What College Can Teach Healthcare

Mitch Daniels, the former Governor of Indiana and current President of Purdue University, gave an interesting interview to The Wall Street Journal about what Purdue has been up to during his watch.  Mr. Daniels -- who knows a thing or two about healthcare -- drew an explicit parallel to healthcare in the interview, so I wanted to take some time to talk about what he said, and to try to extend the parallels further.

Here's how he described the parallels: 

"You're selling something, a college diploma, that's deemed a necessity.  And you have total pricing power."  Better than that, "when you raise your prices, you not only don't lower customers, you may actually attract new ones."

For lack of objective measures, "people associate the sticker price with quality: 'If school A costs more than B, I guess it's a better school.'"  A third-party payer, the government, funds it all, so that "the customer -- that is, the student and the family -- feels insulated against the cost.  A perfect formula for complacency."  The parallels with health care, he observes, are "smack on."  

People in healthcare may quibble, especially about the "total pricing power," but "smack on" seems about right to me.

Credit: Purdue University

Higher education is one area where prices seem to be rising even faster than in healthcare, and both much faster than wages.  Student debt just hit a record $1.465 trillion -- yes, trillion -- and now trails only mortgage debt in size.  We're past the point of talking about "real money;" we're now in the stratosphere of healthcare money.

We spend a lot more -- nearly twice as much per student annually -- on higher education than almost any other developed country, according to OECD.  Some might argue that more spending on higher education is a good thing, but that may not be true.  "The U.S. is in a class of its own,” Andreas Schleicher, the director for education and skills at the OECD, told The Atlantic.  “Spending per student is exorbitant, and it has virtually no relationship to the value that students could possibly get in exchange."

Yep, sounds like U.S. healthcare all right.

Mr. Daniels is trying to change that.  For one thing, he's focused on holding the line on costs, such as by bringing Amazon in to help lower textbook prices.  Purdue had raised tuition 36 years in a row prior to his arrival, and now has not raised them since 2012.  “We’re able to say,” he says, “that the total cost in nominal dollars of going to Purdue will be less in 2020 than it was in 2012."

How many healthcare organizations could boast something similar?

While Professor Clayton Christensen, the O.G. of disruptive innovation, has famously predicted that half of traditional universities will be bankrupt within 10 years, in large part due to competition from online universities, Mr. Daniels led Purdue to buy Kaplan University.  He converted the online distance learning giant to a nonprofit, Purdue University Global, that enrolls 29,000 students nationwide and is extending the Purdue brand.  

It's as if Kaiser Permanente bought Teladoc.

Credit: Purdue University

But here's what really caught my eye.  Purdue pioneered the use of Income Share Agreements (ISAs), an idea attributed to economist Milton Friedman.  Students don't owe tuition during college, but six months after graduation they begin to pay a percentage of their income for a fixed number of years (e.g., 10 years).  Repayment is capped at 2.5 the initial funding.   Several other universities are now rolling out their own versions.  

Instead of students taking on debt, they are, essentially, selling a share of their future financial success.  Do well, and you'll end up paying more than the student loans would have been (but also have more income with which to pay); get lower paying jobs, and your repayments scale down accordingly.  

In a world where universities are starting to be evaluated more by their graduates' salary potential, ISAs are a way for universities to put their money where their marketing promises are.  

The application of ISAs to healthcare may not be obvious.  It's not about basing contributions/taxes for healthcare/health insurance on income, although that is certainly something we should be doing more of.  The healthcare system makes no promises about future income, nor should it.  It does, though, supposedly exist to try to help us be in better health than we would be without it, and that's where the parallels might be drawn.

In an earlier post, for example, I suggested treating our health as a capital asset.  We would seek to spend -- invest -- money on things that increase it, and avoid things that decrease it.  It would, admittedly, be hard to quantify any of this, but doing so would force us to measure and to track.  We measure a lot of things in healthcare, but too few of them tell us what we really want or need to know.  I.e., are we getting better or worse?  Are we spending our money on the right things?  

Perhaps a Healthcare Share Agreement (HCSA) would have a healthcare organization make a quantifiable prediction about your health, and what you pay each year would depend on how they do against that prediction.  We'd have to agree on how to measure it, over what period of time, but both the prediction and the measurement are feasible (e.g., QALY).   

Are all QALYs equal? www.joelcooper.co.uk

The payment could be in lieu of health insurance premiums or health care organization's charges.  The healthier-than-expected you are, the more you pay; the worse-than-expected you are, the less you pay.  It's value-based payment at the next level.  It could be done as agreements with individuals and organizations, or, say, between health plans and health organizations at a population level.

The key thing is for healthcare organizations to do what Purdue is doing: bet on their ability to actually make a positive impact in the lives of the people they serve.   

I don't know how it would work.  I don't know if it can work.  But I'd sure like for someone to give it a try, because the existing business models sure don't seem to be working.

If Mitch Daniels -- with no previous educational background -- can take a solid-but-not-top-tier university and bring about some real innovations that position it well for the future, where is the Mitch Daniels of healthcare?