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Saturday, March 15, 2014

The struggle to provide value - Why health care is not so different

Health care delivery is complicated and expensive; increasingly even more expensive. Perhaps the biggest impact of anything change we are now seeing in the health care industry is being driven by cost and the movement of cost on to those who are directly receiving the services. Predictably, the effect of this cost transfer, primarily through increasing deductibles, is that those paying these bills are ever more acutely aware of the value proposition. Nothing will be more disruptive to volume driven health care delivery than patients pulling the emergency cord during the office visit and asking, "Do I really need this?"

What made health care delivery behave differently for many years was that these questions rarely arose because it was simply easier for all parties to avoid them. Doctors got paid more when they did more and as long as egregious harm was avoided and the perception of value delivered to patients was held, most everyone was happy. It was pretty easy to meet the bar on the latter since those needing to perceive value set the bar pretty low since they bore little of the actual financial cost.

We are now regularly seeing sticker shock. It is hard for those delivering health care to reconcile since from our perspective little has changed. Why should the perception be now that we are not delivering sufficient value to justify what we are charging since little has changed from our end. If what we are doing now does not hold up in terms of the value equation, how does that reflect on what we have been doing in the past?

This is really not so different from what has happened in a host of other industries. New goods and services in health care and other industries follow similar patterns. Expensive and new goods and services are developed and reach a small sliver of the market, generally the high end of the market. In the rest of the commercial world there are huge incentives to be the first to figure out how to take such new things and learn to deploy them widely but in order to do this, entrepreneurs must figure out how to do this at vastly lower cost. Unless they can succeed in doing this, they will fail since there are not sufficient financial resources for everyone to afford high end goods and services.

In health care, the insurance model until very recently provided little incentive to figure out how to deliver at lower cost. This is a disaster waiting to happen and not sustainable. It is quickly coming to a halt since many of the costs associated with services in health care are coming down full bore on to people with modest resources. In the short term this will take a terrible toll but in the longer term it is absolutely essential to inject the value imperative into health care delivery. The longer we insulate the broader public from the inflated prices and suboptimal resource allocation in health care, the longer it will go on and the worse the wake up call will ultimately be.

The health care industry must deliver value to the public. Otherwise, it will squander resources, serve as a barrier to the wealth creation which allows it to thrive, and impoverish those who are the most vulnerable.

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