The Big Barrier to High-Value Health Care: Destructive Self-Interest

In the mid-Atlantic region of the United States, an effort is under way to get insurers, providers, employers, and unions to cooperate in creating a system that can reduce total health care costs and premiums while achieving better outcomes. Our organization — the Institute for Healthcare Improvement — is assisting because we believe that this kind of regional initiative is the most promising way to move the U.S. to a system that achieves the “Triple Aim”:  better care for individuals, better health for populations, and a lower per capita cost.

Because the effort is still in the early stages, the parties are not ready to be identified. But we can say that the largely low-wage, multilingual workforce in question has had to give up pay increases in recent years in order to cover the rising cost of health benefits. This prompted a local labor-management trust fund to begin to consider a new approach: one in which players in the local heath care system address the challenges from the perspective of their region as a whole. To this end, they are using data about costs, outcomes, and practice patterns to identify underlying problems and create new system solutions. This article offers a framework that players in other regions can use to cooperate and fix their own health care systems.

Not surprisingly, it has not been easy for the organizations involved in the mid-Atlantic region to make progress.  A collaborative project with a health care provider to tackle patients with complex illness has had an uneven course, with some early wins offset by relationship challenges. A coalition with a local employer has been formed, but it is taking time to develop an implementable model of something truly new. Each small success, however, is helping to build a foundation for a system that will focus on the people who should matter the most: workers and their families.

One of the best-kept secrets in the United States is that workers pay almost all of the costs of their health care. They do so through employee contributions to premiums, out-of-pocket payments for services, a shift of compensation dollars from wages to benefits, and state and federal taxes such as the payroll tax that supports Medicare.

But instead of serving workers’ best interests by trying to give them the best care at the lowest cost, insurers, providers, employers, and unions act like adversaries. Insurers leverage their purchasing power to exact discounts from providers and their administrative power to reduce benefits. Dominant providers leverage their market position to raise prices independently of cost or quality. Employers leverage their power in labor markets where workers have limited job options to extract higher deductibles and out-of-pocket payments from employees. Unions, which now represent a tiny share of American workers, resist to the extent they can.

The numbers spell out the sorry result. On average, family premiums and out-of-pocket costs are about 40% of median household income (and even more if the payroll tax for Medicare is included). Meanwhile, health care outcomes for the population as a whole are improving at a rate far slower than premiums are increasing. This continuing transfer from wages to health care does not reflect better value for money.

To get on to the pathway to lower total costs with better outcomes like the parties involved in the mid-Atlantic region are trying to do, players in other regions must understand that they are in a common system with a common pool of limited resources and that separate, zero-sum strategies are destructive. With that in mind, they must seek four changes.

1. Establish Common Goals

The goals should reflect the Triple Aim articulated by the Institute for Healthcare Improvement — again, better care for individuals, better health for populations, and a lower per capita cost. Each should be measured, reported transparently, and tracked over time. The metrics of per capita cost should include health care premiums paid directly by the wage earner and indirectly by the employer from the compensation pool as well as payroll taxes to support Medicare. Goals should include a mutually agreed distribution of the risks and benefits of cost reduction among all actors.

2. Build Trust Among the Actors

Lack of transparency stifles competition based on real value and encourages leveraging strategies. Shared measurement systems and unprecedented and complete transparency about costs and outcomes will help build trust among former adversaries. Key to trust is an agreement in advance on consequences when cost and outcome goals are not met. This is hard work and failure will happen; therefore, it is essential to test ideas on a small scale and increase the scope of the system change as trust builds and we gain confidence.

3. Develop New Business Models

All actors will need to develop business plans compatible with the agreed premium-reduction goal to allow everyone to succeed in a system that costs less. Such plans may include revenue enhancement by attracting more patients or members from competitors; sharing savings; increasing productivity through care redesign that allows more people to be helped with the same resources; and contributing to non-health-care jobs and economic development to sustain or grow the pool of commercially insured patients.

4. Define the Respective Roles of Competition and Cooperation

Both competition and cooperation can help but only if each is used where appropriate. Cooperation should dominate in goal setting, administrative simplification, measurement and transparent reporting of costs and outcomes, community-based prevention, public education, learning systems for care innovation, and planning of elements of care for which it is technically best to have only one supplier.

If costs and outcomes are transparent, competition among some clinical specialists, chronic-disease-care managers, and highly specialized services may be a good thing. But in the many communities that have and need only one dominant health care system anchored by a hospital, it is far better for the players in the region to focus on improving the design of the overall system and reducing premiums through cooperation than attracting new (unneeded) specialty and tertiary care providers to enter the market. To make this work, it will take external pressure from employers and unions in the region to keep the health system focused on the Triple Aim.


Since wage earners finance care, they should receive the lion’s share of the resulting savings — in the form of increased wages, job security, or enhancement of non-health-care benefits. It is only fair that the new system not only provide better care at lower cost but also return the money saved to those from whom it came.

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Leading Health Care Innovation
From the Editors of Harvard Business Review and the New England Journal of Medicine

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