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The burning platform in health care is that the health care system really is not working. In fact, to even call it a system does an injustice to the word system. In the U.S. we spend perhaps 50% more per capita than anyone else in the world, and currently we have worse outcomes. So this is not a good situation when we're spending more than $3 trillion a year, 18% of our gross domestic product in an industry that is basically sick.

This is work I'm doing in collaboration with my colleague and friend, Michael Porter at Harvard Business School. Michael's a professor of strategy, and in fact, founded the field and he got interested in health care 10 to 15 years ago because he wondered, "How do you have a system like this sustain itself in such an inefficient way?" As he sort of threw it, he realized that the fundamentals for healthy competition, which ultimately is what drives value to consumers, does not exist in health care that we don't even agree on what goal of the system is.

So Michael has proposed, and I fully agree, that the basis for organizing the health care sector is around value, but we have a very specific definition of value is that for each medical condition, how do we improve the outcomes that are delivered and experienced by the patient and how do we lower the cost of delivering those outcomes, which doesn't seem revolutionary. But it is revolutionary because no one has defined the problem and the solution in that way. They've been all around this thing, how do we use checklists, how do we use lean and process improvement, how do we deliver better outcomes to patients and lower the cost of doing that?

So you think about a $3 trillion a year industry in the U.S. that doesn't know what its outcomes are and doesn't measure its cost, that explains a lot about the system that we have. And I got involved because I have developed a technology of how to measure cost and Michael's developed an approach on how to measure outcomes.

And then there's a third part, is when you have outcome measurements and you have cost measurements, you can reimburse providers in a very different way and right now, providers are reimbursed, in the U.S. mostly, by fee for service, and that rewards volume of stuff but not value, not good outcomes because the fees are independent of what outcomes get produced. And in fact, if you don't do a very good job and the patient has to come back for more work, you get more revenues. That's not a very good way of paying for health care.

So we're advocates of an approach that's beginning to come in called bundled payment reimbursement where you make a single payment to cover the treatment to entire medical condition. But we are actually doing it with [inaudible 00:03:04] flavor which is base it on, make the payment contingent on delivering good outcomes, which seems normal because if you buy a car and it doesn't work, you return it because it doesn't work. Every other industry that straight forward in health care, this is revolutionary. My role in this agenda primarily at this stage is the costing element and what I found does exist is that costs are not measured well in health care at the specific medical condition level.

Obviously, hospitals know how much they're spending. They can trace some of their spending to various clinical departments like orthopedics and cancer care, neurosurgery. They can't take the cost of that department level and drive it down to the patient level treating the patient for the clinical condition. I've helped to develop an approach called time-driven activity based costing which enables that assignment of expenses to be done well at the patient level. It just consists of really two types of two estimates and one of them is to understand the clinical pathway that is used to treat a patient with a medical condition.

What actually happens when the time they show up with a complaint until you diagnose it, treat it, through the surgery, the recovery and then the therapy and release them. What are all the clinical and administrative processes that are performed to get the patient through the entire cycle of care? And when we do that we try to find out at each process step, who is doing it. We can actually calculate how many minutes per year that a person or piece of equipment is available for patient work. That typically comes out to be 90 or 100,000 minutes a year. As you divide their annual expenses by their capacity, you get a cost per minute for every single individual.

And what's really fascinating about health care is the variation and cost rates. Until we have the MDs, whose cost rates could be somewhere between three and a half to six or eight dollars a minute. That would be typical rates, but you have a nurse, might be a dollar or a dollar and a half a minute and you have clinical assistants or scribes or receptionists for around $0.50 or $0.60 a minute. So you get this 10, 12 to 1 variation between the least highly and the most highly paid person which is really interesting because it says even if everybody is busy all the time and they're doing work, if you have a $5 a minute person doing something, that an 87 minute person could do equally well or slightly less efficiently, that's an inefficient use of the resources.

So there's an expression in medical care called have people work at the top of their license. But they don't really see the rationale or the economics behind it until you get to this caustic procedure. So combination of . . . they would take the process times for each person multiplied by their cost rate, cost per minute that tells you the cost of that person or the process step, and we just add it up across all the process steps over the whole cycle of care, and that tells you the total cost. This is not a quantum mechanics or genomic sequencing, it's really simple. What makes it difficult is just there's so many process steps.

So Michael and I are sitting there at the Harvard Business School four or five years ago and we realized, okay, this looks like this could work. But how do we get people other than the two of us to realize that this really could work in practice, there's a lot of good theories that don't work in practice. I said, well, the only way we're going to do this is to test it in practice and so we have to find pilot sites that are willing to try this out because we think we'll be able to create the change by demonstrating that it works. We want to work with leading providers. We're really excellent and they want to be better and they also want to prepare for the new environment where there will be fewer resources available to pay for health care.

And so the ones that are proactive and thinking ahead that they realize that this very forgiving fee for service environment will phase out over the next five years and they want to be ahead of the curve and see what can replace them. Currently, we're working with at least two dozen organizations and they're really distinguished organizations. They are leaders, the Boston-based hospitals and Yale Clinic and Cleveland Clinic, then about six or eight months ago, got contacted by Dr. Vivian Lee here at the University of Utah Health Center and Dr. Lee is a great visionary leader and those are the kinds of people I like working with.

So starting in January, I and my team came out here, we presented the ideas and we formed five teams to work on applying the time-driven ABC in three clinical areas and two support areas. We had the benefit of Dr. Lee, had already put into motion, with some terrific staff here, an emerging system called value-driven outcomes. We're getting outcome measurements very well at the clinical level as well as tracing starting to trace costs to the clinical level as well. And we had to just refine the costing module within that and to build upon this value driven outcomes approach that was being implemented.

It's been a great place to collaborate. We have the opportunity, the UHC has the opportunity maybe with some of our systems to really be one of the national leaders in implementing this value-based health care delivery approach. And so if we can use this as a shine, light, the example, this really can be done and it can deliver major improvements, and patients are better off and we're doing this at lower cost, people will see that this is really a successful way for transforming the way we deliver health care in the United States. There's a lot of skepticism in health care and they'll tell you 200 reasons why any innovation approach won't work and my role is to show it can work.

I think Americans understand that we have to have change. I think that until it begins or however when it becomes personal to them, like any change, it begins to be more difficult. But I think that American's understand that the system is going to change and they are buckling their chin strap to see how it will affect them.

The areas that I am focused on now are essentially how can we drive more quickly? The concept of measuring value not volume and that isn't controversial any longer, but the implementation of it is and does begin to drive a lot of change that people are uncomfortable with.

The parable of buses, taxis, and limos basically says that there is a lot of ways to get from point A to point B and after all, what we are after is transportation in healthcare. After all, what we're looking for is good, quality care. The setting in which we get it, how fancy it is or how comfortable it is, in the context of convenience, it may be that some people will say, "I'm prepared to have a narrower network of choices for a lower premium." We've seen that begin to happen already. Those are choices that consumers can make. They can make them in any other area, and they can make them in healthcare as well.

I think that big change to the future is we are going to start to value both of those, cost and quality. As opposed to simply having access to unlimited amounts of care.

There are four basic entities or types of entities that I think are making competitive entries in the market. They are obviously hospital driven, doctor driven, insurance company driven, and a new group that I call strategic aggregators. These are unlikely entries into the market with people like Walgreens and CVS who have footprints on almost every corner and are beginning to turn parts of their retail stores into care centers. And I think we will begin to see them play much more pronounced and perhaps prominent role.

All four of those types of entities are looking to become what I refer to as a general contractor in medicine. I think that's the struggle that's happening.

We are now moving into a period where care is going to have to be much better coordinated and the question becomes in a coordinated environment, who is the general contractor and who is the sub-contractor and who is bearing the risk? And that's being redefined in every medical market in the country. No one has all of the competencies that are required.

If we look back 25 years and we looked at industries like the restaurant business or the hotel business, there were lots of independent hotels and restaurants. And now we have Marriot and Hilton and brands we know. I think health care will always be local. But I do think we will begin to see health care, particularly primary care, begin to consolidate into a series of brands that we're better familiar with and will compete on a more national or regional basis.

I'm probably more optimistic today that we're actually getting a handle on the problems of health care than I have been for some time. Because hard things are beginning to happen and people are having to make choices and they're working with certainty to get a handle on their costs. And that's not easy. It's hard. But hard things are happening and because hard things are beginning to happen my optimism goes up.

We've reached the point of healthcare cost unsustainability, so simply slowing the rate of healthcare cost growth won't get us out of the problem.

We don't have any wiggle room. We don't have any margin. We're using up all the resources that we can spend elsewhere in society. So that's why I say, let's not use the phrase bending the cost curve. We have to break the cost curve. Slowing it down is not sufficient. If healthcare costs were only growing at 2% which would be historically amazing, but the economy was only growing at 1%, then healthcare costs are still growing twice as fast as economic expansion.

So instead of thinking about slowing healthcare cost growth and thinking that's wonderful, we have to get healthcare cost growth to a level where it's equal to or less than the rate of economic expansion. Otherwise, we're simply slowing the rate of the problem.

What we've been talking about for years is now happening. The problem was that it was always something that would happen in the future, and so, as a result, we kept marching toward the day of reckoning, and we're at the day of reckoning now. The last recession was very much healthcare related, and we are in a very tenuous situation where if we keep spending more that it runs the risk of not just destabilizing the economy but destroying it. Everyone recognizes that now.

Healthcare is always at the base of the issue. We cannot address this without addressing healthcare. You cannot address the deficit without addressing healthcare. You cannot address the aging of the American population without addressing healthcare. You cannot address American competitiveness without addressing healthcare. We've reached a point where no one can afford healthcare.

The federal government can't afford it. The state governments cannot afford it. Businesses cannot afford it. People cannot afford it. You can make the arguments, yes, but we're taking care of poor people or sick people. And that's cool, but the problem is the markets don't care about that. Markets are agglomerations of people, and what people say is, "Where can I get the product I want at the best cost? At the lowest price that's got the value that I need."

The other thing that you have to think about is we've got the most expensive healthcare system in the world, but we don't have the best healthcare system in the world. So wait a minute, we're spending 18.2% of our economy on healthcare. It's incredibly expensive. It's the number one cause of personal bankruptcy in the United States. It's destroying state and federal budgets. We're not getting value for the dollar, and we're killing and injuring lots of people? So there's the case for change.

So you're seeing as a result, decreases in utilization precisely because of that, and that's the indication that the market is reforming the healthcare system. We need to be able to respond to that by demonstrating value, by providing safe, efficient care, by giving good information to patients so that they can make informed decisions, and not just being this black box of opacity which is based on a "Trust me. We're good" and "Don't worry how much it's going to cost because your insurance will pay for it."

Scot: Did you realize that leeches are still used in modern medicine? Well, they're about to be out of the job. That's coming up next on The Scope.

Announcer: Examining the latest research and telling you about the latest breakthroughs. The Science and Research show is on The Scope.

Scot: Dr. Agarwal, it really surprised me, first of all, to find out that leeches are still used in modern medicine. Really?

Dr. Agarwal: Yeah, it's true and it actually surprises a lot of patients too, but there are situations where we need leeches and they're currently used and available in the United States.

Scot: What types of conditions would you need a leech for? What's a patient do when you bring in some leeches?

Dr. Agarwal: In order for tissue to live it has to have arterial blood flow in, and invenous blood drain the old blood out. If there's a pooling of blood or the venous system is not functioning properly the tissue can't get new, fresh oxygen or nutrients and it has a harder time healing and surviving. So leeches come into play when this pooling occurs. What we do is we attach a leech onto that piece of tissue that's struggling, and the leech will then suck out the pooled venous blood. This allows for new oxygenated blood to enter the area, and the process goes on until the tissue has had enough of a chance to heal on its own.

Scot: So they're about to be out of the job. There's a brand new mechanical, a robotic leech. Explain how one makes one of those.

Dr. Agarwal: I took the idea to a group of students in mechanical engineering and we sat together and I explained to them what leeches are, what they're used for, and we discussed ideas of how to make a better device and replace existing leeches. The students then got together with myself and Dr. Bruce Gale who is a Professor in Mechanical Engineering, and brainstormed ways to develop a mechanical device that could do the functions of an actual leech. What they've come up with is an exciting new piece of technology that really can mimic the properties of an actual leech. It has the ability to suck out the pooled blood, and it can also deposit a little bit of anti-coagulant in the tissue to keep the blood flowing, which is what we want.

Scot: So, if it ain't broke don't fix it. Why did you decide there was a need for a robotic leech, or a mechanical leech?

Dr. Agarwal: Traditional leeches are a little cumbersome to deal with. Number one is they have to be cultivated and maintained. They often are not something that patients like to have on their skin, and they can transmit diseases. They harbor bacteria which can then get transmitted to the tissue or to the patient and cause problems.

Scot: Are their any downsides or things you're trying to work out with the mechanical leech?

Dr Agarwal: The next step is to do some clinical studies to show that it really can function effectively, and even better than a traditional leech.

Scot: Do you expect little picket lines of leeches outside your office anytime soon?

Dr. Agarwal: You know what, that's fine with me. I think putting leeches out of business is not a bad thing. They can live in the swamp where they belong.

Announcer: Interesting. Informative. And all in the name of better health. This is The Scope Health Sciences Radio.

The gospel that I am trying to preach is to my colleagues in medicine, understand what's happening, learn the facts, lift up your heads enough to see what's going on around you. Understand the problem and then begin to ask yourselves "What can I do to help?"

When I started out in medicine in 1946 there was no such thing as a health care industry. The term health care industry had never been used. Nobody referred to it as an industry and nobody thought that being a physician was a business. Now we are dealing with the inevitable consequences of a health care system, which changed from a social service to a business. Just as you would predict it ignores more or less those who can't afford to pay. It exploits the opportunities to make money at the expense of the obligation to use resources conservatively in the most effective, medically appropriate way.

It invites all sorts of abuses including fraud and it's clear that it's not working and it can't work because there's a fundamental disconnect between medical care and almost all other economic activities in our society. A patient consulting a physician because they're sick, got injured, worried, or frightened that they may die or become seriously ill is not like an ordinary consumer in an ordinary market and physicians should not be like vendors in an ordinary market. Their objective should not be simply to sell whatever the consumer will buy.

Physicians are in the best position to decide how best to use the resources that we expend on health care. I've outlined what doctors might do if they wanted to. They could form multi-specialty group practices not-for-profit group practices that would be prepared to accept payment on a per capita rather than on a piece work basis, on a per capita basis for comprehensive care. There's no question that that system would work.

The only question is, how do we get it to occur politically in the current political climate? That's a big problem, we're going to have to change the attitude of the public and we're going to have to change the attitude of the legislators. It's issue of survival. We are simply not going to survive with the health care system we have now. It's going to implode. We must do something and doctors could help get it started. At least that's my hope and I think it's not unreasonable.

One of the hopeful aspects of all of this is that pretty soon half of all practicing physicians are going to be women. More and more multi-specialty groups are being formed and women are becoming a very significant part of that movement. I'm expecting that women may save the day.

Ninety percent of the data that currently exists in the world is less than two years old, which means everything is new. For the majority of physicians, what they read, is two or three journals that they subscribe to or think are most relevant to their practice. In 2010 the National Library of Medicine cataloged 700,000 new articles. There is information there that would be helpful to you that you never will read, see, learn, or memorize.

We need support such as Watson and other analytical tools because the amount of information that is out there, it overwhelms us. We can't even conceive of it let alone use it. So Watson is a computer system that reads and understands English, which is a major advance. There are lots of tools that can recognize certain words or patterns of words, but Watson actually understands the meaning of an English statement or an English document.

Any clinician patient-relationship is a key to the future of health care. Disrupting that would be distinctly disadvantageous. Patients really aren't interested in having tools make decisions for them but providing them advice or ideas, along with their clinician, to help both of them make a better decision.

So that's what Watson does, it understands the nature of the question to be addressed then does all this reading and says, "'These are the important concepts, I think, for you to consider in making your decisions."' That's the key part, it helps you decide by giving you information that you can use with your skills and expertise to make it more likely to have an evidence-supported decision.

So that's where these algorithms come in. Recognizing that in this complex data, there are patterns and clues and signs that we can use to make better decisions that we can't process ourselves. At the heart of Watson is hundreds and hundreds of such algorithms.

In organizations such as the University of Utah are developing this algorithmic approach because we know that if we are going to use that data effectively we have to develop the mathematical and computer tools that collect and process that information for us and present it to us in a way that we can use when the mass amount of data is something we can't use.