Entrepreneurship

Bing! It's Round 6 for Goodman and Ali. Goodman pounces out of his corner. He's bobbing and weaving. Ali is looking a little groggy after the pounding he's taken for first five rounds.

Oops. Sorry. I was having a Walter Mitty moment.

Today's topic is entrepreneurship and everyone needs to get into a creative state of mind.

In a recent Wall Street Journal editorial, Harvard Business School professor Regina Herzlinger asks, "Why are there no entrepreneurs in health care?" Alert readers of this column already know some of the answers.

In our fee-for-service payment system, doctors are slaves to the way they are paid. It doesn't matter whether the payor is public or private. It also doesn't matter whether we are in the United States or in Canada. Doctors have no freedom to repackage and reprice their services. More precisely, regardless of how they repackage, they cannot reprice. So almost any innovation that raises quality or lowers the patient's costs means less – not more – net income for the physician.

Fortunately, there are exceptions to this generalization. There are isolated markets here and there that are bustling and teeming with entrepreneurial activity. These islands of health care innovation are easy to spot. They are the places where the third-party payers are not.

Take TelaDoc, a company that has discovered something for medicine that lawyers, accountants, architects, engineers and other professionals discovered almost a century ago: the telephone.

TelaDoc is headed toward its one millionth customer. If that doesn't immediately knock your socks off, stop and consider: Almost one million people have stepped outside the traditional health insurance system and paid with their own money for a few simple services that our institutionalized, bureaucratic, archaic, third-party payment system cannot deliver. In addition to telephone consultations, TelaDoc patients have portable electronic medical records. Also, their prescriptions can be ordered electronically, taking advantage of software that reduces medical errors.

Another entrepreneurial venture — walk-in clinics in pharmacies, supermarkets and shopping malls — has recently discovered for medicine something nonmedical professionals have known about for several decades: the computer. Nurse practitioners not only enter patient data electronically, they follow computerized protocols in making decisions, and they can order prescriptions electronically as well. A MinuteClinic survey of 58,000 sore throat cases found that the nurses conformed to evidence-based treatment guidelines 99.15 percent of the time. By contrast, the RAND Corporation found that system wide, doctors deliver appropriate care only 55 percent of the time.

Here again, thousands of people are stepping outside the traditional payment system to pay with their own money for services they cannot get otherwise. Prices are posted and are about one-half what primary care physicians charge. There is usually very little waiting, and some clinics hand out beepers so patients can shop and browse while they wait. RediClinic CEO, Web Golinkin, writes in The Wall Street Journal that there are already 400 clinics and thousands more will open in the next few years unless the defenders of the status quo get state legislatures to stop them.

I know some will object that I am ignoring all the entrepreneurship over the past two decades loosely associated with the term "managed care." Granted, there has been a lot of that type of activity. But it's all on the wrong side of the market.

Big market changes are not driven by entrepreneurial buyers. They are driven by entrepreneurial producers and sellers. More on that in a subsequent alert.

For the Herzlinger Wall Street Journal op ed, see

http://www.manhattan-institute.org/html/_wsj-where_are_the_innovators_in_health_care.htm

For the Golinkin Wall Street Journal op ed, see

http://online.wsj.com/article/SB118601813375385623.html?mod=googlenews_wsj

Comments (15)

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  1. Uwe says:

    John: A serious question, sincerely put: Do you still believe in Santa Claus? I ask it, because anyone who thinks that doctors are "slaves to fee for service" payments imposed on them by wicked health insurers ("Herzlinger's 'Killers No. 1') may well still believe in Santa Claus. It is touching; but wrong. It is doctors who have always wanted this piece-rate system, because it allows them infinite freedom to manipulate their income and preserves their individual autonomy in treatments of patients. In fact, I bet you most policy analysts will agree with me that the largest obstacle to the Herzlinger-Porter-Teisberg proposal to bundle services and price them as a bundle will be physicians unwilling to give up the autonomy that comes with piece-rate compensation. Steve Wiggins of Oxford Health had trieed to entice doctors to bundle their services for heart-failure treatments in NYC and bid a lump sum price for the bundle. He got nowhere with it; physicians gave him the c\old shoulder. At the PPRC we tried bundling services and got nowhere with it either. In fact, unbundling was de rigeur. To put the blame for the physicians' 'enslavement" to fee for service payment on insurers is not only factually wrong; it is manifestly unfair. Insurers would love to bundle physicians services. Do you ever break bread with those folks? Best, Uwe

  2. dee says:

    It just makes me all warm and fuzzy when some rich guy talks about free market health care after we know a huge portion of our tax dollars funds the birth of babies birth to illegal immigrants, and funds plush benefits to federal and state union employees, and then their is mediacare for the needy and old. After mal practice and us funding everybody else whats left? Over inflated health cost and exclusion of pre-existing conditions and someone is getting mighty rich off people dying. I'm sorry I don't buy what your peddling.

  3. Greg Westcott says:

    I've run into a company here in West Michigan that can be considered entrepeneurial in nature on the health care delivery side. The West Michigan Center for Family Health (www.centerforfamilyhealth.com) charges $500 to individuals who want basic primary care on a as-needed basis. A curve from "consignor" medicine, patients must go to the facility for their care and cannot use it for emergency-type situations. Preventive care such as physicals, immunizations and flu shots are included in the annual fee. They have, in essence, changed the way health care is delivered. In an excerpt from their website: "The idea was to create a program for individuals and businesses where patients could see a primary care doctor any time, as often as needed for a flat fee, taking all of the insurance and billing headaches out of the equation." Coupeling this type of access to care with a high deductible health plan is a fantastic model for keeping fixed cost down (premiums) and high quality access up.

  4. Steven Bassett says:

    Dr. Goodman,

    In addition to teledoc and walk in clinics, M.D. entrepreneurial activity in the form of quitting networks / cash pay is best of all. Then perhaps we will have more of a competitive marketplace. How can doctors compete as long as they take third party payment based on rigid procedure codes and eg. the CMS or BCBS fee schedules that is uniform for massive service areas? Another challenge is the moral hazard from 79% (not my number but the idea is right) of individual dollars that are spent above the HSA minimum deductible. Incentives to the insured is the missing link to bringing pressure to bear on [hospital] prices above the deductible, and entrepreneurship is certainly the missing link that will prosper this idea.

    Steve Bassett

  5. Ralph says:

    I am an entrepreneur in healthcare doing things differently

  6. Regina Herzlinger says:

    But the AMA keeps getting in the way!

  7. Steven Bassett says:

    Uwe,

    You said somewhere “global competition from medical tourism could have an impact on American health care similar to the impact Japanese automakers have had on the U.S. auto industry” I agree. And how do you think services are bundled through the medical tourism companies? Should U.S. payers and the docs they employ (I’m sure you would say this is a “legal mis-statement”), continue with their inefficent contractual arrangements?

  8. Doctors prefer FFS because they think of the alternative as being on salary where they can not make more money by working more.

    The problem is not FFS per. se., but government or insurance fixed payment for fixed procedures. Let doctors post their prices and let patients pay directly from their health account funded by the government and by their employers and by themselves. And, of course, catastrophic insurance is funded from the same account.

  9. It would be great if Teledoc’s fees could be paid by credit card out of an individual’s HSA or other health account. Their strictures against being paid by insurance would presumably be overcome.

    An obstacle at present is, of course, the complexity of getting repaid from the insurance company that holds your HSA. And, of course, many HSAs don’t have credit cards because no one can tell quickly enough what the insurance company is willing to pay out of your HSA for a doctor in their PPO network. What a mess!

  10. Gail Wilensky says:

    As you note, there are actually lots of entrepreneurs and entrepreneurship in health care. Could be more with some helpful tax law changes of course.

  11. Pat King says:

    No sane person would have set out to design the health care system we have today. Ever seen a contract between a health insurer and a physician? There is no way that the doctor can tell how much he/she is going to be paid for a particular service. On the other hand, some of the complications of our current system probably came about the same way our more complicated tax code provisions did: one side tries to exploit any weakness or loophole in the system, and the other side tries to plug it. There is a whole mini-industry devoted to denial management. It’s become a crazy game, with the patient in the middle.

  12. StillaScot says:

    I liked the thought behind the commentary – that health care is not a land of entrepreneurship. There is entrepreneurship within it as other commentators have noted. Yet it is the industry that is least dominated by such entrepreneurship and maybe there’s a reason.

    Wealth is only one marker of wellbeing. Health is a vital other marker. So when health is threatened, then the pursuit of wealth becomes secondary, both for producers and consumers. The finest entrepreneurs in the health industry are the researchers who break exciting new ground and make real advances in health. They are not entrepreneurs of classical economics. They are entrepreneurs of wellbeing. Their advances can only be captured by an expanded view of economics.

  13. [...] than one million customers who pay for telephone consultations with physicians. As explained in a previous Alert, electronic medical records and electronic prescribing are an essential part of the business model. [...]

  14. fm radio stations in South-Dakota says:

    Dr. Goodman,

    In addition to teledoc and walk in clinics, M.D. entrepreneurial activity in the form of quitting networks / cash pay is best of all. Then perhaps we will have more of a competitive marketplace. How can doctors compete as long as they take third party payment based on rigid procedure codes and eg. the CMS or BCBS fee schedules that is uniform for massive service areas? Another challenge is the moral hazard from 79% (not my number but the idea is right) of individual dollars that are spent above the HSA minimum deductible. Incentives to the insured is the missing link to bringing pressure to bear on [hospital] prices above the deductible, and entrepreneurship is certainly the missing link that will prosper this idea.

    Steve Bassett

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