Twenty years ago, I went to Prague as part of US AID advisory group to help the Czech government make some decisions about wastewater planning. I had just come off a stint as executive director of the state's water resource authority, and someone figured that I might have expertise that would come in handy. As I am not an engineer, I had my doubts, but I thought I wouldn't do any harm. Plus I had always wanted to visit Prague.
I had been told that there was a major dispute among the planners and engineers in the city. They agreed that there was a need for a new sewage treatment plant, but there was a disagreement as to whether the new plant should be built at the site of the existing facility on Cisarsky Island in the Vltava River (left) or at a new location in the suburbs.
I did what any self-respecting consultant would do and asked every person I met for his or her opinion. To my surprise, everyone agreed that a new treatment plant in the suburbs would be the way to go.
So, I asked my host the obvious question: "I was told that there was a difference of opinion on this matter, but I see that you have a consensus." His reply, "Yes, we have a consensus, but we don't know how to make a decision." You see, after 40 years of heavy-handed Communist rule by the USSR, the newly freed nation had not developed the decision-making capability required of an independent country.
From there, I went to Bratislava, on the Slovak side of the country, to conduct a seminar for municipal officials about financing infrastructure facilities. I introduced the concept of using revenue bonds to finance power plants and the like, with the cost of debt being paid by the users of the facilities. For the past several decades, such facilities had been financed by the Soviets, and the underlying costs had been hidden from consumers, built into an arcane revenue model of the central government.
"If consumers have to pay for the full costs of the power plants, the price of electricity will be inappropriately high," was the first reaction from a person in the group. I explained that there are two ways to recover such costs, from the taxpayers or the ratepayers. I asked, "Wouldn't it be better for consumers to have a proper price signal as to the value of the electricity they use?"
I might as well have been an alien from outer space. People either shook their heads, "No," or I received blank stares. The premises of capitalism were utterly foreign to this group.
Let me draw some parallels with health care. "We don't know how to make a decision" might apply to the millions of patients in the world who are treated like serfs in the health care system. Health care professionals often prescribe and order, without helping their patients become full partners in the treatment planning and decision-making process. People like e-Patient Dave and others are trying to conduct their own Velvet Revolution to remedy this kind of attitude.
The parallel on the cost side is equally apt. We have no idea, as health care consumers, what it costs to treat us. Those costs are hidden in a dense fabric of insurance inclusions and exclusions, charge masters, contract allowances, co-pays, and the like. The current interest in establishing global payments as a substitute for fee-for-service pricing is an ineffective way of solving this problem. It mainly shifts risk from insurers to providers, leaving the providers as gatekeepers and middlemen in care decisions. As a solution to the problem of uninformed consumers, it is lacking.
Other parts of the economy thrive with relatively efficient fee-for-service pricing because those sectors are characterized by transparent presentations of choice, quality, and prices. There is a need for a radical disintermediation of insurance companies in health care to allow a similar direct connection between consumers of health care and their providers. With that in place, we would all learn "how to make a decision."
If the business model of the future is accountable care organizations that provide a full range of medical management services in their catchment areas, the value of stand-alone insurance companies diminishes. Instead, each ACO could offer a combination of insurance and care to its subscribers. Interestingly, if you consider those systems in the US that are viewed as most successful, several already have that model.