Health-care reform: What shape will it likely take?

"The US health-care system is on a dangerous path, with a toxic combination of high cost, uneven quality, frequent errors, and limited access to care," argue Michael E. Porter and Elizabeth Olmsted Teisberg in their landmark book, Redefining Health Care.¹ While few would disagree, their proposed remedy-a radical restructuring of the present health-care system to focus on specific medical conditions-has evoked heated debate.

As Porter and Teisberg envision it, care needs to be delivered by independent, specialized teams of providers who'll compete on patient outcomes relative to dollars spent across the full cycle of care. This model of care stands in stark contrast to the vision of health-care reform espoused by Alain Enthoven and colleagues.^2-4 They propose a "system"-centered paradigm, in which large integrated health-care delivery systems offering a full range of care compete with each other on price. My goal in this two-part series is to examine the looming health-care crisis, compare these starkly different visions for reform, suggest which model is likely to dominate, lay out potential reforms of primary care and Medicare on the immediate horizon, and give suggestions for preparing your institution for these very different futures. (Editor's note: For a related editorial, see "Evaluating competing approaches to health-care reform".)

We're not getting our money's worth

Soaring costs cripple competitiveness. Accelerating health-care expenditures directly threaten US economic competitiveness. Businesses cover up to 65% of US health-care costs, a burden no other developed economy imposes upon its industries. Up to the present, US companies were able to keep pace by holding employee salaries steady and pouring productivity increases into ever more expensive benefits packages. This is in large part why the salaries of US workers have stagnated for two decades. However, the pace of health-care cost increases can no longer be made up simply by freezing wages and growing productivity. General Motors now spends more for health care than for steel, with health-care costs adding $2,000 to the sticker price of every automobile. This helps explain the noncompetitive state of our auto industry.⁵ In 2006, the cost of health care for Starbucks employees matched the cost of its coffee purchases, helping to explain why we need to pay $3.00 for a $0.50 cup of coffee.⁶

Moreover, because health plans discriminate when it comes to premiums (i.e., companies and other groups with large pools of insured employees pay less than those with a small pool), smaller companies bear a disproportionate cost burden. It's not surprising that they're increasingly dropping employee health insurance coverage, further adding to the ranks of the uninsured.⁷ Given the nature of US health care's "zero-sum competition" (more on that later), the cost of caring for the growing numbers of uninsured is shifted to an ever-shrinking pool of subscribers whose premiums are accelerating, creating a pathological cycle.⁷

$$$ doesn't buy quality. Of even greater concern is the poor quality of US health care. While we spend 50% to 100% more on health care than other industrialized nations, according to the WHO, we rank 37th in performance as measured by overall population health, health disparities, health-system responsiveness, universal access, and financial burden.⁵

There's evidence of under-utilization of care (e.g., a Rand Corporation study indicating that Americans receive only about 55% of recommended standard care⁸ ) and over-utilization of care: Studies of Medicare spending patterns find threefold differences in spending per patient between regions with the highest and lowest costs, yet higher spending is not linked with better outcomes, higher patient satisfaction, or improved access to care.¹ Regions with higher concentrations of specialists spend more on specialists, end-of-life care, and paradoxically are less likely to follow evidence-based guidelines than areas with fewer specialists.¹

$$$ doesn't eradicate errors. Our excessive spending also does not buy safe care. Preventable inpatient medical errors may cause up to 284,000 deaths per year.¹ Medical errors are major contributors to excessive health-care spending. Inpatient adverse drug administration events (ADEs) add $4,700 to affected patients' hospital costs, while outpatient ADE's add about $77 billion to total health-care costs.¹ Medical errors also fuel our dysfunctional medical liability system. Physicians spend $6 billion each year on liability insurance premiums,¹ while fear of litigation fuels defensive medicine that adds up to 4% to health-care spending.⁹ Clearly, the system desperately needs reform.