Q&A with Harold Luft, director of the Palo Alto Medical Foundation Research Institute

In part 1 of 2, Luft talks about health care reform, mandatory coverage and improving care

In the following edited Q&A with the Weekly, which will continue in next week's edition, Luft offers a glimpse into the health care system and explains the key components of his SecureChoice plan.

Q: What are the key factors (of the current health care system) that aren't working?

A: I don't think there are lots of evil people in the system. I'm starting out with the assumption that most people are just playing the role that they're in, working with the existing incentives and structures, and doing the best they can, which is what happens with almost everybody in the real world.

We have a system that was initially built on a health-insurance model. And the classic notion of insurance is that it's something an individual would buy to protect against a very low-probability, very high-cost event. Just like you'd buy insurance in case your house burns down. Low probability, high cost: You need insurance.

Partly by accident, after WWII, there were wage-and-price controls and employers were trying to hire employees. And they couldn't increase their wages but they could offer health-insurance benefits that were new.

Employer-sponsoring of coverage became imbedded within the American employment system.

So what that means is as they've tried to compete for new employees, they've expanded their coverage, and they went from just covering hospitalization to covering all sorts of other things, which are really nice benefits.

I get my eye-glasses paid for through my health insurance. Wonderful! (But) it's not really an insurable event.

It is absolutely predictable that every year I need an exam and every couple of years I need new lenses. And new frames are really cute.

But that's not an insurance issue. It's a subsidy. I like it because I don't pay taxes on it. But that's not a useful way to do it.

Bundled on top of that, we have a system of essentially paying providers -- physicians, psychologists, other health professionals, hospitals, etc. -- on a fee-for-service basis.

So every product they provide, or every service they provide, they get paid for.

That's sort of the way we buy most things. You go to the grocery store, and you pay for each item. So there's nothing much wrong with fee-for-service in that context.

More importantly, with each provider offering his or her service there's no way for them to really think about coordinating services across different providers.

We often talk about (how) we go to our primary-care physician. She may refer me to (a specialist), or she could spend some more time talking to me and not refer me. We might then wait a week or two and see if I get better.

She has no reason to spend the extra time (in the current system). She's typically not paid more for it, and it doesn't cost her anything if I go see the specialist.

There's no incentive for her to spend extra time to coordinate my care.

It's not just the fee-for-service part; it's the lack of coordination.

Now in the real world, the non-medical world, we often hire other people to do coordination for us. If you've ever done a remodel, you've often gone to a contractor who then helps you decide which subcontractors you need and monitors their quality and helps you decide what to use and what not to use.

We don't have the contractor person in the health care system.

So what we need, I'm arguing, is a way to get somebody who works like that contractor, who can help coordinate activities, who has the technical expertise.

We need to compensate that person for his or her time. And we need to have some incentives for that primary-care physician or some other team leader to make the right decisions -- the right decisions in terms of getting us the kind and quality of care we want and doing it efficiently.

Q: I wonder if you can talk to why mandatory coverage is essential?

A: There are a couple of aspects to that. An important piece is, even though there's a lot of uncaring behavior in the U.S., we don't have a lot of people dying because they're not able to get into hospitals.

The hospitals really are the safety-net providers when people are in extremis.

So if people get ill and they don't have coverage, we are paying for them anyway, either in the safety-net hospitals, the county hospitals or by their going to an emergency room in any community hospital. Federal law says they have to be taken care of.

They may be bad-debt cases. And so who pays for the bad debt? That is built in to the charges that everybody else is paying.

So if you don't have mandatory coverage, you have some people who literally can't afford it. You (also) have some people who could afford coverage, at least minimal coverage, choose not to, saying, "Well, if something really bad happens, and I think I'm pretty healthy, so it's not going to happen to me -- these are the 'young invincibles' -- if something really bad happens to me, there is a system that will take care of me.

"And knowing that that's the system, it's easier for me to make the choice not to get covered."

What that does is it pushes up the premiums, and then the people who are at the margin, who are saying, "I really ought to get coverage," their premium is now more expensive.

So what mandating coverage does, in bringing everybody into the pool, is it actually lowers the actual cost of the premium.

Q: Let's talk about what is covered in the universal-coverage pool. The figure that sticks in my head is that 66 percent of expenses these days are going toward these hospitalizations and the chronic-illness coverage. So some people would say, "Why not a single-payer plan? Why isn't everything covered?"

A: There are two pieces to that. One is, what you need to mandate is hospitalization and chronic illness. That's what needs to be in this pool because of risk-selection issues. Remember, the "young healthies" feel that they're not going to need hospitalization until they get older, or until they have a mountain-bike accident. So that's why we need to have them covered.

Chronic illness? "Well," they say, "I'm young and healthy. I don't need chronic-illness coverage."

But once they get chronic illness, once they get that diagnosis of MS (multiple sclerosis) at 26, they are uninsurable, for MS at least.

So that's why we need to have a system that says, "No, everybody is covered for those two things."

Now the minor-acute stuff -- the eyeglasses, the sniffles, the back aches -- you could cover it, but you don't have to.

So then the question is, either for the 60-odd percent that needs to be in the universal coverage pool, or everything, why don't you have single-payer system, because there are countries around the world that have a single-payer system?

Q: People say: "Why don't we have health coverage like this country or that country?"

A: Because we're not this country or that country. We're our country.

It goes back to somewhere between 1776 and 1783. Basically, the revolution was about not wanting big government. The constitution was written to make it very hard to make change.

And the Congressional structure, in contrast a parliamentary structure, has a lot of power in the committees and the subcommittees in Congress.

So what that means is an individual subcommittee chair has enormous power in stopping a bill or in talking to the head of an agency around appropriations issues.

Good example: Medicare had a review done on virtual colonoscopies, and the scientists who reviewed it said these things are not particularly better than regular colonoscopies. Medicare shouldn't be paying for them.

Forty people in Congress have now signed onto a letter asking Medicare to reconsider.

Now if one of those 40 is in charge of a subcommittee in charge of the CMS Medicare appropriations, that letter's going to be read very carefully.

That is the reason in my mind why we don't want a single-payer system: because you have the ability of special-interest groups to exert enormous power on little decisions.

What everybody thinks is a little -- virtual colonoscopies -- that could end up being a couple of billion dollars. A billion dollars here, a billion dollars there starts adding up to real money.

It's not an ideological issue. I have no problem with things being run by the government in general. But here we have a tradition of not allowing that to work well.

Q: Explain your concept of care-delivery teams.

A: A lot of the expenditure occurs in the inpatient setting or in settings that are similar to an inpatient setting.

So if we think about what happens during that inpatient setting: The patient is hardly making any decisions at that point. You may have had some discussion about what's going to be done to you, but you do not know at all about what kind of sutures they ought to use, what kind of drugs they ought to be giving you, exactly what way they're going to go in and do that knee procedure. And what the implants are going to look like.

Those are all technical decisions that need to be made by clinicians, hospitals, etc.

Right now, all of those decision-makers are economically independent.

So each orthopedic surgeon can select whatever devices he or she thinks is best. Some of them are very expensive, some of them a little less expensive.

The hospital has to buy them and charge the patient for them.

Until very recently it's been illegal for the hospital to provide an incentive for the orthopedist to get together to work with the hospital to decide what implants to use.

I'm saying, "No, it ought to be just the opposite. There ought to be strong incentives for them to get together, create this new care-delivery team and decide how to best organize what they do."

In some cases, it's going to be the orthopedist deciding what implants to use.

In other cases, it may be the surgeons empowering the hospital staff, the nurses, to say, "Doctor, you can't move ahead until you guarantee that you wash your hands and you go through this checklist, because that's been shown to reduce infection rates. And the infection rate costs the hospital money."

And there's an incentive because the hospital now has more money to pass on to the doctors.

They'll say, "Tell me what I need to do, whatever I need to do."

Those are some reasons for building this care-delivery team.

Now the complicated part is you don't want the doctors feeling like the hospital, which is so much bigger and so much better capitalized than they are, telling them what to do. Hospitals often see doctors as telling them what to do.

And so I've described these care-delivery teams as a new entity where the players need to come together in a voluntary fashion and determine their own governance rules. Then the check would come to the care-delivery team, and the team then takes responsibility for both the economic costs incurred and for the patient outcomes for what they're doing.

Q: I want to touch briefly upon the idea of a bundled payment going to a care-delivery team. I think you said that the amount would be different depending on different parts of the country.

A: Right now Medicare uses what's called a "diagnosis related group" approach to pay hospitals. And it pays hospitals, roughly speaking, based on the average cost incurred across all hospitals in the U.S., adjusting for local wage rates.

But I would go one step further because what Medicare is paying for is the average across all hospitals. What the universal coverage pool ought to pay for is the costs incurred adjusting for local prices by those care-delivery teams that have better than average outcomes.

Q: Quality care.

A: Quality care. Why should we pay for average? We should pay for better than average.

I'm not designing this proposal simply to save money. I'm saying, "No, we ought to have our target as being higher value not lower costs."

So we're saying, "If you get better outcomes and it costs you more, fine. Go for it."

If you set that up as a goal, it says we immediately need to start thinking about "How do we measure outcomes?"

So that's very different than the current Medicare system that says, "We just pay for services."

Q: Good services, bad services...

A: It doesn't even matter. We don't even have a way of measuring it.

So immediately the physicians will start saying, "How do we measure outcomes?"

It's easy to measure death after a heart attack: the patient's dead or alive.

It's much harder to measure outcomes after knee surgery. Almost nobody dies.

So "lack of death" is not the outcome that you're looking for. You're looking for return to function.

And the hospitals will say, "Well, we don't know what that is."

The patient knows. And you know how to find the patient because you send them a bill right? Why can't we ask them?

That also starts us down the road of asking, "What are the outcomes that matter to patients?" Not just what are the outcomes that the doctors worry about.

They say, "No infection." Right?

It's just like asking the airlines: What do you care about?

"Planes don't crash."

You ask the passenger, they say, "I assume the plane won't crash. I want to be there on time. I want to be reasonably treated. I want to have enough leg room so my knees aren't in my chin. And maybe give me free water."

So those things matter to patients. And I think we ought to start asking patients.

The proposal says it ought to be focused on quality, looking at outcomes.

And those measures will be constantly improved over time.

Q: Were you at all involved in the Clinton reform effort?

A: My involvement was barely peripheral, near the end of their process. They invited me to come in and look at their draft document and give them comments on it.

They had a lot of the technical stuff right. But the lesson of the failure of the Clinton proposal was not the proposal itself but the fact that it was done in secret, away from the political entities and stakeholder groups, etc. So they could all think about how they were left out, how they weren't listened to. And then they all sort of piled in on top of it.

The other piece of it was that the administration was writing it, rather than the Congress.

If we go back to Civics 101, laws start in the Congress and they are finally signed by the president, by the executive branch.

So I think what the Obama administration has learned from that experience is basically what they have done. They've said, "Health reform is something we need to do. You guys, the Congress, start figuring out how you want to do it. Invite all the players in."

And (stakeholders) are increasingly onboard in saying, "Yes, something needs to happen."

Of course, when they get to the details there will be a lot of pushing and shoving, but at least they will not be able to argue they have not been heard.

Next week: Harold Luft discusses how his plan would allow people to choose their primary-care physicians, how health care providers could access national health data to improve the care they offer, how health care rationing would be prevented and more.


Like this comment
Posted by George Savage
a resident of Midtown
on Apr 4, 2009 at 10:42 pm

One question? How many health industry corporations or foundations currently fund all or part of Mr. Luft's Institute?

Keeping private insurance in medical care is nonsense, and every professional knows that this is where we must start if we hope to turn our system around.

Like this comment
Posted by YSK
a resident of Old Palo Alto
on Apr 5, 2009 at 6:26 pm

Amusing interview. I got a chuckle. In 2001, September tenth actually, I went to PAMC urgent care, chest pains. I figured it was stress, but wanted to be certain. I had workers comp to cover me, no health insurance. PAMC refused service. I went home, my dad freaked out. Said go back. I did, was again, refused service. He then called the clinic, talked to a top person there, said that if I was of a certain demographic, they would have seen me, no problem. The guy admitted that was true. Said I could come back, as long as my dad put down his credit card as a deposit hold. The attitude of the staff was pretty much what you would expect toward me, a member of the Great Unwashed. I was seen for ten minutes, had an ekg, and was shooed off to Stanford. This whole short b.s. visit was over $500. Palo Alto Clinic, nice gig if you can get in.

P.S.? My daughter had health insurance through her job, until deliberate machinations by the employer with hours put her at a quarter hour short of eligibility. Report for your shift, be sent home early, called off etc. Happened to her and several other employees. Way to offer insurance but keep cost down. Anyway, I was by now a patient at our lovely County hospital, and I would accompany my daughter to PAMC. Interestingly, with an appointment, the wait to get in to see a doctor at PAMC was three times longer than at the County run hospital.

Like this comment
Posted by johnmayer76
a resident of Midtown
on Apr 8, 2009 at 1:57 am

Are you uninsured in America? You should check out the website Web Link - John Mayer, California

Sorry, but further commenting on this topic has been closed.

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