Taming the Healthcare Monster

Do not panic over healthcare costs. We may finally be on the cusp of learning to control them.

So maintains McKinsey & Co. director Tom Latkovic in a new article. The key, he says: The entire system must shift to paying providers based on results, not tasks.

“The preconditions for transformative change are much better now than at any point in recent history,” says Latkovic, who adds that this isn’t a partisan issue (and is careful not to invoke Obamacare or other contentious political topics). If U.S. healthcare payers—employers, the federal government, health insurers—can find a way to “aggressively transition to outcomes-based payment over the next three to five years,” he figures, there’s a cool $1 trillion in savings to be gained during the next decade.

To get there, says Latkovic, “the United States needs fewer component providers who specialize in a single task, such as taking diagnostic images. Instead, it will need more healers (providers who can achieve specific objectives for patients during episodes of care) and partners (providers who can help improve a patient’s health and wellness over a longer period of time).”

Reforming and restructuring how we deliver medicine was something Peter Drucker wrote about often—and, as we’ve discussed, we believe he would have been very much in favor of a system that paid doctors and hospitals based on measurable outcomes instead of amounts of activity.

Many hospitals and other such organizations “are over-administered and suffer from a surplus of procedures,” Drucker wrote in Management: Tasks, Responsibilities, Practices. “What now has to be learned is to manage service institutions for performance.”

This mindset should infuse the entire care-giving process, right down to the endless reams of costly paperwork that most medical systems generate. “Reports and procedures should focus only on the performance needed to achieve results in the key areas,” Drucker wrote in The Practice of Management.

By focusing on results—and not fee-generating services—Drucker suggested that simpler forms of care might become the norm. “Eighty percent of demands in health care require only a nurse-practitioner,” he asserted.

Whatever the steps to get to a more results-oriented system, this much is clear: Something major has to change. That healthcare “is economically out of control is a symptom,” Drucker said. “It is a symptom of a very serious disorder. Traditional approaches don’t work.”

What do you think is the most important thing we could do to rein in healthcare costs in the United States?