"The fee for value train has already left the station."

Over at Forbes, David Chase (CEO of Avado) has a terrrifc blog that is about - essentially - how much more rapidly markets can move than government regulators and legislators.

In a post entitled "The Irrelevance of the Supreme Court Decision on Obamacare", Chase writes that providers are much less worried about the SCOTUS decision than they are by faster, more nimble competitors who are reinventing the healthcare business model from the ground up, from concierge care for the masses to retail clinics.

The array of disruptive innovation activity is breathtaking. Much of this is taking place in what I call the DIY Health Reform at the behest of commercial plans and employers. Even the items that were key parts of the Obamacare such as Accountable Care Organizations (ACO) are unmatched by private sector efforts. For example, more than 80% of the newly formed ACOs are driven solely by private sector efforts.

The following are just a few examples of disruptive innovation in the DIY Health Reform movement:

•Venture-backed Iora Health has bent the proverbial healthcare cost curve working with some of the most challenging patients (i.e., costly) for casinos and other organizations as highlighted in DIY Health Reform from Massachusetts to Alaska. Working with employers or unions, they do the opposite of skimming the cream by identifying those that are highest cost and inviting them into a special program.

•DaVita (DVA) just announced a $4.4 Billion acquisition that is going to blow a hole in a facet of health insurance. See Health Insurance's $4.4 Billion Bunker Buster for more. Judging by calls and emails I have received in response to my piece, the ripple effects of this big move are large within physician groups -- a cohort that is particularly well positioned to offer fee-for-value (as opposed to strict fee-for-service) models that employers, unions, the government and individuals are pushing for.

•An array of startup organizations best described as "concierge medicine for the masses" backed by some of the most successful entrepreneurs of the last 15 years such as Jeff Bezos, Michael Dell and Rich Barton offer a service that is reducing healthcare costs 40% or more. They have proposed how their service could also be used to balance state budgets.

When an entire health system shifts from a reactive to a proactive model as has been the case with the highly successful examples cited above, the backbone of that system is primary care, not hospitals. For example, Denmark went from 157 to just 21 hospitals as detailed in "Primary Care Spring" unleashed by IBM. It's a more geographically concentrated country so the reduction won't be as dramatic in the U.S., however it's not inconceivable that we might have half the number of hospitals a decade from now.

I'm sure Chase is right in the long term (and more hopefully, in the short term), but I also wouldn't underestimate the ability of legacy providers to use regulatory capture to undercut new market entrants - as they traditionally have through control of scope of practice laws, state certificate of need regulations, and state monopolies on insurance regulation. (Or to put it another way, do you really think that powerful public sector healthcare unions like SEIU 1099 are ready to slash the number of hospitals in the U.S. by 50%, as Chase suggests is possible.)

And the massive concentration of health care power in Obamcare at the federal level, and the many more regulations loaded onto health insurance outside of the self-insured market, will provide myriad opportunities for strategic lobbying at the state and federal level to pre-empt, slow, or sabotage market competition.

Still, as Chase argues, the "fee for value train has left the train", most persuasively because the financial squeeze on government and employers has become so severe that the old model must give way, sooner or later. Demonstrating value, rather than just being paid based on fee-for-service (regardless of cost or quality) is clearly the wave of the future.

Creative destruction is finally coming to the health care sector. Moving the deck chairs around on the Titanic is no longer a viable option. But to accelerate change, we should also sweep away the outdated tax and regulatory structures that support the dysfunctional status quo.

And my preference would be to start with Obamacare and go from there.

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