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Navigating through the noise to find the signal

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I don't know about you -- but trying to keep track of and make sense of the company announcements, the many awareness events designed by politicians and the folks hoping to influence the policy makers, the work being done by folks at HHS and the Hill to create new rules and policies and the press and punditry all commenting on all these activities -- makes my head feel like it is going to explode!

Just look at the past two weeks. IBM said they were going to finance $2B of HIT spend to enable health systems to bridge the 'donut hole' in the stimulus package, complementing their earlier announcements this year of health ‘innovations’ through their partnership with Google and Continua. GE followed with an announcement of $6B of investment, financing and 'innovations' that will lead to even more billions of savings in the U.S. health sector...and they will help underserved health markets globally at the same time! At a White House event this past Monday, a group of health industry stakeholders promised trillions in future savings by restraining price increases and 'doing better’. And Tuesday, there was another White House event on health -- featuring the role of employers. Cecily Hall, a colleague of mine at Microsoft, attended and explained some of Microsoft's innovative health benefits around clinically driven weight loss and mobile medicine. I don't know how many billions of savings this event will lead to -- since I'm still on yet another plane, but given I have a 'healthy imagination' -- I am confident the projected savings will be significant.

The choices we make about the future of our health system matter a lot for the future welfare of our country -- so I hope we have an informed and fact based debate that goes beyond the sound bite outline that seems to be shaping up in both the media and the political arena. Health touches everyone. We have all been to the doctor and had our own or extended family based experiences, and so we all have our opinions about what works and what is broken in our healthcare system. Consequently there is a lot of 'noise' about both the challenges and the ways to fix the healthcare system -- some that ignore basic laws of economics.

For whatever reason -- a generation of employer sponsored health insurance, government programs, no checkout lines in the doctor’s office – has caused people to make a fundamental mistake, to think of health care as something 'unique' and to suspend the principles of economics when they conceptualize and think about the problem. The price of healthcare is not your co-pay...no matter what the public perception is. Providing universal insurance and covering everyone will not fix the health system by itself...and in fact may exacerbate critical flaws that exist. No matter HOW it is funded (cash at checkout, employer payroll costs or taxes); individuals are paying for their health care...just like they are paying for their retirement income or car insurance. There is no economic free lunch here -- that a government run, single payer system or other construct makes it either free or creates 'more healthcare' for folks to consume. It doesn't. Yes, the societal question of income re-distribution remains (namely am I paying for my health care AND your health care or just mine). But we should not confuse how to organize a sixth of our economy around income re-distribution goals...think of how clear, fair and effective our income tax system is.

Educating the public around the principles that health is an economic good and that individuals are indeed paying for their own health care, albeit in hidden ways, would go a long way to improving the probabilities for a more efficient, intelligent health system coming out of the reform debate.

If we acknowledge that health, that is the delivery of health care services and the prevention of illness, are economic activities -- then we can ask the question about what is the best way to organize that economic activity to create value -- value for producers (doctors, hospitals), value for consumers (patients, employers, payers), and value for society (more quality life years). It is not a zero sum game. In most of our economy, we expect market mechanisms -- things like prices, product or service innovations, or profits -- to allocate resources, improve productivity, lower costs and improve quality over time. In health, many of these important factors are constrained or hidden given the structure of the payment system and the role of the government in setting the rules of the game.

In applying the principles of economics to the health reform debate, it is important to be consistent and not selective. There are many stakeholders in the dialog who believe that the problems are the result of for-profit companies (insurance, pharma) and that non-profits and government are a priori better (better use of resources and results). This perspective is simply wrong and not supportable with an analysis of the facts. Participants are optimizing given the rules/framework they understand -- and here the government is setting the rules (taxes, reimbursement, CMS) and must take accountability for the consequences -- intended and unintended just like in the housing boom and financial crisis. One of the really hard challenges in health is measuring the right outcomes/results. Does pay for performance mean the physician ‘checked all the boxes’ for documentation or that we got more health for a given set of inputs? In the end, not-for-profits are economic actors too -- no margin, no mission -- they have to pay market prices for inputs and charge market/regulated prices for outputs. They raise money in the capital markets (debt) and mostly try to optimize like for-profit enterprises.

Today's health system in the U.S. is a regulated system....and it many ways it doesn't work so well...but perhaps better than our 'facts' acknowledge. Everyone acknowledges that we need to get more 'value' out of the resources we have put into providing health care. Everyone acknowledges that there is no 'silver bullet' or no easy fix to the multiple challenges that exist in delivering and paying for health. Nearly everyone acknowledges that 'cash based' segments of the health system (cosmetic surgery, corrective eye surgery, dentistry, veterinary) have done a better job innovating and delivering better quality and lower costs than the more heavily regulated segments of the system. Unlike other industries -- a lot of the challenge in health is we don't know enough -- about disease, about what treatments really work, about what to do when -- and so on. Consequently, we need a system and framework that allows and incents systematic learning and improvement, discovery of new diagnostics and therapeutics and the best systems to deliver them.

So let's have a real conversation about how to build a framework for a health system that works.

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