Health care insurance can learn from software industry
by Efin Advisor | February 6, 2009
While policymakers and Congress focus on how we’re going to pay for health care, tech publisher Ziff-Davis suggests they take a look at the most innovative industry model instead of just the payment model, starting with the one right behind their computer screens – the software business.
In health care, the traditional fee-for-service model is basically piecework, although prices vary widely. You get charged for an office visit, for an x-ray or MRI. You are charged for drugs and, if they must be injected, you are charged for that.
But as the software industry has learned, the business model designs the industry. Compare the custom design of a proprietary software program for a specific purpose with an “open source” model designed from the ground up. Both produce software, but the way they go about doing it is very different.
The two primary health care reforms being considered today are:
1. Packaging treatments into one price. The technical term is Diagnosis-related Groupings, or DRGs. Instead of paying piece-rate (fee-for-service) for health care, which induces providers to package many pieces (services) into the treatment of patients, there should be one payment for all of the services required, The doctor’s incentive becomes lower-cost cures.
2. The extended warranty. This changes the business model, from one where you pay for sickness to one where you pay for wellness. Instead of setting the bar at zero and getting the meter going each time a patient needs something done, it is set at a reasonable level, enough to pay for regular visits, for wellness coaching, etc. Doctors get paid for the annual care of each patient, regardless of their condition. This covers check-ups, or lifestyle coaching, and preventive measures. When someone does get sick you return to number one.
According to analyst/reporter Dana Blankenhorn, when applied to health care, the first model leads to standardized treatments and protocols, with powerful incentives to find out what usually works and try that first. This is where evidence-based medicine becomes the norm. The warranty model is what leads to the idea of a “medical home.” It also provides incentives for “nudging,” new ways to enforce compliance with standard orders like stop smoking, eat less, and walk around a bit.
Blankenhorn suggests we put the business model at the forefront of health care innovation, not the payment mechanism.
I haven’t thought about the second situation very much, but i see a few problems with the first situation presented.
In terms of the packages for diagnosis, this sort of ignores the problem of diagnosis itself. I know this is fictional and extreme, but consider the situations that occur on House. It takes a long time to figure out what is wrong with serious medical issues. That’s the real problem with the healthcare system. Its not about the people who are fairly healthy, the prices are high because of hte people who are sick. The ones who are really sick take a long time to diagnose which means they either A) never consent to a particular cost without prior knowledge and B) costs of determining diagnosis aren’t considered so the doctors get screwed too. So, this makes it so everyone gets screwed.
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Wait, I don’t understand the second plan at all. So, you pay on the assumption that you may get sick but are probably healthy most of the time. How is this not exactly the same as health insurance?
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Daniel Reply:
February 8th, 2009 at 7:00 pm
It’s more like an HMO. The key is to prevent and pay doctors to keep you from getting sick rather than making you healthy. The difference would be that instead of HMOs being only a small subset of the healthcare industry, this plan would expand to every aspect of the healthcare industry making it more efficient since there is a universal understanding in the industry.
Does that answer your question?
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The problem with the healthcare industry is not the method of paying, but the actual expenses themselves. I guess the first solution will solve for the example I provide, but I’m not sure if it solves for all. Hospitals charge for each MRI. Each MRI does not cost anything. The first solution will solve for this because they still recover the costs of the MRI but do not charge excessively for it.
I think the mentality needs to shift from hospitals making money to hospitals helping people. Nationalization will help do that since it takes the priority away from the business model.
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I work for a hospital and my mother works for an insurance company so I think I can give a bit of perspective to the issue (btw, great blog, you guys usually give really interesting, pertinent information).
when you do something like this, you are inevitably harming the hard working people in the field. obviously health care is expensive, but that’s because its valuable and EXPENSIVE to run medical tests and time consuming to diagnose and test. some may be out to make as much money as possible, but most do care about people and want to keep things cheap. If you just give blanket payments, we are not going to be able to make the profits we need. Even if people do, then the selfish wont go itno the profession. If people care aobut the money, and you make it less financially viable to be a doctor (lots of doctor’s already go bankrupt) then i think we will get less doctors in general
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I think changing the structure of the insurance industry is a fantastic idea. Just an hour or two ago in his town hall meeting President Obama revealed that over the last 8 years health care costs have doubled, while income has lagged far behind that. On my income I am constantly searching for different places where I can get a free rate quote in the hopes that I can shave a few dollars off of my premium. If we are able to reform the industry to make things a little more fair, I would certainly be in favor of that.
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I think Rachel is right. Why does it cost $50,000 for some surgeries, while others are $1000 or $5000? It is completely a seller’s market, where the patient really has no meaningful mode of dissent. Why does an advil at the hospital cost $10? It is completely ridiculous! In my mind it should be fairly simple to put a policy in place that keeps our citizens from dying- its really not that hard. Whether we fund this through government means, or like a “warrantee” program, I don’t care.
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