National Institute of Health Policy

 The Four Keys to Health Reform  
A Roadmap for Policy Action

Table of Contents

Introduction

Our Current Condition

The Four Keys to System Reform

Key #1:  The greater use of evidence-based medicine (EBM)
Key #2:  The application of similar principles for evidence-based operations (EBO)
Key #3:  New methods to lower financing and transaction costs (LTC)
Key #4:  A redefined and more active role for the consumer

Potential Impact of the Four Keys

A Health System that Works
A Health System that Costs Less
Changed Stakeholder Roles

Conclusion

Introduction
For inside-out reform of the American health care system to be successful, public and private policy must support such reform. The work of the National Institute of Health Policy (NIHP) for the past four years has yielded a major finding: modest changes can lead to significant improvements. This paper provides a roadmap for policy action.

The Four Keys to Health Reform encompass four major themes: 

            Key #1:  The greater use of evidence-based medicine (EBM)

Key #2:  The application of similar principles for evidence-based operations (EBO)

Key #3:  New methods to lower financing and transaction costs (LTC)

Key #4:  A redefined and more active role for the consumer

The major goals of the U.S.’s health care system have remained constant for the last 100 years:

   Achieve both optimal population health and the highest level of quality in
    health care delivery

Manage cost growth to guarantee affordable access to health care for all.

In support of these goals, we must assure protection and safety in the system, stimulate on-going research and innovation, and ensure an adequate supply of health care professionals.

 The U.S. health care system has evolved differently from others and change must respect American core values:

·         All health care is local

·         Health care is best delivered in the private sector

·         Provider competition is essential for consumer choice to succeed

·         Informed choice is enhanced by increased and accurate information

·         The role of government is to assure access, accountability, quality, and to maintain fair market competition

·         Employers and private insurance are integral to income security

The Four Keys For Reform can be used as a roadmap for health system change within the American context. They do not require massive new funds or government interventions. And they preserve and support many current innovations.

Achieving progress toward The Four Keys also provides a base for improving access by reducing costs and waste, and empowering consumers and providers to make better informed choices about how needed health care services are delivered.

·         If the cost of health care is less, more Americans can be insured.

·         If consumers have better and easier access to information, more will make better choices.

·         If providers have incentives to deliver quality rather than quantity, more appropriate care will be the result.

·         If health care delivery systems are more efficient, productivity will go up and the value of the health care dollar will be enhanced.

Our Current Condition
All stakeholders in today’s health care system are discouraged. 

·         Doctors lack incentives to provide quality care and feel they must work harder each day to realize the same revenue. 

·         Hospitals face financial pressures as well but must engage in a “medical arms race” in order to maintain their medical staff and attract patients.  

·         Consumers are paying more but lack information on quality of price value and satisfaction.

·         Consumer demand forced managed care to retreat and change its focus from managing and controlling cost increases to simple predicting them.

·         The employers’ approach to significant cost increases is to place more of the cost of health care in the hands of the employee.

·         Finally, government pays an increasing share of the health care bill but has no public mandate to intervene.
           

The Four Keys™

The American health system is extremely complex and political—and change is difficult.   Hundreds of organizations and thousands of individuals have weighed in on innovative ideas for health care reform. Many initiatives offer new ways to pay for health care for all Americans, while others address the quality and quantity of the product itself. What we need now is a common language—a clear framework—that captures the best of these ideas and offers an achievable vision for change.

Through four years of project work, the National Institute of Health Policy (NIHP), in consultation with its National Leadership Council, has identified Four Keys to Health Care Reform. These keys provide a framework for reform. They require strategic change from inside the health care system. They are readily achievable but depend on the continued and essential involvement of all current stakeholders.

The Four Keys to Health Reform encompass four major themes: 

Key #1:  The greater use of evidence-based medicine (EBM)

Key #2:  The application of similar principles for evidence-based operations (EBO)

Key #3:  New methods to lower financing and transaction costs (LTC)

Key #4:  A redefined and more active role for the consumer

1.   The Greater Use of Evidence-Based Medicine

The use of evidence-based medicine (EBM) for the delivery of health care is the result of thirty years of work by some of the most progressive and thoughtful practitioners in the nation. It is well documented that the delivery of care for even the most common conditions is inconsistent among health care providers, even within a single practice, and is infrequently based on the most current treatment recommendations. This belief is true, and evidence-based medicine is the cure.

EBM is the result of years of health services research, much of it funded by foundations and recently by the Agency for Health Research and Quality (AHRQ). Many health educators have begun to introduce EBM into their curriculums. The health care quality assurance movement has blossomed and now standards and measures are well accepted by clinicians. With the advent of the Internet and increased health care advertising, the consumer is engaging as well. 

The result of the EBM movement is an array of care guidelines, care patterns, and new shared decision making tools for both care givers and patients. EBM holds the promise to substantially improve health, medicine, and long-term care. One challenge that remains, however, is that not all conditions are subjected to or amenable to EBM criteria. The scope of the research must be expanded to incorporate as many conditions as feasible, and those findings must be consistently and comprehensively disseminated.

How EBM works

The application of EBM has a number of steps.

·         First researchers examine the medical literature to determine the most effective, evidence-based approach to diagnosing and treating a specific illness or condition, e.g. congestive heart failure. 

·         Next a provider (usually a provider group) decides to adopt this approach for all their patients with that specific condition. 

·         The provider group then implements systems within their practice to assure that all patients receive this evidence-based care. This may be as simple as internal education to the health care delivery staff, or it may require complex and expensive changes such as the implementation of a new computer system.

·         Providers groups that use EBM monitor the outcomes of their patients to assure that they are achieving desired results. 

·         Finally, the EBM guidelines for each condition are reviewed and updated periodically to reflect the most current research.

Patients can also use EBM, in partnership with their provider, to jointly decide on the best course of treatment based on the medical evidence. Patient-centered EBM examples include the selection of a prescription drug or a decision to proceed to surgery. To date, however, consumer access to reliable and juried information is not entirely trustworthy.  The advent of such Internet services as “WebMD” have generated a vast amount of information for consumers to digest with little guidance about the validity of the recommendations.   

Though there are some shortcomings that can be readily addressed, the use of EBM yields a number of significant results.

·         Quality of care increases as health professionals use the most current knowledge in a consistent and systemic manner. 

·         Costs decrease as unnecessary complications and hospitalizations are avoided. Dr. Ken Kizer, CEO of the National Quality Forum, states that the use of EBM could save the US health system up to 30% of total health care costs.   

·        EBM has the potential to impact the medical liability system. The consistent use of EBM will reduce errors, minimize opportunities for malpractice, and lower the costs of litigation.

Policy Actions to Support EBM

To ensure widespread use of EBM, we must make specific policy changes:

•  All health care payers must adopt valid, evidence-based medicine as the foundation for all “pay-for-performance methods.

•  Competition at the medical group level must be enhanced. This may require antitrust enforcement actions.

• Patients must find ways to participate in the use of EBM guidelines. There should be shared decision-making. A natural partner in reaching this goal is the health plan

• Public and private organizations need to continuously measure health care quality and cost and to make these finding public.

•  Private organizations that encourage and educate across professional disciplines EBM, such as the Institute for Clinical Systems Improvement (ICSI), must be supported.

•  Health professions education in EBM must start early in providers’ careers.

2. The Application of Evidence-Based Operations

Hospital, clinic, laboratory, nursing facilities, and other health care facility operations are complex. And yet these organizations suffer many of the same ills that led to the movement for evidence-based medicine. Each organization operates in an idiosyncratic manner based on its history, leadership, and providers. Although this may have made sense as these organizations evolved with new and rapidly advancing technology and clinical pathways, major operating efficiencies must now be the goal of every organizations.   

The reality of changing “business as usual” in an environment that supports 216 separate health professions is daunting. Licensing and accreditation requirements also make innovation difficult.  Despite these limiting factors, many health organizations throughout the world use evidence-based operations (EBO) techniques to provide high quality clinical care in a context of limited financial resources. US health care organizations too must adopt a more progressive approach to managing and delivering health care in an increasingly competitive and costly world. Our nation sets the bar for productivity and efficiency in many other industries. How efficiently we deliver health care should be measured in this same tradition for excellence.

In US hospitals today there is no widely disseminated evidence-based approach to patient placement in hospital beds. There is no best practice for operating an admitting department, scheduling surgery patients, or moving a lab sample from an inpatient unit to the laboratory.  The JCAHO has recently taken a first step and published a limited number of core processes that have been optimized by hospitals throughout the country. However, it is quite clear that opportunities for improvement abound.

How Evidence-Based Operations Work

Although only in its infancy, evidence-based operations build on the successes of evidence-based medicine. It is focused on the non-clinical operations of health care delivery organizations.  

Practitioners of EBO use the standard quality improvement tools of Deming, Juran, and Six Sigma that have been employed successfully in a wide variety of service and product industries.  In addition, proven operations research techniques and quantitative tools such as queuing theory and linear programming are employed. Sophisticated process design and monitoring is a hallmark of EBO. A key to successful EBO is teamwork across health professions with a unique leadership role for physicians. 

Another important tool in EBO is the advanced use of Communications and Information Technology (CIT.) Much of health care delivery is devoted to the movement of patient information and most of this done today with paper and telephones. The health care industry must learn from industries that have pioneered the more advanced use of CIT tools, but the information technology infrastructure is woefully inadequate to meet the demand for faster, secure, and accurate information.

EBO saves big money. A process optimized or automated will have a lower cost and will support higher quality clinical care.  The challenge for most health care executives is to capture these savings and reflect them in a lower price. 

EBO also results in better patient and provider satisfaction.  Streamlined care, a reduction in duplication of services, and more efficient procedures, among other improvements, will all significantly enhance the care delivery environment.

Examples of EBO are beginning to appear:

·         A large teaching hospital in the Midwest successfully installed a complete electronic medical record, which eliminated all paper records. Not only was the cost of the medical records department eliminated, but also nurses discovered that they reduced the time spent on the wards for medication management by two hours per nurse per shift.   

·         A major trauma center on the West Coast decided to “never go on divert.” Using basic EBO techniques they achieved this goal and now operate with a census of 95% to 110% and with improved quality indicators as well.

It is clear that significant opportunities for operational improvement exist for health care delivery organizations in the United States.

Policy Actions to support EBO

Very little EBO is being used today in the US. Medical error rates are at an all time high. The health care industry’s rate of productivity increase hovers around 0.8-0.9% per year compared with 3-4% in other industries. EBO can have a significant impact and should play a much role for in today’s health care environment. To do so, the following policy changes should be made:

·         All payer systems should be constructed to encourage efficiency and productivity. For example, the hospital DRG payment system, in concept, encourages efficient operations, per diem payments to a much lesser extent. Cost or charge reimbursement provides no incentive for efficiency.  

·         Private payers should consider modeling their payment methods on Medicare, which has the most advanced provider payment methodologies currently operating. CMS and MedPAC regularly analyze and update these methods.

·         Antitrust rules and enforcement should be used to assure fair competition at the payment level, e.g. DRG. 

·         The federal government should take aggressive actions to assure that national standards are adopted for Clinical Data Interface and others that facilitate advanced applications for CIT.

 ·         AHRQ should expand its portfolio of research to encompass EBO.

·         Shared research and improvement strategies for EBO, similar to ICSI and MAPT, should be encouraged and funded.

·         Universities who teach hospital administrators and clinic managers should put renewed emphasis on EBO in their curriculum.

·         Public or private agencies need to continuously measure costs and benchmark price and outcomes at the provider level and make these finding public.

3. New Methods to Lower Financing and Transaction Costs

A key value in the American health system is choice—choice of doctors, hospitals, and health plans. We value options, and diversity leads to creativity in the structure of the health care delivery.

Most Americans receive their health insurance through their employer. Employers demand new products from insurers and health plans to meet company objectives. Small employers seek pools to share risk. Many larger employers have multi-state and multi-national operations. This diverse health insurance system, though very creative, is also complex and costly.

The third key to health reform promotes lower transaction costs, while maintaining diverse options, and includes two elements: insurance costs and payment system costs.   

Insurance Cost
Most individuals measure the cost of health care by the premium rates we pay (or our employers pay) for health insurance. However, several factors that are beyond the actual costs of the care delivery system influence premium costs.

·         The Insurance Cycle. In some years health plans make profits while in other years they lose money—historically a three-to-five year cycle. If health plans are making money, they can lower premium costs the next year to return profits to their customers. Similarly they raise prices when they are in a loss situation.

·         Case Mix/Risk. If an insured group has a number of members that are chronically ill, their costs will be higher. This is particularly apparent for self-insured employers. If the risk changes from year to year, dramatic premium increases can occur.  A related phenomenon is the withdrawal of younger employees from employer sponsored insurance due to its cost.  This leaves the employer’s pool with only the older, sicker employees.

 ·         Cost shifting. Providers receive payment at different levels from many sources. In the past few years many providers have complained that Medicare and Medicaid are inadequately reimbursing true costs. In addition, these same providers deliver a rising amount of uncompensated care. As a result, providers must charge private payers more in order to balance their books. 

In summary our insurance premium protects us against risk, pays for services, and helps finance all parts of the system. All of these factors have converged in recent years, creating tremendous upward pressure on premium rates. Rising acuity impacts risk pools, more use of technology and rising wages leads to more costly service, and a growing uninsured population forces cost shifting—all adding to the sense that we are faced with a delivery and a payment crisis. 

Payment Systems Costs
The exchange of information and funds between payers and providers is wrought with burdensome and complex systems. In some cases the process is partially automated, but, in many cases, paper is still needed. Controls to prevent fraud and abuse create much of this complexity.  Providers complain that submitting claims cost them more each year. A Midwestern hospital executive recently summarized this problem by saying, “I am building a new wing on one of my hospitals, and it will be just for clerks.” 

Transaction costs absorb valuable health care dollars that might be better used to deliver care.   Paul Starr, a national health policy expert, has estimated that transactions costs in the American health system are as much as 4% of the GDP. With the advent of encrypted technology to assure the safe exchange of private information via the web, lower transaction costs now seem increasingly feasible.

How Lowered Transactions Costs Could Work

Designing a universally accepted data exchange model to facilitate lower transaction costs—while at the same time maintaining choice and diversity—will be challenging. There are no existing models such as EBM and EBO. Two possible strategies may have potential.

 1.       Implementation of more sophisticated Communications and Information Technology systems to transfer funds
These types of projects have been implemented in New Jersey and Detroit and have saved these communities over $500M /year. The recent Institute of Medicine (IOM) report to Health and Human Services Secretary Thompson proposes a demonstration project to implement a statewide electronic enrollment clearinghouse.

The environment may be fertile today for cooperation on such projects.  The Minnesota health plans have demonstrated a strong degree of collaboration in the funding of ICSI and the development of the Community Quality Measurement Project.  Both projects are targeted at reducing the administrative and transactions costs.  

 2.      Implementation of supply chain management, an approach that has been used in other industries.  
Manufacturing and retailing changed their supply chain systems many years ago to reduce cost and improve quality. The traditional supply chain was embodied in a sales representative who negotiated with a purchasing agent. This system was inflexible, cost too much, and did not allow communication between the appropriate individuals in both organizations.  

The new supply chain management principles turn this system on its head.  Customers are intimately involved with their suppliers, and they know how the suppliers produce their goods. Consumers participate in the supplier’s quality programs and understand the cost of production. This is little “negotiation” on quality and the price is transparent to all parties. A radical reduction in transaction costs is one of most significant outcomes of contemporary supply chain management. In many cases suppliers provide items to buyers without individual contracts or purchase orders.  

If health care payers and providers had a contemporary supply chain relationship, there could be ongoing, joint projects to reduce transaction costs. Because of this new transparent relationship, there would be less likelihood of fraud or abuse and the costs of all parts of the system would be known. 

Policy Actions to Support Lowering Transaction Costs

Lowering the insurance component of transaction costs is very difficult but public reporting will help policymakers. An essential step to achieving this goal is:  

1.       Public or private agencies need to continuously measure insurance costs and benchmark prices at the provider level and make these finding public. This will help policymakers understand how the savings in the system from EBM, EBO and LTC are being passed on through premium pricing.

 2.       Use an EBO approach to eliminate unnecessary transactions.

Other policies that could lower payment system costs include

3. Enacting common data interchange standards

4. Supporting a common Data Interchange system (buyers, payers, providers) and an enrollment clearinghouse.  (see related article about the Michigan experience.)
   
5. Enacting changes to antitrust rules to allow payers and providers to develop joint programs reduce transaction costs using supply chain management principles
   
6. Developing common purchasing standards by employers and other buyers to minimize complexity.

4.  A Redefined and More Active Role for the Consumer

The fourth key to health reform involves the consumer. Although some policy advocates consider this key the most important, it is clear that the consumer cannot change the health care system alone. But with the application of EBM, EBO, and lowered transaction costs the consumer can have a powerful influence. Consumers who are over-insured use too much health care and those who under-insured do not use enough. The new model consumer will find the correct balance, as is the case in other functioning markets.

How the Consumer/Patient Can Be Involved

Consumers have two roles to consider— health education and the effective use of the health care service delivery system 

1. Maintenance of Wellness. Consumers need to be motivated to maintain a healthy lifestyle, a basic premise that has been well accepted for decades. A healthy lifestyle includes not smoking, exercise, a healthy diet, restraint with alcohol, avoidance of drugs, violence prevention and the use of seat belts, among others. In addition, the healthy consumer benefits from the use of health care professionals for screening tests and overall wellness checkups.

2. Effective Use of the Health Care Delivery System. Once a consumer becomes ill another set of be behaviors becomes important.   

 Understanding their disease and its treatment. 
Fortunately, there are growing resources for the consumer. Good examples are websites from the Mayo Clinic, the Foundation for Accountability (FACCT) and HHS’s Healthfinder. Once the patient becomes knowledgeable about his condition, he can partner with his caregiver and practice EBM. An engaged and informed patient will help improve treatment outcomes

Being aware of price.
As health plans develop new products that contain health care spending accounts, the patient will need to develop an understanding of the price of health services and the consequences of substituting one type of care for another.  Patients are demonstrating price knowledge today regarding their choice of prescription drugs when presented with information and incentives.  

Policy Actions to Support the Consumer’s Role

 ·         Increase the role of public health programs to encourage healthy lifestyles

·         Increase the role of health plans in encouraging healthy lifestyles

·         Increase the role of health plans to aid patients in EBM

·         Encourage health plans create products that allow consumers to use price/value equations (e.g. Prescription drugs, smaller networks, complementary medicine etc.)

·         Consider the creation of cooperatives between consumers and providers where risk and reward would be shared.

Potential Impact of the Four Keys Framework

If we successfully deploy these four keys, throughout the American health system, we will have:

·         A health system that works

·         A health system that costs less

·         Changed stakeholder roles

A Health System that Works

In a health system that works: 

• Government provides for the common good in the system including standards, research, and health education.

• Doctor groups compete for patients.

• Doctor groups use EBM and therefore health care quality increases and costs decrease.

• Payers reward doctors for their use of EBM.
  
• Hospitals and other providers use EBO to decrease costs
  .
• Government uses anti trust to maintain competition.

• Health plans use new competitive markets and decreased costs to decrease costs to employers.

• Health plans use supply chain management principles, CIT and common purchasing standards to lower transaction costs.

• Healthy consumers are encouraged to healthy lifestyles by their employers with the assistance of health plans.

• Chronic patients become empowered consumers with disease prevention, management, reversal and price sensitivity.  

• More Americans gain access to the system due to lowered costs which make all access strategies more affordable (tax credits, S-CHIP, safety net). 

• A national income security policy is enacted which integrates tax policy, investment policy, social insurance and private insurance policy.

• State deregulate in support of the four keys to achieve an environment of national standards and private contracts.
  
• State government measures and publicly reports the impact of system change to assure that quality improvements are occurring and that cost savings are passed through to the buyers of health care.

If we apply this same process to Long-term Care and other components of the health system, we can achieve reform much more quickly there as well.

A Health System that Costs Less

The systemic use of the four keys will reduce cost. EBM, EBO and lowered transaction costs are all separate cost drivers, and, therefore, can be considered as unique cost pools. The model consumer will support and reinforce all three keys.

Based on current health services research and international comparisons, one could expect the following level of saving:

Evidence-based medicine                          25% 

Evidence-based operations                        10%

Lowered-transaction costs                        10%

TOTAL SAVINGS                                    45%

Changed Stakeholder Roles

We expect that all stakeholders in the system will experience positive changes in their roles and actions as the four keys are implemented.

Conclusion

The Four Keys For Reform offer great promise for systemic reform of our health care system. We can use these keys as a roadmap without needing massive new funds or government interventions. Working within these keys, we can preserve and support many current innovations.