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Part 3: Blue Ocean Medical Center

Part three in the series of our famed fictional hospital as it tries on alternatives to the status quo in healthcare. Let it continue to inspire you to think and act a bit differently and engage with me to find a greater truth. For the extended introduction and parts one and two (‘Hospital without a Home’ and ‘Cells instead of Structures’), please follow this link. Still to come in the weeks ahead: When Prediction meets Precision, Evidence Based Only Please and the Ultimate Medical Mall.

Introduction The mirrored-window facade of Blue Ocean Medical Center, or Blue Ocean Med, only just catches the watery October sun as it sinks below the city skyline. Situated between the edge of a mid-size city and the Atlantic Ocean, Blue Ocean Med is a hub for regional healthcare. The hospital aims to serve the regional community on all relevant aspects of specialist care, offering all regular diagnostics and surgical interventions as well as prevention programs, radiotherapy, e-health and research and development. A truly wonderful organization and a wholly unremarkable general hospital. It is actually almost identical in organization, size and offering to both of the two nearest general hospitals. These also deliver, in about equal measure:

Extensive high-tech facilities

  1. A comprehensive care offering

  2. Fee-for-service

  3. E-health

  4. Qualified and caring personnel

  5. R&D and cutting edge medicine

Blue Ocean Med, like all general hospitals, is struggling with issues of quality, cost and profile. In order to stand out, they know they must make some fundamental changes. But how? What can they do differently with real impact? Can they afford to? And how can they do this without doing the exact same things everybody else is doing?

BOM Three : A Shareholders’ Hospital

How on earth did Blue Ocean Medical Center end up in a fee-for-service environment? Even more importantly: how the hell are they going to get out?! Leaving yet another fruitless bout of negotiating with insurers and local government, the CEO of our seaside general hospital is fuming. How are innovation and ready access to affordable high quality care going to come about when all involved are primarily interested in price times quantity? How was it ever a good idea to start saving cost by putting incentives in place to produce more and more? Key-in ‘fee-for-service’ on your I-pad and this is what you’ll find (Wikipedia):‘ Fee-for-service (FFS) occurs if health care providers receive a fee for each service such as an office visit, test or procedure. It creates a potential financial conflict of interest with patients, as it incentivizes overutilization and treatments with an inappropriately excessive volume or cost.‘ Dead right. And because most patients are insured and do not directly feel the cost there is very limited push back to the production itch. This raises the question if ready access to affordable healthcare can be attained by a market model based on FFS. There are both ethical and practical reasons for Blue Ocean Med to start looking for alternatives.

Affordable solidarity

Let’s get ethical first. A regular marketplace functions under three conditions (among others):

1: customers able to make a choice

2: the availability of choice

3: some form of price-elasticity

First –and let’s be honest- most customers (patients like you and me) don’t know the first thing about medicine. One simply doesn’t bridge the gap of many years of medical training, specialization and experience with a Google search.  No matter what the websites and app-builders tell us. So what do we base decisions on? Then there is the fact that when we are patients, we are by definition not in the best shape to make great decisions. The very definition of illness revolves around the lack of control one has over one’s life (Huber).

Second: even if we areable to tell the difference between healthcare providers and their proposed services -and admittedly in some cases we are- there ought to be some excess of supply versus demand to yield freedom of choice. There is no such thing. The demand for affordable high quality care is limitless. Ready access to it is not. Try and get spinal surgery for your daughter or your parent into a nursing home and find out. Of course there is self-medication, low complexity care and foreign or private options. But these are either impracticable or unaffordable. Third is price-elasticity. In a market supply and demand vary with price, right? Supply goes up, price goes down. That sort of thing.

Now, how does that translate to a situation when we are so seriously ill that we need the services of a general hospital? We don’t have that live-saving stent placed this month because prices are way up? On the other end of the spectrum; there is no limit to what parents will do or pay for the health and security of their child. So price in many cases is actually quite meaningless. It is a failed attempt at controlling cost. Healthcare is fundamentally about solidarity. A market is not. That’s all about supply and demand which inevitably leads to contradicting interests and contention.

Aligning incentives

Popular hybrids are pay-for-performance or value-based healthcare schemes. The proposed ideas are excellent. But they will not achieve the promised breakthrough because the theories do not depart from the fundamental market paradigm. They basically propose checks and balances to a fee-for-service market by adding performance and outcome measures. Years ago, when the CEO of Blue Ocean Med visited healthcare systems in Barcelona Spain, he happened upon a particularly interesting story. It was about the transformation of the former Barcelona Hilton into a general hospital in the late 1970’s. This in itself was a fun and highly practical move. Really remarkable was the finance scheme the hospital adopted. Patients and professionals were actually joint shareholders of the thing.

Based on this share and an annual fee, patients received any medical treatment from the hospital or one of its partners. Truly basic medical services were provided by the government. The annual fee of the hospital depended on the financial results of each year. In this set-up connection between patients and the hospital increases and incentives are fully aligned toward keeping everyone healthy at the lowest cost.

Outcome or effort?

This set-up sounds very much like the vertically integrated managed care consortia of today like Kaiser Permanente, only much much smaller in scale. These bigger consortia report impressive cost savings of over 40% (!). In Blue Ocean Med’s case, it is just the local hospital and their regional partners, so the cost savings will be less. But after adopting the shareholder structure, Blue Ocean Med found that when patients have greater access to their physicians and physicians have more time to spend with patients, utilization of services such as imaging and testing decline. With mutual alignment toward sustaining affordable health instead of efficiently delivering/receiving fixed-fee procedures, an environment is created where doing the right things right, first time, every time now reigns supreme. This alignment and sense of shared ownership even helped positioning patients and their families on more level playing field with Blue Ocean Med’s professionals.

And all of this could be implemented right away. No more moronic negotiations, no more perverse incentives, no more failed attempts to let a market do a doctor’s job. With the shareholder structure, competition with other hospitals for this Blue Ocean Med is limited to competing for the best patient outcomes at lowest cost instead of delivering the most clinical procedures at the lowest price.


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