, rationing, and the removal of physician judgment from the medical process[2].  Obviously, depending on how the problem is framed public opinion shifts, and there are different care delivery models that can make these problems better or worst.

As we enter HIMSS19 this week, and we start to see more intelligent offerings that aim to bring standardized, evidence-based practices to global healthcare delivery, I can’t help but hearken back to when the human genome was first sequenced.  The attitude back then, growing up in a family of physicians, was that from that day on every single treatment would be individualized and targeted.  No longer would your Advil bottle say “Adults over 12 take two pills per day”, and gone were the days of treating every infection with Amoxicillin.  But now, we have done a complete U-turn.  HIMSS vendors and attendees are focused on treating populations of thousands or millions of patients with reduced variation, reduced cost, and greater predictability.  Not greater customization.

In fact, I was in a conversation at Cerner last week where we began to touch on some of our advanced genomics offerings.  One business leader remarked that there were well-set standards in pharmacogenomics, but fewer in oncological genomic medicine.  This focus on standards led me to think that there may be a new two-tiered approach emerging in medicine.  First, advanced medical practices are studied and honed at leading specialty centers (for example, MD Anderson for cancer).  Then, they are formulated into practices that are proven to scale to thousands or millions of patients in a repeatable manner.

Dr. Bluth Adopting New Methodologies

It’s a far cry from the precision offered by gene sequencing and individualized treatment, and more akin to the University -> Industry pipeline that has existed in the tech industry for years (think Stanford PageRank -> Google Search).  I don’t know what to make of this yet, but I think there are implications that we need to think through:

  • Will the drive toward standardization compound the problem of ignoring rare illnesses, which the U.S. had to combat with special Orphan Drug regulations?
  • Will the rise in standardization cause a loss of provider autonomy and worsen the problems of burnout and disengagement U.S. clinicians face?
  • Is the human body and its millions of variations even “standardize-able” in such a way that allows this approach to work?

Either way, technology has a role to play.  But I always worry about pendulum swings, and my take is that competing approaches should be balanced to find an optimal path.

[1] See the HHS 2018 budget in brief for more details.

[2] I’m looking for a comprehensive article or journal paper discussing the systemic effects of rationing in single-payer, integrated delivery systems, and different competitive models but I can’t find anything good.  Let me know of any good links.

Corporate Strategy, Healthcare

Price Transparency – Healthcare’s Silver Bullet?

Trust is the coin of the realm.

– George Shultz

This week, most people are talking about all the news coming out of JP Morgan’s Annual Healthcare extravaganza, and rightfully so.  However, I don’t think there’s much I can add to the discussion, so I want to talk about another big event that happened in the past couple of weeks: CMS’s implementation of the much-anticipated Price Transparency rule for hospitals.

Unfortunately, over the break I was in a hospital for a family-related medical event for which I would be financially responsible.  Once I knew the issue would be resolved without any major harm or loss of life, my next question turned to: would I be able to afford this? Cerner starts its new plan year along with the calendar year, so being in the hospital in early January means incurring medical expenses without the added benefit of having time to fill your HRA/HSA.

Having knowledge of the new price transparency rule, I turned to Google and looked for the hospital’s chargemaster.  The first hiccup: it wasn’t there.  Being a determined consumer, I politely called the billing department to note that they had not released their prices and therefore were non-compliant with CMS’s new regulation.  To this organization’s great credit, they told me they were working on it and within a week got back to me with the link.

Next, once I downloaded the chargemaster as an Excel spreadsheet, I started to comb through it on my phone.  This was the second hiccup: although the pricing information was machine-readable, it was not human-readable.  Searching through abbrevations like INF, HOSP, etc. was time-consuming and not straightforward, especially as a non-medical professional.

So, lastly I decided to buzz my friend (who happens to be an RN at the hospital, convenient!) and asked her to explain to me what a typical set of codes/services might be for the stay that occurred.  Her response: no clue man.  And that is fair, because she is a healthcare provider and knows nothing about billing.

My Excitement Looking at a Chargemaster

Looking at Administrator Verma’s take on the new rule, I think she is absolutely right: this is a first step.  It is a great first step and I applaud it, but the major issue I take with the data is not inaccuracy for those with insurance.  Healthcare stakeholders need to understand that data is only as good as the tools that use them.  So, I would propose several next steps for those implementing and administrating price transparency rules:

  1. Campaign for Awareness – I was only aware of this new data source because I happen to work in Digital Health.  99.9% of Americans don’t even know this data exists.  Well-placed TV or radio dollars could help get the word out, increasing patient utilization.
  2. Encourage Sophisticated Tooling – By the time I got to the chargemaster it was in Excel format and highly complex medical jargon.  There are some great Price Transparency experiments that CMS is running to help modernize federally-run insurance programs, but private enterprise should be encouraged to build direct-to-consumer tools on top of the new information.
  3. Integrate Pricing with Workflows – The fact that my friend, who is an RN at the health system, could not tell me how specific clinical procedures mapped back to billing is troublesome.   Better integration between the EHR and revenue cycle solutions will help clinicians guide consumers as healthcare becomes more and more consumer-driven.
  4. Create Consumer-Friendly Price Hotlines –  Many major health systems are moving toward employing in-house billing and coding specialists to maximize revenues and improve cost efficiencies across their facilities and networks.  As this happens, health systems should also create “consumer helplines” that answer simple questions about pricing and services ahead of time.  Lots of startups like ZenDesk, LiveChat, and Intercom provide a front-door chat interface that integrates natively with websites and could solve this issue elegantly.

All-in-all, I was not able to get a sense of what the cost for my visit would be and had to wait for the bill to arrive.  This begs a question though: if I had been able to find out what the visit cost, would it have changed my behavior? The answer is almost certainly no.  My main concern was making sure that my family was healthy.  What amount of price savings would I trade off for that? That thinking alone is probably more likely to continue driving healthcare costs upward faster than any downward pressure this Price Transparency effort could provide.


Provider Incentives – Are They the Key?

Last night, I spent the night looking at my wife sitting on the living room floor in front of a whiteboard that lists out dozens of genes and their mutations.  She has a med school exam on Friday, and to me, this feels a little bit like that movie A Beautiful Mind.  I’m scared.


What Medical School Does to People

But it makes me ask a deeper question: why in the hell would anyone go through this? The sheer volume of materials they give you in medical school, not to mention the bi-weekly tests and massive student debt, seem completely overwhelming.  It’s no wonder that nearly 80% of medical students say they are burned out.

Last time, I wrote about how healthcare revolves around a “proxy paying service”, which can make it really hard to understand why providers, insurers, or health vendors do the things they do.  The money flows in such a convoluted path that the players in the market often cannot even agree on how much money was actually spent.  This market structure (read: chaos) causes odd behaviors and perverse incentives.

Doctors by and large do not want to think about these organizational structures.  Doctors want to sit at a whiteboard studying oncogenes so that they can go save people’s lives.  For them, it is truly a calling.  Which is why I find it so intriguing that The Keckley Report this week focused on tracking outcomes and spending based on hospital ownership.  If the hospital is a for-profit entity that is maximizing its own self-interest and profits, are outcomes and expenditures better or worse than not-for-profit systems? As with everything in healthcare, the answer was: it depends.  Keckley notes that “analyses of publicly reported quality measures have not shown causal relationship between a hospital’s ownership and its outcomes”.  In addition, he cites a Health Affairs survey that found that 7 of the 10 most profitable health systems in the U.S. are not-for-profits.  The data tells an unclear story.

So why do the for-profit health systems focus doctor compensation so heavily on incentives? Keckley’s report notes that providers at for-profit health systems more often have some financial metric included in their annual performance reviews that at not-for-profit health systems.  Given that I went to the University of Chicago, I am generally a big fan of using these kind of free-market monetary incentives to drive desired outcomes.  But I am also wary of shoehorning aspiring doctors like my wife into forced measures, especially when doing so does not change outcomes or costs!

It is admirable in many ways that for-profit healthcare systems are trying to make structural changes to push the needle in American healthcare.  But if our country’s health system leans heavily on monetary incentives, it seems to me like we are all presupposing that providers are too lazy or, at the very least, apathetic enough to not want to get the best quality outcomes for their patients and continue learning the latest procedures.  Believe me, spend one day with a young group of budding medical school students or newly matched residents and you will see just how much these folks care about their chosen line of work.

So how can we undo the need for massive medical paydays and get back to adding quality to the system?  Some quick thoughts include:

  1. Make Medical School Tuition-Free.  A lot has been written about NYU Langone’s recent decision to cover tuition for all current and incoming medical students.  The focus has been on the fact that this will increase the diversity of individuals able to go into the medical system and encourage primary care.  However, more broadly the point is that free tuition will reduce the need for doctors to focus on compensation when choosing a health system to work at[1].  Instead, perhaps these doctors will focus on the “best” workplaces, which in my opinion will skew towards “best” meaning “best outcomes”.
  2. Stop Incentivizing Doctors on Volume or Profits. While these have long been touted as ways to improve the efficiency of hospital operations or cut costs[2], they crowd out the moral thinking and care focus that made doctors want to be doctors in the first place[3].  Beyond that, the Keckley Report dispels any notion that these are silver bullets.  By and large, I think these should be jettisoned.
  3. Encourage Standardization and Teamwork.  Currently, I am reading “Unaccountable” by Martin Makary and have been recommended Atul Gawande’s “Checklist Manifesto”.  Both of these offer incredible statistical insight into how standardization and teamwork can drastically improve patient health outcomes, regardless of incentive structure or a doctor’s natural genius.  As we move toward a more consumer-driven healthcare system based on greater transparency, health systems that implement these proven processes will see better outcomes and much better public relations/unearned media exposure.

[1] For those who support nationalized medicine like the NHS in the UK, this has also been proposed as a way of keeping provider cost down.  Stephen Bergman (author of “House of God”), spoke at my cousin’s graduation from UConn medical school about 10 years ago where he brought up this very topic.

[2] Value-based care is, incidentally, just a way to incentivize on profits with fixed revenue.  Although it seems better than fee-for-service, it only “bends the cost curve” so long as the capitation rate increase is strictly managed every year.  This is difficult to see happening in a highly captured regulatory environment like healthcare.

[3] There is a lot of psychological research into moral crowding and mixed motivations.  A study we learned about at Booth highlighted that charity call center workers actually made more phone calls when they were volunteers than when they were paid a small amount.  There is a lot of debate about the magnitudes of this effect, but the directional results are highly replicable.

Corporate Strategy, Healthcare

The Willie Sutton Rule

“Why do you rob banks?”

“Because that’s where the money is.”

– Conversation with Willie Sutton

Last month I posted about joining Cerner in their executive development program.  Since then, I have spent six weeks immersing myself in all things healthcare.  I think it’s fair to say that I’m now an expert.

Me Talking Healthcare

Actually, as you might expect, after spending six weeks reading every possible news source or book I could find, the only thing I know now is how much I really do not know.  It will come as no shock to anyone that healthcare is highly regulated, very complex, blah blah blah.

But one potential cause of this chaos that I wanted to write about today is what I am starting to call the client/user dichotomy.  The reason healthcare is different is because the clients doing the paying are not the people using the products.

Let’s take, by comparison, a simple retail transaction.  In a simple retail transaction I walk into a store to buy some candy.  The cashier (who represents the owners of the company) takes my money and hands me the candy.  I both buy and eat the candy.  The cashier collects my money and provides me the goods.

Untitled drawing (1)
A Typical Retail Transaction

Healthcare is different.  When you or I go to the doctor to get healthcare services (like vaccines or antibiotics), we are not paying them for their service.  Analogous to most insurance companies, we are submitting a “claim” against the service we got.  So if we got an antibiotic, we are saying to our insurance company, “Hey my body was broken so I had to go fix it, can you pay for this?”

The major thing that’s different here is that usually in an insurance setting, the claimant is responsible for collecting the reimbursement.  When you get into an accident in a car wreck, you pay for the repair before submitting a claim.

Untitled drawing
What Normal Insurance Looks Like

In healthcare, you receive the service and the provider (doctor, nurse, etc.) has to go through your insurance to get paid[1].  In this sense healthcare insurance is a bit of a misnomer.  It’s more like a proxy paying service.

Untitled drawing (1)
Health Insurance is Really Proxy Paying

But this odd situation is compounded by another complication: the healthcare providers are not tied to the payment from their hospital services and systems[2].  In the retail example we gave above, the cashier is paid by the owner of the store to handle transactions.  But there are preset prices for all goods, the cashier does not make this up on the fly.  With healthcare, the amount that the provider and health system is actually able to collect from a patient will depend on their health insurance, which is not known ahead of time.  In addition, payee models are changing from a fee-for-service modality (similar to paying for the candy you buy) to value-based care.  Each of these specific topics deserves its own post to dive into, but for the sake of explaining the dichotomy, this simply means that the provider is essentially no longer an agent acting on behalf of the person collecting the money, but an independent operator whose work is leveraged by the health system to collect revenue at a later date.

Untitled drawing (2)
The Users and Providers of Healthcare Are Not Where the Money Is

So we get the resultant flow above.  Which means that there are six potential interactions between the key players in the space[3].  For those building businesses in and around the healthcare industry this leads to interesting questions:

  1. Who is really your client: the agent that is paying (insurance), the agent that is being paid (health systems), the provider and/or the patient?
  2. How can you improve the provider/patient relationship with the presence of these middlemen?
  3. Are there ways to completely disrupt the middle layers to bring efficiency?
  4. How can this landscape be navigated in a highly regulated environment?
  5. How does the fact that 37% of all dollars in this system are controlled by the government shape innovation and delivery?

If you have an analogous industry that would provide color on business models or potential improvements I would love to hear them.  I still have found this model unparalleled, for better and worse.

[1] This does not even cover co-pays and deductibles which are their own strange things.  This is just about the rates that providers get directly from insurance companies as reimbursements for their goods and services.

[2] This is a little different in private practice because the doctor owns the practice and therefore has “skin in the game”.  But recent trends show a major decline in private practice from 62% in 2008 to 35% in 2014 and a massive consolidation of major healthcare systems.  Both of these trends exacerbate the payee/provider dichotomy.

[3] Patient to Insurance, Patient to Health System, Patient to Provider, Insurance to Health System, Insurance to Provider, and Health System to Provider

Credit to John Gallemore for introducing me to the “Willie Sutton Rule” in cost accounting.