Our Health-Care System Needs a Bypass

Obama's campaign can show us a way to fix health care: with an "institutional bypass" that makes an end-run around a broken-down system

Hope was to be the headline of the Inauguration. Now we're broke. Just when we planned to finally address the challenges of health care, education, global warming, and energy, we ran out of cash. Optimism is giving way to a new logic of scarcity and sacrifice, as we are told to tighten our belts and lower our expectations.

There is hope, but it now resides in the unconventional—not business as usual. President Obama can use his leadership and influence to create incentives for the kind of innovation I call an "institutional bypass." These innovations transform scarcity into abundance by circumventing old cost structures and reducing prices by 40% to 60%. They connect people with what they want at a price they can afford. Historically, it's the institutional bypass that has driven changes in the evolution of capitalism, igniting new cycles of accumulation and economic growth.

Think of a coronary bypass in which a healthy blood vessel is transplanted to replace a diseased vessel blocked with plaque. Doctors used to focus exclusively on fixing the damaged vessel. Then some began to realize that the vessel itself wasn't important. What mattered was how to nourish the heart with blood. This insight redefined the problem from repairing what is damaged to creating a life-enhancing alternative.

The Premium Puzzle

That's how an institutional bypass works. Economies exist to connect people with the resources they want. Problems arise when people develop new wants and needs faster than institutions can adapt. Every century or so, that mismatch becomes so acute it reaches a crisis expressed in something I call "the premium puzzle." That's when a majority of people want things that are priced at a premium under the old regime. The administrative and technological legacy systems in those old models are clogged with overheads, outdated assumptions, and value-destroying practices that keep costs high.

Solving the premium puzzle means figuring out how to get people what they want at a price they can afford. Henry Ford's mass production was an innovation of this magnitude. He didn't fix manufacturing as it was then practiced; he bypassed it with a wholly new model. That made it possible to drop the price of a Model T to an unimaginably low $260, when most cars sold for between $1,000 and $4,000.

Here's the catch: It's impossible to solve the premium puzzle in the old institutional context. I don't mean it requires better leadership, management, strategy, execution, vision, technology, efficiency, or cost-cutting. I mean it is impossible. Nothing in the old tool kit will make enough difference to explode the logic of scarcity. That's when the solution requires an institutional bypass.

A Crisis in Elder Care

One year ago, a highly admired local doctor came to speak with my co-author and husband, Jim Maxmin, and me about the failed state of health care, specifically elder care. Dr. Allan "Chip" Teel is an Ivy-League graduate who came to Maine decades ago committed to serving a rural community. "After 25 years of medical practice, I've come to the conclusion that the system is so broken it can't be fixed. We need a revolution. Will you help me?"

U.S. health care today is a premium puzzle on steroids. At a time when most people want individualized holistic care, most of what's on offer is fragmented and impersonal. Too many can't even afford basic insurance. There is by now widespread agreement that the system produces stratospheric costs and substandard results for nearly everyone.

If health care is a train headed for a brick wall, then elder care is a high-speed train stuffed with our parents and grandparents racing toward a steel-reinforced concrete fortress. Today it's them. Tomorrow it's us: According to the U.S. Census Bureau, the 65-and-over population is expected to double by 2030, reaching 72 million—that's one out of five Americans. The over-85 age group is now the fastest-growing segment of the U.S. population. That's the train.

Here's the wall: Elder-care options from assisted living to nursing homes to home-based care range from $60,000 to $200,000 per year. Only about 1% of the overall population (it's far less in Maine) can afford these prices, while state and federal support is shrinking. Worse, read the dismal data on bed sores, medical errors, and elder abuse, and you will likely conclude, as I have, that "elder care" as generally practiced is a euphemism for human warehousing on the cheap.

Chip had already established several small residences for the area's neediest elderly. Leveraging grants and discounts, they offer a humane, low-cost option. But with state funds frozen at only $3 an hour per resident for the entire cost of care, there was no more cost to squeeze and many more services that were needed.

Learning from Obama's Campaign

Jim and Chip have become partners in revolution. They believe solving the premium puzzle for our times means treating people as unique, self-determining individuals, while providing the resources for them to live their lives as they choose at an affordable price. Their models are iTunes (AAPL), Craigslist, Facebook, Wikipedia…and Obama's campaign.

MyBarackObama.com was a stunning 21st century institutional bypass. Far more significant than mere social networking, it circumvented party structures and traditional funding sources with an individually centered, virtually coordinated social collaboration that produced massive community action and tons of cash. The campaign distributed what had been considered premium resources—personal control, opportunities for voice, the support needed to forge community action—directly to citizens' homes and hearts for as little as a five-dollar contribution or the willingness to call a neighbor. This bypass transformed scarcity into abundance as it redefined fundraising, reinvented political engagement, and swept Obama from the outside track to the White House.

Following Obama's lead, Chip and Jim tackled the elder-care premium puzzle with ElderPower: Caring for the People, by the People. ElderPower is a network of elders supporting elders, leveraged by community volunteers, technology, semiprofessionals, and doctors. It enables folks to live happily and affordably at home with control, safety, and social connection.

How Elder Power Works

A virtual platform—computer, sensors, video cameras, an Internet connection—provide as much or as little monitoring as one chooses, including 24/7 links to semiprofessional teams with continuous access to doctors. It also enables social networking, video-based group activities, links to a community call center, and access to remote medical care. Instead of hospital beds and nursing homes for respite or day care, ElderPower relies on rooms in elders' homes and even houses donated by community members.

It's the elders themselves, along with other network volunteers, who provide social support: a phone call to remind you to turn on the football game, an all-day visit, a plumber, home diagnostics. Rides are provided to lunch gatherings each day—with students at the local elementary and high school, in a restaurant, a church, on a picnic—and to classes and clinics held at the local residential care facility. Soon there will be a fully dedicated video channel called ElderPower TV where Chip and others can broadcast advice. There are plans for mobile medical care—paid for in part by subscriptions from other community members who want those house calls, too—with profits returned to the network.

It's only an institutional bypass if it solves the premium puzzle, and so far the numbers are encouraging. Elders can opt into the network resources they want, yielding many configurations of price and activity. Take the case of Asa and Francine. In assisted living, they paid $6,800 a month for one room, a daily meal, and reminders to take their meds. They felt isolated, mourned their loss of independence, and missed their dog. They thought their lives were over.

Now they are back home with the full technology package for 24/7 monitoring, two daily check-in phone calls, rides to lunch three times a week, classes twice a week, a home visit each evening to check on the dog and help with dinner, twice-weekly video conferences with their grandkids, and continuous access to medical advice. Francine is looking forward to getting help to make it down to the back meadow when the flowers bloom. Asa volunteers in the network. They pay $750 per month. (The average monthly cost for elders in the network is $468.)

Based on analyses of census data and extrapolations from the most recent assisted-living project completed in our small county of 35,000 people, the fast-growing elderly population here will require $70 million in construction of new facilities, plus annual operating costs of $35 million by 2030. That's $51,000 in new taxes per household. Current results suggest ElderPower can meet these needs with a capital expenditure of $5 million, and $2 million for annual operations. They calculate that for every 200 people they help to remain in their homes for an extra year, the state and federal governments will save $7.5 million.

There is hope. President Obama has already proven himself the alchemist who can transform scarcity into abundance. His team knows how to build an institutional bypass and the power it can unleash. The innovations they pioneered are the building blocks of economic and social renewal. These are the game-changing tools that can redefine the old zero sum of quality and cost—not only in health, but in education, autos, and every industry whose sclerotic frameworks are fatally clogged.

Before it's here, it's on the Bloomberg Terminal.