people keep and sustain their health. The problem is that the current system is poorly organized to fulfill this goal. Our institutions are neither motivated nor capable of doing this effectively.
The third factor, which is a bit of a sleeper and may put me at odds a little with Dr. Goldsmith, is the importance of capital in building competitive systems. I believe capital has an important role, and the availability and distribution of capital will have an impact on which institutions are able to survive.
These factors will provide a tremendous challenge to many institutions but none as much as academic medical centers. These venerable institutions will be particularly challenged by almost a Malthusian kind of process and will need to reinvent, reengineer, and "right-size" (or downsize) themselves in major ways.
We are in a very dramatic period. Things are changing multidimensionally every day. Part of the challenge that faces many institutions is a schizophrenic one of dealing with a world we know is moving in a different direction while we still have to survive in the current world.
Let me now talk about some major changes affecting institutions. I want you to be aware not just of the nature and direction of these changes that are occurring, but of the schizophrenic situation in which many providers or institutions find themselves in dealing with these shifts.
The first change is with respect to payment. We have moved from a fee-for-service environment to one influenced by DRGs, and now to one markedly increasing capitation. Because capitation represents a 180-degree change from fee for service, many institutions are wondering what to do in the process.
The second is the kind of outcomes that are desired. In the past we have expected people to provide treatment for sickness. Now we also are concerned about outcomes, which is to say the outcomes of care applied to a particular event or episode of illness. We are moving, as a result of capitation, more and more in the direction of the sustenance or management of health.
The way providers have measured desired outcomes in the past is to simply count the services delivered and be paid for the number of services provided. The new system is dominated by price—who can offer a benefit package at the lowest price?
In the future we are headed toward a system in which buyers will be seeking value. Value is quality divided by cost. The problem with value is that most people assert that they provide it but offer very little proof. As a consequence, when you say to most purchasers of care that you provide high quality or high value, they do not pay much attention because they feel that providers themselves do not know either relatively or absolutely how much value they are providing.
Another major change is the growing influence of purchasers at the expense of providers. Insurers, however, will maintain some leverage as well. Here I want to take issue with one point of Dr. Goldsmith's—the trend of risks flowing downstream from insurers to providers. If you look at what is happening in California, the insurance companies who now have a lot of market power are downloading risk, but very selectively. They are doing so because