Jeff Goldsmith:

The Economics of Community Building for the Healthcare Industry


This article was published as part of the Healthcare Forum's Healthy Communities Action Kits, Module 3, in 1994


Joe Flower:I asked health futurist Jeff Goldsmith at what point spending money and time building healthier communities will become economically imperative for the healthcare industry.


Jeff Goldsmith: If you're in the hospital business, if you define your business as filling up a building, then taking part in the healthier communities movement makes no sense. It's just noblesse oblige. If you're a cardiac surgeon, if you make your living doing microvalve repairs, then it makes no sense for you. It begins to make economic sense only when you're put at economic risk for the health costs of a population.

This perception will change. So far, relatively few people in the acute care business are at risk for a population. The key shift is from fee-for-service care to a capitated system. Only now, in last 18 months to two years, is this shift beginning to affect hospital's pocketbooks. In the past, most healthcare organizations were willing to concede Kaiser the dockworkers and the union guys. But the market can't be cut up that narrowly anymore.

Even now if you ask at Pacific Medical Center, "How much of your business comes from capitated payments?" They'll say, "Not much." But it's going to be a lot.

The architects of the Clinton reform are clueless hobbyists, but however we get to universal access, the new moneys from healthcare insurance reform will not come in the form of fee-for-service, but from capitated payments. Capitation will become a very significant fraction of everyone's business.

When that happens, simply managing hospital use is not going to lead to profits, or to growth. In order to manage their future, healthcare institutions will have to do something beside postponing acute inpatient hospital use.

And it doesn't much matter how much of the hospital's income is at risk. If there is an epidemic that generates a huge amount of health costs, you'll lose money whether you are 70% or 30% at risk

And it's going to hit everybody. Teaching hospitals are assuming they will be able to survive on the carveouts, on the exclusions for specific kinds of specialized care, the way the University of California at San Francisco has specialties in cancer treatment and the neurosciences. A lot of people are making the implicit assumption that they can survive on remaining fee-for-service. But I don't think that's going to be more than 10 to 15 percent of the population.

We are going to have to pay for choice. This concept underlies most healthcare proposals. Perhaps consumers will always be able to opt out of the closed-panel networks that are forming. But how much will cost them? A hundred dollars extra per month? A hundred and fifty?

A lot of doctors are already seeing a 30 to 40 percent reduction in gross. This accelerates change, creates chaos, and accelerates the formation of networks.

There will be a great competition to get patients, which people are used to by now. But then there will be an even greater competition to keep them out of your office, which is kind of counter-intuitive for most people.

People don't really believe yet they'll be at risk. People are kind of hunkered down, trying to get their doctors into the big tent, so when it starts raining manhole covers instead of frogs they'll be all right. I see a lot of defense, and not a lot of offense

But eventually the shift of incentives will force providers to think about how they can help build healthier communities. There is an immaculate logic to a population-based approach to health care. The current financing mechanism carries a huge opportunity cost to that goes away when you start looking at it based on populations. Once you change the incentives, it becomes pretty obvious what you have to do.

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