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Are you Uber or Kodak?

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In today’s transformative times it is interesting how often books that I read years ago achieve new relevance. One such book, which I first read more than 20 years ago, is Joel Arthur Barker’s “Future Edge.” It is a fascinating exploration of paradigms and their influence during periods of change. Among the other nuggets in the book, Barker suggests that new paradigms are almost always brought on by new folks. He calls them, “paradigm pioneers.”

See also: Which Presidential candidate reflects your health care views? Surprise!

The people who built today’s paradigm don’t (or can’t) innovate in large measure because they are so invested in the old paradigm that they won’t let go. Kodak was one of those paradigms. They helped to create the digital photos, but failed to capitalize on it in large measure because they had such an emotional and intellectual investment in film and printed photos that they completely missed the change in consumers and markets. Other industries find opportunities in new paradigms. The most recent example is Uber.

In a recent conversation with a colleague we talked about claims and lamenting the completely irrational hodgepodge that passes for market pricing in health care. As we have discussed in this space, and as a few guests on my podcast have remarked, the current pricing scheme is something so strange and convoluted that it couldn’t possibly be real – except that it is.

We have all danced around the conversation, but one of the reasons that pricing in commercially paid claims is so high (and irrational) is the effect of cost shifting. Some like to point out that this is a failure of the free marketplace. But it is increasingly difficult to say that with a straight face. Government accounts for more than half of the overall health spend and those prices are arbitrarily dictated.

There are other, less obvious components  that shift as well. According to America’s Health Insurance Plans, commenting several years ago about the rapid run-up in retail pricing in California, “The combination of slow growth in reimbursements from Medi-Cal and moderately growing Medicare payments has likely played a major role in the rapid growth of prices charged to private insurers.”

Private insurers are left to make up the difference between those lower government payments and the (alleged) retail price. Ultimately, this difference is passed on to consumers in the form of higher premiums. So the government starts the fire and then blames the homeowner whose house is burned to the ground.

During that conversation I recalled an article I had seen several years ago that made an interesting case for a different kind of solution than one most people envision today. Economist Uwe Reinhart, writing in the November 2011 issue of Health Affairs, suggests that one solution might be to move to “… a more rational, all-payer system.”

Under an-all payer system, Reinhart explains, “… all insurers in a state would pay all providers in a state the same price for a given health service, with adjustments only for differences in the price of the inputs used by health care providers, as under the current Medicare payment systems. But unlike the current Medicare system, which sets fees unilaterally, the uniform fees under the all-payer system envisaged here would be formally negotiated on a regional basis between representatives of providers and representatives of payers.”

This is how the systems works in Germany and Switzerland, though they price on a regional chassis. Harvard Professor Regina Herzlinger has long argued that the Swiss health system would be a model for a market-driven consumer-choice system. Such an arrangement might also eliminate, once and for all, the three-card Monte of networks and network discounts – both of which are becoming increasingly annoying and problematic for patients and their providers alike.

This kind of pricing might seem unfathomable to many who have helped build the old paradigm. But as change and opportunities unfold, we should remember that, as a friend of mine is fond of pointing out, “We had better Uber our business before we get Kodaked.” 

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Time for a change

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