Institutions and Health
Lawrence S. Lewin, M.B.A.
Chairman and CEO, Lewin-VHI Health Group
My topic this afternoon is institutions; however, it is important for me to say that I have a few qualifications. I am going to focus rather narrowly on institutions. In doing so, I am mindful that many other dynamics are at work in the health care field that I will not say a great deal about.
Like most revolutions, managed care is a powerful movement. Its ultimate consequences are unpredictable, which makes predicting the future difficult. In doing so I am reminded of a history professor I had in college, who, when asked if he would predict whether democracy would come to Eastern Europe said, "You want me to predict the future? Are you kidding? I have enough trouble predicting the past."
I cannot even try to predict where we will be in 25 years, in large measure because where we will be in 25 years depends very much on the responses of institutions in the nearer future. So my focus is more on what I think will be happening in the next 5–10 years; then perhaps we can speculate a little on where that takes us in the year 2020.
Let me begin with a brief summary of the major new forces that will affect the evolution and survival of health care institutions. The first factor is the ascendancy of the purchaser. In a recent conference sponsored by the Robert Wood Johnson Foundation, Lynn Etheridge and others talked about how we are headed for a period of competition that is largely a matter of purchasers' getting control from insurers. This theme comes up throughout my remarks.
The second factor is the shift in emphasis via capitation from providing medical services to sustaining health—from managing care to managing health. I want to make a number of comments about this. It has been said, and I agree, that we are not lacking the knowledge of how to do this. We do in fact have most of the technology and information that would enable us to help
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
they understand clearly that if you can manage against risk, you can produce enormous savings, and they do not want to give up those savings.
What we have told our clients is that there are primarily three things they should think about. (1) The bad news is that risk is coming to providers. (2) The worse news is that you may not be able to get risk when it does come because insurers will retain it. (3) The worst news of all is that you may get risk but not be able to manage it effectively enough to avoid losing your shirt in the process.
Another major change relates to mission-driven institutions, that is, those that provide services for which they get reimbursed but that also have other interests such as charity care or education. These institutions are today in a major crisis. Government is no longer willing to pay for their missions, and the market certainly is showing a decreased willingness to bear these cost subsidization burdens. Therefore, there is a serious question as to where the money for mission financing in the form of disproportionate share payments (e.g. indirect medical education payments) is going to come from in the future.
The final change is with respect to investment capital. In the past, institutions have been able to raise investment capital because they were using it to build facilities; these are easily collateralized and so institutions were able to get debt financing. Today, the things institutions need money for are less easily collateralized and require equity financing. Entities that do not have access to equity markets or do not have large endowments will be at risk.
I propose that provider institutions are going to have to take on this era of the purchaser in four ways: The first is that they are going to have to gain market power. They must do this to become indispensable to their markets.
The second is that they are going to have to develop more effective means of integrating hospitals and physicians and related physician networks.
The third is the need to internalize managed care in order to sustain health. Much of what has come to be thought of as managed care is an imposition of very blunt instruments external to provider institutions. I believe that in the future, successful institutions will have to internalize these processes if they are going to be able to document outcomes and manage health.
Finally, there will be a need to develop new sources of investment capital. Let me provide some details on these four points.
Gaining market power. If you remember nothing else, keep this important point and the one that immediately follows it in mind. Institutions that do not gain market power effectively will not be forces 25 years from now; they will be historical relics. Gaining market power is a positioning strategy designed to increase or regain influence with purchasers who will be the major buyers.
Institutions will need to gain control in several respects. The first is volume of services—access to covered lives; this simply means having the market share to produce the income necessary to support the institution, particularly when the teaching mission is involved.
The second is referral patterns. Being part of a system that has a lot of covered lives is not worth much if you do not see the patients needed to educate your students or to generate enough income to sustain the institution. In
bargaining with third parties, whether they are purchasers or insurers, the more bargaining power you have, the more you can lock up referral patterns. Part of the bargaining process is establishing price—prices that are high enough to support margin.
How does one establish this kind of bargaining power? Well, a word that Bob Derzon and I thought up a few years ago was ''indispensability.'' Making yourself indispensable in your community means that third parties will have to deal with you in an effective way.
Indispensability is relative to the market and local conditions. There is no one formula. A couple of factors are worth noting, however. The first is having sufficient size to be taken seriously and sufficient product differentiation for people to come to you rather than to others. The latter means that others will not be able easily to substitute their services for yours.
The second is competitive pricing along with cost control. Obviously, all other things being equal, and, in many cases, even if they are not equal, those who get to play will be those who can offer a competitive price. However, a competitive price does not mean much if you are not able to control your costs within that price. So the ability to control costs is absolutely essential.
The last factor is access to and control over primary care managers. I use the term primary care managers, rather than primary care physicians, advisedly. I do not believe that primary care managers need necessarily be primary care physicians. Many others could be trained to play that role, and they need not be physicians. Particularly as we move more and more toward managing health rather than just managing care, nonphysicians will play an increasingly important role.
Now, there are a lot of theories about the form that institutional structures might take. The most popular one, of course, is horizontal or vertical integration. In my view, neither horizontal nor vertical integration, aside from the need to be a certain size, is essential to achieving increased market power or indispensability. At times, in fact, these can be counterproductive.
The acid test in any merger or consideration of a partnership should be whether it will make you more indispensable according to the criteria I have just described. In that regard, while much is made of economies of scale, if you are going to make an effort to integrate either horizontally or vertically, it is important to ensure that real cost reductions and downsizing are achievable and to agree on them in advance. Some enterprising researcher at the Federal Trade Commission went back and looked at various institutions several years after mergers had been approved that promised great savings, and found that virtually none of the savings promised in order to avoid antitrust violations had materialized.
What our firm has been recommending to our clients is that they build such agreements into the letter of understanding or the final document. Although that makes the merger process more complicated, to achieve real savings there must be some agreement up front.
In a recent paper, Dr. Goldsmith pointed out some reasons it is so difficult for hospitals to downsize. Even when mergers take place, they do not down-
size very frequently—often because of internal constituencies. The future is going to demand significant downsizing. Studies we have done project reductions of 30-50 percent in inpatient care. Institutions that do not effectively downsize are going to be doomed in part because of the cost burden, but also in part because they are at such a disadvantage in trying to negotiate with insurance companies.
It is quite possible that ownership, which is viewed as an increased form of control over cost and over quality, could actually be counterproductive for purposes of downsizing and achieving innovation.
When our firm takes a preliminary look at a proposed merger of two hospitals because of the need to downsize, I sometimes think about the late Arthur Okun's quip about the two hikers confronted by a grizzly bear. Says one hiker to the other, "I don't have to outrun the grizzly bear; I only have to outrun you." Instead of trying to prop up this other institution by merger, why not simply let it fail so that you can have its patients? I think this is the way the market dynamic is beginning to work, although there is much resistance to it. The point is that if you are going to merge to improve your position in the market, you must have a clear agreement that downsizing will occur. Increasingly, we are finding merger candidates recognizing that they have to do just that.
Now, another strategy for institutions is to integrate upstream, or to integrate backward, and offer insurance products. Indeed, Medicare legislation proposed in both the House and the Senate would confer some advantages on provider organizations in actually becoming health plans and offering their services. These provisions are potentially very attractive for moving in this direction.
Intermountain Health Care (IHC), on whose board I serve, is one the first systems to do exactly that. I have been able to see the tremendous benefits that have accrued. Interestingly, the benefits are not only economic. IHC gained a strong market position. It is making money on its health plan and is protecting its market. The need to manage care effectively to compete in a very competitive market has forced IHC to bring physicians to the table and find ways to manage care more effectively. This requires managerial skills and financial reserves that most providers do not have. Indeed, the financial requirements to sustain risk and offer an insurance product can be a severe drain on capital that perhaps could be used for better purposes.
Another issue that tends to come up in these discussions is the issue pertaining to broad geographic coverage. Some of our clients in New York, for example, are trying to build broad networks, acquiring as many hospitals and physician groups as they can, under what I believe is the benighted assumption that this will give them a stronger position in the market.
There is, however, another point of view here that needs to be understood if institutions are going to respond productively rather than just follow the latest fad. That is, insurers, HMOs, and other bulk purchasers are not necessarily drawn to institutions that have broad geographic coverage because they can often "cut a better deal" on their own. They would view an all-or-nothing
package as a disadvantage. If that is the case, why go to the effort to build a broad package in which everyone has to be included?
Obviously, strength in the market is an issue. If you are going to integrate backward and become an insurance plan, it does make a difference. If the rest of the country begins to move in the direction of the Twin Cities, with direct contracting by purchasers with providers, that kind of a system might make sense. However, in my view, too much is being made of broad geographic coverage. Such a strategy, if not well thought out, can become a tremendous consumer of management energy and capital.
The next point is the importance of integrating caregivers and facilities effectively. Purchasers are going to favor organizations that can integrate financial accountability and clinical autonomy. This is a critical point; it is the essence of Dr. Goldsmith's earlier comments with respect to taking risks. The point is that up to now, most financial accountability has been imposed externally, and has been a very sore point with physicians in particular. If physicians are going to regain their clinical autonomy, autonomy that they now find threatened by outside institutions, they will have to embrace financial accountability; otherwise, others will assume that role.
In the future, physicians will be less autonomous as individuals. Indeed, the solo practice or small group practice of single-specialty physicians is probably a thing of the past. As that happens, physicians who are bright and entrepreneurial will form new organizational structures to seek economic and managerial power. Along the way, many of them will find themselves responding to the offers of for-profit, investor-owned companies. I believe that in the process of doing so, they will get a fair amount of money and be able immediately to monetize their income stream. However, as these systems form they are going increasingly to become counterforces to effective integration of services. Over time, therefore, these arrangements probably will not remain robust and will begin to disintegrate. Unless these organizations form other strategic alliances that I believe are necessary—they will not by themselves become a major force for going forward. As an aside, hospitals, and even academic medical centers, will also be responding to some of these for-profits. I discuss the capital part of that shortly.
Hospitals will have to redefine their notions of governance and economics if they are to really create a common destiny with physician groups. This is more than just a virtual versus a formal system. It has to do with allowing physicians to play a role in governance, as well as a share in the gains of the ongoing enterprise.
The next point has to do with internalizing managed care or achieving managed health. Here I think we get back to the point raised earlier about risk sharing and information sharing. Capitation basically rewards systems of care that can sustain health. Why hasn't that happened right now? Well, first of all, we do not have a lot of real capitation. Secondly, the issues of risk selection and turnover have removed the rewards for institutions to attract and manage people with the chronic diseases that are most susceptible to health maintenance or health sustenance. As we solve these problems of risk selection and
turnover, I believe that capitation will become a powerful engine in moving us toward sustaining health.
As I have said, we are very poorly organized to do that. Providers are not rewarded for keeping people healthy. The payment system does not support that absent capitation. Few HMOs have therefore seriously pursued it, making their money instead on provider discounts, control of volume, and risk selection.
Few physician groups have the personnel, the information systems, or the financial incentives to do it, but there are exceptions. Friendly Hills is one example of a 150-person physician group that has developed many internal protocols designed to sustain health. Interestingly, it arrived at those protocols largely by looking at what high-cost items were beginning to eat into its profits.
The priority of sustaining health and health maintenance is probably going to await a time when purchasers really demand outcomes data. At that time we will be faced with a scarce supply of primary care managers—people who are trained in helping people change their habits and in caring for people with chronic conditions that need more careful monitoring.
The real leverage here will come from the wider use of telecommunications technology, telemetrics, and telemedicine, which I have for some years believed to be the most underrated technology in health care. This technology will become absolutely critical if we change the paradigm to one of managing health—enabling us to reach the population in ways that support both educational monitoring and compliance with treatment regimens.
New sources of investment capital are important not so much because there is not enough capital in the system, but because the capital is distributed in biased ways. The way capital is distributed in the future will have a major impact on which institutions will survive.
Meeting the demands of purchasers and responding to all of the things I have mentioned relating to leverage in the market, indicate that for the time being, insurers may have an advantage over providers, given their access to capital and the systems and capabilities they have developed over time. This may change in the future. New capital requirements cannot rely on traditional debt instruments. Some new instruments are needed. We are probably going to have to turn to the investment banking community to come up with some alternatives, particularly for not-for-profit groups to finance reserve and other system requirements for provider service organizations, as well as for information needs.
Not all of these need be dramatic, "big-buck" kinds of strategies. They may be efforts that some associations can mount without the help of investment bankers. Whatever they are, if we are to move beyond debt financing secured by facilities, the investment community will demand greater focus and strategic preparedness on the part of benefit institutions, in a word, a lot more discipline.
Finally, we probably will be seeing a whole range of interfaces and new partnerships that will merge investor-owned and not-for-profit institutions. I think that this will be a surprise to many of us.
Now, some specific comments regarding academic medical centers. The challenges facing medical centers are obviously major. Academic medical centers will need to redefine their mission and structure in order to coordinate clinical and academic enterprises. Within many academic institutions there is tremendous tension between the clinical and the academic worlds. Many chairs are still academically oriented, interested principally in research and teaching, although they preside over departments that are required to meet the needs of the market and are not particularly oriented toward doing so.
There is a need to reorient both the clinical and the academic enterprises to achieve indispensability. This will require changes particularly within the academic community to support these clinical imperatives. It will also require some rethinking of the directions and shape of both teaching and research programs to see whether they should be coordinated with the new imperatives necessary to achieve indispensability in the market. This will require a very close look at the centers' teaching programs to see whether they are focused and to determine whether their research portfolios are consistent with the strategic orientation of the whole academic medical center.
Obviously, moving away from tertiary and quaternary care to promoting wellness, and the financial incentives this requires, will be enormous challenges. They probably will not be accomplished within the academic medical center alone, but will require partnerships with other groups.
Information systems must not only manage health but also have the ability to demonstrate value. You must be able to have systems that support the notion that you are doing a better job than others.
Downsizing capacity is going to be critical. To some extent it will be necessary on the clinical side, but it will be especially true in teaching and research.
There will have to be a reincarnation of academic departments, which I believe generally are poorly organized for the purposes that the future will demand. First, academic departments must be reincarnated as parts of group practices, rather than the silo system that currently exists. Then, the programs offered to the public must be market responsive, which means that they probably will have to be interdisciplinary—a real challenge for traditional academic medicine. This will be a major change, and some schools are already taking it on.
Finally, there are the historical, often pernicious town–gown conflicts that many academic enterprises will have to address as they seek to become community providers. The arguments on both sides are solid and have enough merit not to be ignored, but they must be overcome.
To meet all of these challenges, academic medical centers are going to have to develop structures that are strategic, decisive, yet constant to their important mission and core values.
The traditional academic structure has been characterized by one of my colleagues as based on the thousand points of veto. That is quite appropriate in many academic settings, but it is not very helpful when you are trying to respond to the market.
In some cases, these new realities will mean separating clinical enterprises from the university and from their state ownership. In many cases we may see a trend toward separation of the clinical parts of the academic medical centers from the medical schools, which will be less compromised in their mission. In any event, there is going to be a lot of change.
Academic medical centers are going to have to deal realistically with the leaner diet that major public and private purchasers have ordered for them. Purchasers are increasingly unwilling to pay the premiums they are asked to pay to support medical education. In that regard, it is important for academic institutions to recognize that Americans and their governments have other pressing priorities to support; therefore, their dependence on government for support is going to be limited.
Two more points in summary. To succeed, academic institutions are going to have to abandon the culture of paternalism and arrogance that makes it so difficult for them to form partnerships with lesser parties. I say that not so much to be critical but as one who has great affection for, and many clients among, academic medical centers. Nevertheless, academic medical centers must face up to this statement because it is true.
Finally, I am not prepared to condemn academic medical centers as dinosaurs. I believe they have tremendous advantages that can put them in strong positions. They perhaps have the greatest ability to create the technologies that will make a real difference in the nation's ongoing endeavors to combat serious illnesses. Close relationships already exist between physicians and hospitals. Academic medical centers command high regard and loyalty in their communities as flagship institutions. They have strongly dedicated to values. Many of them even have large endowments. By facing the challenges of trying to increase their market power, academic medical centers can go a long way toward surviving in the new environment.
Institutions and Health: Response
Robert M. Carey, M.D.
Dean, James Carroll Flippin Professor of Medical Science, and Professor of Medicine, University of Virginia School of Medicine
My charge is to present a personal vision of health-related institutions 25 years from now and to project the resultant changes in health. I shall confine my remarks to the institutions I know best: academic health centers.
As Mr. Lewin suggests, academic health centers are especially vulnerable to external forces in a rapidly evolving health care system. The system is struggling to balance the demands of employers and insurers, the needs of the public, institutional traditions, professional values, available resources, market pressures, and consumer choices.
In many ways, academic health centers are anomalies within market-driven managed care systems. Managed care anticipates that the majority of health services will be devoted to routine patient care in a relatively healthy population. Managed care systems benefit directly from medical education, cost-effective technologies, and innovations in patient care. Under the current structures, however, they do not pay for them, nor do they pass on the costs to their customers in the form of higher premiums. In this respect, managed care systems at the moment are "free riders." These managed care systems and other market forces are making us look anew at some of the essential components of the health care system and who will fund them. Managed care begs the question, "Who will bear the costs of education, the development of new knowledge, and the care of the poor?" Certainly some of these costs were assigned inappropriately to revenues from clinical care in the past. How will academic health centers respond to these challenges, and how will they deliver health care in the year 2020?
INTEGRATION OF HEALTH CARE SERVICES
Academic health centers will be organized and operated so as to provide integration of health care services. At present, most academic health centers deliver health care in a fragmented manner. Medical schools and teaching hospitals have separate organizational structures that foster duplication and asymmetry of work processes, lack uniform service quality, have uneven and often competing incentives, and entail little or no alignment in a shared vision. Inpatient services usually are supported by the hospital; outpatient services, by the medical school clinical departments. Physician care is provided by these departments along traditional medical disciplinary lines. The clinical departments function as independent financial centers, usually with high priority on the departmental bottom line. The organization as a whole receives less attention. There is insufficient resource sharing for the benefit of the entire institution, and decisions entail a multiplicity of steps and opportunities for veto.
In order to address market demands for cost-effective coordinated health care services, academic health centers will have to revise their approach. They must place the patient at the center of attention. Institutions will have to ask themselves, "What are the patient's perceptions each step of the way?" Academic centers will have to develop integration of the various components of health care centered on the patient. Physicians who are members of the medical school faculty will have to work collaboratively with their nonphysician colleagues, especially in nursing and administration. For example, program-oriented interdisciplinary service centers (e.g., cancer, cardiovascular disease, neurosciences), involving physician and nonphysician staff, could be created. Service centers would be oriented to the best way to deliver care to patients. In this model, the physician (medical school) and nonphysician (hospital) leaders could share responsibility (and possibly budgets) for contracting all in- and outpatient care within the service center. Physician and nonphysician teams could be created to ensure collaboration throughout the organization.
The service center would be responsible for standards of care, collaboration in care, resource allocation, program themes, and physician manpower. Under this model, academic departments would continue to exist, but health services would be organized around interdisciplinary service centers supported by the departments. In some instances, there may be complete congruence between department and service center; in others, multiple departments will be involved in a service center. Details of organization and governance will differ among academic health centers. I predict that most of the centers that survive will have created an integrated clinical enterprise with smooth interface among the academic departments, their clinical practice plans, and the teaching hospitals. Academic health centers will function more as unified entities, some with full asset merger, in the care of patients.
Academic health centers will extend themselves outward to patients and populations. Many academic health centers have insulated themselves as "ivory towers" or have become "courts of last resort" for complicated or severely ill patients. The patient was placed in the position of having to visit many different subspecialists, each focusing on different aspects of the same problem. Under managed care, subspecialists will be encouraged to move toward the patient. They will become involved early in the care provided by the generalist. Generalists and subspecialists will work as teams. The team will try to prevent a subspecialist office visit or to recommend either the most appropriate, cost-effective applications of specialized technology or hospitalization. In the ambulatory setting, doctors will see patients in one location whenever possible. This will lead to maximally efficient, effective, and timely care.
Successful academic health centers will work with other network providers to respond to a diverse set of health needs that move beyond the walls of the traditional academic health center. The framework will have to be expanded to contain two legitimate and equal foci of attention—the patient for whom we care and the population for whom we are responsible. The needs will include wellness, nutrition, hospice care, home visits, home monitoring, home therapy, and rehabilitation. Advances in technology will create new and cost-effective ways of shifting from inpatient to ambulatory to home-based care. Home chemotherapy and the teaching hospice will be legitimate activities of academic health centers. Academic health centers will be concerned with the health of the entire population they serve. Together with their networks, academic health centers will concentrate on prevention. Centers also will contribute to the assessment, mitigation, and prevention of the impact of environmental hazards on health.
Academic health centers will extend themselves to patients and populations by telemedicine, health informatics, and other efficient methods of communication. These methods will be used for consultation, patient information transfer, patient self-learning, home-based care, continuing medical education, clinical outcomes research, and analysis of the cost and quality of care. In these practice areas, academic health centers will make major contributions to all health networks, especially in medically underserved inner city or rural areas.
NEW HEALTH CENTER PARTNERSHIPS
Academic health centers will engage in new partnerships in health care. Successful academic health centers of the future will develop partnerships: (1) Partnerships with generalist physicians, because they can help preserve patient flow; and (2) partnerships also with diverse elements such as nursing homes, pharmacies, health departments, free clinics, pharmaceutical
companies, and information technology businesses. Academic health centers will be viewed in a dispersed model. They will be seen as dynamic partnerships with other elements of the health care system. These new linkages will better serve the public need. They will open the door for new opportunities, especially in health services research oriented to population health. The academic health center will change from a relatively self-centered, independent academic model to a "cooperative culture." It will recognize that interdependence is a higher order of principle than independence. Centers will become full partners on behalf of the health needs of society.
Academic health centers, as well as the health system at large, are struggling with the medical, economic, social, political, ethical, and legal issues surrounding the current revolution in health care finance and delivery. Observers perceive the changes and their future implications in disparate ways. At one end of the spectrum, those longing for the "good old days" in medicine envision the health care system of tomorrow as sterile. They foresee large integrated networks seamlessly moving patients through "vertical and horizontal layers of care" in a cost-effective manner. They predict strict regulation of the use of pharmaceuticals, diagnostic tests, clinical services, practice patterns, and benefit packages. One imagines a kind of Orwellian production line of health care. Under this model, practitioner and patient widgets represent industry outputs, with competing private insurers fueling the enterprise. The emphasis would be on the system of care at the expense of the individual.
At the other end of the spectrum, free-market economists observe the current maelstrom in health care as a market self-correction. Competitive forces will be wringing out waste and demand from a supply-heavy commodity. They envision a transformed health care system with balance in physician supply and levels of services regulated by individual consumer demand. The power of the individual purchasers—the patients, or their employers, or corporate proxies—would ensure quality and cost-effectiveness. Unfortunately, under this scenario, many of the value-added participants in health care (e.g., medical researchers or educators) would decline as the invisible hand of competition squeezes the profits and subsidies that sustained them. Without these investments, the entire enterprise would suffer or perhaps fail.
The health care of the next century will probably fall somewhere in the middle of these extremes. It will be neither totally automated nor market driven. The current cross-subsidies and patchwork of services to assist those outside the mainstream of insurance, I predict, will eventually drive us to national health insurance.
Will we be a healthier society? There is every indication that we will be healthier as we understand the genetic and epidemiologic basis of disease and incorporate preventive strategies for the public.
Will we have someone to whom we can turn for compassionate care? The ''soul'' of health care is the physician–patient relationship. This must be preserved as we experiment with organizational structures and practice patterns. Ethical conflicts, moral tensions, and financial concerns arising from conflicts of interest should be between physicians and administrators, never between physicians and patients. To be sure, physicians must meet the needs of society to reduce and stabilize health spending, but our highest calling is to respond to the needs of our patients and, indeed, of mankind.
DR. SMITH: Dave Smith, from Texas, where I'm commissioner of Health. I may have missed a question earlier—about the model of community-oriented primary care, which we have been tinkering with for some time at Parkland in Texas. Do you see a potential for resurgence and some interest in this model that describes a lot of what we have talked about here today?
MR. LEWIN: Yes. Community-oriented health care has been an important part of all of this. I think we are seeing a great acceleration of interest in it as Medicaid moves more and more toward managed care. Although the absence of an appropriate financing system has been an obstacle, that by itself is not going to solve the problem. We need technology. We need people trained in that.
The only caution I would offer is that sustaining health in those populations probably will be the greatest challenge of all. The failure of those organizations to be effective in managing health should not be taken as a reason not to extend community-oriented health care elsewhere because the poor and the elderly represent the greatest challenge. That is certainly a major issue.
DR. BLUMBERG: Baruch Blumberg from Philadelphia. From what we have heard from Congressman Porter, the discussion of the future of the academic health centers, and the total market orientation that is proposed, there seems little future for scientific medical research and, in effect, a declaration of resigning from that post. That may decrease scientific arrogance in this country, but it would also take us from the position of leadership that we have enjoyed for the last several decades. With the disappearance or decrease in academic scientific leadership, technology—which so much is dependent on—will be late in coming.
DR. CAREY: There is no question that the academic missions of academic health centers are under threat, both the teaching and the research missions. However, there is some hope. First, in an integrated model aca-
demic health centers can pool all of the resources available and make them available for research and teaching. Second, creativity needs to be exercised in decisions regarding the flow of funds from the clinical toward the academic enterprise—funds not only from revenues, but also from increased efficiency in patient care can come into the equation. Under these circumstances, significant financial resources can be plowed back into the academic mission.
In addition, I cannot overemphasize the importance of educating the public on the value of biomedical research so that a substantial constituency will be behind the NIH and other research funding sources.
MR. LEWIN: I do not think for a moment that this country has lost interest in scientific inquiry. What we are hearing is that the level of resources available requires a very careful analysis of whether the resources being consumed are in fact productive. The suspicion is that there is room for more efficient use of those resources. I know this is always a problem in dealing with science. I think that there is a great deal of unsponsored research that probably is justified more by the tenure of the faculty rather than the value of the research. At least, that is the perception.
DR. FEACHEM: I was very struck that Mr. Lewin's and Dr. Carey's presentations did not contain a single reference to any other country, which I thought was quite notable. In terms of some of the recurrent themes—purchasers, contracting, capitation, and academic medical centers—it did strike me that a country I know well has quite advanced purchasing authorities in both the private and the public sectors. They are funded through weighted capitation, with which there is much experience. The contracting functions are now fairly well advanced and elaborated.
In terms of academic medical centers, having run one for a number of years, I can attest that rampant democracy does not reign and that there are not a thousand points of veto in the way the United Kingdom runs its academic medical centers. In making these contrasts, I do not want to particularly draw attention to the United Kingdom. I want to make a more general point about international comparisons. Lest it be thought that the United States is perhaps insufficiently comparable to some other OECD countries, it is good to bear in mind two factors: First, most of the rest of the OECD buys better health status for its population at about 8 percent of gross domestic product (GDP) than the United States does at 15 percent of GDP.
Second, compared specifically with the United Kingdom, the amount of public funds that the United States invests in health care, both in dollars per capita and as a percentage of GDP is larger than the amount of public funds that the U.K. invests in health care. So your publicly funded system is larger than the U.K.'s. I think international comparisons can very much fertilize these debates.
DR. CAREY: I agree.
DR. LEWIN: We have much to learn. I think much of what other countries are learning from the United States they learn by observing some of our failures. Although some of the techniques that we are now beginning to move toward may be instructive and helpful to some other countries that are moving away from purely publicly funded systems.