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Innovation is Alive and Well in Health Care

Dr. Jason Hwang,|Executive Director of Healthcare, Innosight Institute
Monday, 31 Oct 2011 | 3:12 PM ET

It has been well-documented that America’s unparalleled health care spending has not led to better health outcomes than most other nations. This has led to calls for swift and powerful reform, but political gridlock has bred a growing pessimism among those who believed legislative action would be the only way forward.

Sean Russell | Getty Images

However, there is indeed another way forward, and the good news is that we won’t have to depend on government intervention to fix the system — or worry about the government making things worse if it tries. There are already health-care organizations around the country that can deliver better quality care at a lower cost, which focus on improving the patient’s experience, and where innovation is alive and well. Understanding just how they’re accomplishing this could provide us with a blueprint for transforming the rest of the nation’s health care system.

The critical factor that differentiates these health care organizations from ordinary hospitals, medical groups, and health plans is that they are “integrated” care delivery systems – that is, they have combined the roles of both payer and provider. Being responsible for patient care, but also needing to pay attention to the costs associated with that care, creates a powerful incentive to do more with less.

More importantly, it aligns these organizations with the interests of patients. Unlike the traditional fee-for-service system, hospitalizations, specialty care and complex procedures are no longer revenue opportunities, but costs to be avoided and prevented.

Presbyterian Healthcare Servicesin New Mexico, for example, currently manages the nation’s largest “Hospital at Home” program, which provides hospital-level care in the patient’s own home. With its hospitals consistently filled to capacity, PHS created the service as an alternative to hospitalization and soon found that not only were patients happier to be treated at home, clinical outcomes equaled or exceeded baseline metrics from the traditional hospital setting.

The Innovator's Prescription
The Innovator's Prescription

At the same time, the duration of treatment in the Hospital at Home program was one-third shorter, while savings were estimated to be between $2,000 to $3,000 per episode (even without taking into account the additional fixed and overhead costs of having to run the hospital facility). Other options for solving the bed capacity issue – such as constructing yet another hospital, discharging patients earlier or turning more patients away – would likely have raised costs, lowered quality and led to patient dissatisfaction. Unfortunately, in the non-integrated world of health care, those are the more common solutions.

"Being responsible for patient care, but also needing to pay attention to the costs associated with that care, creates a powerful incentive to do more with less." -Director, Health Care, Innosight Institute, Jason Hwang

Integrated health systems have also demonstrated a greater willingness to promote wellness, rather than focusing solely on treating episodic illness. Primary and preventive care is commonly viewed as an investment that will preserve the health of both the patient and the bottom line.

Group Health Cooperativein Washington implemented a widely-praised Patient Centered Medical Home, but it required the organization to first make an upfront investment of resources for it to succeed. In stark contrast to many people’s managed care experiences of the 1990s, GH set out to build a high-engagement medical home, in which every patient would receive more care rather than less. Doctors were assigned fewer patients to manage, while appointment times were extended. The entire staff was encouraged to work as a care team, and patients received four to five times more touch points per year as a result. The investment paid off within a couple of years, reducing emergency room visits and hospitalizations, while bringing higher patient satisfaction and national recognition for delivering quality primary care.

Future of Innovation - A CNBC Special Report
Future of Innovation - A CNBC Special Report

Finally, some integrated health-care companies don’t resemble traditional health care at all. Yet once again, by being accountable for both the delivery and financing of care, these integrated players have developed innovative business models in which everyone wins – leaving behind the rest of the health-care system in which one party can win only when another loses.

WhiteGlove Healthin Texas is in the business of mobile medical care – more commonly known as house calls. Modern technologies have equipped its traveling providers with an impressive arsenal of tools to deliver care in the patient’s home, but what’s truly remarkable about the company is that it refuses to deal with the universally frustrating and maddeningly complex process of filing claims to health plans to be paid for its services. Instead, the company collects fixed membership fees directly from employers, using a revenue model that it gleefully compares to a warehouse club membership, with the only notable difference being that the product sold is health care rather than oversized jars of peanut butter. The result has been tremendous added convenience for patients, with lower and more predictable costs for their employers. By not owning any hospitals or outpatient clinics, WhiteGlove also demonstrates that integration doesn’t equate to being a mass conglomerate of health-care entities, but simply means that the organization is accountable for both its care and its costs.

Our health-care system is not irredeemable, but creating one that is sustainable will require us to understand what organizations like the ones described here are doing right. It starts with integration, and we need not look very hard to find many exemplary, integrated organizations that have already established themselves as sound stepping stones toward a better health-care system. If we can begin to replicate and scale the best of their business practices, we can quickly put their new brand of health care within the reach of every American.

Dr. Jason Hwang is Executive Director of Healthcare at Innosight Institute, a nonprofit think tank, and author ofThe Innovator's Prescription.