Bringing the Digital Revolution to Health Care

Introduction

The internet has revolutionized every sector of the global economy except one: health care. Even heavily regulated industries, like airlines and automobiles, have embraced concepts like mobile check-ins and driverless cars. So why is it that American health care has proven so intractably resistant to digital technology?

The most important reason is the one we have discussed at length in this manuscript: the inability of American patients to directly control their own health care spending. We can never have a patient-centered health care system if patients do not control the dollars being spent on their behalf.

And digital technology has the potential to do more to make health care affordable for those without coverage than any other innovation in public policy or private industry.

Digital health and the critique of market-based health care

Many observers — especially those aligned with the political left — argue that health care can never function like a conventional market. Certain structural aspects of health care, they say, prevent the efficient functioning of market forces and must be corrected by government action.

This argument has been espoused most notably by Stanford economist and Nobel laureate Kenneth Arrow. In 1963, the Ford Foundation approached Arrow, then known as a leading economic theoretician, about applying his ideas to the practical problems of health, education, and welfare. Arrow accepted the assignment and began studying the ins and outs of U.S. health care delivery.

In December 1963, Arrow published his seminal essay, “Uncertainty and the Welfare Economics of Medical Care,” in the American Economic Review. Health care, Arrow argued, diverges from traditional markets in important ways, concluding that “it is the general social consensus, clearly, that the laissez-faire solution for medicine is intolerable.”

The essay, still widely read, is credited by many as having invented the field of modern health economics. But even as medicine has changed dramatically in the past half century and many of Arrow’s observations seem increasingly outdated, his thesis remains at the heart of the ideological objection to market-driven health care.

According to Arrow, health care is subject to five distortions that prevent the efficient functioning of market forces:

• Information is asymmetric. Medical knowledge is complicated: the physician knows much more than the patient about the treatment of disease; the buyer of medical services is thus at a disadvantage, relative to the seller. It is also difficult for patients to make independent decisions as to the best course of action. Payment by health insurers leads to further confusion because insurers know less than patients and physicians about the particularities of each case.
• Demand is unpredictable. Demand for medical services is unpredictable and, therefore, differs fundamentally from other common expenses, such as food. In addition, access to health care is more critical than access to many consumer products.
• Trust is unusually important. A patient cannot test-drive a surgical procedure before undergoing it: if the procedure fails, or has adverse consequences, he is stuck with the outcome. The patient must trust that the surgeon is competent. If he is not, the consequences for the patient can include serious injury or death, for which there is no economic remedy.
• Barriers to entry are high. Physicians must be licensed to practice medicine. To gain licensure, they must complete many years of training. As a result, the sale and consumption of medical services is constrained by the limited number of new doctors produced each year.
• Paying for health care is not consumer-friendly. Patients now pay for health care after it is received. Patients also frequently pay indirectly for their care, via insurers. Further, patients are rarely able to shop around for a medical service based on price because there is little transparency in this area.

In health care, many of these distortions have considerably worsened since Arrow described them in 1963. But in other industries less dominated by government intervention, the internet has substantially eroded them.

Ken Arrow vs. the internet

Consider asymmetric information. It is not unusual for a buyer to have less information than a seller. The seller of a used car is likely to know more about that car’s mechanical history than a buyer, hence the popularity of third-party services, such as Carfax. The phrase caveat emptor — “buyer beware” — dates back centuries and has been enshrined in U.S. law since at least 1817.

Thanks to the internet, it is now possible to review the mechanical histories of hundreds of cars online. Indeed, in many types of transactions, the buyer now has an advantage over an inexperienced seller because the buyer has access to a wealth of data with which to compare price and quality.

Arrow also expressed concern about the unpredictability of one’s need for health care. But unpredictability, as an economic principle, is far less exotic today than it was in 1963. Advances in the pricing of options contracts have allowed individuals to assign prices to risk in almost every field of endeavor.

The last half-century has witnessed a proliferation of insurance products, addressing all sorts of unpredictability, including: traveler’s insurance, extended warranties, overdraft protection, and malpractice insurance. All of these products can be priced, and compared, online, in ways that satisfy consumers.

Trust is another economic problem that technology has made great strides in addressing. Airbnb, the home-sharing website, encourages both lessees and lessors to rate each other online. In this way, Airbnb reduces the risk of bad customers invading one’s home, as well as the risk of unscrupulous landlords failing to live up to consumers’ expectations.

The internet’s most profound impact on the non-health care economy involves reducing barriers to entry. Mom-and-pop craftsmen can start multinational businesses by selling their crafts worldwide on Etsy. More information is now available to non-professional investors. Authors can self-publish electronic books online. In most other sectors, consumers pay directly for goods and services, giving businesses a strong incentive to deliver those goods and services at an attractive price. But this is, of course, not what happens in U.S. health care.

Each barrier to a more innovative, competitive, affordable health care system exists for a reason. Privacy laws protect patients from having their sensitive medical records fall into the wrong hands. America’s complex, inefficient method for subsidizing health coverage exists because Americans have understandably sought to protect the poor and vulnerable from unaffordable health care expenses. But the cumulative weight of these policies has been to make health care less innovative, less patient-centered, and less affordable.

Digital technology can solve many of the health care problems that Arrow identified before the information economy arose; outside of health care, technology has already largely solved them. If we wish to bring internet-like innovation to health care, it is worth exploring some notable areas in which government policy has obstructed digital health technology.

Competition on price and quality

Our “ninth-party” system for financing health care—in which third parties (employers or the government) pay for third parties (insurers) to pay for health care services—means that few suppliers of health care services and products have an incentive to compete on price and quality.

At the same time, patients ultimately pay for every health care product or service that they consume, through taxes, health insurance premiums, and out-of-pocket spending. David Goldhill, author of Catastrophic Care: Why Everything We Think We Know About Health Care is Wrong, estimates that the average American will spend “roughly $4 million in total” for his family’s health care over the course of his life.

The digital technology sector, by contrast, is largely driven by consumer decisions about how to spend money. Someone who buys a television on Amazon, rather than at a local store, typically does so because Amazon’s price is better. Yet patients rarely take price into account when choosing a doctor or hospital because the vast majority of those costs are paid for by insurance and/or the government.

Some observers insist that high health care prices are necessary to fund innovation. Yet this is not generally true. As Clayton Christensen famously noted, disruptive innovation is driven by consumers’ desire to seek out goods and services of lower price and comparable or higher quality.

Japanese automakers entered the U.S. market by making low-priced cars, like the Honda Accord, that were more reliable than their American competitors. For decades, Japanese cars were derided by U.S. automakers as “cheap imports.”

Today, Toyota, Honda, and Nissan prosper in both the low- and luxury-ends of the market, while General Motors and Chrysler were bailed out by the government.

Google and Facebook are two of the most innovative companies in the world. Their core products — search engines and social networks, respectively — are free to the consumer.

Apple’s products are often more expensive than their competitors’; but even iPhones of comparable quality decline in price over time, as they must, since newer models contain newer features and consumers have alternatives, thanks to price competition.

In 2007, the initial iPhone was launched with 8 gigabytes of memory and a 320-by-480 pixel screen for $599. In 2015, the iPhone 6s Plus was launched with 128 gigabytes of memory and a 1080-by-1920 pixel screen for $499. That is to say: in eight years, iPhone memory increased by a factor of 16, screen resolutoin increased by a factor of 13.5, while inflation-adjusted price decreased by 27.4 percent.

Why has that not happened in health care? Because nobody spends someone else’s money as wisely as he spends his own.

Consider LASIK eye-correction surgery. LASIK is not covered by insurance because purchasing eyeglasses is much less expensive than LASIK. As a result, the LASIK market has behaved just like the conventional technology sector: over time, prices have gone down and quality has gone up. No LASIK provider or supplier complains that the decline in prices has led to less innovation.

Telemedicine and access to care for rural Americans

The high cost of U.S. health care is only one of the challenges for low-income Americans. Access to health care in America is also highly inconsistent. Those enrolled in Medicaid, and those without formal health insurance coverage, frequently face difficulty in obtaining needed care. The Association of American Medical Colleges believes that by 2030, the United States will lack between 42,600 and 121,300 physicians needed to meet patient demand.

A collection of entrepreneurs has shown impressive promise in addressing both of these problems at the same time, using 20th- and 21st-century telecommunications technology to supplement — and sometimes replace — the traditional physician office visit with telephone calls and videoconferencing.

Telemedicine, as this field has come to be called, can expand access to care by distributing physician demand more evenly across underserved areas, such as rural communities, and across underserved time periods, such as nights, weekends, and holidays.

Furthermore, telemedicine is significantly less expensive than conventional care. According to an analysis by Dale Yamamoto of Red Quill Consulting, a typical visit to the emergency room for a commercially-insured patient costs $1,595; a visit to an urgent care clinic $116; and a physician office visit $98. The typical telemedicine visit costs between $40 and $50.

Telemedicine could also significantly reduce wait times for physician care. In 2015, a group of scholars at the University of Pittsburgh, Harvard, and the RAND Corporation estimated that travel and wait times for physician care cost patients approximately $52 billion in 2010, primarily due to lost wages. Employed Employed adults lost 1.1 billion work hours in this manner, equivalent to the loss of 563,000 full-time workers.

However, despite these attractive features, telemedicine has attracted controversy from those it may economically disrupt, and from regulators with ties to incumbent stakeholders. It has also elicited concerns from scholars who seek to ensure that telemedicine can improve the quality of health care.

“Telemedicine” is most commonly used as a term to describe a real-time interaction between a physician and a patient, either by telephones (i.e., audio only) or videoconferencing technology. It may seem odd to conceive of the telephone — invented in 1876 — as a driver of technological change in medicine. And, indeed, for the majority of cases, an in-person encounter with a physician remains the gold standard of medical care.

But the confluence of Big Data and the internet has allowed entrepreneurs to deploy unused physician capacity over the telephone for health care problems of moderate to low severity. In a study published in Health Affairs examining the utilization of telemedicine by California public-sector workers, a majority of visits were for acute respiratory illnesses (31 percent), urinary tract infections and symptoms (12 percent), and skin problems (9 percent).

The opportunity is significant; the Centers for Disease Control estimate that there are 1.25 billion ambulatory care visits per year in the U.S.; approximately one-third of those are addressable via telemedicine.

Authors of the Health Affairs study found that patients seen by physicians using telemedicine was at least equal to, and in some ways superior, to the care offered in the traditional, in-person setting. Within 21 days of the initial patient-physician encounter, only 6 percent of telemedicine patients required a follow-up for the same condition, versus 13 percent for office visits and 20 percent for emergency room encounters.

34 percent of telemedicine encounters took place on weekends and holidays, compared to 8 percent for physician offices and 36 percent for emergency rooms. In other words, patients who had difficulty seeing a physician outside of office hours could now use telemedicine to avoid the emergency room while still gaining the advice of a physician.

All the while, the Health Affairs authors found that “there is very little evidence of misdiagnosis or treatment failure in [telemedicine] visits.”

Criticisms of telemedicine

Telemedicine has been subject to a number of criticisms, some more legitimate than others.

The first is that there is no substitute for a real, in-person patient encounter, because there may be clues as to a patient’s diagnosis and best treatment course that can only be elicited by an in-person examination. While this complaint is true in many areas of medicine, it is also true that telemedicine can play a very helpful role in several low-severity situations, such as bronchitis or a urinary tract infection. Furthermore, for those living in rural and underserved communities, the choice isn’t between telemedicine and an in-person physician visit: it’s between telemedicine and nothing, or between telemedicine and a long wait.

The second is that telemedicine introduces competition within the physician community. If out-of-state physicians can see a patient remotely, then local physicians will face more competition. While several medical groups and professional associations oppose physician competition, it is quite clearly in the interest of the consumer — the patient–to gain wider access to physician care than he does today.

The third is that telemedicine could be abused by those inappropriately seeking prescription pharmaceuticals. While this is certainly possible, it is well within the existing purview of state regulators to monitor physician drug prescribing so as to prevent abuse.

Lifting regulatory barriers to telemedicine

Telemedicine is unusual in that both federal and state-based policymakers can play a role in enacting reform.

As seen above, state governments, through their licensing boards, can attempt to restrict the availability of telemedicine. As of January 2016, only Arkansas prohibits the practice, requiring a pre-existing in-person relationship in order to allow any interaction by telephone or videoconference. Idaho allows for physicians to issue prescriptions via telemedicine if there is video interaction as well as audio. Texas has attempted to restrict telemedicine in myriad ways. Most other states allow telemedicine of the variety practiced by Teladoc, MDLive, and other companies.

Another opportunity for states to improve opportunities for telemedicine is to harmonize state-based medical licensure. Because physicians engaging in telemedicine are required to be licensed to practice medicine in the state where a patient resides, states can accelerate the uptake of telemedicine in their states by making it easier for physicians in other states to gain licensure in theirs.

In September 2014, the Federation of State Medical Boards published the Interstate Medical Licensure Compact, with the goal of enabling participating states to streamline cross-licensure for physicians in their states. As of January 2016, twelve states have officially signed onto the Compact: Nevada, Idaho, Montana, Utah, Wyoming, South Dakota, Minnesota, Iowa, Wisconsin, Illinois, Alabama, and West Virginia. Another ten states — Washington, Colorado, Nebraska, Oklahoma, Kansas, Michigan, Pennsylvania, Vermont, New Hampshire, and Rhode Island — are actively considering legislation to do so.

Given that approximately 140 million Americans are on government-sponsored health coverage, a key barrier for telemedicine to overcome is reimbursement for telephone and videoconference-based patient interactions. States have the latitude to reimburse for telemedicine within their Medicaid programs, and most do, albeit at widely varying rates.

27 states and the District of Columbia have enacted laws requiring private insurers in their jurisdictions to provide coverage and reimbursement for telemedicine services that is comparable to that for in-person physician encounters.

Such “parity legislation” can, paradoxically, reduce the appeal of telemedicine, because it prevents insurers and providers from identifying economic efficiencies in the delivery of telemedicine. If telemedicine encounters and in-person encounters cost the same, there is little incentive for insurers to drive uptake of telemedicine.

Two reforms at the federal level, outside of judicial rulings, could play a significant role in improving the outlook for telemedicine. First, Congress could clarify the application of antitrust law to state medical licensing boards, so as to create a safe harbor for innovative telemedicine practices.

Second, greater uptake of bundled payment by the Medicare program could strongly encourage telemedicine, as paying for episodes of care encourages providers and Medicare-associated insurers to identify efficiencies in cost and quality.

For example, in the traditional fee-for-service Medicare system, the government will pay a hospital more money to care for a patient with a urinary tract infection if that patient fares worse over time, requiring more health care.

This gives the hospital a perverse incentive to perform badly. By contrast, if Medicare pays that hospital $1,000 for each patient with a urinary tract infection, the hospital generates more income if the patient recovers more quickly and if it deploys more cost-effective care, including telemedicine.

Digitization and mobility of patient records

One of the most significant deficiencies in the U.S. health care system is the degree to which patients do not own and control their own health care information. This makes it harder for patients to share their health records with new doctors, hospitals, or emergency rooms; it increases the likelihood of medical errors and repetitive care; and it makes the coordination of care difficult for patients with multiple physicians and/or multiple diseases.

Patients who are familiar with their own health history are in a better position to engage in their own health, and give their physicians useful information during interviews, and avoid harmful interventions that might otherwise be indicated by a patient’s symptoms and clinical presentation.

Not all patients want to closely review their health records; for example, in a 2014 survey by Accenture, cancer patients were more likely than others to agree with the statement, “I trust that my medical records are accurate, so I don’t need to access them.”

There are types of consumer data that are highly useful to businesses, such as those compiled by market research firms and advertisers based on income levels and consumption patterns. But it is understandable that consumers are not that interested in what businesses think they might want to buy in the future.

A certain level of disinterest in one’s personal health records is to be expected. For example, a 2013 survey by the American Bankers Association found that only 42 percent of U.S. consumers know their credit score, even though consumers have the right to one free credit report from each of the three major rating agencies each year.

Though it would be unrealistic to expect every patient to take great interest in his health records, there are clear and material benefits to patients gaining access to their health records, and so it is striking how infrequently it takes place. The Accenture survey found that 87 percent of patients wanted control over their own health data. However, according to a poll by the Office of the National Coordinator for Health Information Technology (ONC), only 21 percent of patients accessed their online medical records in 2014.

Barriers to patient health record ownership

Federal policy has erected important barriers to those who actively seek such access.

The first problem is third-party payment for third-party insurance. Providers of health care services, such as physicians, nurses, and hospitals, are paid by insurers and the government. Furthermore, insurers are predominantly retained by employers, not individuals; and government programs are funded by taxpayers, most of whom are not enrolled in those government programs.

Health care providers know that they are financially accountable to insurers and the government, and are therefore responsive to the concerns of these payors. However, the concerns of insurers and governments are not always aligned with the interests of patients. Providers and diagnostic companies have historically considered health records to be their intellectual property, not the patient’s, even though patients are directly and indirectly paying for those services.

Patients have historically lacked the power to change insurers, or the market information needed to switch providers; hence, providers and payors rarely had the incentive to cater to patients’ desire for their own records.

The second is Medicare’s byzantine reimbursement policies. Historically, Medicare has run on a “fee-for-service” model in which providers were paid regardless of the quality with which providers delivered their services to patients. Medicare’s reimbursement policies have proven highly influential in the private sector as well, leading to a broad culture of paying for quantity, not quality. As Medicare traditionally did not reimburse providers for making patient records accessible, providers did not focus on this nonremunerative task.

The third is federal laws regarding patients’ rights to their own records. Not until the Health Insurance Portability and Accountability Act of 1996 did patients have the right to request copies of their health records from providers. HIPAA’s so-called “Privacy Rule” gave patients the right to receive copies of their medical records in most circumstances. However, many providers were concerned that giving patients access to their records would increase malpractice litigation, and erected barriers to access.

For example, a law in New York state allows providers to charge as much as 75 cents per page to provide access to patient records. Since medical records have historically been paper-based, and are often lengthy, these reproduction costs made access to health records unaffordable for many patients.

The fourth barrier is the ability of different providers to exchange patient data. Paper-based patient data is inherently difficult to exchange; as providers have moved to electronic health records, the lack of widespread standards for patient data has proved problematic. The challenge of many providers to seamlessly exchange electronic patient data is often called interoperability or data liquidity. It’s not necessary for the public sector to develop these standards; in the consumer electronics sector, for example, private manufacturers developed the compact disc, digital video disc, and Blu-Ray standards. However, past federal efforts to encourage the use of electronic health records have made the emergence of standards more difficult.

Past efforts at reform: HIPAA and HITECH

Broadly speaking, there are two general approaches policymakers could take to address the problems with patient access to health records. The first would be to move away from third party payment of third party insurance, and move toward a system where individuals purchased their own insurance, and paid for more care directly. Reform in this direction has proven difficult over the last several decades.

The second would be to preserve our current way of paying for health care, and instead add in layers of new federal rules mandating that providers make health records more accessible. Over the past 20 years, Congress and the Executive Branch have chosen this latter route, with mixed success. Their efforts have culminated in two major statutes that govern patient health records: the Health Insurance Portability and Accountability Act of 1996 (HIPAA), and the Health Information Technology for Economic and Clinical Health Act of 2009 (HITECH).

HIPAA was arguably the most significant piece of health care legislation in the 1990s, instituting changes to employer-based insurance and health savings accounts. Significantly, Title II of HIPAA was designed to lay down ground rules for the privacy and portability of patient medical records. As noted above, the law’s “Privacy Rule” requires health care providers and other covered entities to offer patients access to their health records. However, providers were not required to do so in a timely manner or at an affordable price. As a result, the law did not result in a substantial increase in patient access to medical records.

The HITECH Act was passed as part of the American Recovery and Reinvestment Act of 2009, popularly known as the “stimulus bill.” HITECH arguably represents the most profound federal change to health care delivery since HIPAA.

By emphasizing the development of electronic health records, HITECH was designed to make more feasible HIPAA’s goal of granting patients access to their medical records. Furthermore, the law formally created the Office of the National Coordinator for Health Information Technology as a staff division within the U.S. Department of Health and Human Services, in order to focus federal efforts to establish the meaningful use of electronic health records.

The law strongly encourages physicians and hospitals to achieve “meaningful use” of interoperable electronic health records. The encouragement comes in the form of incentive payments by Medicaid and Medicare.

The HITECH Act and its attendant regulations specify three stages of “meaningful use” of electronic health records (EHR). Each stage is accompanied by a number of federal objectives that providers must meet in order to receive the incentive payments.

In Stage 1, in the years 2011 and 2012, providers were to focus on installing EHR systems. In Stage 2, for the year 2014, providers were to focus on ensuring that their EHR systems could communicate with those of other health care providers, including pharmacies and clinical laboratories. In Stage 3, for the year 2016, providers are to focus on improving health outcomes.

HITECH has led to inefficient care delivery

However well-intentioned HITECH may have been, the law has come under withering criticism from health care providers, especially physicians, who say that the law forces them to spend time in front of their computers instead of interacting with patients. According to a survey of physicians published in Health Affairs, less than 20 percent of physicians express a desire to go back to paper medical records. However, these same physicians reported that the regulations promulgated in HITECH had profoundly decreased the efficiency of health care delivery:

Physicians noted important negative effects of current EHRs on their professional lives, and, in some troubling ways, on patient care. They described poor EHR usability that did not match clinical workflows, time-consuming data entry, interference with face-to-face patient care, and overwhelming numbers of electronic messages and alerts. Physicians in a variety of specialties reported that their EHRs required them to perform tasks that could be done more efficiently by clerks and transcriptionists.

The inability of EHRs to exchange health information electronically was deeply disappointing to physicians, who continued to rely on faxed medical documents from outside providers. Physicians also expressed concerns about potential misuse of template-based notes. Such notes, which contain pre-formatted, computer-generated text, can improve the efficiency of data entry when used appropriately.

However, when used inappropriately, template-based notes were described as containing extraneous and inaccurate information about patients’ clinical histories, with some physicians questioning the fundamental trustworthiness of a medical record containing such notes. In addition, EHRs were reported as being significantly more expensive than anticipated, creating uncertainties about the sustainability of their use.

The HITECH Act shortsightedly emphasized physician entry of electronic patient data; the law created unnecessary legal hurdles to deploying support staff for that purpose, freeing physicians to focus more directly on their patients.

The objectives contained in HITECH’s “meaningful use” standards have turned out to be onerous and time-consuming as well; providers were defined as “failures” if they missed a single objective out of 15.

Another problem has been the cumbersome process for EHR vendors to gain federal certification, and thereby qualify for uptake under the “meaningful use” requirements. The certification process has rewarded established, well-connected businesses and hampered the ability of entrepreneurs to develop innovative approaches to EHR delivery, usability, and interoperability.

There is a pressing need for reform of federal laws pertaining to patient health records. The current regime is cumbersome for providers, and erects needless barriers to innovation that would seem bizarre to entrepreneurs in the conventional information economy.

Interoperability and data liquidity

A key difficulty in enhancing the utility of patient medical records — one that HITECH has not overcome — is the ability of those records to be used by multiple providers in the coordination of care. In the health IT community this is often described as “interoperability” or “data liquidity.”

HITECH’s rules and regulations regarding the meaningful use of electronic health records have contributed to this challenge. In addition, anti-kickback statutes prevent businesses from receiving revenue for simplifying the transfer of patient information between providers.

Another problem is that clinical data is inherently complex. Patient records can contain subjective and objective information; even objective information, such as blood pressure, can be measured using different techniques. Hence it is important for there to be widely accepted standards for the categorization of clinical data.

Under HITECH, the federal government overly centralized and bureaucratized the development of interoperable electronic health records. Furthermore, the law has primarily rewarded purveyors of closed, proprietary EHR systems that cannot be improved by physicians, entrepreneurs, or freelance coders.

Progress on digital health reform

In 2016, we proposed several options for improving access to, and the interoperability of, electronic medical records:

The Office of the National Coordinator (ONC) [should] defer to national medical societies, such as the American Medical Association, the American College of Cardiology, and the American Society of Clinical Oncology, to develop and annually revise open-source standards for electronic health data in their respective fields.

Furthermore, Congress should liberalize federal EHR certification rules, in order to substantially reduce the barriers to new entrance that stem from federal compliance. Federally sanctioned EHR software should be required to deploy open-source architecture, in order to maximize the ability of innovators to build upon existing platforms.

It is possible to develop profitable EHR software using open-source architecture, as Athenahealth and other vendors have demonstrated.

One aspect of the HITECH Act could be enhanced: the so-called “Blue Button” initiative that allows patients to download or view their electronic health records from participating providers. Federal incentives have made the use of “blue buttons” widespread in Medicare; policymakers might consider rewarding providers who automatically give non-Medicare patients access to secure electronic health records as a default option.

Patients who do not want to view or harbor their health records would have the freedom to opt out of receiving them. Such a change could engender a dramatic increase in patient engagement with their medical data, and entrepreneurship with regards to housing, sharing, and analyzing medical records.

Since then, there has been progress. For example, the 21st Century Cures Act, enacted in December 2016, directed the Department of Health and Human Services to improve the interoperability of health information. In 2018, Don Rucker, the National Coordinator for Health Information Technology, announced that his office (ONC) would be advancing regulations to prevent data vendors, insurers, and providers from engaging in “information blocking” that limits patient access to medical data.

Rucker also announced a new open application programmable interface, or API, called “Blue Button 2.0,” which will allow Medicare beneficiares to share claims and health data with multiple providers, caregivers, and technologists.

Strengthening the security of patient records with blockchain technology

An emerging and promising technology for improving the digital security of electronic medical records is the blockchain, the cryptographic technology used in digital currencies such as Bitcoin and Ethereum.

Blockchain-based medical records, for example, would be nearly impossible to hack, especally if they required authorizations from both a patient and his doctor to access. The billing departments of insurers and hospitals could access the blockchain in order to audit a medical episode, and to dramatically reduce waste, fraud, and abuse.

Deploying digital technologies to coordinate care

Innovation in software and data analytics is allowing entrepreneurs to develop methods of delivering highly customized goods and services to individual consumers. In theory, such methods are highly applicable in health care, where each patient has an individual profile that could benefit from customized treatment. However, a thicket of privacy laws, anti-kickback statutes, and other inefficiencies prevent patients from owning their health data, such as medical charts, to take advantage of new technologies.

IBM is developing software to combine patient interviews with a comprehensive review of the medical literature, in order to provide physicians with evidence-based suggestions regarding treatment algorithms. Such analyses ought to be available to patients, too — entrepreneurs could further analyze the cost-effectiveness of various treatments that a patient might consider. Yet such analyses are now difficult, if not impossible, to offer patients because patients do not own their medical data.

While some physicians may see third-party advice to patients as a threat to their authority, such software could likely do much to improve patient care by helping physicians and patients adhere to evidence-based guidelines, thereby reducing medical errors and improving clinical outcomes. One can envision a time when patients are more informed than physicians about patients’ health profiles — asymmetry of information, but in the patient’s favor.

One of the most high-profile problems in health care policy is coordinating care for patients with multiple chronic illnesses. A patient with diabetes and heart disease, for example, is likely to seek care from a primary care physician, an endocrinologist, a cardiologist, and a local hospital.

Frequently, these health care providers are independent of one another, and do not coordinate their actions with regards to the patient. This can lead to duplicative care, higher costs, and serious medical errors. For example, the endocrinologist may prescribe one set of pills, while the cardiologist prescribes another, while the primary care physician prescribes yet another. If any of these prescriptions overlap, the patient could suffer from a lethal overdose.

In 1999, the Institute of Medicine estimated that as many as 98,000 people a year die in hospitals as a result of preventable medical errors, with an additional cost of between $17 and $29 billion in additional care, lost income, disability, and lost productivity.

“One oft-cited problem,” wrote the authors, “arises from the decentralized and fragmented nature of the health care delivery system — or ‘nonsystem,’ to some observers. When patients see multiple providers in different settings, none of whom has access to complete information about the patient, it becomes easier for things to go wrong.”

Unfortunately, federal law effectively prohibits the ability of technology companies to help providers coordinate care, because if a firm receives any sort of payment for acting as a middleman between two different health care providers, it risks running afoul of federal anti-kickback laws.

Anti-kickback statutes arose from an understandable desire to address unsavory practices in patient care. The problem arose when some specialists or hospitals would offer payments — or kickbacks — to other physicians for patient referrals, regardless of whether the referred services (or providers) were best for the patient. The Institute of Medicine has estimated that 30 percent of U.S. health spending — more than $900 billion a year — is wasted on medically unnecessary services, fraud, and bureaucracy.

The principle that doctors should only refer patients to other providers based on medical need dates back to the ancient Hippocratic oath to put the patient’s interest above the physician’s.

These practices are seen as less pernicious outside of health care. As a result, coordination of customer service is routinely achieved in the less-regulated, non-health care economy.

For example, even though airlines are highly regulated, if Delta Air Lines cancels a flight due to mechanical issues, it can electronically transfer passengers to American in exchange for a fee. Amazon coordinates consumer information between millions of sellers. Marriott International — the owner of the Marriott, Westin, and Sheraton hotel chains — is able to collaborate with American Express on a credit card product, in which consumers are incentivized to patronize both businesses at the expense of competitors.

Hence, the well-intentioned principle of preventing kickbacks creates economic distortions. Simply imagine a world in which products like the Marriott American Express Card were illegal, or where American and Delta could not pay each other to accept stranded passengers. Paradoxically, the anti-kickback statute, designed to protect patients from corrupt physicians, is also harming patient care.

Anti-kickback laws have another deleterious effect. By prohibiting any economic incentive for care coordination, they incentivize hospitals and doctors to merge into oligopolistic entities. “Anti-kickback laws effectively prohibit hospitals from providing financial incentives to independent doctors who deliver efficient care,” observes David Dranove of Northwestern University’s Kellogg School of Management.

While it is illegal for hospitals to provide those incentives to independent doctors, it is perfectly legal for hospitals to acquire physician practices and provide those incentives internally.

Thus, the anti-kickback statute provides a powerful legal incentive for hospitals to acquire physician practices, thereby reducing competition in the health care system and increasing costs. Indeed, as a consequence of the Affordable Care Act, a group of federal agencies, working in concert, issued a waiver from the anti-kickback statute to physicians and hospitals who merge under the guise of Accountable Care Organizations, ACA-sanctioned provider entities that seek to coordinate care for patients with multiple illnesses.

Supreme Court Justice Louis Brandeis famously observed that “sunlight is said to be the best of disinfectants.” Transparency and disclosure could provide a superior outcome for patients than criminalizing care coordination among independent providers.

The Centers for Medicare and Medicaid Services can retain the ability to prosecute corrupt physician practices without the aid of the anti-kickback and Stark statutes. Congress could replace those laws with provisions requiring physicians to disclose to their patients — and to CMS — any remuneration they receive for patient referrals. In this way, patients could judge for themselves whether or not the referral was justified, and CMS would acquire data with which to pursue clear instances of corruption.

How the Stark law prohibits medical innovation

HHS Deputy Secretary Eric Hargan is leading a Trump administration initiative to modernize the Stark Law. In July 2018, the House Ways & Means Committee held a hearing entitled “Modernizing Stark Law to Ensure the Successful Transition from Volume to Value in the Medicare Program.” Witnesses at the hearing made a number of important observations about how Stark and anti-kickback statutes stymie health care innovation.

Multiple witnesses noted that Stark’s inflexibly punitive structure—under which any minor or unintentional violation is a criminal offense punishable by federal imprisonment—has been a strong deterrent against innovation in health care innovation. While the Affordable Care Act empowers CMS to waive Stark rules for certain providers such as Accountable Care Organizations, these waivers are offered on a case-by-case basis, after a company has gone through the investment and effort to put forth a proposal. This regulatory uncertainty makes it highly risky for innovators to invest time and money into new models.

Gary Kirsh, a urologist in Cincinnati, testified that the Stark law prevents physicians from coordinating care with each other. “The Stark law,” he said,

Prevents gainsharing arrangements that would be required for non-employed physicians to create relationships with hospitals that would enable care coordination and distribution of shared savings that result from adoption of value-based care models;

Orthopedic surgery practices from taking into account the “value” derived through adherence to clinical protocols that shift patients from higher costs and less efficient inpatient rehabilitation facilities into high quality, lower cost models within the medical practice setting;

Specialty and primary care physicians from jointly sharing savings derived from monitoring and treating patient with chronic conditions through decreased hospitalization and emergency department visit; and

Surgical, radiation and medical oncologists from developing shared savings models based on improved treatment pathways and enhanced care coordination for patients with cancer.

“Although Stark and other fraud and abuse laws for approved [alternative payment models] may be waived by the Office of the Inspector General on a case-by-case basis,” Kirsh noted, “these waivers are by their nature narrow and specific. The OIG cannot be expected to foresee real-world circumstances that will inevitably emerge…Evolving standards of care, new procedures and medical innovations, and changed [Medicare reimbursement] codes may affect both physician behavior and compensation models in unexpected ways.” Stark law requires the federal government to issue a new waiver any time such evolutions change the nature of an alternative payment model.

Michael Lappin, of Advocate Aurora Health, testified that physician groups must retain costly consultants—with fees “in excess of $20,000, to review a single physician compensation agreement to ensure compliance with Stark requirements. Because Aurora enters into thousands of contracts with physicians each year, this cost can become astronomical, yet is needed to document compliance even when we know that no payment is being made in exchange for referrals.”

Like Kirsh, Lappin noted that the Stark law prevented Advocate Aurora from engaging in shared savings contracts, in which physicians could be economically rewarded for engaging in high-quality, cost-effective care. That economic reward, under Stark, is considered a “kickback.” Similarly, efforts to provide low-income patients with complimentary transportation, housing, or other social assistance is a criminal violation of Stark. And Stark incentivizes provider consolidation, because it is perfectly legal for a hospital to share medical information internally, but not externally.

Modernizing Stark and anti-kickback law

Instead of relying on the federal government to issue waivers to medical providers on a case-by-case basis, Congress should amend the Stark law to create a clear safe harbor for alternative payment models. This regulatory clarity is an urgent need, and would allow innovative clinicians and technologists to invest in new models without fear that they could go to prison for a technical violation of the Stark law.

Similarly, as Lappin pointed out in the hearing, the Stark law does not “formally distinguish between substantive and technical violations, meaning unintentional actions (e.g. missing or out-of-date paperwork) can lead to extreme penalties. The potential for such violations presents a serious challenge to health care providers who make a good faith effort to satisfy the law’s complex technical requirements but then may be subject to millions in penalties or other enforcement actions.” Congress should allow unintentional or minor violations of the Stark law to be address through small civil penalties, so as to dramatically reduce the business risk inherent in innovative payment models.

Another problem is that the several anti-kickback statutes are enforced by different agencies. While Stark is enforced by the Centers for Medicare and Medicaid Services, the broader Anti-Kickback Statute is enforced by the Office of Inspector General, and the Department of Justice has a role in enforcing both statutes and also the False Claims Act. Congress should amend these laws such that health care providers are subject to enforcement from a single agency.

Rep. Bruce Westerman (R., Ark.) has introduced the Fair Care Act of 2019, which would address a number of these issues. Title V of the bill focuses on digital health care, exempting value-based purchasing arrangements and alternative payment models from Stark and the federal Anti-Kickback Statute. It also amends the Stark law so as to establish “modest penalties for technical noncompliance with the law (as opposed to intentional and egregious violations).”

The Fair Care Act also establishes patient ownership of all diagnostic tests and objective clinical measurements conducted on a patient’s behalf, and expands Medicare coverage of telehealth services.

Conclusion

Health care information technology remains decades behind IT in other sectors of the economy. Today, most patient referrals are still processed via fax machines and physical paper. By eliminating the chilling effect of the anti-kickback laws, technologists would be free to develop innovative new approaches to patient care coordination, deploying advanced computing power to identify potential medical errors and billing mistakes that could expose patients to large medical bills.

Instead of relying on the HHS Office of Inspector General to anticipate new technologies and modes of healthcare delivery, entrepreneurs could conceive of ways to coordinate care without fear or criminal prosecution. At the same time, both patients and policymakers could continue to pursue real instances of corrupt practices, thanks to transparency and disclosure.

Today, health care information technology is dominated by a few large companies, like Epic Systems Corporation. This is in part because disruptive innovators are stymied by the risk of federal criminal prosecution. It is impossible to calculate how many lives might be saved by digitally improved care coordination — but when it comes to replacing anti-kickback statutes with transparency provisions, the risks outweigh the rewards.