The Future of Healthcare:
The Quest for Value for All Americans
Ian Morrison
www.ianmorrison.com
Outline
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Models of Change
The Transformation Context
The Quest for Value
Scenarios and Implications
Page 2
Models of Change
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Pearl Harbor
 A sudden crisis causes fundamental change
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The Tipping Point
 Pressures build to an inflection point of change
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Glacial Erosion
 Steady growth of grinding, inexorable, and hard to resist
pressures
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Page 3
Aging
Technology
Unaffordability
Disparities
Tiering
What has Changed in the last two years?
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The Transformation Agenda
 More evidence
 More stakeholders

Transparency is growing
 Presidential approval of transparency
 Leavitt’s transparency agenda
 More measurement and reporting
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P4P
 P4P is evolving
 Non Payment for Non Performance (Never Events)
 P4P step on a path of reimbursement reform
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Cooling Ardor for Consumer-Directed Healthcare
GASB 45
Evidence-Based Benefit Design
The rising burden of Specialty pharmaceuticals
Page 4
What is Emerging?
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Potential meltdown of “rust belt” employers
Health Reform at the State Level to Cover the Uninsured
 Massachusetts
 California
 Many others to follow
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Universal Health Care as Democratic platform
A Huge War on Physician Transparency
 Granularity of measurement
 Accountable care systems versus individual reporting
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Technology Assessment and NICE Lite
Personal Health Records and new entrants like Google
Disruptive Innovators: Wal-Mart, Minute Clinics, Offshore competitors
Page 5
What has Stayed the Same
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Continued cost-shifting to consumers
Yet, little movement in consumer behavior measures
Continued financial success of “Pimp My Ride”
healthcare delivery
Doctors are still depressed
Patients are still getting older, fatter, and crankier one
year at a time
Health IT continued slow progress
The Future of Healthcare only exists on Powerpoint
Page 6
The Transformation of Health Care
What We Expected in 1990
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Large Vertically-Integrated Systems
Medical Groups based on interdisciplinary
teams
High Use of Nurse Practitioners and auxiliary
health professionals
Capitated reimbursement systems
Practice Guidelines and conformity
IT enabled decision support
Greater emphasis on primary care over
specialty care
Thoughtful and scientifically defensible
introduction of new technology
Universal coverage
Community rated, risk adjusted financing
Page 7
What We Got by 2006
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Horizontal Cartels
Doctors still in onesies and twosies
Teams and groups in only a a few high
performing environments that nobody wants to
go to voluntarily (except Mayo)
Hamster Care everywhere: Medicare,
managed care and especially Medicaid
Passive, aggressive resistance to
measurement and management of quality
EMR as a PET
Expensive Technology excessively and
aggressively applied to affluent and wellinsured
Rising uninsured
Consumer payment, adverse selection, cream
skimming and moral hazard
The Holy Trinity
Cost
 Quality
 Access
 (Security of Benefits)
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Page 8
Defining Value of Health Services
Value =
Page 9
(Access+Quality+Security)
Cost
Health Care Spending per Capita in 2004
(Adjusted for Differences in the Cost of Living)
Source: OECD Health Data Published in Health Affairs Volume 26:5 2007
Page 10
International Health Comparisons, 2004-05
Country
USA
Health
Care
Spending
($ per
Capita)
2004
6,102
PopХn
over 65
(percent)
MRI per
million
Female
Life Exp
(years)
2004
Infant
Mortality
(per 000)
2005 est
12.4
8.2
79.8
6.5
Canada
3,165
13.0
4.2
82.2
4.8
Germany
3,043
18.3
5.5
81.3
4.2
France
3,159
16.4
2.7
83.0
4.3
UK
2,508
15.7
4.0
80.4
5.2
Japan
2,249
19.0
35.3
85.2
3.3
Spain
2,094
17.6
6.2
83.1
4.4
Hungary
1,276
14.9
2.5
76.7
8.6
Korea
1,149
8.5
7.9
80.0
6.3
Turkey
580
6.6
3.0
70.9
41.0
Page 11
Source: OECD 2002-2007
International Health Comparisons, 2004-05
Country
Page 12
Practicing MD
MDs per Visits
1000
per capita
Acute
Care
Bed
Days per
capita
Alcohol
Consumption
(liters per
person aged
15 plus)
Tobacco
Overweight or
Consumption obese
(% pop daily (BMI > 25)
smokers)
USA
2.4
3.9
0.7
8.4
17.0
66.3
Canada
2.1
6.1
1.0
7.9
15.0
57.5
Germany
3.4
n/a
1.8
10.1
24.3
49.2
France
3.4
6.7
1.0
14.0
23.0
34.6
UK
2.3
5.3
1.1
11.5
25.0
63.0
Japan
2.0
13.8
2.1
7.6
29.4
24.9
Spain
3.4
9.5
0.8
11.7
28.1
48.4
Hungary
3.3
12.6
1.7
13.2
30.4
52.8
Korea
1.6
10.6
n/a
8.3
n/a
n/a
Turkey
1.4
3.1
0.4
1.5
32.1
43.4
Source: OECD 2002-2007
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
19
88
19
93
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Percentage
Premium Increases Compared to Other
Indicators, 1988-2007
Health Insurance Premiums
Overall Inflation
Workers
Earnings
^
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2006; KPMG Survey of Employer-Sponsored Health Benefits: 1988, 1993, 1996, 1998;
Bureau of Labor Statistics, 2000.
Page 13
Health Care Costs and Consequences
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For the Uninsured: Rising from 45 million today to 56 million in 2013
For the Working Poor: In 1970 health benefits cost 10% of the minimum
wage, today it is 100%
For the Median Household: Health benefits are 20% of median
compensation will rise to 60% by 2020 if trends continue
For Retirees: A couple on retirement at 65 needs $200,000 in cash to
pay for lifetime out of pocket costs for medical care
For Small Businesses: Only 60% of firms offer insurance in 2005 down
from 69% in 2000
For Big Business: Delphi goes bankrupt, Big Auto renegotiates because
corporate healthcare costs surpasses the net profit of all business
For Big Labor: UAW, SEIU, AFL-CIO conflicts, challenges and
opportunities for strife
Page 14
Quality Shortfalls: Getting it Right 50% of
the Time
Adherence to Quality Indicators
Breast Cancer
75.7%
73.0%
Prenatal Care
Low Back Pain
68.5%
Coronary Artery Disease
68.0%
Hypertension
64.7%
Congestive Heart Failure
63.9%
Depression
57.7%
Orthopedic Conditions
57.2%
Colorectal Cancer
53.9%
Asthma
53.5%
Benign Prostatic Hyperplasia
53.0%
Hyperlipidemia
Adults receive about half
of recommended care
54.9% = Overall care
54.9% = Preventive care
53.5% = Acute care
56.1% = Chronic care
48.6%
Diabetes Mellitus
45.4%
Headache
45.2%
Not Getting
the Right
Care at the
Right Time
40.7%
Urinary Tract Infection
Ulcers
32.7%
Hip Fracture
22.8%
Alcohol Dependence
10.5%
0%
20%
40%
60%
80%
100%
Percentage of Recommended Care Received
Page 15
Source: McGlynn EA, et al., “The Quality of Health Care Delivered to Adults in the United States,” New
England Journal of Medicine, Vol. 348, No. 26, June 26, 2003, pp. 2635-2645
Quality of Care Today:
We are Worse than Shaq from the Line
Defects per million
1,000,000
IRS Phone-in Tax
Advice
10 0,00 0
Phil Mickelson putting from 6 feet
10 ,000
1,000
10 0
Overall healthcare
Quality in U.S.
(Rand Study 2003)
US Airline
flight fatalities/
US Industry Best
of Class
NBA Free-throws
10
1
Airline baggage
handling
Fair Reliability
1
2
(69%
)
(31%
)
∑
High Reliability
3
4
(7%)
(.6%)
5
6
(.002%
)
(.00003%
)
level (% Defects)
Sources: Courtesy A. Milstein modified from C. Buck, GE; Dr. Sam Nussbaum, Wellpoint; & Mark Sollek, Premera
Page 16
Quality and Efficiency Vary Widely By State
Health Affairs
April 7, 2004
Enormous Variations in Practice and Spending
Coronary Artery Bypass
Graft Surgery
Age-sex-race adjusted
rate per 1000 enrollees in
2003
CABG discharges per 1,000 Medicare enrollees (2003)
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
Page 18
Source: Dartmouthatlas.org courtesy
Elliot Fisher MD
Supply-Sensitive Care Can Be Measured for
Specific Providers
Physician Visits During the Last Six Months of Life
80.0
NYU Medical Center
76.2
Cedars-Sinai Medical Center
66.2
Mount Sinai Hospital
53.9
UCLA Medical Center
NY Presbyterian Hospital
Mass. General Hospital
43.9
40.3
38.8
Brigham & Women's Hospital
Boston Medical Center
Beth Israel Deaconess
UCSF Medical Center
Stanford University Hospital
31.9
31.5
29.2
27.2
22.6
70.0
60.0
50.0
40.0
30.0
20.0
10.0
Page 19
Source: Dartmouthatlas.org
If Quality has Improved,
Doctors and Patients Have Not Noticed
Has quality of care gotten better or worse in the past 5 years,
or has it stayed about the same?
Better
15%
21%
28%
49%
77%
39%
Stayed about
the same
70%
57%
Worse
41%
40%
17%
6%
9%
Hospitals
Health Plans
14%
Employers
15%
Public*
Physicians
Source: Harris Interactive, Strategic Health Perspectives 2005, 2006
Note: Percentages do not add to 100 because “not sure” answers are not included.
* Has the quality of medical care that you and your family receive gotten better or worse in the last 5 years, or has it stayed
about the same?
Page 20
The Progressive Transformation Story
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Cost and Quality are correlated inversely
Utilization is not based on need and doesn’t create
outcomes
Measurement matters
Transparency on cost and quality will:
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Embarrass providers to improve
Motivate payers to differentially pay
Motivate consumers to change providers
Steer business to the high performance providers
Do all of the above given enough time
Re-engineering of delivery system will ensue
Value gains will make healthcare more affordable and
of much higher reliability and quality
Page 21
The Battle for Quality:
IOM versus “Pimp My Ride”
The IOM Vision of Quality:
Charles Schwab meets
Nordstrom meets the
Mayo Clinic
The Prevailing Vision of
Quality in American
Healthcare:
“Pimp My Ride”
Page 22
The Battle for Quality:
IOM versus “Pimp My Ride”
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Page 23
Really Bad Chassis
Unbelievable amounts of high technology on a frame that is
tired, old and ineffective
Huge expense on buildings, machines, drugs, devices, and
people at West Coast Custom Healthcare
People who own the rides are very grateful because they don’t
have to pay for it in a high deductible catastrophic coverage
world
It all looks great, has a fantastic sound system, and nice seats
but it will break down if you try and drive it anywhere
Pimp My Ride in Redding
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Fee-for-service payment rewards:
 Volume
 Fragmentation
 High margin services
 Growth
Page 24
Source: Dartmouthatlas.org courtesy Elliot Fisher MD
Pimp My Ride in Redding
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Fee-for-service payment rewards:
 Volume
 Fragmentation
 High margin services
 Growth
Page 25
Source: Dartmouthatlas.org courtesy Elliot Fisher MD
Clinical Intervention
The FBI Arrived
International Obesity 2003
Percent of Population over 15 with BMI >30
United States
Mexico
United Kingdom
Australia
Hungary
New Zealand
Canada
Ireland
Germany
Spain
Iceland
BMI >30
Belgium
Poland
Sweden
Netherlands
Denmark
France
Austria
Italy
Norway
Switzerland
Japan
Korea
0
Page 26
5
10
15
Source: OECD, 2005
20
25
30
35
Don’t Look Down on Him:
Middle Age Americans are not as Healthy as the English
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US White population in late
middle-age is less healthy
than the equivalent English
population for, diabetes,
hypertension, heart disease,
MI, stroke and cancer
Steep gradient by SES in
both countries: It’s good to
be rich
But, the poorest third of Brits
are healthier than richest
third of Americans for
diabetes, hypertension, all
heart disease, and cancer
Source: Banks, J. et al. JAMA 2006;295:2037-2045.
Page 27
HONDAS
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Hypertensive
Obese
Non-Compliant
Diabetic
Alcoholic or All Systems Failing or both
Source: Connie Blackstone MD, Primary Care Physician, Greenville, SC
Page 28
The Future of Healthcare in the OECD
Fat People meet
Skinny Benefits
Page 29
Consumer Use of Quality Ratings Remains Low
Considered a
change based on
these ratings
22%
4%
Actually
made a
change
2%
21%
3%
1%
2001
18%
4%
<1%
2006
23%
4%
1%
2001
13%
2%
<1%
2006
15%
1%
1%
Seen information that rates...
2001
Hospitals
2006
Health plans
Physicians
Source: Harris Interactive, Strategic Health Perspectives 2001-2006
Page 30
Primary Care Practices
with Advanced Information Capacity
Percent reporting seven or more out of 14 functions*
100
87
83
72
75
59
50
32
19
25
8
0
AUS
CAN
GER
NETH
NZ
UK
* Count of 14: EMR, EMR access other doctors, outside office, patient; routine use electronic
ordering tests, prescriptions, access test results, access hospital records; computer for reminders,
Rx alerts, prompt tests results; easy to list diagnosis, medications, patients due for care.
Page 31
Source: 2006 Commonwealth Fund International Health Policy Survey of Primary Care Physicians.
US
Capacity to Generate List of Patients by Diagnosis
Percent reporting very difficult or cannot generate
75
50
43
33
25
14
10
7
6
1
0
AUS
CAN
GER
NETH
NZ
UK
Page 32
Source: 2006 Commonwealth Fund International Health Policy Survey of Primary Care Physicians.
US
Primary Care Doctors’ Reports of
Any Financial Incentives Targeted on Quality of Care
Percent reporting any financial incentive*
95
100
75
79
72
58
50
41
43
30
25
0
AUS
CAN
GER
NETH
NZ
UK
* Receive of have potential to receive payment for: clinical care targets, high patient ratings,
managing chronic disease/complex needs, preventive care, or QI activities.
Page 33
Source: 2006 Commonwealth Fund International Health Policy Survey of Primary Care Physicians.
US
What We Have to Change….
Not Much Except………
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Our values
Our Strategic Focus: From Pimp my Ride to Primary
Care and Prevention
Our Reimbursement System
Our Delivery System
Our Individual and Collective Behavior
Our Expectations
Our Business Models
Our electronic infrastructure to support it all
Page 34
Key Driving Forces: Political
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Presidential election year where candidates are
focusing on change
Many Republican incumbents in house and senate
not seeking re-election
Possible big turn out of youth: The Echo Boom can’t
drink yet, but they can vote
Health care number one domestic issue (or will it be
the economy by June?) among Democrats and
Independents
Growing sense of anti-corporatism even among
Republican candidates (Huckabee and McCain)
Possibility of a large Democratic victory
Page 35
Key Driving Forces: Economic
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Economic Slowdown in 2008-2009 seems likely
Continued involvement in Iraq short term means big
government deficits
Little government opportunity for big expansion in
short run
Sub-prime mess lingers and perhaps worsens,
declining consumer confidence, weakening dollar,
continued high energy prices
Business sees profit squeeze after long run up and
high performance expectations from investors
Page 36
Key Driving Forces: Health Reform
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Health Reform Options are in a narrow range (Democrats positions are right of
Richard Nixon’s)
New American Compromise of shared sacrifice and incremental expansion of
coverage is favored by all Democratic presidential candidates and some
Republicans at state level
Focus is on coverage expansion for an anxious middle class not wholesale
transformation of health care but…..
Healthcare Glitterati homing in on elements of a compromise (Commonwealth
Fund 15 is a good starting list of cost containment options)
Unlikely Coalitions are forming: e.g. SEIU, Wal-Mart
Big actors are staking positions near and around the New American
Compromise for example the AHA, AHIP, Mayo Clinic, Committee on Economic
Development, and Others
Big business not as ready to bail out of healthcare as some pundits think
Seniors are satisfied with Medicare (including Part D) and are not pressing for
health reform of Medicare, yet but how will Part D play in 2008?
Doctors are cranky and depressed
Page 37
Most Employers are Ideologically Opposed to Massive Exit
in a Tight Labor Market with a Strong Economy
% Answering Describes My Company Well
77%
85%
Employers can effectively manage the health and
healthcare on behalf of employees
Healthcare is not our company's core competency
and we would welcome any opportunity to transfer
the responsibility to individual employees
Healthcare is not our company's core competency
and we would welcome any opportunity to transfer
the responsibilty to the government
20%
42%
10%
18%
Jumbo Employers * (PBGH)
Employers
It is important for us to continue to provide health
benefits to attract and retain workers in a
competitive labor market
We have to stay involved in health benefits
otherwise the government will take over healthcare
and our employees will not be well served
Source: Harris Interactive, Strategic Health Perspectives 2007
Page 38 N=20* Pacific Business Group on Health , July 2007 Retreat
100%
96%
85%
61%
Physician Dissatisfaction with Practice at
Historic Highs
78
Physician Satisfaction with Current Practice Situation
72
% Satisfied
66
62
67
58
57
42
43
38
22
70
34
28
33
29
% Dissatisfied
1995
1997
1999
2000
Source: Harris Interactive, Strategic Health Perspectives 1995-2007
Page 39
2001
2002
2006
2007
The Commonwealth Fund 15
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Promoting Health Information Technology
Center for Medical Effectiveness and Health Care Decision-Making
Patient Shared Decision-Making
Public Health: Reducing Tobacco Use
Public Health: Reducing Obesity
Positive Incentives for Health
Hospital Pay-for-Performance
Episode-of-Care Payment
Strengthening Primary Care and Care Coordination
Limit Federal Tax Exemptions for Premium Contributions
Reset Benchmark Rates for Medicare Advantage Plans
Competitive Bidding
Negotiated Prescription Drug Prices
All-Payer Provider Payment Methods and Rates
Limit Payment Updates in High-Cost Areas
Page 40
Covering the Uninsured:
Who Pays? Who Gets? Who Cares?

Who Pays?
 American healthcare financing is regressive
 Single Payer is a massive transfer of income from rich to poor
 Making $20,000 earners buy a $15,000 health care policy is
problematic

Who Gets?
 Having a card doesn’t guarantee getting care
 Growing use of ER, Minute Clinics, and Off-shore options
even by the insured population

Who Cares?
 How much reimbursement goes with the card?
 Do we need coverage or do we need care?
 Are the insured getting the right care?
Page 41
Number of Uninsured 2005
18
16.7
Millions of Non-Elderly Uninsured
16
13.3
14
12
10.7
10
8
5.3
6
4
2
0
<100%
100-199%
200-399%
Family Poverty Level
Page 42
Source: KFF, 2006
400%+
Payment to Cost Ratio (Illustrative)
2
1.8
1.6
1.4
1.2
Payment to Cost
Ratio
1
0.8
0.6
0.4
0.2
0
Uninsured
Page 43
Medicaid
Source: Morrison Estimates,
in other words a good guess
Medicare
Commercial Demented
Payer
Saudi
Prince
Payment to Cost Ratio (Illustrative)
2
1.8
1.6
1.4
1.2
Payment to Cost
Ratio
1
0.8
0.6
0.4
0.2
0
Uninsured
Medicaid
Single Payer
Schwarzenegger
Page 44
Source: Morrison Estimates,
in other words a good guess
Medicare
Commercial Demented
Payer
Saudi
Prince
Why I Like Australia
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Everyone is covered
Tax financed universal ambulatory
care
Clear bargain on hospitals:

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“Where the bloody hell are you?”

Australian Tourist Board

Page 45
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Free Hospital care with no provider
choice and no high amenity versus
Private hospital, or higher amenity
public hospital and provider choice if
you have private insurance
50% have private insurance (43%
for hospitals) but you still pay in to
the base system
Flat 30% subsidy
Incentives to sign up young
No involvement of employers
PBS works to control costs
Four Scenarios for US Health Care
2005-2015
Individual
Tiers R’Us
Minor Delivery System
Reform
Major Delivery System
Reform
Page 46
Government
Bigger
Government
by Request
50%
20%
Disruptive
Innovation
National
Rational
Healthcare
10%
20%
Scenario 1: Tiers R’ Us

SUVing of healthcare
Continued disparities and tiers
High end providers do well, low end suffers

Probability over 10 years: 50%

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Page 47
Scenario 2: Bigger Government by Request
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Baby Boom Backlash against cost-shifting
Democrats run on shoring up and expanding
Medicare for middle aged and elderly
Government regulates healthcare even more
Slowing innovation, reducing provider payment, and
limiting profiteering
Probability over 10 years: 20%
Page 48
Scenario 3: Disruptive Innovation

Cheapo plans proliferate (high deductibles and retail
primary care) forcing cheaper delivery models to
emerge
New disruptive competitors emerge at a lower price
point e.g. Revolution Health, Wal-Mart, Kaiser Lite
Almost as good, and a lot cheaper

Probability over 10 years: 10%
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Page 49
Scenario 4: National Rational Healthcare

Mandatory universal individual insurance is passed
National policy commitment to restructure healthcare
financing and delivery
True managed health care
Focus on public health and prevention

Probability over ten years: 20%

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Page 50
Scenario 4: National Rational Healthcare
Impact on the Healthcare System

Health Plans
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Pharmaceuticals

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
Reference-pricing and cost-effectiveness criteria for new technology
True clinical innovation is rewarded
Side by Side clinical trials for new product launches
National Technology Assessment System continuously monitors technologies in use
Providers

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


Health plans are active agents for health delivery transformation
A focus on prevention and wellness
Sources of innovation in DSM and new reimbursement models
Get smart or get out
Chronic Care management done right: innovation in community based chronic care
New reimbursement systems “Daughter of Capitation” force market leaders into fundamental
clinical system redesign
Acute care is evidence-based and standardized
Innovation concentrated in designated centers of excellence
P4P means better payment and earns the provider the right to serve
Health IT


Page 51
RHIOs are interoperable and standardized and at the core of new chronic care paradigm
HIT is funded through special national health infrastructure tax
Common Themes
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High end patients and providers will always do well
Generics will grow in almost any scenario
True cost reducing technologies will always have appeal
True clinical breakthroughs that are radically better than existing
modalities and therapies will always be rewarded but the bar for
new technologies will be raised to demonstrate value
Beware of the Fallacy of Excellence
Healthcare is a superior good and will take a larger share of
national wealth
But who pays for what and how will be central difficult questions
for business, government, and households around the world
forever
Healthcare pharma, technology and supply industry will
consolidate even further
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Implications
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Chronic Care needs will grow because of aging and
obesity
We are ill-prepared because of our reimbursement
system, technology, infrastructure, and delivery
systems
We need simple solutions based on familiar
components
We need to innovate in business models
We need to implement what we already know
We need to move from Dumb Cost-Shifting to
Intelligent Consumer Engagement
We need to focus on prevention
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Implications
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No matter what, we will need better value measures
and more transparency of measures
Value based purchasing will become more prevalent
and have a powerful influence on providers and
vendors
Consumers will become more engaged in value
decisions but we cannot rely on them absolutely
The systems of healthcare need to be continuously
improved to deliver greater value
Will require clinical skills, process skills, use of cutting
edge technology and big-time capabilities
Most of all, it will require leadership
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