Introducing: Risky Judgment
What Civil War finances can teach us about value-based care
Before the Civil War, the US did not have a national currency. Instead, hundreds of state-chartered banks issued their own notes backed by gold deposits. These notes circulated widely, and you could never be certain that a faraway bank was still in business. So, it became common in commercial transactions to discount the value of notes issued by distant banks.
Picture a large transaction involving notes from multiple banks, each subject to a different discount — it was insane! But if you think about it for a moment… that’s exactly the way our healthcare system works today.
This intricate and fragmented banking system was no way to finance a war. Under the leadership of Secretary of Treasury Chase, Congress introduced flat currency for the first time: United States Notes, nicknamed “Greenbacks”. This was not a mere financial maneuver. The Greenback established a uniform, stable mechanism for financial transaction, marking a pivotal shift in how the Union financed and organized its war efforts, and ultimately contributing to its triumph in the Civil War.
There are many parallels on the healthcare side. The transition from fee-for-service (FFS) to value-based care (VBC) is, at its core, a financial transition intended to drive operational and clinical efficiency. And just as with the Greenback, it should result in a simpler system, not a more complex one.
Yet, we are stumbling. Experts argue over the success and merit of various VBC initiatives, but nobody would call the emerging VBC system simple. Why?
The Greenback wasn’t a straightforward innovation. Many important leaders, including Lincoln, initially objected to its introduction. A parallel effort to introduce fiat currency in the Confederacy had failed miserably, leading to extremely high inflation. And while the Greenback was an immediate success, it took several additional iterations of financial innovation to stabilize the Union’s finances.¹
Similarly, we still don’t have the right financial tools to scale the VBC transition. In the FFS world, providers know how many patients they must see each day and procedures they must do each visit to ensure financial success. By contrast, the path to financial success in VBC is not so direct, and in most cases it remains unclear. Financial innovation will play a key part in this transition.
This blog will explore the economics and finance of value based care. If you’ve worked with me before, you won’t be surprised to find a healthy dose of data science and machine learning sprinkled in. Indeed, I believe that data will play a critical role in VBC success. As for the rest — I am not an economist or a finance person, so take it as my own risky judgment.
Let’s print some greenbacks.
[1] If you’re curious about Civil War finances, chapter 14 of Battle Cry of Freedom is a good source. Or go for a book-length treatment with Ways and Means.
