A conversation with Dale Sanders
Mr. Sanders describes three models of economics: First Order, Second Order and Third Order. “In… First Order Economics, I spend the money I earn. In Second Order Economics, I spend the money you earn. In Third Order Economics, you spend someone else’s money on something intended for me,” he explains. “The inefficiency of an economic model is directly proportional to the degrees of separation between the spender and the earner.”
For years, healthcare CIOs have considered clinicians and hospital administrators—and, sometimes, patients—to be the industry’s true customers. This perspective, Mr. Sanders argues, has played a significant role in rising healthcare costs. However, if a customer is defined as the person—or entity—with the open wallet, then the primary customer in today’s healthcare model is, in most cases, the employer. But employers are rarely introduced into conversations regarding the true costs of healthcare “In today’s physician-patient encounter, neither party is motivated to reduce the cost of care because both parties are spending someone else’s money,” he writes.
The healthcare industry is, at best, a Third Order Economic Model. “Rarely [do patients and doctors] have any true insight to the costs of the care being delivered,” he argues. “There are very few physicians who are in a position to discuss that level of cost vs. option vs. outcome detail with their patients as an integrated part of care. Physicians simply don’t have the data they need to engage in the discussion.
“At the end of the day, healthcare’s primary economic mission is to produce a healthy workforce. Therefore, the ultimate economic customer in healthcare, the majority of the time, is the employer—that is, the organization footing the bill for a healthy workforce. By taking greater ownership of healthcare costs and quality, employers can, in effect, create a greater sense of First Order Economics.”
How can healthcare move toward this economic model and what can a CIO do to help? Mr. Sanders offers several compelling solutions, and points to several trends and systems that are leading the way, including economics and options of care data available at the point of care; care management and research supported by standardized patient and disease registries; default generic drug prescription orders; medication reconciliation with pharmacy and payor data; and analytic processing and enterprise data warehouses.
He also describes an EHR application at LDS Hospital in Salt Lake City, called the Antibiotic Assistant, which, in his words, “exemplifies the effectiveness of merging options-of-care with cost-of-care at the point-of-care.”
The Antibiotic Assistant summarizes the most effective treatment protocols, the associated costs and the predicted treatment outcomes. While this system is exclusive to inpatient antibiotic use, Mr. Sanders says that similar models can be used for any patient scenario.
“Physicians have very little insight into the total cost of care for their patients,” he says “It’s not that they are disinterested; it’s simply that no one ever gives them the data. Over time, CIOs can integrate this data at the point-of-care by summarizing the most common treatment profiles and their costs, as profiled against patients with similar demographics and diagnoses. Facilitating the assessment of options and economics-of-care at the point-of-care is an obvious next step towards cost transparency and Adam Smith economics in healthcare.”
He argues that the trend toward transparency is not an option—it’s really happening. “Economic demands on efficiency are going to drive us to cost and quality transparency. Point-of-sale systems in retail were once expensive and important market differentiators. Now they are barely more than utilitarian in cost and perception, though they remain vitally important to the data ecosystem of the company,” he writes. “EHRs in healthcare also will achieve utilitarian status, and at a rate much faster than that of POS systems in retail. CIOs need to see evidence from their EHR vendors that they are planning for and recognizing the inevitability of their commoditization and that they are staying one step ahead of obsolescence.”
In this Web-exclusive interview, Mr. Sanders discusses how CIOs can bring a culture of cost and quality transparency to healthcare; how organizations can improve information-sharing with patients and payors; and why the commoditization of knowledge will benefit the entire industry.
JHIM Online: What is—or should be—expected of today’s CIO that would set him or her apart from a CIO of five years ago?
Mr. Sanders: Going forward CIOs need to better understand the role of interoperability in their environment. CIOs are going to have to roll their sleeves up and get into a level of detail of data management that they may not have been involved with in the past. Clearly there’s a movement toward analytics, knowledge management and measurement, which is all going to be data-driven and which points to drastically different trends in healthcare as compared to five years ago.
It’s no longer enough to purchase a packaged application. For instance, electronic health records were frontier investments for a lot of organizations five years ago. But they will be utilitarian investments going forward; you won’t have a healthcare organization that doesn’t have an EHR as a part of its portfolio. Evolving so you are not content with just deploying a packaged application and assuming you’ll be something different than the rest of the crowd is going to be very important. That means building custom software around packaged applications.
JHIM Online: Your article explores what you call First, Second and Third Order Economics. You write that a First Order model would be ideal for healthcare. What practical and philosophical changes are needed for the industry to achieve the First Order?
Mr. Sanders: Having direct communication and negotiation about the quality and cost of healthcare with employers is going to be very important. If we are really going to get to First Order Economics, we are going to have to have greater dialogue and greater connections between employers and providers. And you are starting to see that with some employer-driven activities; they are working directly with providers to incentivize cost reductions and quality improvement.
With a First Order model you would see greater transparency with cost and quality. Several states now are mandating that their hospitals publicly reveal average cost per procedure and the outcomes of all of those procedures. In the future, rather than seeing true cost and outcomes as an abnormal and unusual kind of transparency, it will be an expectation.
JHIM Online: What are sort of projects should be on a CIOs plate in order to affect the economic model of healthcare?
Mr. Sanders: One of those obvious and easy to achieve projects that would affect the economic model is to require that electronic health records default to generic drug orders, every time. Right now electronic health records don’t come pre-packaged to do that, so it’s up to the local implementation team and the local physicians to decide how those drug orders will be managed. But if you are really going to deploy an electronic health record and manage your products with your true customer in mind—the person or employer paying for the service—that person or employer is going to prefer to see generic drugs over name-brand drugs every time.
That model displayed in the Antibiotic Assistant, which displays the cost of care and the point of care in the same perspective for the physician, has to be a part of every CIOs portfolio in the future. Even if your culture isn’t quite ready for it, I think CIOs need to begin developing the data infrastructure that will allow for that kind of display of information back to the physicians.
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