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Single-Payor or Healthcare Business Network Manager - which makes more sense?

IDC Introduction:  IDC believes that healthcare innovation can be leveraged from other industries.  Our guest contributors in this blog post are experts in the Energy industry.

 

The healthcare industry in the US faces huge challenges. As we approach healthcare consuming 20% of GDP the question of sustainability is bound to re-emerge.

 

While Healthcare Reform has provided more access to healthcare and provided more options as well, the fundamental problems of cost and quality remain.

 

The rest of the world has a "basic" government provided insurance. On top of this private insurance is provided for "added benefits" such as private hospital treatment etc.. above and beyond the basic level. However is such "a single payor" type model really going to solve the "cost and quality" problem facing healthcare?

 

the answer is probably not. Although the US system is expensive, all healthcare globally is set to come under increased cost and quality pressure due to the global forces of 

 

  1. The increased incidence of chronic diseases like diabetes and obesity

  2. The aging of the population in advanced economies gloabally including US, Europe, russia, China and Japan

 

Is there another alternative. Could there be a role for a healthcare business network manager that could help increase quality and reduce costs? This is a tremendously complex and complicated subject. However given our deepest experience is in electricity industry, we can use the electricity industry to illustrate the “Healthcare Network Manager” business model. In the electricity industry there is the concept of an independent system operator or ISO. Chi and I have been involved in building ISOs in both California and Texas and know a good deal about how ISOs operate in de-regulated electricity markets around the world (most specifically the Nordic countries of Europe called Nordpool).

 

The ISO is essentially a business network manager. It's objective is to provide "open", "low cost", "reliable" energy to customers. It’s function is to facilitate a wholesale electricity market that not only does “physical” contract trading, but also facilitates the real time delivery of the electricity and the efficient settlement of not only the financial trades but the physical delivery of electricity as well. The market in Texas called ERCOT is about $70B a year. The impact of the ISO model has been to control costs, increase openness and provide greater reliability.

 

The ISO model has some problems however not because it is a bad idea but because it lacks a good capacity market that guarantees supply 5 to 10 years out. Without that market there is not sufficient “price signals” in the market to incent new power station and transmission building. This means that the market operates on marginal costs and provides a disincentive to long term investment. The ISO's cannot make up for a lack of national energy policy nor can they incent long term energy investment without the correct economic mechanisms in place.

 

With the caveat that we need to learn from the success and failure of electricity markets, the long and the short of it is that a similar model would work in the healthcare industry as well. This would be an alternative to a "single payor model" and could be based on sound economic and social theory. The analogy is that the “contract” is the insurance and provider contracts and the “real time delivery” is the “care management”. The network manager runs an open or “semi open” network that facilitates payors and providers and also facilitates the real time delivery of healthcare and the efficient “settlement” across the network.

 

In the case of electricity this meant having systems and processes to support “forecasting”, “Trading”, Real Time Energy Management”. Metering and Settlements etc...

 

The same exact elements are applicable in healthcare.

 

There are alternative ways to think about healthcare rather than just envisaging "payors" and "providers". The healthcare business network manager is a viable alternative that could be designed with the twin objectives of reducing costs and increasing quality.

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