An Antidote for Health Care Reform Failure

To drive down the cost of health care insurance, we must redesign care delivery.

May 16, 2017

| by Theodore Kinni


Vaccines on a tray at the hospital

Want real health care reform? Focus on fixing health care delivery, says one Stanford lecturer. | Reuters/Nicky Loh

Health care reform has been the bane of U.S. presidential politics for over a century. Teddy Roosevelt included universal coverage in his run for president in 1912 and lost. Since then, almost every U.S. president has been stymied by health care reform in one way or another.

It’s no different this time around. This past March, President Trump and the Republican-led Congress couldn’t muster the votes for their own American Health Care Act, and discussions to reprise it have fallen flat.

Robert Pearl, a doctor and the CEO of the $11 billion Permanente Medical Group and a strategy lecturer at Stanford Graduate School of Business, says that might not be much of a loss. In Pearl’s opinion, neither President Obama’s Affordable Care Act nor President Trump’s AHCA adequately addresses the essential conundrum of American health care — the fact that the U.S. as a whole spends 50% more on health care that any other nation, yet ranks 70th globally in health and wellness.

Pearl, whose new book, Mistreated: Why We Think We’re Getting Good Health Care — and Why We’re Usually Wrong, hits shelves this month, shares his vision of a better health system.

A Systemic Failure

The problem, in Pearl’s view, with both ACA and AHCA is that they are more focused on who pays for health care than how it is delivered. What needs to be fixed is health care delivery. “Our health care system resembles a 19th-century cottage industry,” he says. The system is fragmented. Doctors are scattered across the community, and hospitals are unconnected and uncoordinated with each other. People work on a fee-for-service basis, and they’re paid whether or not what they do adds value. Moreover, the system uses outdated technology, and it’s relatively leaderless at the delivery level, he adds.

“If the delivery system is not transformed, it doesn’t matter how we provide coverage,” Pearl says. “Health care costs will become more and more unaffordable and coverage will, as a consequence, erode across time.”

For Pearl, this is a very personal mission. The Stanford-trained plastic and reconstructive surgeon who leads the 9,000 physicians of the Permanente Medical Group saw his own father’s life cut short because he didn’t receive a necessary preventive vaccine after the removal of his spleen. Each of Jack Pearl’s doctors knew about the vaccine, but each assumed another had administered it. This precipitated a series of health crises and hospitalizations that eventually led to Jack’s death.


Medical device companies should begin with a problem that needs to be solved. Instead, I think that much of industry and the drug companies as well are starting with a product or technology they already have and then trying to find a problem it will address.
Robert Pearl

“There is tremendous inefficiency in the system — as high as 30% — that can be eliminated, while improving quality and patient convenience,” Pearl says. He offers Kaiser Permanente as an example (although he notes that’s not the only model). At the California-based health care system, 60% of the appointments are same day or next day, and patients’ medical information is available to every physician involved in their care at every point of contact. Patients have choices in personal physicians and access to procedures without any authorization processor health plan administrator interference.

“The result is an organized approach to care, nation-leading quality outcomes [based on the most recent National Committee for Quality Assurance ratings], and a capital plan aligned with growth opportunities,” says Pearl. “That type of close intentionality is what every other business does in this world, except for health care.”

One of the flaws in health care reform efforts, argues Pearl, is that they depend on payers to drive down costs, when improved efficiencies in the delivery system must come from care providers. Insurance companies, he notes, don’t have the clinical or operational expertise to improve the delivery system.

“Insurance companies can’t drive collaboration and coordination across providers; they aren’t going to install the integrated technological infrastructure that providers will require.Their main tool is financial incentives, which have been shown to be relatively ineffective, and often associated with unintended negative consequences,” says Pearl.

Misdirected Innovation

Pearl sees technology as the key for reengineering health care delivery, but he believes much of the current investment in health care innovation is misdirected. The reason? Entrepreneurs are seeking markets and products that can generate the most dollars as quickly as possible, rather than focusing on what will have the greatest clinical value over time.

“Medical device companies should begin with a problem that needs to be solved. Instead, I think that much of industry and the drug companies as well are starting with a product or technology they already have and then trying to find a problem it will address,” says Pearl.

3-D printing is one example. Companies are designing expensive joint replacements using 3-D printing, but there is no evidence that they’re any better than the less-expensive metal joints already in wide use today. Wearables are another example. “Activity wristbands solve a major problem, but it’s not a health problem,” says Pearl. “They solve the December dilemma: You need something that looks cool to give your loved one, and you want it to cost $150 to $200. In fact, recent research has demonstrated that wearables decrease the amount of weight patients lose compared to diet alone.”

Pearl contends that effective reform must include a rethinking of technological innovation in health care, because technology alone — without an integrated and coordinated delivery system, a reimbursement methodology based on value, not volume, and effective physician leadership — will fail. “The first step is leveling the playing field so alternative delivery systems can compete with each other and be rewarded for superior outcomes and increased patient satisfaction,” he argues.

The government should not be running health care, says Pearl, but it should impose rules and regulations that foster competition and prohibit the kinds of monopolistic pricing that has been making headlines in the pharmaceutical arena. Once a competition-driven system is in place, he is convinced that doctors and hospitals will purchase the best technology, secure in the knowledge that it will generate the best returns on their investment.

Applying Business Principles

Pearl advocates building business school expertise focusing on leadership and systems redesign into the medical school curriculum. “Medicine has advanced so far that it’s not that hard to get a good result when establishing a diagnosis or doing surgery. But the results often are inconsistent,” he says. “What we’ve got is a knowing/doing gap. We know what to do 90-95% of the time. But we only do it 50% of the time.”

Improving the health of the United States won’t come from some new drug that extends life by a month or so on average, or the next-generation robot or laser, according to Pearl. What he thinks the U.S. health care system needs are things like centers of excellence that continuously improve care delivery through specialization and high volume, and comprehensive information systems that ensure patient information is available at every point of care. It needs consistent processes that work — so that, for instance, everyone who’s at risk for heart attack gets and takes the proper medication. And, it needs modern technology so patients can obtain the same conveniences in their health care that they currently demand from banks and retailers.

The bottom line, according to Pearl: “If we don’t improve the structure, economics, and technology of health care, patients will continue to be mistreated in the future and the whole system will collapse.”

For media inquiries, visit the Newsroom.

Explore More