Jonathan Bush, entrepreneur and CEO of athenahealth, believes less healthcare coverage could lead to more innovative healthcare delivery models and greater access to care, at lower costs. How could this be?
Under the current U.S. healthcare system, consumers don't really pay for healthcare services. Instead, they pay a set monthly rate to cover their insurance premiums — and due to all the coverage insurers are required to provide under their plans, these premiums are quite high.
If instead consumers kept more money in their pockets (obtaining coverage for only the most catastrophic of events) and used what they now pay in premiums to obtain care outright, the market would reward low-cost, high-quality providers. Entrepreneurs with innovative models could grow and prosper — improving value and access along the way.
It's these somewhat contrarian ideas that Mr. Bush explores in his new book, "Where Does It Hurt? An Entrepreneur's Guide to Fixing Health Care."
Mr. Bush, a Harvard Business School alum and nephew of President George W. H. Bush, experienced his first taste of the healthcare industry after launching a patient-friendly obstetrics and birthing business shortly after earning his MBA. Patients loved the facility, but getting paid was nearly impossible — the 'system' rewarded those who followed the status quo, making operations challenging for any model that tried to break the mold.
Decades later, this is still the case. And Mr. Bush has accepted it to some extent. While U.S. healthcare will never be the free market system he would like to see, he argues that the industry is still ripe for innovation, making it attractive for entrepreneurs. Even within a market that is characterized by high premiums in exchange for high coverage, opportunities for entrepreneurial success exist. Entrepreneurs must simply find better ways to give patients what they want: more convenient, high-value care.
Here, Mr. Bush discusses how entrepreneurs can tap the untapped potential of our industry and other ideas presented in his book.
Note: Interview has been edited for length and clarity.
Question: In the book you write, "the business model of [the hospital] is predicated on mysterious and outrageous charges that someone else, either an insurance company or the government, will eventually pay or haggle down. A competitive market is no where in sight." You argue that if healthcare coverage was less comprehensive and people comparison shopped for services (instead of coverage), the market would create higher-value providers than what we have today. This idea runs in opposition of what many people in healthcare support: expanded coverage. You argue we'd be better off if people had less coverage. Explain.
Jonathan Bush: Here's a parallel in another industry. Southwest Airlines decided that there was no way to take on American Airlines in Dallas to get access to the flying public, but they decided there were a large number of bus and train travelers that would love to go 400 miles an hour. They don't care about getting a reserved seat, or a salad or being a preferred, premium customer. What they really want is to go a lot faster than the bus. They don't really mind making a lot stops, because buses make a lot of stops. So the idea of making a lot of stops but going 400 miles an hour between them is heaven to a bus traveler and hell for an airline traveler.
So, the take away is that if you have a large mass of non participating customers, the incentive to build a cheaper alternative to the main stream product is very high. But, if everybody is already, by law or custom, required to buy the mainstream product, then they would save no money nor gain any convenience by buying a lower-cost, inferior product. You're never going to see a low cost, inferior product get better. You're never going to see them to go through the normal development life cycle. If everybody had the cost of expensive airlines tickets taken from their paycheck each month, they would never choose to fly on Southwest. There would be no Southwest, and we'd have no $100 ticket on airplanes today.
Q: It sounds like a chicken-and-the-egg scenario to me. It's not like we can really expect the premium-driven market to go away, right?
JB: The book is premised on the idea that I refuse to just throw up my hands and give up, and I refuse to require some major change in policy or social order. So, given that we're not going to get rid of the safety net, given that Obamacare of some kind is going to be the law of the land, what then could we still do to create that effect? The basis of the book is there are still things we can do. Consider this: Doctors will be the first shoppers. They'll keep the money for effective shopping — if they get risk contracts. The other idea is consumers can shop for convenience and service. Take retail clinics. There's huge savings, and most consumers don't get any of it. But, the consumer gets half his or her day back and as such is incented to do a little shopping.
So the idea of the book is the various stories of ways that entrepreneurs can still win at attracting the shopping of energy of those who can still shop — consumers for convenience and doctors for cost and quality.
Q: So what would a doctor shopping for healthcare look like? I assume a group would take on risk-based contracts and then find the highest-value providers?
JB: If you're going to take risk contracts, the big savings opportunity in the macro landscape of healthcare today is hospital nights. We have many more bed days than we need, so hospitals typically price themselves and their care with this as a back drop. So, even if they price themselves as break even, they're above market. Because really when you have an access supply of something, the correct price is somewhere north of the variable cost but below the fixed cost until the excess capacity goes away. So my argument is if you're doctor and you want to make more money than your salary as an independent doctor, you should take a risk-based contract and buy your operating room time, buy your hospital nights for your patients — buy them at a discount. Doctors are in a position to do that successfully with hospitals, and the payers are really not, the patients are not and the employers are really not. Employers could do it, but they're afraid to. It's a very personal issue, and it's a weird overlap when you're employer is directing such a personal area.
Q: Is athenahealth daring to enter this arena?
JB: We're doing it. We're going to open a clinic and offer an alterative healthcare product that is 20 percent cheaper. The tightly partnered clinic will give you primary care and will only let you go where they tell you for specialty care. They will then actively negotiate rates for that specialty care. The reason we're doing it is that our employees, especially in Maine, are paying 40 percent of their income in healthcare costs! They don't mind having us be aggressive with them just so that we can offer something for them that doesn't involve 40 percent of their paycheck being taken away.
Q: Your answer to the healthcare, what I'll call 'mess,' we have today seems to be a combination of medical homes and focus factories. Can you explain to our readers what this solution might look like?
JB: There are two kinds of play. One is shopping for care, and one is packaging or curating care so a good shopper would choose it. Focus factories are packaging it up into a bundle that's easy to shop for — it's got guarantees both in terms of quality and service level and price. And then you have medical homes or capitated groups, or eventually savvy consumers, that will shop for those bundles from the focus factories. The medical homes will get paid, essentially, to pick the right focus factory.
Q: You're book delves into so many more areas I want to ask you about — why there are facility fees for doctor visits, kickback regulations, why ACOs must be mostly owned by doctors, CON laws, etc. — but in the essence of time, let me close with one more question. You provide lot of big picture ideas for the future of healthcare, as well as some of the steps government, providers and patients can take to get there. However, for a health system CEO reading this interview, what are one or two things they should do right now, to start to move toward the type of free-market, patient-friendly delivery system you envision for the country?
JB: The community hospital CEO should focus on disrupting the health plan, performing the services of the health plan and then shopping for services for tertiary care. Take the local tertiary medical center and say: You know what, we may not send our patients to you unless you give us a good deal. We might bundled them up and fly them to the next city, because if they can offer a higher quality-price intersection, if they'll do bundling like we want, then they'll be our focus factory for this. And as we get more experienced at this, we might actually take all our tertiary care and bundle it off to the top national or super regional centers of excellence, and in that way, we're serving our community rather than trying to be the next cancer program in town, or be the next PET scanner in town. Rather than do it all and do it badly, they can actually fill themselves more easily more routinely with easy stuff without raising the fixed cost of their business. And, they may soon enough find themselves a source of savings by cutting out the insurance company's administration fees and by keeping the academic medical centers from charging tertiary rates for secondary care.
Then if you're a tertiary medical center CEO, you need to the flip side of that. You need to figure out what are the 10 or 20 things you actually have a shot at being the best at in the region, or best in the nation at. Are you ten times better than anybody in 500 miles? And how much volume and investment would you need on the episodes of care you do as a tertiary to achieve that?
Neither category of CEO is doing these plays very much, with a few exceptions of course. But these plays are waiting for people to do.