What College Can Teach Healthcare

by Kim Bellard, December 19, 2018 

Mitch Daniels, the former Governor of Indiana and current President of Purdue University, gave an interesting interview to The Wall Street Journal about what Purdue has been up to during his watch. Mr. Daniels — who knows a thing or two about healthcare — drew an explicit parallel to healthcare in the interview: 

“You’re selling something, a college diploma, that’s deemed a necessity. And you have total pricing power.” Better than that, “when you raise your prices, you not only don’t lower customers, you may actually attract new ones.” For lack of objective measures, “people associate the sticker price with quality: ‘If school A costs more than B, I guess it’s a better school.’” A third-party payer, the government, funds it all, so that “the customer — that is, the student and the family — feels insulated against the cost. A perfect formula for complacency.” 

Higher education is one area where prices seem to be rising even faster than in healthcare, and both much faster than wages. Student debt just hit a record $1.465 trillion — yes, trillion — and now trails only mortgage debt in size. 

We spend a lot more — nearly twice as much per student annually — on higher education than almost any other developed country, according to OECD. Yep, sounds like U.S. healthcare all right. 

Mr. Daniels is trying to change that. For one thing, he’s focused on holding the line on costs, such as by bringing Amazon in to help lower textbook prices. Purdue had raised tuition 36 years in a row prior to his arrival, and now has not raised them since 2012. 

But here’s what really caught my eye. Purdue pioneered the use of Income Share Agreements (ISAs), an idea attributed to economist Milton Friedman. Students don’t owe tuition during college, but six months after graduation they begin to pay a percentage of their income for a fixed number of years (e.g., 10 years). Repayment is capped at 2.5 the initial funding. Several other universities are now rolling out their own versions. 

The application of ISAs to healthcare may not be obvious. In an earlier post, for example, I suggested treating our health as a capital asset. We would seek to spend — invest — money on things that increase it, and avoid things that decrease it. It would, admittedly, be hard to quantify any of this, but doing so would force us to measure and to track. 

Perhaps a Healthcare Share Agreement (HCSA) would have a healthcare organization make a quantifiable prediction about your health, and what you pay each year would depend on how they do against that prediction. We’d have to agree on how to measure it, over what period of time, but both the prediction and the measurement are feasible (e.g., QALY). 

The payment could be in lieu of health insurance premiums or health care organization’s charges. The healthier-than-expected you are, the more you pay; the worse-than-expected you are, the less you pay. It’s value-based payment at the next level. It could be done as agreements with individuals and organizations, or, say, between health plans and health organizations at a population level. 

The key thing is for healthcare organizations to do what Purdue is doing: bet on their ability to actually make a positive impact in the lives of the people they serve. 

I don’t know how it would work. I don’t know if it can work. But I’d sure like for someone to give it a try, because the existing business models sure don’t seem to be working.

This post is an abridged version of the posting in Kim Bellard’s blogsite. Click here to read the full posting