《卫生经济学》课程参考文献：11.J.D. Kleinke_Dot-gov market failure and the creation of a national health information technology system 2005

H IT POLICY Dot-GoV Market Failure And The Creation Of A National Health Information Technology ystem The market has failed to produce a viable health information technology system; we need government intervention instead. by」D. Kleinke ABSTRACT: The U.S. health care marketplace's continuing failure to adopt information technology(Im)is the result of economic problems unique to health care, business strategy problems typical of fragmented industries, and technology standardization problems com- mon to infrastructure development in free-market economies given the information inten sity of medicine, the quality problems associated with inadequate i t, the magnitude of U. S health spending, and the large federal share of that spending, this market failure requires aggressive governmental intervention. Federal policies to compel the creation of a national health IT system would reduce aggregate health care costs and improve quality, goals that cannot be attained in the health care marketplace OE WILSON, A THIRTY-EIGHT-YEAR-OLD software engineer from Pitts burgh on his first trip to Las Vegas, is feeling out of sorts as he walks into the ca- sino. The free drinks help his mood, and he discovers after his third that he has a serious gambling problem. At the casino's cage, where cash, credit card capacity, and creditworthiness are turned into chips, Joe liquidates the $6, 324 in his check ing and savings accounts and another $8, 121 from his credit cards. twenty hours and ten drinks later, this money runs out on the craps table, but Joe secures an other $24,983 in cash, which represents 40 percent of his retirement account and 30 percent of the equity in his home. The casino was able to find out this informa tion about him-as well as his marital status, the names of his last three employ ers, the number of years he has lived at his current address and worked for his cur rent employer, the lapsed status of an earlier life insurance policy and the pai status of another, and the absence of liens against his assets-in less than five min J.D. Kleinke(idk@omnimedixorg)is executive director ofOmnimedix Institute, a nonprofit health care research and information technology development organization based in Portland, Oregon, and funded by foundations, corporations, and private individuals and vice chairman of HealthGrades Inc, a publicly traded health information company based in Lakewood, Colorado, September/october 2005 DOI 10 1377/hithaff. 24.5.1246 o2005 Project HOPE-The Peopie-to-Pcople Health Foundation,Inc

H I T POLIC Y Dot-Gov: Market Failure And The Creation Of A National Health Information Technology System The market has failed to produce a viable health information technology system; we need government intervention instead. by J.D. Kleinke ABSTRACT: The U.S. health care marketplace's continuing failure to adopt information technology (IT) is the result of economic problems unique to health care, business strategy problems typical of fragmented industries, and technology standardization problems com￾mon to infrastructure development in free-market economies. Given the information inten￾sity of medicine, the quality problems associated with inadequate IT, the magnitude of U.S. health spending, and the large federal share of that spending, this market failure requires aggressive governmental intervention. Federal policies to compel the creation of a national health IT system would reduce aggregate health care costs and improve quality, goals that cannot be attained in the health care marketplace. J OE WILSON, A THiRTY'EiGHT'YEAR'OLD Software engineer from Pitts￾burgh on his first trip to Las Vegas, is feeling out of sorts as he walks into the ca￾sino. The free drinks help his mood, and he discovers after his third that he has a serious gambling problem. At the casino's cage, where cash, credit card capacity, and creditworthiness are turned into chips, Joe hquidates the $6,324 in his check￾ing and savings accounts and another $8,121 from his credit cards. Twenty hours and ten drinks later, this money runs out on the craps table, but Joe secures an￾other $24,983 in cash, which represents 40 percent of his retirement account and 30 percent of the equity in his home. The casino was able to find out this informa￾tion about him—as well as his marital status, the names of his last three employ￾ers, the number of years he has lived at his current address and worked for his cur￾rent employer, the lapsed status of an earlier life insurance policy and the paid status of another, and the absence of liens against his assets—in less than five min￾J.D. Kleinke (jdk@omnimedix.org) is executive director ofOmnimedix Institute, a nonprofit health care research and information technology development organization based in Portland, Oregon, and funded by foundations, corporations, andprivate individuals; and vice chairman ofHealthGrades Inc., apublicly traded health information company based in Lakewood, Colorado. 1246 September/October 2005 DOI 10.1377/hlthaff.24.5.1246 O2005 Project HOPE-The Peopk-to-Pcop/c Health Foundation, Inc

DOT.GOV ' If the state of u.S. medical technology is one of our great treasures, then the state of U.S. hiT is one of our great disgraces utes, based on his name and Social Security number. In twelve more hours, Joe has burned through the last of his cash. Then the chest pain starts Leaving Las Vegas. Joe is rushed to a community hospital a few blocks from he casino. He is drunk, dizzy, and disoriented and cannot give the emergency room (ER) doctors any information about his medical history. But he is able to produce a tattered insurance card from his wallet, which includes his Social Security number, listed as his"Member ID "The hospital's admissions clerk spends twenty minutes on the phone to confirm that Joe is indeed covered by the health insurer in Pitts- burgh and that she should collect up to $500 from Joe for his visit; but the insurer's "information specialist"cannot say exactly how much, because he cannot tell from the computer"if Joe has met his deductible yet that year. He can tell the hospital ning else about Joe---not his medical history, the names of his physicians, or any medications he might be on-because"the computer"has no other information about him. That information is "in the other computers Joe's condition worsens; the er physician diagnoses a heart attack and cribes intravenous metoprolol, a generic beta blocker. What she does not know that until a month earlier, Joe had been taking 20 milligrams per day of Paxil (paroxetine)for depression. But a month before Joe's trip to Vegas, his employer's health plan had switched to a new pharmacy benefit management( PBM)com- pany, which required Joe and his coworkers to fill their medications for chron onditions via mail order. One of Joe s doctor's three medical assistants had faxed the doctor's usual handwritten prescription for Paxil to the mail-order pharmacy The mail-order pharmacist misread the prescription as "Plendil, "a calcium chan nel blocker often used for the same purposes as beta blockers and commonly dosed at 10 milligrams per day but occasionally at 20 milligrams for patients with congestive heart failure Joe had been dutifully taking the medication for the past few weeks, walking around with dangerously low blood pressure caused by high levels of the unneeded medicine. Joe's depression had also been slowly, impercepti bly returning-hence his unusual appetite for alcohol, which lowered his low blood pressure even further, resulting in wooziness and cognition problems severe enough to render Joe vulnerable to the casino s temptations In the ER, the metoprolol does the trick within minutes of entering Joe's blood stream:His blood pressure plummets, he goes into cardiac arrest, and he dies HIT market failure. The underlying cause of Joe s death is health information technology(HIt) market failure. If the state of U.S. medical technology is one ofour great national treasures, then the state of U.S. HIT is one of our great national dis graces. We spend $16 trillion a year on health care-far more than we do on per sonal financial services-and yet we have a twenty-first-century financial informa- HEALTH AFFAIRS Volume 24, Number 5 1247

D o T - G o V "If the state of U.S. medical technology is one of our great treasures, then the state of U.S. HIT is one of our great disgraces." utes, based on his name and Social Security number. In twelve more hours, Joe has burned through the last of his cash. Then the chest pain starts. • Leaving Las Vegas. Joe is rushed to a community hospital a few blocks from the casino. He is drunk, dizzy, and disoriented and cannot give the emergency room (ER) doctors any information about his medical history. But he is able to produce a tattered insurance card from his wallet, which includes his Social Security number, listed as his "Member ID." The hospital's admissions clerk spends twenty minutes on the phone to confirm that Joe is indeed covered by the health insurer in Pitts￾burgh and that she should collect up to $500 from Joe for his visit; but the insurer's "information speciahst" cannot say exactly how much, because he cannot tell from "the computer" if Joe has met his deductible yet that year. He can tell the hospital nothing else about Joe—not his medical history, the names of his physicians, or any medications he might be on—^because "the computer" has no other information about him. That information is "in the other computers." Joe's condition worsens; the ER physician diagnoses a heart attack and pre￾scribes intravenous metoprolol, a generic beta blocker. What she does not know is that until a month earlier, Joe had been taking 20 milligrams per day of Paxil (paroxetine) for depression. But a month before Joe's trip to Vegas, his employer's health plan had switched to a new pharmacy benefit management (PBM) com￾pany, which required Joe and his coworkers to fill their medications for chronic conditions via mail order. One of Joe's doctor's three medical assistants had faxed the doctor's usual handwritten prescription for Paxil to the mail-order pharmacy. The mail-order pharmacist misread the prescription as "Plendil," a calcium chan￾nel blocker often used for the same purposes as beta blockers and commonly dosed at 10 milligrams per day but occasionally at 20 milligrams for patients with congestive heart failure.'Joe had been dutifully taking the medication for the past few weeks, walking around with dangerously low blood pressure caused by high levels of the unneeded medicine. Joe's depression had also been slowly, impercepti￾bly returning—hence his unusual appetite for alcohol, which lowered his low blood pressure even further, resulting in wooziness and cognition problems severe enough to render Joe vulnerable to the casino's temptations. In the ER, the metoprolol does the trick within minutes of entering Joe's blood￾stream: His blood pressure plummets, he goes into cardiac arrest, and he dies. • HIT market failure. The underlying cause of Joe's death is health information technology (HIT) market failure. If the state of U.S. medical technology is one of our great national treasures, then the state of U.S. HIT is one of our great national dis￾graces. We spend $1.6 triUion a year on health care—far more than we do on per￾sonal financial services—and yet we have a twenty-first-century financial informa￾HEALTH AFFAIRS - Voiumc 24, Number 5 1247

HIT POLICY tion infrastructure and a nineteenth-century health information infrastructure. 2 Given what is at stake, health care should be the most IT-enabled of all our indus tries, not one of the least. Nonetheless, the "technologies"used to collect, manage and distribute most of our medical information remain the pen, paper, telephone, Eax, and Post-It note. Meanwhile, thousands of small organizations chew around the edges of the problem, spending hundreds of millions of dollars per year on propri- etary clinical IT products that barely work and do not talk to each other. Health care organizations do not relish the problem, most vilify it, many are spending vast sums on proprietary products that do not coalesce into a systemwide solution, and the in- vestment community has poured nearly a half-trillion dollars into failed HIT ven tures that once claimed to be that solution. Nonetheless, no single health care orga nization or hit venture has attained anything close to the critical mass necessary to effect such a fix. This is the textbook definition of a market failure All but the most zealous free-market ideologues recognize that some markets simply do not work. Indeed, reasoned free-market champions often deconstruct specific market failures to elucidate normal market functioning. The most obvi ous examples of such failures(such as public transit and the arts )are subsidized by society at large because such subsidies yield benefits to the public that out weigh their costs. Economists refer to these net benefits as"positive external- ties, "defined as effects that cannot be captured through the economic equation of direct cost and benefit. The positive externalities of an HIT system approaching he functionality of our consumer finance IT system include reduction of medical errors like the one that killed Joe Wilson; elimination of tens of thousands of re dundant and expensive tests, procedures, and medications, many of which are not only wasteful but harmful; and the coordination and consistency of medical care in ways only promised by the theoretical version of managed care. These public health benefits are well beyond the reach of a health care system characterized by the complexities of medicine and conflicts of multiple parties working at eco- nomic cross-purposes.They are trapped outside the economic equation, positive externalities of a stubbornly fee-for-service health care system that inadvertently rewards inefficiency, redundancy, excessive treatment, and rework a Bipartisan agreement. The U.S. health care marketplace's continuing failure adopt IT on a scale approaching that of other industries has been egregious enough to elicit the unthinkable: bipartisan political agreement. How else to explain the specter of Sen. Ted Kennedy(D-MA)and Newt Gingrich(former Republican Speaker of the House)sharing a public forum and agreeing not just on the problem but on the solution: federal funding of an interoperable HIT infrastructure. Accord ing to one press report, "The politi ut their party differences aside to tout electronic prescriptions, online patient records and an integrated, paperless health-care system. 6 Such a rare convergence of opposing political belief may be less useful for un- derscoring the seriousness of the problem than for highlighting the utter absur

H I T POLIC Y tion infrastructure and a nineteenth-century health information infrastructure.^ Given what is at stake, health care should be the most IT-enabled of all our indus￾tries, not one of the least. Nonetheless, the "technologies" used to collect, manage, and distribute most of our medical information remain the pen, paper, telephone, fax, and Post-It note. Meanwhile, thousands of small organizations chew around the edges of the problem, spending hundreds of millions of dollars per year on propri￾etary clinical IT products that barely work and do not talk to each other. Health care organizations do not rehsh the problem, most vihfy it, many are spending vast sums on proprietary products that do not coalesce into a systemwide solution, and the in￾vestment community has poured nearly a half-trillion dollars into failed HIT ven￾tures that once claimed to be that solution. Nonetheless, no single health care orga￾nization or HIT venture has attained anything close to the critical mass necessary to effect such a fix. This is the textbook definition of a market failure. All but the most zealous free-market ideologues recognize that some markets simply do not work. Indeed, reasoned free-market champions often deconstruct specific market failures to elucidate normal market functioning.^ The most obvi￾ous examples of such failures (such as public transit and the arts) are subsidized by society at large because such subsidies yield benefits to the public that out￾weigh their costs. Economists refer to these net benefits as "positive externali￾ties," defined as effects that cannot be captured through the economic equation of direct cost and benefit.'' The positive externalities of an HIT system approaching the functionality of our consumer finance IT system include reduction of medical errors like the one that killed Joe Wilson; elimination of tens of thousands of re￾dundant and expensive tests, procedures, and medications, many of which are not only wasteful but harmful; and the coordination and consistency of medical care in ways only promised by the theoretical version of managed care. These public health benefits are well beyond the reach of a health care system characterized by the complexities of medicine and conflicts of multiple parties working at eco￾nomic cross-purposes.^ They are trapped outside the economic equation, positive externalities of a stubbornly fee-for-service health care system that inadvertently rewards inefficiency, redundancy, excessive treatment, and rework. • Bipartisan agreement. The U.S. health care marketplace's continuing failure to adopt IT on a scale approaching that of other industries has been egregious enough to ehcit the unthinkable: bipartisan political agreement. How else to explain the specter of Sen. Ted Kennedy (D-MA) and Newt Gingrich (former Repubhcan Speaker of the House) sharing a public forum and agreeing not just on the problem but on the solution: federal funding of an interoperable HIT infrastructure. Accord￾ing to one press report, "The political partisans put their party differences aside to tout electronic prescriptions, online patient records and an integrated, paperless health-care system."^ Such a rare convergence of opposing political belief may be less useful for un￾derscoring the seriousness of the problem than for highlighting the utter absur- 1248 September/Octobe r 2005

D G If the health care IT market worked, it would have worked by now dity of it. In his 2005 State of the Union address, President George W.Bush reiter ated his earlier call for the creation of a personalized and universally accessible health record for every American and called for a strong federal role in developing it. That an avowed champion of free markets and states' rights would call for an expanded federal role-in a speech otherwise dominated by privatizing Social Se curity-illustrates how desperate we are for just such a solution to this intracta ble problem. Small wonder that observers left, right, and center agree that a fully wired health care system would be more efficient, more transparent, less danger- ous, less maddening, and-after an enormous initial investment-far less costly in the aggregate than the tangle of antiquated mainframes, miserable PCs, unread- able handwriting, handwork, and guesswork that holds"the system"together to day. In Gingrich's succinct words, "Paper kills. "9 Against this gloomy backdrop, the purposes of this paper are()to illustrate how the failure of the health care IT market is rooted in economic problems unique to health care and business strategy problems typical of fragmented indus tries; (2)to show how this failure is exacerbated by U.S. reliance on the zigzag of market forces to generate technology standards for infrastructure development and (3)to suggest ways in which the federal government can and should inter vene, beyond its current strategy of trying to talk HiT vendors into voluntarily adopting technical standards and providers into voluntarily buying the industry's products Health Care's Blue Screen Of Death: Reboot or Reform? The compulsion today is to find the elusive"business case"for health care IT. D Legions of IT vendors and consulting companies have struggled to cobble together the Roi"(consultantspeak for"return on investment")to prove that an individ ual health care organization would benefit by investing in better IT and that the failure to date has been merely a cultural problem on the demand side " the do tors won't use computers")or a sales problem on the supply side("it's all vapor- ware"). These objections are hardly sufficient to stop a force as revolutionary as IT. The practical reality is that the typical roi is modest at best, ephemeral for most, and attainable only well past its investment horizon-a dressed-up way of saying that it exceeds the political capital of its current CEO and CIO. If there were a strong business case for a health care organization to break from the pack and build out a twenty- first-century IT system, we would have no need for this pa- ket worked, it would have worked by now ealth Affairs. If the health care IT mar per-or, for that matter, this entire issue of The ability of the gambling industry to liquidate Joe Wilson's assets within HEALTH AFFAIRS Volumc 24, Number 5 1249

D o T - G o V "If the health care IT market worked, it would have worked hy now.'' dity of it. In his 2005 State of the Union address. President George W. Bush reiter￾ated his earlier call for the creation of a personalized and universally accessible health record for every American and called for a strong federal role in developing it.^ That an avowed champion of free markets and states' rights would call for an expanded federal role—in a speech otherwise dominated by privatizing Social Se￾curity—illustrates how desperate we are for just such a solution to this intracta￾ble problem. Small wonder that observers left, right, and center agree that a fully wired health care system would be more efficient, more transparent, less danger￾ous, less maddening, and—after an enormous initial investment—far less costly in the aggregate than the tangle of antiquated mainframes, miserable PCs, unread￾able handwriting, handwork, and guesswork that holds "the system" together to￾day.^ In Gingrich's succinct words, "Paper kills."^ Against this gloomy backdrop, the purposes of this paper are (1) to illustrate how the failure of the health care IT market is rooted in economic problems unique to health care and business strategy problems typical of fragmented indus￾tries; (2) to show how this failure is exacerbated by U.S. reliance on the zigzag of market forces to generate technology standards for infrastructure development; and (3) to suggest ways in which the federal government can and should inter￾vene, beyond its current strategy of trying to talk HIT vendors into voluntarily adopting technical standards and providers into voluntarily buying the industry's products. Health Care's Blue Screen Of Death: Reboot Or Reform? The compulsion today is to find the elusive "business case" for health care IT.'° Legions of IT vendors and consulting companies have struggled to cobble together "the ROI" (consultantspeak for "return on investment") to prove that an individ￾ual health care organization would benefit by investing in better IT and that the failure to date has been merely a cultural problem on the demand side ("the doc￾tors won't use computers") or a sales problem on the supply side ("it's all vapor￾ware"). These objections are hardly sufficient to stop a force as revolutionary as IT. The practical reality is that the typical ROI is modest at best, ephemeral for most, and attainable only well past its investment horizon—a dressed-up way of saying that it exceeds the political capital of its current CEO and CIO. If there were a strong business case for a health care organization to break from the pack and build out a twenty-first-century IT system, we would have no need for this pa￾per—or, for that matter, this entire issue of Health Affairs. If the health care IT mar￾ket worked, it would have worked by now. The ability of the gambling industry to liquidate Joe Wilson's assets within HEALTH AFFAIRS - Volume 24, Number 5 1249

HIT POLICY minutes is an example of IT market success; the inability of the health care indus- try to catch a simple medical error during his half-day in the er is an example of IT market failure. All parties involved in consumer financial transactions have an economic interest in seeing that those transactions work as smoothly as possible Not so all parties involved in health care s myriad transactions a The business case for no HIT. The first step in understanding the real intrac ability of the problem is ignoring the rhetoric. There is a veritable cottage industry involving the articulation of moral outrage over the health care quality"crisis, "much of it public relations spadework for someone s political or commercial ambition and most of it culminating in a the naive insistence that the system is on the verge of col lapse and cannot go on like this. Actually, it can and will go on like this forever, ab sent any major intervention by the nation's largest health care purchaser-the US government. Why? Because in the crude fee-for-service( FFS)reimbursement sys- tem inherited by that purchaser in the 1960s and fundamentally unchanged since then, the Las Vegas hospital has little real interest in knowing Joe s medical history In most cases, access to such information would represent a reduction in billable services. In an industry rife with dirty little secrets, this is health care's dirtiest: Bad quality is good for business and the surest road to bad quality is bad or no informa tion. The various IT systems out there are expensive to buy, implement, and train taff to use, but this expense pales in comparison to all of the pricey and billable complications those systems would prevent I Health insurers'interest. By contrast, Joe' s health insurer back in Pittsburgh has a strong interest in conveying Joe's treatment information to whatever hospital he may end up in, to reduce its bill for Joe's admission But is this rational business objective powerful enough to invest in an open, accessible information system that would, at the same time, allow Joe, his coworkers, their dependents, and every doctor, hospital, pharmacy, outpatient clinic, and lab in Pittsburgh to track every penny the insurer owes them? Of course not. The only information the insurer wants to transmit readily is what it does not owe and what Joe himself has to pony up as a copayme The principal goal of the consumer finance industry is to increase the number of transactions. By contrast, the principal goal of the health insurance industry is to slow down transactions or lose them altogether. Anyone who believes otherwise is ignorant of the central metric by which a health insurer is judged by Wall Street its"medical loss ratio. This accounting term describes the percentage of the in- surer's premiums paid out in medical claims. The lower the medical loss ratio, the higher the insurers profits and, in turn, its stock price. The conflict between this metric and the other business objectives of an insurer is the active fault line run ning beneath the entire health insurance industry. Insurers must simultaneously please their members and providers with better service(which implies more and faster claims payments)and their employer-customers with lower medical costs (which implies fewer and slower claims payments). Given which constituency September/October

H I T POLIC Y minutes is an example of IT market success; the inability of the health care indus￾try to catch a simple medical error during his half-day in the ER is an example of IT market failure. All parties involved in consumer financial transactions have an economic interest in seeing that those transactions work as smoothly as possible. Not so all parties involved in health care's myriad transactions. • Tiie business case for no HiT. The first step in understanding the real intrac￾tabihty of the problem is ignoring the rhetoric. There is a veritable cottage industry involving the articulation of moral outrage over the health care quahty "crisis," much of it pubhc relations spadework for someone's pohtical or commercial ambition and most of it culminating in a the naive insistence that the system is on the verge of col￾lapse and cannot go on like this. Actually, it can and wiU go on like this forever, ab￾sent any major intervention by the nation's largest health care purchaser—the U.S. government. Why? Because in the crude fee-for-service (EFS) reimbursement sys￾tem inherited by that purchaser in the 1960s and fundamentally unchanged since then, the Las Vegas hospital has little real interest in knowing Joe's medical history. In most cases, access to such information would represent a reduction in billable services. In an industry rife with dirty little secrets, this is health care's dirtiest: Bad quahty is good for business. And the surest road to bad quahty is bad or no informa￾tion. The various IT systems out there are expensive to buy, implement, and train staff to use, but this expense pales in comparison to all of the pricey and billable comphcations those systems would prevent." Health insurers' interest. By contrast, Joe's health insurer back in Pittsburgh has a strong interest in conveying Joe's treatment information to whatever hospital he may end up in, to reduce its bill for Joe's admission. But is this rational business objective powerful enough to invest in an open, accessible information system that would, at the same time, allow Joe, his coworkers, their dependents, and every doctor, hospital, pharmacy, outpatient clinic, and lab in Pittsburgh to track every penny the insurer owes them? Of course not. The only information the insurer wants to transmit readily is what it does not owe and what Joe himself has to pony up as a copayment. The principal goal of the consumer finance industry is to increase the number of transactions. By contrast, the principal goal of the health insurance industry is to slow down transactions or lose them altogether.'^ Anyone who beheves otherwise is ignorant of the central metric by which a health insurer is judged by Wall Street: its "medical loss ratio." This accounting term describes the percentage of the in￾surer's premiums paid out in medical claims. The lower the medical loss ratio, the higher the insurer's profits and, in turn, its stock price. The conflict between this metric and the other business objectives of an insurer is the active fault line run￾ning beneath the entire health insurance industry. Insurers must simultaneously please their members and providers with better service (which implies more and faster claims payments) and their employer-customers with lower medical costs (which implies fewer and slower claims payments). Given which constituency 1250 September/October 2005

DOT.GO pays the bulk of the industry's premiums, is it any wonder which one wins? If this were not the case, then the industry would not have lobbied so uniformly and furi ously against all of the thirty-day claims payment rules proposed by numerous states.3 And, if this were not the case, the large insurers would have gotten to gether in the 1980s, when the large banks did, and created a uniform and open transaction system that everyone could use, at every point of care in the United States. After the installation of such a system, every provider then-and everyone with an Internet connection today-would have simple and secure access to the health insurance equivalent of an ATM, through which we could track the status of all of our transactions in real time Providers'interest. Providers are no less conflicted. Nearly every U.S. hospital has an ATM in its lobby, enabling secure access to patients' financial information Why doesn't the er have the equivalent for at least some of their medical informa- tion? Because not knowing is good for business. FFS reimbursement still domi nates our health care system, Rasputin-like, after more than two decades of at tempts to kill it. 4 Those excited about the promise of "pay-for-performance, "the latest attempt to fix this problem, may wish to consult the dozen books and five hundred journal articles published in the mid-1990s about capitation. Under the past, current, and future FFS reimbursement system, Joe wilsons tattered insur- ance card is a blank check for a hospital; the less the hospital knows about him, the more services it can render, the more it can bill his health insurer, and the more it will collect Lab-testing firms'interest. The diagnostic imaging and lab-testing businesses across the street from the hospital are equally motivated not only to do nothing bold or innovative with HIT, but to impede others'attempts to do something Nearly half of the $77. 8 billion we would save per year by digitizing the entire U.S health care system, according to a financial analysis by jan Walker and colleagues, would be derived from a major reduction in lab costs, most of it by eliminating re dundant tests. Is it any wonder that the three dominant U.S. lab con,chnology not rushed to embrace such a system? Many would like to blame it on ted arguing that we do not have uniform standards for lab tests. This would be news to Clement McDonald and his colleagues at the Regenstrief Institute who created for classifying lab tests and reporting on their values, back in 1994. 6 Why have sem Logical Observations, Identifiers, Names, and Codes(LOINC), a uniform system three lab companies not installed this system to improve the transactions of those gho order their tests and receive their results? It surely would have reduced their dministrative costs the same way automated claims payment systems would re duce health insurers' administrative costs. The labs have not installed these sys- tems because like the insurers. these administrative s are a pittance com effic pared with the economic benefits of ine iciency; in the case of lab testing, that inefficiency rings up $31.8 billion in annual sales. As Walker and colleagues point out with agonizing understatement, "those who depend in subtle ways on redun HEALTH AFFAIRS Volume 24. Number 5 1251

D o T - G o V pays the bulk of the industry's premiums, is it any wonder which one wins? If this were not the case, then the industry would not have lobbied so uniformly and furi￾ously against all of the thirty-day claims payment rules proposed by numerous states.'^ And, if this were not the case, the large insurers would have gotten to￾gether in the 1980s, when the large banks did, and created a uniform and open, transaction system that everyone could use, at every point of care in the United States. After the installation of such a system, every provider then—and everyone with an Internet connection today—would have simple and secure access to the health insurance equivalent of an ATM, through which we could track the status of all of our transactions in real time. Providers' interest. Providers are no less conflicted. Nearly every U.S. hospital has an ATM in its lobby, enabling secure access to patients' financial information. Why doesn't the ER have the equivalent for at least some of their medical informa￾tion? Because not knowing is good for business. FFS reimbursement still domi￾nates our health care system, Rasputin-like, after more than two decades of at￾tempts to kill it.'"* Those excited about the promise of "pay-for-performance," the latest attempt to fix this problem, may wish to consult the dozen books and five hundred journal articles published in the mid-1990s about capitation. Under the past, current, and future FFS reimbursement system, Joe Wilson's tattered insur￾ance card is a blank check for a hospital; the less the hospital knows about him, the more services it can render, the more it can bill his health insurer, and the more it will collect. Lah'tcsting firms' interest. The diagnostic imaging and lab-testing businesses across the street from the hospital are equally motivated not only to do nothing bold or innovative with HIT, but to impede others' attempts to do something. Nearly half of the $77.8 billion we would save per year by digitizing the entire U.S. health care system, according to a financial analysis by Jan Walker and colleagues, would be derived from a major reduction in lab costs, most of it by eliminating re￾dundant tests.^^ Is it any wonder that the three dominant U.S. lab companies have not rushed to embrace such a system? Many would like to blame it on technology, arguing that we do not have uniform standards for lab tests. This would be news to Clement McDonald and his colleagues at the Regenstrief Institute who created Logical Observations, Identifiers, Names, and Codes (LOINC), a uniform system for classifying lab tests and reporting on their values, back in 1994.^* Why have the three lab companies not installed this system to improve the transactions of those who order their tests and receive their results? It surely would have reduced their administrative costs the same way automated claims payment systems would re￾duce health insurers' administrative costs. The labs have not installed these sys￾tems because, like the insurers, these administrative savings are a pittance com￾pared with the economic benefits of inefficiency; in the case of lab testing, that inefficiency rings up $31.8 billion in annual sales.''' As Walker and colleagues point out with agonizing understatement, "those who depend in subtle ways on redun￾HEALTH AFFAIRS - Volume 24, Number 5 1251

HIT POLICY ' It is noteworthy not that so few practices computerize their clinical activities but that so many actually do dancy and excess could find such change costly. "18 This is health care's second dirtiest little secret: One organization's unnecessary medical product or service another s revenue stream Physicians'adoption of HIT. The list of economic impediments to HIT adoption is as long(and grim)as the list of impediments to health care system reform. A steady stream of researchers marvels at the low penetration of electronic medical record(EMR) systems in physicians'offices, when the greater marvel is that any physician, at his or her own personal expense, would install a system that(1)costs upward of $24,000 per physician in the short run, (2) promises to reduce billable services in the long run, and (3)saves money for every health care stakeholder ex cept the adopting physician. 9 Add interoperability to the list of features of the EMR, and each of these three economic effects is magnified. Even the most mun- dane and interoperable HIT stumbles on the simplest economic obstacle: Physi cians have a dozen reasons for not exchanging at least some e-mail with estab- lished patients, but the reduction in billable office visits-the most obvious- rarely makes the list. Given these many economic obstacles, it is noteworthy not that so few practices voluntarily computerize their clinical activities but that so any actually do The insurer WellPoint experimented with this problem by controlling the di rect cost, offering 25,000 of its high-volume physicians an e-prescribing device free of charge. The popular press did its usual glass-half-empty health care report- ing: An Associated Press reporter noted that one-quarter of physicians did not ac cept the systems, rather than the more quantitatively relevant fact that three quarters did. 20 The bold, unprecedented WellPoint program is an object lesson for the federal government, showing how removal of the direct cost hurdle can have a major impact on physicians'adoption rates and how a critical mass payer can, when motivated, break up the hIT market failure with a directed subsidy PBMs and pharmacies interests. Beyond the physician's office, examples of the power of economics to obviate HIT adoption pervade the system. the large chain pharmacies could just as easily redirect maintenance prescriptions to their own mail-order operations, but how then would they sell patients birthday card candy bars, and shampoo? The PBM companies cutting into the market shares of those chain pharmacies make their money by switching patients not to the lowest-price drugs available but to the drugs for which those PBMs get the best deals from drug companies. Why would a PBM want to publish any of its actual prices on its Web site? This is health care's third-dirtiest little secret: Paper may kill, but obfuscation pays-and not just for PBMs, but for hospitals, nursing homes, and health insurers, all of which publicly claim to want to disclose data on September/October 2005

H I T POLIC Y ''It is noteworthy not that so few practices computerize their clinical activities hut that so many actually do." dancy and excess could find such change costly"'^ This is health care's second￾dirtiest little secret: One organization's unnecessary medical product or service is another's revenue stream. Physicians' adoption of HIT. The list of economic impediments to HIT adoption is as long (and grim) as the list of impediments to health care system reform. A steady stream of researchers marvels at the low penetration of electronic medical record (EMR) systems in physicians' offices, when the greater marvel is that any physician, at his or her own personal expense, would install a system that (1) costs upward of $24,000 per physician in the short run, (2) promises to reduce billable services in the long run, and (3) saves money for every health care stakeholder ex￾cept the adopting physician.'^ Add interoperability to the list of features of the EMR, and each of these three economic effects is magnified. Even the most mun￾dane and interoperable HIT stumbles on the simplest economic obstacle: Physi￾cians have a dozen reasons for not exchanging at least some e-mail with estab￾lished patients, but the reduction in billable office visits—the most obvious— rarely makes the hst. Given these many economic obstacles, it is noteworthy not that so few practices voluntarily computerize their clinical activities but that so many actually do. The insurer WellPoint experimented with this problem by controlling the di￾rect cost, offering 25,000 of its high-volume physicians an e-prescribing device free of charge. The popular press did its usual glass-half-empty health care report￾ing: An Associated Press reporter noted that one-quarter of physicians did not ac￾cept the systems, rather than the more quantitatively relevant fact that three￾quarters did.^° The bold, unprecedented WellPoint program is an object lesson for the federal government, showing how removal of the direct cost hurdle can have a major impact on physicians' adoption rates and how a critical mass payer can, when motivated, break up the HIT market failure with a directed subsidy. PBMs' and pharmacies' interests. Beyond the physician's office, examples of the power of economics to obviate HIT adoption pervade the system. The large chain pharmacies could just as easily redirect maintenance prescriptions to their own mail-order operations, but how then would they sell patients birthday cards, candy bars, and shampoo? The PBM companies cutting into the market shares of those chain pharmacies make their money by switching patients not to the lowest-price drugs available but to the drugs for which those PBMs get the best deals from drug companies.^^ Why would a PBM want to publish any of its actual prices on its Web site? This is health care's third-dirtiest little secret: Paper may kill, but obfuscation pays—and not just for PBMs, but for hospitals, nursing homes, and health insurers, all of which publicly claim to want to disclose data on 1252 September/October 2005

G their outcomes and yet fight every third-party effort to do so. 2 Similarly, it was only under the threat of reimportation that the drug companies became willing, reluctantly, to publish drug prices, which they began to do in 2004. Their stock prices have yet to recover for this and numerous other reasons, most of which re late directly to pricing transparency, delivered via the Internet Exceptions to the rule. all of these health system actors are allowed to in dulge in this economically self-serving behavior because, aside from two exceptions noted momentarily, there is no unifying economic stakeholder in the health status of any individual American. The persistence of job-based insurance--combined with the constant movement of the insured person across jobs, insurance plans, and care reimbursement. Lack of information, gross inefficiency any and persistence of FFS settings--galvanizes the fragmentation, economic conflict oddy quality generate more money for providers, and health insurers who should be motivated to do some thing about this are captive to conflicting business agendas that compel them to block access to information, slow down transactions, and hold onto money in the short run even at the expense of persistently gross inefficiency and shoddy quality over the long run. Viewed through this lens of " realeconomik, "it is easy to see that health cares IT problems are not It problems at all; they are health care system problems There are two glaring exceptions to this rule. Kaiser Permanente Health Plan and the Veterans Health Administration(VHA) have enterprisewide EMRs that are the envy of the rest of the health care system, and for reasons that are not coin cidental. 23 Although one organization is a commercial health plan and the other a government health plan, both are vertically integrated systems-that is, eachisre sponsible for both the financing and delivery of medical care to its members. Even more unlike the rest of the FFS health care system, Kaiser and the vha have busi ness models that control three key variables: (1)They own their own hospitals; (2) hey employ and thus control the workflow of their physicians, and (3)their mem bers do not jump in and out of the plans at will. All three features are central to the business case"for their expensive, useful, and robust clinical HIT syste kaiser Because the exception proves the rule, it is important to point out that and the vha are anathema to what is most sacrosanct within the U.S. health care system: consumer choice. By contrast to the choice-based system, they are de facto single-payer systems. Members go to hospitals owned by the payer and are treated by physicians employed by the payer. Friction is minimalized, data are captured and shared across the system, the business case for Hit emerges, and hit develop ment flourishes. Numerous single-payer systems overseas are digitizing in ways that we can only fantasize about in the United States, for exactly the same rear sons. 24 If Joe Wilson were a veteran instead of a commercially insured American, he would have been rushed to the va hospital in Las Vegas; as a result, his ER phy- sician would have had access to all of his prescriptions, avoided compounding one medication error with another, and not accidentally killed him. HEALTH AFFAIRS Volume 24. Number 5

D o T - G o V their outcomes and yet fight every third-party effort to do so.^^ Similarly, it was only under the threat of reimportation that the drug companies became willing, reluctantly, to publish drug prices, which they began to do in 2004. Their stock prices have yet to recover for this and numerous other reasons, most of which re￾late directly to pricing transparency, delivered via the Internet. • Exceptions to the rule. All of these health system actors are allowed to in￾dulge in this economically self-serving behavior because, aside from two exceptions noted momentarily, there is no unifying economic stakeholder in the health status of any individual American. The persistence of job-based insurance—combined with the constant movement of the insured person across jobs, insurance plans, and care settings—galvanizes the fragmentation, economic confhct, and persistence of FES reimbursement. Lack of information, gross inefficiency, and shoddy quahty generate more money for providers, and health insurers who should be motivated to do some￾thing about this are captive to conflicting business agendas that compel them to block access to information, slow down transactions, and hold onto money in the short run, even at the expense of persistently gross inefficiency and shoddy quality over the long run. Viewed through this lens of "realeconomik," it is easy to see that health care's IT problems are not IT problems at all; they are health care system problems. There are two glaring exceptions to this rule. Kaiser Permanente Health Plan and the Veterans Health Administration (VHA) have enterprisewide EMRs that are the envy of the rest of the health care system, and for reasons that are not coin￾cidental.^^ Although one organization is a commercial health plan and the other a government health plan, both are vertically integrated systems—that is, each is re￾sponsible for both the financing and delivery of medical care to its members. Even more unlike the rest of the EES health care system. Kaiser and the VHA have busi￾ness models that control three key variables: (1) They own their own hospitals; (2) they employ and thus control the workflow of their physicians; and (3) their mem￾bers do not jump in and out of the plans at will. All three features are central to the "business case" for their expensive, useful, and robust clinical HIT systems. Because the exception proves the rule, it is important to point out that Kaiser and the VHA are anathema to what is most sacrosanct within the U.S. health care system: consumer choice. By contrast to the choice-based system, they are de facto single-payer systems. Members go to hospitals owned by the payer and are treated by physicians employed by the payer. Eriction is minimahzed, data are captured and shared across the system, the business case for HIT emerges, and HIT develop￾ment flourishes. Numerous single-payer systems overseas are digitizing in ways that we can only fantasize about in the United States, for exactly the same rea￾sons.-^'' If Joe Wilson were a veteran instead of a commercially insured American, he would have been rushed to the VA hospital in Las Vegas; as a result, his ER phy￾sician would have had access to all of his prescriptions, avoided compounding one medication error with another, and not accidentally killed him. HEALTH AFFAIRS - Volume 24, Number 5 1253

HIT POLICY Health Care's'Prisoners'Dilemma' Joe Wilson's health insurer back in Pittsburgh might have a clear financial in- terest in a system that would allow it to feed various streams of Joe's clinical mation to the Las Vegas hospital, to improve the quality and reduce the cost of his medical care. But doing so would be massively expensive for the insurer, not just in direct and indirect costs, but in incalculable strategic costs. If the company in- vested millions to create the open infrastructure required to connect its hospital physician, pharmacy, and lab claims information systems to every hospital in Pittsburgh-let alone to every hospital in the United States-all of the oth health insurers in Pittsburgh could connect to the same network for a fraction of the cost. While Joe's insurer did the heavy lifting, its competitors would bear none of the massive up-front costs and could price their health plans well below the cost of Joe's, for all of the years that his insurer was investing in that system. If health care's IT problems are a reflection of its broader economic problems then the strategic conflicts within the health insurance and hospital industrie hemselves-the two most obvious beachheads for hit development-are suffi cient explanation for why we have no interoperable health care infrastructure Notwithstanding the happy talk of their advertising, health insurers aim to attract and lock in healthy people and drive away sick ones. The less masqueraded goal of the hospital is to attract and lock in sick people and market to those who are not sick yet. Having an interoperable hIT system that allows patients to shop around, with their fully portable EMRs, for a higher-quality or lower-cost health insurer or hospital works directly against these goals For insurers in particular, this strategic conundrum over HIT is a redux of the broader managed care conundrum about prevention, which is essentially the pris- oners' dilemma at the heart of game theory. The prisoners' dilemma always results in an unfortunate ending: All actors in the game would be rewarded if they coop erated and did the right thing by each other. But none will do the right thing with out assurance that the other players will all follow, and so they each do exactly the wrong thing, limiting their own downside and thus creating a suboptimal out come for all. The best way for a health insurer to use HIT to cope with theprison ers' dilemma is to design a proprietary system that makes it easy for healthy mem bers to sign up; difficult for sick members who need good information to find it and thus remain satisfied with their plan; and even more difficult for everyone out- he insurer's own organization(that is, everyone looking to get paid )to navi- gate it. The worst way to cope with the prisoners' dilemma is to provide an open interoperable system that works equally well for all members and can exchange data with all other health insurers First-mover disadvantage. Given the ilson,s in surer, it would be easy to blame his death and every other casualty of health care's stunted IT infrastructure on health care itself. But it would not be entirely accurate or fair. a broader version of game theory bearing on the health care industry-when er/October 2005

H I T POLIC Y Health Care's 'Prisoners' Dilemma' Joe Wilson's health insurer back in Pittsburgh might have a clear financial in￾terest in a system that would allow it to feed various streams of Joe's clinical infor￾mation to the Las Vegas hospital, to improve the quahty and reduce the cost of his medical care. But doing so would be massively expensive for the insurer, not just in direct and indirect costs, but in incalculable strategic costs. If the company in￾vested millions to create the open infrastructure required to connect its hospital, physician, pharmacy, and lab claims information systems to every hospital in Pittsburgh—let alone to every hospital in the United States—all of the other health insurers in Pittsburgh could connect to the same network for a fraction of the cost. While Joe's insurer did the heavy lifting, its competitors would bear none of the massive up-front costs and could price their health plans well below the cost of Joe's, for all of the years that his insurer was investing in that system. If health care's IT problems are a reflection of its broader economic problems, then the strategic conflicts within the health insurance and hospital industries themselves—the two most obvious beachheads for HIT development—are suffi￾cient explanation for why we have no interoperable health care infrastructure. Notwithstanding the happy talk of their advertising, health insurers aim to attract and lock in healthy people and drive away sick ones. The less masqueraded goal of the hospital is to attract and lock in sick people and market to those who are not sick yet. Having an interoperable HIT system that allows patients to shop around, with their fully portable FMRs, for a higher-quahty or lower-cost health insurer or hospital works directly against these goals. For insurers in particular, this strategic conundrum over HIT is a redux of the broader managed care conundrum about prevention, which is essentially the pris￾oners' dilemma at the heart of game theory. The prisoners' dilemma always results in an unfortunate ending: All actors in the game would be rewarded if they coop￾erated and did the right thing by each other. But none will do the right thing with￾out assurance that the other players will all follow, and so they each do exactly the wrong thing, limiting their own downside and thus creating a suboptimal out￾come for all.-^^ The best way for a health insurer to use HIT to cope with the prison￾ers' dilemma is to design a proprietary system that makes it easy for healthy mem￾bers to sign up; difficult for sick members who need good information to find it and thus remain satisfied with their plan; and even more difficult for everyone out￾side the insurer's own organization (that is, everyone looking to get paid) to navi￾gate it. The worst way to cope with the prisoners' dilemma is to provide an open, interoperable system that works equally well for all members and can exchange data with all other health insurers. • First-mover disadvantage. Given the strategic pressures on Joe Wilson's in￾surer, it would be easy to blame his death and every other casualty of health care's stunted IT infrastructure on health care itself. But it would not be entirely accurate or fair. A broader version of game theory bearing on the health care industry—^ 1254 September/Octobe r 2005

applied to something as formidable as the development of IT standards and inter- operable data exchange systems--confronts all industries that are unable to achieve technical standardization. This impediment is steeped in problems of competitive strategy for all industries and can be summed up in what Michael Porter first identi- fied as "first-mover disadvantage 26 This concept explains why Joe's insurer would not want to build an information system connecting its numerous data systems with the nations hospitals. Why would one insurer go to all of the financial and strategic cost of creating a ubiquitous information system that would benefit its competitors? For exactly the same reason that IBM created the Internet. Indeed, IBM did not cI ate the Internet-the federal government did-but IBM and all of its competitors have made a fortune creating things that run on, over, off, and because of the Internet. But suppose for a moment that Joe s insurer were foolish enough to violate is strategic principle and initiate at its own expense an HIT system that allowed it to exchange data with all of its contracting hospitals, physicians, labs, and pharma cies. First, would it be able to get those providers to go to the expense of connecting with the system?(Or would it have to subsidize them, the way WellPoint had to subsidize physicians to get them to use its e-prescribing system? )Second, would it be able to get those same providers to retool their workflows around the new sys- tem? Finally, would it build that system based on open standards that would allow its competitors to exchange the same kind of data with those same providers? The health insurer might be able to answer"yes"to the first two questions, but only if it were willing to answer"yes"to the third, thus burning its own capital and internal resources on behalf of its competitors. And so no one, save the occasional e-pioneer ing physician like Charles Kilo, writing in this volume of Health Affairs, is the first to install. 27 I The size factor If size mattered and an organization could fix this problem through brute force, no one organization in health care has size enough. WellPoint comes close, especially after it finishes combining with Anthem, but it still does not command a dominant share of any major health insurance market, hence the limita tion of its e-prescribing experiment to only 25,000 physicians nationwide. Even if Joe's health insurer were the largest in Pittsburgh-large enough to force providers to adopt HIT in ways that offset the costs of first-mover disadvantage--it would not be large enough to dictate It standards to the rest of the market(And if it were,it would be too busy dealing with folks from the Justice Department to do anything else. ) This problem has haunted all new technology industries in their infancy, as multiple players emerge and seek to coalesce around a technical standard. and the it is licensed and regulated at the state lev consists of hundreds of different players. Even the largest commercial plans like An them/Wellpoint and Aetna do not control a sufficient share of the business of a large enough base of physicians across the country to demand that they adopt and use one IT system or another. Once again, only Kaiser has this advantage, one symbolized by and embodied in its development of an EMR system unmatched in the industry.28 HEALTH AFFAIRS Volume 24, Number 5

D o T - G o V apphed to something as formidable as the development of IT standards and inter￾operable data exchange systems—confronts aU industries that are unable to achieve technical standardization. This impediment is steeped in problems of competitive strategy for all industries and can be summed up in what Michael Porter first identi￾fied as "first-mover disadvantage."^* This concept explains why Joe's insurer would not want to build an information system connecting its numerous data systems with the nation's hospitals. Why would one insurer go to aU of the financial and strategic cost of creating a ubiquitous information system that would benefit its competitors? For exactly the same reason that IBM created the Internet. Indeed, IBM did not cre￾ate the Internet—the federal government did—^but IBM and all of its competitors have made a fortune creating things that run on, over, off, and because of the Internet. But suppose for a moment that Joe's insurer were foohsh enough to violate this strategic principle and initiate at its own expense an HIT system that allowed it to exchange data with all of its contracting hospitals, physicians, labs, and pharma￾cies. First, would it be able to get those providers to go to the expense of cormecting with the system? (Or would it have to subsidize them, the way WellPoint had to subsidize physicians to get them to use its e-prescribing system?) Second, would it be able to get those same providers to retool their workflows around the new sys￾tem? Finally, would it build that system based on open standards that would allow its competitors to exchange the same kind of data with those same providers? The health insurer might be able to answer "yes" to the first two questions, but only if it were willing to answer "yes" to the third, thus burning its own capital and internal resources on behalf of its competitors. And so no one, save the occasional e-pioneer￾ing physician hke Charles Kilo, writing in this volume of Health Affairs, is the first to install.^'' • The size factor. If size mattered and an organization could fix this problem through brute force, no one organization in health care has size enough. WellPoint comes close, especially after it finishes combining with Anthem, but it still does not command a dominant share of any major health insurance market, hence the limita￾tion of its e-prescribing experiment to only 25,000 physicians nationwide. Fven if Joe's health insurer were the largest in Pittsburgh—large enough to force providers to adopt HIT in ways that offset the costs of first-mover disadvantage—it would not be large enough to dictate IT standards to the rest of the market. (And if it were, it would be too busy dealing with folks from the Justice Department to do anything else.) This problem has haunted all new technology industries in their infancy, as multiple players emerge and seek to coalesce around a technical standard. And the health insurance industry—^because it is hcensed and regulated at the state level— consists of hundreds of different players. Fven the largest commercial plans like An￾them/WellPoint and Aetna do not control a sufficient share of the business of a large enough base of physicians across the country to demand that they adopt and use one IT system or another. Once again, only Kaiser has this advantage, one symbolized by and embodied in its development of an FMR system unmatched in the industry.^^ HEALTH AFFAIRS - Volume 24, Number 5 1255