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New York's $54 Billion Health Care Hack

March 28, 2014

By Paul Howard

New York State has two big challenges. The first is a health care challenge. The state spends more on its Medicaid program, on a per capita basis, than any other state. It also leads the nation in total Medicaid spending (over $54 billion). New York’s health outcomes, on the other hand, are middling and it actually scores worst on avoidable hospital admissions. The city and state also have enormous post-retirement liabilities for health care benefits for public retirees. In a nutshell, health care costs are strangling the state’s ability to spend on any other priorities, from education to infrastructure.

The second big challenge is diversifying the state’s economy which is disproportionately dependent on the financial services sector. The states’ high progressive tax rates are predicated on the idea that the financial services industry (with its high paying jobs) can’t go anywhere else. The industry, at least from Albany’s perspective, is a golden goose than can be plucked at will, and will never fly the coop. In the long run, that’s a losing strategy, although New York policymakers might not realize it until it’s too late.

Adding irony to injury, one of the state’s biggest employers is the non-profit health care industry which is exempt from the state’s corporate and property taxes. This highly profitable sector employed over 570,000 people in 2010; Wall Street firms lagged behind at 487,000. As non-profit health care firms expand their footprint (heavily subsidized by state taxpayers, naturally) the revenue base of the state might actually contract.

Looked at from this perspective, New York’s health care woes and the imperative of diversifying its economy are deeply intertwined. The failure to "right size" state health care spending has dire implications for New York’s future keeping its tax burden high and diverting capital from other, more efficient industries.

A dose of transparency is worth a pound of prevention.

Can New York’s policymakers kill two birds with one stone? Yes, by ensuring that patients and employers really know who the quality providers are, and what their services really cost. Combining clinical data with claims and outcomes data would help identify the most efficient providers, and lay the groundwork for a market that’s much harder to game because incumbent providers can’t just march to Albany to ask for a rate increase.

Today, price and quality information is either siloed for payment purposes, across dozens of different providers and plans, or not available in a format that is actionable by consumers. Even large employers struggle to get the market power and knowledge-base to bargain effectively with large hospital systems. No one has enough information to know with any certainty what the "right price" is for any given service when it’s delivered efficiently. This pricing muddle benefits highly concentrated hospital systems that can justify high prices with lots of big buildings and high priced doctors, but who may actually have worse outcomes or higher prices than less well-known local hospitals (or outpatient facilities).

Breaking down those silos, and liberating that information (through the entire health care system, not just the individual price that patients, employers, or insurers see) for other researchers and for-profit firms to analyze, bundle, and distribute would go a long way towards injecting greater competition into the health care system.

In other hi-tech sectors (like automobiles or electronics), consumer-focused information flows readily, firms compete intensely for market share, and prices (adjusted for quality) tend to flow down, not up. Consumer Reports, CNET, J.D. Power, and Yelp are just a few of the intermediaries that exist to help consumers navigate complex product and service markets. Inefficient are forced to become efficient, or are driven out of business by more efficient firms. Health care shouldn’t be any different.

What’s the solution?

There are two things policymakers need to do to fix the situation. The first is to shift more purchasing power to consumers than to intermediaries. Ironically, this is one thing that the left and the right basically agree on the individual insurance market is about to get a lot bigger, and both insurance plans and providers are going to have to compete for their business. (And employers are set to embrace private health insurance exchanges, which will empower consumers even more.)

The second thing policymakers need to do is to liberate health care data. What is lacking today, at or anywhere else, is an intuitive way of aggregating data that would allow consumers and employers to know who the quality providers really are.

If clinical data that followed the patient could be merged (after being de-identified) with outcomes and cost data, it could be mined by sophisticated analytics tools focused on identifying the best providers for targeted patient populations. It could also be a godsend for clinical research and drug innovation: allowing researchers and innovators to test and launch new product combinations much faster than they do today.

If patients owned and controlled their own health information, health care could also evolve new subscription service tools focused on maintaining health, and navigating the system effectively when serious problems arise. Consumers with high deductible policies (or anyone shopping "out of network") could also be confident the providers they’re using really are high quality (given their needs). Right now, finding a good doctor or hospital is mostly a guessing game, with "in-network" defined by accepting plans’ reimbursement terms or following certain processes.

Enabling fluid information transfers and aggregation would allow consumers, providers, and plans to choose from new organizational forms, new intermediaries, new business models that would arbitrage today’s high prices and uneven quality and produce something much closer to a true "market clearing" price for health care than the byzantine labyrinth of prices that no one understands and that only the uninsured pay.

Data Isn’t Red or Blue

The great thing about attacking the health information problem head on is that it confounds traditional liberal-conservative arguments about who should pay for health care. By forcing providers to compete head to head based on real time pricing and quality data, we could be confident that every public or private dollar spending is generating real value for patients.

New York, a very blue state, is laying the groundwork for this by liberating a big chunk of health care information from the silos held have guarded it for decades by creating a public-private partnership, the New York eHealth Collaborative, which is coordinating a state-wide Health Information Network, called the SHIN-NY ("shiny").

SHIN-NY is really a network of networks, connecting ten regional health information networks that wouldn’t otherwise otherwise talk to each other. (Today, 92% of New York hospitals and 40% of other providers have electronic health records in place.) Eventually, every provider and patient in New York will have instant access to their secure electronic medical records, whenever they need it - from an emergency room in Manhattan to a clinic in rural New York. (The state is transitioning the SHIN-NY from federal grants to state spending, with $65 million allotted in the governor’s 2014-15 budget.)

Currently, the SHIN-NY connects nearly 80 percent of hospitals in New York State. (Individuals can allow their provider to access their records with their consent; over 3.5 million patients have already done so.)

The easy political sell for the SHIN-NY is that it will improve safety (if you’re unconscious, and can’t relay critical medical information, providers can still access it), reduce duplicative services (allowing providers to access an X-ray or other clinical services provided at a different hospital), and save money.

But I think this just the tip of the iceberg. Liberating clinical information (and merging it with other data) will allow investors and entrepreneurs to build new tools for measuring outcomes and costs, empowering patients with information that makes them into true consumers. There are real privacy challenges to navigate here, but they’re manageable starting with ensuring that patients own and control their own health data and can always control who sees it, and when.

Silicon Valley on the Hudson?

Last year, tech startups in New York raised nearly $1.7 billion in venture funding, and many of those companies will have the digital savvy and entrepreneurial spirit needed to hack New York’s health care system.

The New York Digital Health Accelerator, launched in 2012, is already helping start-up companies leverage SHIN-NY data to market new services to providers. It’s not hard to imagine the program being expanded for services direct to consumers through apps or other platforms and employers.

Ultimately, we don’t need another yet another app taking for taking pictures on smartphones or sharing texts. So why is Facebook spending $20 billion on a text sharing application? Because it’s a market they’re already in, and they understand how it’s directly monetizable to their shareholders and consumers.

In a health care economy that’s worth well over $2 trillion, where are the entrepreneurs who’re clamoring to disrupt the system? Where are the companies that think they can take a tiny piece of the $800 billion in health care spending that goes to wasted or ineffective treatments, every year?

They’re not here in force (yet) because they don’t have access to the information that would allow them to hack America’s health care problem, and are unsure who will pay for it if they do.

That’s changing. New York’s SHIN-NY network can become a platform for systemic transformation, especially if employers can figure out how to merge clinical data with outcomes data (how long did it take Jane Smith to come back to work after a hip transplant?) and use it to create (and reward) networks of the most efficient providers.

Employers are just starting to embrace analytic tools that allow them to better understand and really manage their health care spending. In the future, data analytics will allow New York’s employers to build a la carte networks of the best providers whether they’re in Topeka Kansas or across the street.

Liberate health care data and combine it with developing plays in medical tourism, retail clinics (Walgreens can diagnose and treat asthma, diabetes, and high cholesterol), and telemedicine, and suddenly we’ve got a real battle plan for disrupting America’s bloated health care system.

Maybe we’ll see Facebook get involved in a health care IT play that merges sophisticated data analytics and gamification of health and wellness programs. Or maybe we’ll see a new Mark Zuckerberg rise up, making billions from undercutting inefficient providers by branding national networks of super-efficient, affordable providers.

And maybe it’ll even happen in New York. After all, if you can make it here, you can make it anywhere.

Original Source:



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