David Cutler details the three common features of today’s successful industries, and explains why healthcare falls short on each of them.

Question: What can healthcare learn from other industries?

David Cutler: Healthcare is the most information-intensive industry in the economy, and it uses information technology the least of any industry in the economy.  So if you think about where do we need information the most, it’s going to be healthcare—you need to know what’s going on with the patient, what they’re allergic to, what kinds of issues they have, what treatment options. And yet, we still do things by paper and pencil, storing things in huge stacks where you can’t retrieve them and they’re not there when you need them.Health care is amongst the lowest productivity industries in the economy.  If you look at the well performing industries, they tend to have three features—the productive industries tend to have three features. First, they use information technology a lot. They know who’s doing what, why they’re doing it, how rapidly they’re doing it, what the outcome is, how to improve it. They’re always thinking about that, they use information technology a lot; in healthcare we don’t.

Second, they have compensation arrangements that are tied to improving value. When employees create value they get paid more, when they do things that don’t create value then don’t get paid as much.  In healthcare you get paid for doing things for volume but not for value.

And third, is they decentralize it so that changes are made by workers—workers have authority. The famous Toyota model, any worker can stop the production line.  Why? Because he or she has the right information and the right incentives to make sure that the cars are coming out with the quality that they need to. 

In healthcare, the frontline workers are so busy just getting by, that they don’t have the opportunity to do better.  If you take those nurses who are spending a third of their time documenting things, and say, well, couldn’t we do better, they’d say yes, but I just don’t have the time to figure it out—I’m so rushed I can’t figure it out.

Healthcare has got to get better, it’s got to get better in the information end, where we’ve made a good start with the recent American Recovery and Reinvestment Act—which is spending thirty billion dollars on health IT; compensation changes which need to follow that—hopefully, in the healthcare legislation that comes this fall—will say we pay more for value and not just for volume, and organizational changes freeing up organizations and helping them learn from each other so that they say, ‘Hey! You know what? I really can make this a high performing enterprise; this doesn’t have to be an enterprise that’s got low productivity.  We’re going to need all of those—they all have to happen over the next decade or else we’ll find ourselves in the same situation in a decade from now as we are now

Question: What key changes can innovation bring to the healthcare system?

David Cutler: Again, come back to the most productive businesses, the ones that have increasingly lower costs: those are businesses that are actually the most innovative, not the least innovative. If you look at the most productive industries in the economy, they’re industries like information technology, like retail trade, like agriculture, that use technology the most, but they direct it the right way.

For people to think that healthcare reform is going to involve stifling innovation is just absolutely wrong. If we do it right, we’re going to open the possibilities for an enormous amount of innovation.  Let me just give you a different example than what we have seen.  Take an anti-depressant drug as just one example.  It is a well-known fact that anti depressant drugs, the same drug, will work on some patients and not work on others.  Just give people Paxil or give people Prozac or give them Celexa; whatever it is, some patients respond to it, other patients don’t. And it is different, some people respond to one medication, and some people respond to another, and some people respond to a third but not to the others.  Why is that?  Well, we don’t know. There’s surely something biological about it. When you switch people from one drug to another you wind up, sometimes, getting them to respond and getting better. 

Well, with the little bit of innovation, we’ll be able to figure out which patients will respond better to which drugs. As a result we can avoid giving people drugs they’re not going to respond to. Wasting money, wasting treatment to people who don’t come back because the thing is not working; even worse, with some kind of chemotherapy agents, where the patient dies in the interim. With innovation we’ll be able to figure out how to tailor what you get to what you need, in addition to all the other things we’re talking about, so, we’ll actually have a medical care system that is customized for you, not just for something generic, and not just ‘Hey, we start on this because this is what we do and if you don’t respond better its your responsibility for figuring out how to do something different.’ That’s just one example where we are going to need a lot of innovation.  Healthcare reform has to encourage innovation across the board or else it’s not going to succeed.

 Recorded on: July 06, 2009