America’s Health Care Problems? The Solutions Exist. A Conversation with Mark D. Smith, MD, MBA

A new IOM report urges widespread adoption of innovations. The committee’s chair and the California HealthCare Foundation’s CEO, Mark Smith is working to make that happen.

A rural hospital may not know that it needs a telepharmacy service until a company makes a sales call and describes the innovation. The potential for better care and cost savings will be significant as solid new ideas move from testing to widespread adoption. That’s exactly what has to happen to move forward, says Mark D. Smith, MD, MBA, president and chief executive officer of the California HealthCare Foundation, which distributes about $26 million a year to not-for-profit organizations and, more recently, for-profit companies trying to improve health care in the state.

Smith also chaired the Institute of Medicine Committee on the Learning Health Care System in America, which issued a comprehensive report on the state of health care this fall, citing $750 billion in wasteful spending. The committee urged providers and health plans to take action. “The health care system has to get over the notion that everything has to be invented or reinvented again in my hospital, in my practice, in my health plan,” says Smith, who writes a blog entitled “On Practical Progress.” “We simply don’t have time to allow things to disseminate at the pace we have now.”

The IOM report, Best Care at Lower Cost: The Path to Continuously Learning Health Care in America, can be found on the IOM website,, or directly,

“If we are able to achieve these savings while maintaining and even improving quality, it will be because the health plan medical directors have been an important part of that change. ”

Smith serves on the faculty of the University of California — San Francisco and works as an attending physician at the Positive Health Program for AIDS care at San Francisco General Hospital. He previously was vice president at the Henry J. Kaiser Family Foundation and an assistant professor of medicine and of health policy and management at Johns Hopkins University. He has served on the board of the National Business Group on Health, the performance measurement committee of the National Committee for Quality Assurance, and the editorial board of Annals of Internal Medicine. He earned a bachelor’s degree in Afro-American studies from Harvard College, a medical degree from the University of North Carolina at Chapel Hill, and a master’s degree in business from the University of Pennsylvania. He spoke recently with Managed Care Editor John Marcille.

MANAGED CARE: People are saying that the new IOM report will prove to be important and influential. It stresses the need to lower the cost of health care. What is new here, and should we view it as a roadmap?

MARK D. SMITH, MD, MBA: We hope that it is a roadmap. The report builds on prior work done by the IOM, such as Crossing the Quality Chasm and To Err Is Human. The problems that have been pointed out before have not been solved yet, but we do have some solutions or at least tools that are new. It is also the first time that there has been such a broad consensus. From Paul Krugman to Paul Ryan, everyone across the ideological spectrum agrees that however we are going to fix the fiscal future of the country, restraining health care costs is a necessary part of that.

MC: What are the new tools?

SMITH: The four that are new since those seminal reports were written are computing power, which is now ubiquitous, affordable, and quite powerful; connectivity, with doctors being connected to other doctors, and hospitals being connected to pharmacies; the application of modern management techniques, such as an organizational capacity to improve, to learn, and to execute; and greater insights about the power of teamwork. By teamwork, we mean not only within the clinical team but also between patients and the clinical team. There is greater and greater involvement in patients making decisions about their diseases, and there is greater and greater recognition by the medical community of the importance of patient involvement.

MC: The report indicates that it’s time for actions on a wide scale.

SMITH: We are not talking about things that are dreams of the future; we point to concrete examples throughout the report of where these tools are in use today. We give some suggestions about how to generalize, popularize, spread, and scale these things so that they stop being isolated islands of efficiency and execution in what is still a sea of randomness and inconsistency. That’s part of why this notion of learning is so important. It’s not that these things are impossible; it is that we haven’t yet learned how to do them on a broad scale in a reproducible and consistent fashion.

MC: The popular press didn’t use the words “learning health care system” when they reported on the committee’s findings. Is it important for the industry to start thinking of it that way?

SMITH: Yes. Think about those four things I talked about: computing, connectivity, management techniques, and teamwork. Those are all bedrocks of other industries, and in many ways the health care system is looking to other industries to learn how to do these things. Many think that health care is a completely different human domain from all other activities. It is different, but not entirely different, and so we tried to point to some mechanisms that might help accelerate the adoption of innovation. No other industry would take 17 years to use something that is clearly better than the old way of doing things.

MC: Are some examples of what we should implement coming from other countries?

SMITH: We didn’t attempt to do a systematic survey of other countries. My personal view is that we have a lot to learn from other countries, but it is probably learning best-of-breed approaches to specific issues, as opposed to thinking that we are going to transfer, say, Sweden’s entire system here. For instance, Sweden has a registry for joint replacement that allows much more robust surveillance and early identification of problems with joints. Some centers in the United States are still putting labels from joint boxes in three-ring binders. But we were trying very hard to look to this country for answers, because people tend to reflexively dismiss the rest of the world. There are examples of all of these things in this country from which we can learn. Kaiser Permanente has a joint registry system that’s not as advanced as Sweden’s but more advanced than anything else that’s going on here. Rightly or wrongly, it’s more powerful to point to an example in south San Francisco than in south Stockholm.

MC: In many places, health care is still a cottage industry in the United States.

SMITH: Many of the things that have to be done have to be done at scale. You cannot operate a system that gathers data about patient experience, synthesizes available science, applies it to the patients at hand, and tracks your performance without substantial resources and expertise. We are seeing a tremendous wave of consolidation in the health care industry. The cottage industry era, which really cannot sustain the pace of innovation that we need, is ending. But there are ways in which technology can replace consolidation.

MC: Such as?

SMITH: Open Table is one example. It gives mom-and-pop restaurants some of the I.T. capability that big restaurant chains have. In the same way, there are now companies that can give small physician practices some of the same I.T. capability of the Permanente Medical Group. Increasingly, technology can replace co-location and practice consolidation by giving smaller physician groups access to the same tools for data manipulation and feedback and for patients being able to interact with them online.

MC: How should health plans be contributing to data exchange efforts?

SMITH: We have lots and lots of data that flows from encounters and payment for them. Our capacity is to take that data and draw inferences from it about diagnosis and severity of illness, and use predictive capacity to intervene to prevent more severe illness and expensive hospitalizations. Planet Money did a story on the Caesars Entertainment Corporation, the gaming company. They have huge amounts of data about the behavior of their customers, which they use not only to offer them incentives to continue to patronize their establishments, but allows them to intervene with certain customers to change what they would otherwise have done. That is exactly what we have to do in health care.

MC: You’ve written that payers should work with physicians, rather than make enemies of them.

SMITH: We all agree that we need to reduce costs and that we need to focus more on high-value care. In my blog entry at Health Affairs, I wrote that while physicians direct the payment of most of the money in health care, they are not actually the recipients of most of it. In fact, they are a declining proportion of payments in many, many domains. So trying to cut costs by cutting physicians’ pay is particularly ineffective. If a physician makes one tenth of the cost of a joint replacement and you reduce his or her pay, the physician will do two more joint replacements.

MC: Their portion of the cost of care may continue to decrease, considering the teamwork approach you’ve emphasized.

SMITH: We have a fortuitous convergence of a few things: We have a large number of physicians who are going to retire; we are facing what we think of as a shortage of physicians, which I think is only a shortage if we think physicians will do 15 years from now what they did 15 years ago; and we are trying to figure out how to reduce costs. My view is that physicians can maintain their current scope of practice or their income, but not both. We need to free up physicians to work at the top of their licenses and stop obsessing about cutting their incomes. We are turning them into enemies, but we need them shoulder to shoulder with payers in reducing health care costs. We have to align their personal interests with the interests of the system and the interests of the country.

MC: Physicians have a lot to offer. The California HealthCare Foundation runs a leadership program for clinicians. How successful has that been?

SMITH: We’ve been doing that for a decade now, and while it is mostly physicians, it is open to all clinicians who are in management positions. It’s a two-year, part-time program and we have graduated over 300 people. They are all over the state in virtually every institution you can imagine. We recognized that the changes described in the report are easy to talk about but hard to actually pull off in real life.

MC: Not all projects are successful, but we can learn from failure. What has the Foundation learned from a project that failed?

SMITH: We funded the first health data exchange in the country in Santa Barbara, investing $10 million in it over the course of several years. It was led by David Brailer, MD, PhD, who became the first national health information technology coordinator. It was a failure, and it held a number of lessons that we think have not entirely been learned by the I.T. world.

MC: What were some of those lessons?

SMITH: When politicians and some health policy wonks give speeches about health data exchange, they like to talk about how you might end up in an ER across town, and that’s why you need to be able to exchange data with each other. The fact is, if you are in an ER across town, the doctor can pick up the phone and call, which is what I was doing 20 years ago. It’s much more important that the hospital be able to exchange data with the physicians who admit to that hospital and with the pharmacies and the labs and the radiology providers they work with. The time and effort and money that you invest exchanging data with the hospital across town is disproportionate to its actual utility.

MC: Was the launch of the foundation’s Innovation Fund — a venture capital fund — the result of seeing some of these failures take place?

SMITH: For us and for many foundations, there is this phenomenon of successful pilots that wither and die. You have some great, innovative ideas, and you give money to someone to do it, and then as soon as the grant is over, it disappears. Our conclusion is, if you want something to really stick, it is going to have to find its way into what is still largely a market economy of providers. Even a public hospital, which considers itself underfunded and barely scraping by, has a budget of $500 million a year and buys lots of goods and services. If you want an innovation to be institutionalized and still be around five years from now, it has to be something that they can buy and kick the tires of, at a price that they feel they can afford. So we have started investing in companies. Like most investors, we’ve had some hits and some misses, but we are quite encouraged that there’s a growing desire to find ways to solve these problems that innovation can master.

MC: These companies have to convince hospitals that purchasing their product makes more sense than building one in-house.

SMITH: One of the companies we have invested in is a telepharmacy company. It’s a challenge for rural hospitals that are required to have a pharmacist present and able to dispense 24 hours a day, so a service that can do this remotely is a need they have. They may not have known they had it before the sales director called on the CMO, but once he offers them an alternative, that’s a “buy” decision as opposed to a “make” decision.

MC: How do you view health plans’ role in the dissemination of innovation?

SMITH: Managed care is at a crossroads. I sat on the performance review committee of HEDIS in the ’90s, during a time when a common notion about health plans was that they were going to directly influence care. Depending on where you stood, that was either a promise or a threat. With the coming of ACOs, everyone agrees that the real changes that have to happen are not so much in the insurance system — though there are clearly aspects of insurance and payment methodologies that are important — but at the level of the delivery system. Health plans have a broader view of the gap between guidelines and actual practice, and yet their tools to move practice are limited. The task, in whatever health plan you are in, or whatever relationship you have with providers, is to figure out what tools you can deploy or develop to help providers improve and develop greater value. Another task for health plans is to define the right areas for competition with other health plans, and the areas for collaboration with them.

MC: Can you explain?

SMITH: Some of the areas where health plans compete with each other are absolutely insane. It’s the source of wasted resources and frustration and hostility from providers. For example, we helped to catalyze and support the pay-for-performance program in California that is now well-established. Each of the plans was trying to get doctors in its network to improve care of chronic disease, but each had a slightly different target. So if you are a doctor and Blue Cross comes to you and says we want the hemoglobin HbA1c to be 6.9 and Blue Shield says we want 7.2, and United says we think 6.7 — well, you can’t do business like that. Pay-for-performance has not been as effective as we would like, but one of the great achievements was that everybody got together and said, OK, it’s 6.9. So at least we are all giving our provider network — which we share — the same target for improvement. I would love to see plans say, where is competition productive and where is it destructive?

MC: So even though it is the providers who have to change, insurers’ actions over the next several years will influence that change?

SMITH: We will achieve savings one way or another — the economy will make us do it. If we are able to achieve these savings while maintaining and even improving quality, it will be because the health plan medical directors have been an important part of that change, and they have deployed tools to help providers understand their own practice and improve.

MC: Thank you.

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