Recently we had the pleasure of engaging Alain Enthoven, PhD, on one of our favorite topics: affordable healthcare. Dr. Enthoven believes innovation in care delivery is the key to helping US employers expand healthcare choice, increase quality, and find savings for their employees. In the Nuclear Age of the 1960s, Dr. Enthoven was one of an elite group of experts that turned around the management of the US Department of Defense. After that, he dedicated himself to solving the causes of unsustainable costs of healthcare. As a consultant to the Carter administration, he designed and proposed Consumer Choice Health Plan, a plan for universal health insurance based on managed competition in the private sector. Today he continues his 40-plus year affiliation with Stanford Business School and is still working for change in healthcare.

Q: You’re an economist by trade. You began your career in government in the Department of Defense. What led you to healthcare?

A: Well, I could say a set of curious chances. In the late 1960s I was invited to join the board of directors of Georgetown University. I think part of what they had in mind is that I had been one of the leaders of McNamara’s financial management revolution in the Pentagon. Georgetown’s medical center posed some of the largest financial risks to the university. They asked me to serve on the Medical Center committee, which I did, and I was completely fascinated. I had spent twelve years working on national defense, and I’d learned from experience that something I really enjoy is working on very tough, important public policy issues.

Q: For 40 years you’ve been citing the risks of an uncoordinated, a fee-for-service healthcare system. (Many of which have unfortunately come to fruition.) What first made you think this way?

A: One of the things I learned while serving on the Georgetown University Board Medical Center Committee was that doctors and hospital administrators don’t know or care very much about cost of care. This was in an earlier age—you might say in the age of open-ended, fee for service. I mean a system in which providers don’t face any budget limitation—any reason to spend less instead of more.

After that, I served as president of the medical products division at a company called Litton Industries. We were trying to sell cost-effective X-ray systems, and it turned out that the doctors and hospitals were more interested in the fancy, complex, more bells-and-whistles models. The economist in me said “This is heading for trouble. We have a healthcare financing system that’s dominated by cost unconscious, uncoordinated, open-ended, fee-for-service. And that’s going to lead to serious financial problems for the government.”

Q: The alternative you advocate for is a cost-conscious, consumer-choice-driven model. What convinced you this was—and is—the future of healthcare?

A: During my time at Georgetown, some physicians in the Department of Community Medicine decided we needed to create a new model that would be viable for the long run and which we could show medical students and our residents that there were better models out there. We studied all kinds of alternatives and settled on the system called prepaid group practice, which offered many important benefits. The doctors typically are salaried, so they don’t get more for doing more and don’t lose money by practicing economically, which creates an overall incentive to use resources wisely and to work on quality improvement. So thereby was started Georgetown University Community Health Plan. Then at Litton, where I sold medical devices, our customers were mainly organizations like Group Health Cooperative of Puget Sound in Seattle, a prepaid group practice, and some of the for-profit hospitals.  (Both Georgetown Community Health Plan and Group Health Cooperative have joined Kaiser Permanente.)

After leaving Litton Industries, I accepted a professorship at Stanford University in The Graduate School of Business. Healthcare was a large, growing public burden. At the same time in our region is the headquarters of Kaiser Permanente, The largest most successful prepaid group practice. Here was a high-quality, cost-effective integrated delivery system that was prospering where people had a cost- conscious choice of health plan. I formed a consulting relationship with them.

Then came the Jimmy Carter Administration with the promise of universal health insurance. They did not have a plan for how to do universal health insurance, so they invited me to develop one. I agreed to serve as a consultant to them and I spent every other week in Washington working on a plan. My goal was to recommend a system that would be hospitable to high quality cost-effective organized delivery systems that attracted and pleased their customers

I came up with what I called the Consumer Choice Health Plan, predicated on a system offering informed cost-conscious choices that could change the overall incentives in the system. It was published as a two-part article in the New England Journal of Medicine in 1978. It attracted a great deal of attention, and a number of important members of the Congress introduced bi-partisan legislation to carry out that vision. So that that’s what got me known as a prominent thinker about healthcare policy. I still believe the right way to go is informed, cost-conscious consumer choice.

Q: The kind of model you’re talking about sounds like common sense. Why don’t we see more of it today?

A: There is a “chicken and egg” problem here.  We cannot have price competition unless there are competitors, and competitors find it hard to get going because it takes a lot of time and capital. Kaiser, for example, builds their own hospitals recruits and enculturates their doctors. What I mean by “enculturate” is to bring them into the culture—not a culture of fee-for-service, where you get more money by doing more things—but one of health maintenance, disease prevention and economical, efficient ways of treating people.

Also, for there to be cost conscious choice, employers cannot offer employees a health insurance program that pays for everything, whatever the employee chooses. There is a need for “reference pricing”, that is the employer will pay for the low-priced plan, and the employee who wants a more costly plan must pay the difference.

The problem here is that many employers do not like to offer cost conscious choice of fully insured plans because employees may consider that to be a “takeaway,” or dealing with several health plans may be seen as more trouble than they are worth, or because good competitive plans do not exist in their market area.

If employers are not willing to offer employees cost-conscious choices of competing health plans, I think that calls into question the long-term viability of the employment-based system of health insurance.

 

Q: Despite the challenges you just cited, you still believe a cost-conscious, consumer-driven healthcare system is the future. What makes you optimistic?

A: I think eventually this concept will take over all of America. Kaiser’s market share in private health insurance in California is approaching 50 percent, and we have a lot of multi-specialty groups in California now and in the Upper Midwest, too. But you can’t just whistle it up and make that happen immediately.

In California and the rest of the West Coast, Kaiser Permanente happened by what might be considered a historical accident, including the wisdom and foresight of Henry J. Kaiser and Dr. Sidney Garfield, the people who originated the model nearly a century ago. Today Kaiser Permenente is so successful that providers in the non-Kaiser sector are forming defensive alliances—that is nearly 200 risk-bearing physician organizations—to compete with Kaiser.

Looking in the future, I hope and expect the right thing will happen. That is, forward-thinking health plans like Create, for example, will continue to attract the membership of Mount Sinai and Yale New Haven and several other famous medical groups. And gradually those groups, by participating in the Create kind of model, will benefit by offering employers and their employees a financially better deal—higher quality and lower cost healthcare.

 

Beth Keyser spearheads the development of Create, expanding its sales and reach in the employer market and ensuring optimal customer and consumer experiences. Previously, Beth held leadership positions at Sharecare, Healthways, and Blue Cross Blue Shield of Tennessee, where she established new strategic partnerships and expanded the companies into new markets.