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NewsTalk

Welcome to the archives for NewsTalk, an IBJ blog published from November 2007 through December 2010.

Employee Benefits / Rolls-Royce / Government Health Care / Health Care Reform / Health Care & Insurance / Manufacturing

Rolls-Royce and health care reform

October 5, 2009

Rolls-Royce, the British jet engine maker, hasn’t taken a public position on health care reform, and its officials are adamant they don’t want to start now.

But let’s drag them into it, anyway, because Rolls-Royce’s business model might interest the crowd advocating for reform via market forces.

One of the many ongoing criticisms of the system is that there’s little financial incentive to focus on health. Money from the government and other sources flows to doctors and hospital administrators who order tests and prescribe drugs, not those who make people healthy as economically as possible.

Detractors go on to point out that providers are paid regardless of results. The cardiologist gets a check whether or not the bypass surgery works—let alone whether the family physician could have headed off the problem by coaxing the patient into healthy habits.

What can reformers learn from an engine company (which happens to keep a huge outpost in Indianapolis)? Maybe quite a bit.

Rolls-Royce is signing more and more military and airline maintenance contracts that put the onus on Rolls-Royce to keep the engines “on-wing” instead of in the repair shop.

The customer pays a flat fee for every hour the engine flies. If the engine conks out, Rolls-Royce, not the customer, absorbs the pain.

“I make profit by keeping that engine running and not having to replace parts,” says Kevin McCarty, the vice president who oversees customer support for the company’s North American defense contracts. “I’m the one who’s going to pay the bill if the engine comes off-wing.”

So it’s incumbent on Rolls-Royce to build a fantastic engine and maintain it carefully in the field. It’s also imperative to cut costs, because that’s the only way to improve the bottom line. And Rolls-Royce is motivated to perform beyond expectations in order to persuade the customer to sign another contract.

Would a similar incentive structure—compensating doctors, hospitals and others in the system for health, not repairs—go a long way toward fixing health care?

If doctors and other providers were assured a lucrative livelihood for keeping healthy people healthy and making sick people well, it would be to their advantage to figure out how to do it as effectively and as cheaply as possible. Suddenly it’s to a doctor’s advantage to answer patient e-mails because they might get healthier. An old-fashioned X-ray might do the job and cost less than a full-blown CT scan.

Providers would have every incentive to get involved from the earliest stages of diabetes and other chronic diseases, and to persuade patients to eat healthy foods and exercise.

As with the other reform proposals floating around Congress, the devil would be in the details. Paying for health care gets trickier when treating the elderly; the system certainly would need good referees (imagine if rapacious Wall Street types got their mitts on it). Another is, doctors have less influence over patients than Rolls-Royce does its customers, so results wouldn’t come easily. Yet another is how “health” would be defined.

Nevertheless, it’s one approach. What are your thoughts? Would it improve health care?

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