Bernard Tyson, Kaiser Permamente CEO, Argues That The US Health Care Industry Should Re-Focus On Prevention We spend immense resources treating diseases that could be prevented. The "fee for service" model does not help save any money

By Paolo von Schirach

October 16, 2013

WASHINGTON – Whatever the eventual fate of Obamacare, let’s be clear that this law is not “health care reform”. It is “health insurance reform”. It is a noble effort to allow millions of uninsured to finally get into the system, while eliminating various obstacles to obtaining insurance. Now insurers are obliged to cover people with of pre-existing conditions.  And this is a good thing.

Not health care reform

That said, Obamacare, while it claims that it intends to make health care delivery more cost-effective and in the end cheaper, does not attack the structural problems that have created the most expensive and least efficient health care system in the Western World. America spends an astronomic 17.5% of GDP on health care. Obamacare may do  something to reduce this amount; but not much.

Fee for service

But why does medical care cost so much in America? Ironically, it is because of health insurance. Yes, the combination of self-employed doctors setting their own fees and patients covered by insurance, produces health care inflation. In America physicians make money only when they “do something” to their patients; while patients are passive in this process, because most of them do not pay out-of-pocket for whatever their doctors prescribe. 

And there is more. From the standpoint of economic incentives, American doctors have no interest in promoting prevention and “wellness education”. The fact is that doctors do not make any money when their patients are well. They make money only when they are sick.

The Kaiser Permanente alternative model

Well, there is another model, in America. If one day there will be some sanity (of the mental kind) we will wake up and decide that this alternative is much better for the nation. Kaiser Permanente is one of the largest health maintenance organizations in the US. At Kaiser, doctors are salaried employees. Kaiser wants to keep its costs down and so it promotes prevention and wellness. At Kaiser, a healthy patient is a good thing, in the same way as a safe driver is a good thing for a car insurance company. Kaiser’s members who stay healthy pay premiums; but they do not require expensive treatments.

In polite words this is how Bernard Tyson, CEO of Kaiser, described to the FT (October 14, 2013) the problems of the US care industry as he sees them: “I feel strongly that the fee for service payment system creates the wrong incentives because it is volume driven….And there needs to be greater emphasis on prevention, early detection and really moving the dollars upstream as opposed to a healthcare industry that is really faced with dealing with episodic care…Finally, we need to get electronic medical records, the ability to aggregate information, throughout the entire industry“.

Structural changes needed

So, there you have it. 1) Fee for service is a bad thing, as it creates the wrong incentives: such as over treatment and over prescribing, mostly just to increase doctors’ income; 2) We should invest more “upstream”. Teach people good habits. Yes, as boring as this may sound, healthy diet and exercise matter –a great deal. Obesity and type 2 diabetes cost billions, and yet they are totally preventable; 3) Finally, electronic records. Yes, it would be nice if the health care industry discovered IT, a tool that would help with more rational care delivery, while it would reduce the massive administrative costs that plague the industry.


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