Monday, July 26, 2010

Can CMS be a venture capitalist?

Lisa Suennen, a venture capitalist, writes this post about the provision in the national health care reform act that created the Center for Medicare and Medicaid Innovation (CMI). This agency has $10 billion to “research, develop, test and expand innovative payment and service delivery models that will improve the quality and reduce the costs of care" for patients covered by CMS-related programs. Lisa notes, "What is great about CMI is that they have the authority to run their programs much more like a business would without many historical governmental constraints. "

I don't want to be a stick in the mud, particularly as my able friend Don Berwick takes charge of CMS, but I want to point out that previous efforts by the government to be innovative in other fields have failed because:

(1) Venture funding embodies risk-taking. Government usually does not do this because there is a political imperative never to be blamed for misspending taxpayer money. The bureaucracy, therefore, systematically eliminates ideas that are untested.

(2) Alternatively, the leaders of such agencies get seduced by good-sounding ideas that have not been able to meet a market test and whose efficacy is subject to the normal variations in markets. Then, they will persist with unsound investments because the concept of sunk costs is politically difficult to acknowledge. Private firms consider past investments as fiscally "gone" for purposes of evaluating future investments. But the government often behaves as if investments have a carry-forward risk of embarrassment, so it is more likely to throw good money after bad.

(3) Worse yet, agencies are encouraged to invest in those ideas that have political connections.

My favorite example of all of this was the Synthetic Fuels Corporation, created by Congress to move research and development of synthetic fuels out of the Department of Energy and into a public-private partnership that would hurry along new energy sources. And here is another more recent Massachusetts case. Let's hope these examples are inapposite to the vision for CMI, but history does provide warnings.


Lisa Suennen said...

Hi Paul, thanks for the mention. I completely agree with you that the government has a tendency to go sideways on the Innovation side. They are also not helping themselves by passing other laws and regulations that appear very anti-innovation to me. That having been said, there would be no space program without the government fostering innovation, and probably no internet, so let's hope that they can get serious about healthcare and fast. Lisa

Medical Quack said...

Certainly CMS is going to have to rise up from the ashes quickly as I don't think they have much of a choice as they need infrastructure updates to move forward. I get nervous when I see Social Security still operating from a Cobol based system, solid but eventually will run out of room when it can't scale anymore.

On the other hand the White House is taking a deep hard look at IT projects to see where they are needed and what involves too much risk. The government does hang on too long in some areas, and they have canned a VA project already. Sometimes with software and infrastructure you really have to evaluate when and where to upgrade as in the payer side those upgrades cause transactions to take place and more 3rd parties get a piece of the pie from a medical claim and get rich.

We need audit software and and business intelligence but not to the level that it creates profits and we don't exactly know how effective the money spent is as improving care. It's part of healthcare that keeps feeding itself as you end up with subsidiaries of insurance companies that own or create these 3rd parties sometimes too.

I do like the part about transparency though today as much of what has been hidden is now available for all to see and investments are going to be tricky all over the place with both private industry and government as technology gives us a new left turn it seems everyday, and it's moving fast.

The IT and business intelligence is just about driving everything today as as all run to our screens to get information to make decisions, those algorithms that lead to profit and/or cost reductions or as they say on Wall Street, "the algos":)

Anonymous said...

Paul, with all deference to your prior experience in these areas,aren't you being a bit harsh?

Your post seems to indicate that we cannot use the words 'government' and 'innovate' in the same sentence. In my view,
this is precisely the beauty of the outsider Dr. Berwick's appointment to this job - he brings a different kind of attitude and knowledge than the usual government bureaucrat.

If you click on the author's link to CMI, you see that both administrative and judicial review of Medicare actions in selecting models, sites or participants (as well as other things, too long for here) is prohibited - an important protection against interference.
Dr. Berwick's experience in the rapid and repetitive "plan,do,study,act" cycles of performance improvement should serve him well in this project - which really is critical to our ability to bring Medicare costs under control and therefore critical to the success of our entire economy.

I would have hoped you would be more supportive of this crucial endeavor, or better yet, offer constructive suggestions for improving it.

nonlocal MD

Anonymous said...

Dear nonlocal,

I don't think I am being harsh. I just don't think government is all that good at being innovative. That's not its generally expected purpose, and the forces at work tend to go in the opposite direction.

The items you have mentioned can be helpful, and we will see if they make a difference in this case.

On Lisa's points, I am not sure I recall correctly, but I think the Internet was not the result of a concerted government program so much as some work that was being doing at the fringes by some creative people. Certainly, NASA's work created innovation, but without a sense of cost-effectiveness.

Here we are looking for redesign of work flows, enhanced information systems, and whatever else with an eye towards quality and safety improvement and cost savings -- and with the hope that they will spread across a highly diverse set of institutions and practice plans. All worthy goals, but give me an example of a government program that has done this.

But, as I said, I hope to be wrong.

Cetus said...

As with NASA, gov-t-funded "innovation" projects are typically accomplished via requests for proposals from private contractors. It isn't as if gov't employees will be tasked with inventing new tech solutions.

Additionally, proposals are typically reviewed/vetted by committees comprised of both public employees and private persons. So this sounds to me more like a federal procurement/grant initiative than gov't-as-VC.

76 Degrees in San Diego said...


Anonymous said...

"Here we are looking for redesign of work flows, enhanced information systems, and whatever else with an eye towards quality and safety improvement and cost savings -- and with the hope that they will spread across a highly diverse set of institutions and practice plans."

Isn't the above exactly what you have stood for at your own hospital and, indeed, advocated for across Boston and nationwide? And haven't you expressed frustration that it's not happening faster? In the absence of any national leadership, you've been spitting in the wind. I think incentivizing for these things via government may be the only way it will ever happen. It's just a matter of how best to implement it - hence the advent of CMI.


Anonymous said...

"Just" is a small word with big implications. Yes, I am frustrated with the slow spread to date.

But I always worry that the federal government, even with the best of intentions, will adopt generalized approaches that are not effective. Often, I'd rather see the 50 states proceeding in their own way, knowing that some will get it right and some will get it wrong, rather than have the federal government possibly get it wrong for the whole country.

Anonymous said...

I share your anxiety about the federal government getting it wrong; however I think it's important to understand that the function of the CMI is to experiment, similar to what would occur in the states, to accomplish the same objective - but with funding and coordination. See the NEJM reference here for further detail. Note the 3rd paragraph from the end as to how this might apply to Massachusetts.


Mark Montgomery said...


A good post -- I've been involved with tech transfer and commercialization for three decades now, and have been quite active at times with state efforts, university, agency, and fed.

It's a far more complex issue than most would assume with an incredible maze of conflicts in any large organization that quite often kills the most important innovation.

I have two articles you might be interested in -- first deals with innovation in large organizations in a holistic way -- very popular with thought leaders 'unleash the innovation within', and second is a use case scenario dealing with Diabetes in the American healthcare system-- recent.

Slideshare versions can be accessed here--

Christopher Herot said...

I think government can be an effective force for innovation to the extent that it focuses on results instead of process. DARPA's sponsorship of the Internet is a good case in point. While the actual research took place in university and industrial labs, the sponsorship was driven my some visionary program managers who were (short term) government employees who saw their role as furthering the state of the art through carefully curated research contracts and not as passive administrators of the "fairest" funding distribution process.