Developing an Effective Competition-Based Approach to Changing Incentives in U.S. Healthcare

  • Name: Tim McDonald
  • Number of lab members or colleagues (excluding PI): 10
  • Location: Pardee RAND Graduate School, University of Minnesota
  • Graduation Date: Pardee RAND Ph.D. (expected 2021); Harvard Kennedy School M.P.P.; Hamline University B.A.
  • Grants: Robert Wood Johnson Foundation (PI: Dowd),
    Donaghue Foundation (PI: Dowd); Horowitz Foundation for Social Policy

Hello! Who are you and what are you working on?

I am a late-stage Ph.D. student at the Pardee RAND Graduate School, which is the RAND Corporation’s graduate school, and a graduate fellow for the 2021-2022 academic year at the Program on Negotiation at Harvard Law School. I am a Senior Fellow at the Center for Policy Design. I specialize in applying tools from leadership, negotiations, and systems analysis to work on complex challenges facing society from sectors like health, education, the economy, and national defense.

After graduating from college, I had the great fortune to work closely with and learn from a small group of people with first-hand experience and track records redesigning large social systems. This was at the Center for Policy Design. I was active in policy and politics in Minnesota and wrote a book on education system reform that was used by leaders in the state legislature to guide its policymaking.

Soon I had the opportunity to go to Harvard for a master’s in public policy, where I built on these experiences with an incredibly and eclectic group of classmates and faculty. I realized I wanted to continue building on this combination of theory and practice, and was accepted at the Pardee RAND Graduate School to pursue a Ph.D., having been introduced (and strongly encouraged) by my mentor Alain Enthoven.

Currently I am working with colleagues to address a problem that’s been vexing us for years: How to redesign the American healthcare system so it more effectively and efficiently generates health. We are testing a competition-based approach that gives patients (consumers) information on the quality and cost of healthcare providers and builds financial incentives into health plans for consumers to choose providers that are higher quality and lower cost.

We call this strategy Informed Consumer Choice, or ICC for short. It is premised on the basic idea that better-quality, lower-cost healthcare providers should gain more patients (if they want them) and those that are lower quality and higher cost should lose patients. While this seems intuitive, and is the way well-functioning markets work, it is actually very different from most health system reform efforts today, which don’t involve the choices of patients at all. That is our thesis, which we are now moving toward testing.

From left, Julio Frenk, Alain Enthoven, Sara Singer, and Joe Newhouse. 
Drs. Frenk, Enthoven, and Newhouse have been valued mentors and advisors 
on health system reform. This photo was taken in 2014 after Enthoven 
gave the Dean’s Lecture at the Harvard T.H. Chan School of Public Health. 
Frenk was Dean, and this was the final lecture before he became 
President at the University of Miami.

Considering your expertise, what do you think of healthcare policies such as the Patient Protection and Affordable Care Act?

The Patient Protection and Affordable Care Act (ACA) achieved the remarkable feat of expanding access to affordable health insurance and effectively achieving universal coverage. This was an economic and ethical imperative and is extremely important.

The reform also included efforts to contain the growing share of GDP going to healthcare, but these efforts have been less effective. Rising healthcare costs are a drain on our economy and a headwind for the private and public sectors. The more we spend on healthcare services the less we have to spend on education, public health, and welfare programs – many of which may have a stronger effect on health.

My colleagues and I believe the diagnosis for rising costs are perverse incentives, and that the ACA reforms haven’t sufficiently reversed these incentives. They attempt to soften the cost-increasing incentives through different payment mechanisms, but a deep and growing bench of research is finding they just aren’t powerful enough.

Our prescription through the ICC design is to connect the gain or loss of patients to a provider’s value (quality and cost). The gain or loss of patients can potentially be a very powerful incentive. If we are asking providers to be better for less, they need more patients for the trouble.

The ACA also was remarkable in the fact it was a comprehensive, national-level reform. As a practical matter, we cannot be reliant on large, comprehensive reforms from Washington. We need reform strategies where key steps are taken further out in the system, either at the state or regional levels.

For 10 years health policy has been focused on implementing the ACA. The question now is: what’s next?


What’s your backstory and how did you come up with the idea?

The research for Informed Consumer Choice builds on work dating back to proposals developed in the 1970s and ’80s. The design was first articulated by Walter McClure, a health policy pioneer, and he made significant strides implementing two pilot projects and planting seeds that we now see sprouting. That long germination indicates how McClure was far ahead of his time.

I first came across McClure’s work in 2009 working at the Center for Policy Design, where McClure is chairman. He had worked with Paul Ellwood on the Health Maintenance Strategy, which generated the concept of Health maintenance Organizations (HMOs). Walt observed that HMOs, while in many ways a breakthrough, did not reverse the perverse economic incentives of the larger system around healthcare providers. He began developing a different approach that connected the gain or loss of patient volume to quality and cost.

Economic theory is pretty clear that this is the main type of incentive powerful enough to drive innovation toward market efficiency. But it’s not how our healthcare system is set up. Here, amazingly, was an elegant concept – albeit with many engineering details to work out – showing how it could be done.

As a young person just starting out, I found McClure’s ideas extraordinarily exciting. I still do, because his thinking speaks to a huge gap in the policy world.

The key was and is to find a way to test it.

The first big break came in 2013 when I was having lunch with Bryan Dowd, a senior professor in health policy at the University of Minnesota. I was in my first year of the master’s in public policy program at the Harvard Kennedy School and had a summer fellowship to work in the office of Minnesota’s then-Governor Mark Dayton. Bryan commented that the Minnesota State Employee Group Insurance Program (SEGIP), the largest employer-sponsored health plan in the state, was designed a lot like the ICC model and would make an ideal test case.

With the program officials, we established a collaborative partnership whereby the researchers and program director and staff work together to identify the highest-return questions to ask in order to improve the program and help shine a light on it as a national model.

That collaboration, begun in 2013, is now in its eighth year. It began with analysis for my master’s thesis and under Bryan’s leadership have since secured two research grants by private foundations: the Robert Wood Johnson Foundation provided a grant to evaluate the program’s historical performance, then the Donaghue Foundation provided a grant to test improvements for how information is presented to consumers. This year I also won a competitive dissertation funding award from the Horowitz Foundation for Social Policy, building from this work. Each of these studies is building toward the objective to find a way to powerfully change incentives in the U.S. healthcare system.

Walter McClure, a mentor, health policy pioneer, and originator of the Informed Consumer Choice strategy. Walter is trained as a theoretical physicist and brings that formality to his thinking about health policy. One of the most original and rigorous thinkers I’ve encountered.

Bryan Dowd, advisor and senior collaborator since early in my graduate studies.

Please describe the process of learning, iterating, and creating the project

Like so many things this is learning-by-doing, and I’m still in the early days. It has been key for me, as I think it is for anyone starting out in science or public policy, to work with people that have experience: designing and carrying out research, writing papers, securing competitive grants, preparing memos to decision-makers, developing legislation, working to advance the legislation, building teams, securing funding. One of my colleagues has a saying, “there’s nowhere to go to school to learn how to do this.” You learn by doing, and the best way is to work with people that are very talented, with good character, and soak up everything you can.

As mentioned above, before graduate school I had the opportunity to have a book published on education system reform. The book was sponsored in part by the Verne C. Johnson Family Foundation. Verne was a giant of a civic and business leader in Minnesota who, despite our being separated by generations, became a close mentor and role model (mentoring young people was one of Verne’s many exceptional traits). In that book I synthesized work from colleagues, I contributed my own ideas, and framed it to speak directly to state policy makers. Shortly after publication it was picked up and used by the chair of a state’s Senate education committee to shape their education proposals over the two years of the biennial legislative session. I spent those two years with her and my senior colleagues, helping translate the book’s ideas into proposals, and shepherd them through the legislative process. This was my first experience taking rigorous designs informed by logic and evidence, developing proposals, and working to help people enact them.

The ICC healthcare initiative similarly is an effort move a project through a full cycle of research, to design, and implementation. It is a loosely coordinated collection of efforts oriented toward a common vision. The team is a diffuse group of independent researchers and stakeholders. Everyone has their own projects and areas of focus. But we share a common interest in engaging patients as consumers in a way that creates a viable economic model for better-value providers. My main value-add has been as an instigator. I try and keep focus on the end goal: testing, improving, and if evidence warrants expanding the design.

Please describe the process of launching the project

The project accelerated in 2014 with a series of seed grants from John Mooty Family Foundation following my graduation from the Kennedy School. John Mooty was a long-time friend of Verne Johnson, and like Verne an eminent civic and business leader in Minnesota with global impact. Those seed grants led directly to the formation of this project and enabled the three research grants mentioned above and are working on more now.

The first step in the project was to find a proof of concept – which has been SEGIP – and study it to build an evidence base. Our first two papers from that effort are forthcoming in the American Journal of Health Economics and American Journal of Managed Care. From this emerging evidence – along with other related studies – we can generate the ICC design.

Since launch, what has worked to make your project grow?

There have been a few keys factors for the project. The first is combining a clear vision, backed by sound theory, with a real-time demonstration. The power of a demonstration project has been eye-opening to me. It really helps people to visualize what you’re talking about (and less easy to dismiss) when you have something tangible you can point to. The second is involving as many smart and talented people as possible, because ultimately an effort like this will only succeed if many people are moving under their own motivation in a similar direction. Third, it’s essential to have funding to support the work so right now we are focused on securing long-term, stable financing.

An important factor for me personally, especially early in my career, has been relationships with advisors and mentors. Developing these relationships has been very important to me personally as well as professionally and I try to invest a lot into them. I feel that relationships are one of the most important things in our lives and I treat these relationships as very precious.

How is everything going nowadays, and what are your plans for the future?

I’ve been learning a few lessons. The first is to resist the tendency to limit thinking to the system as given, which often causes people to work on pieces of the system without regard to the whole or focus on symptoms instead of getting at the underlying causes which often emerge from basic system structure. For example, a lot of healthcare reform work of the past 10 years could be described as reacting to what the Affordable Care Act created. The ACA was a major reform. It expanded affordable access to health coverage. It also launched some efforts to try and contain cost, but despite some important progress these efforts have been found to have limited to no effect.

It is increasingly apparent that we cannot get to where we need to be in terms of cost containment with the current approaches. Yet these approaches have almost completely captured the health policy world. This seems like a failure of imagination. We need to ask: If the efforts are insufficient to get us to where we need to go, what could be?

Other lessons:

Get multiple efforts going, multiple “tops spinning,” to allow for serendipity. You don’t always know what will take off.

Get as many smart people involved as possible, doing their own thing. Great things happen because others take the initiative.

Consistently communicate the larger vision, setting everything in context. How does this study fit into the larger picture? If we’re applying for a grant, what’s the broader strategy? What’s the theory of action? Continually revisiting the vision motivates people and they find ways to advance it.

Another lesson is the importance of what negotiations theory calls “multiplexing.” Don’t be reliant on one person or pathway. Often momentum is blunted because a key partner – particularly on the other side of a collaborative relationship – leaves their position. Early in the process of building this project one of the key State officials moved to another job in government. They were our main contact, and it put the project on hold for over a year. If we’d had built a broader set or relationships, we may have been able to weather that better.

What is your morning routine?

These are COVID times, so my routine is centered at home. I wake up early, make tea, and get to work right away. My thinking is freshest in the morning, so I try and focus on challenging issues or writing earlier in the day. I then schedule meetings to begin mid-afternoon, after having gotten a block of time to myself. There are other times in my professional work where I’m away from the writing, much more engaged in implementation – whether working around a legislature or among organizations. Then I’m up and moving around, talking with people, continually through the day.

Some of our work at RAND requires use of classified facilities so I may go into the office for that. In that case I try to get up and out the door before traffic picks up. I rarely work out in the morning, preferring to do that later in the day.

And how does a typical day look for you?

As researchers, we are frequently parallel processing. Regular email communication. As mentioned, I try to get most of my writing done in the first half of the day when my mind is freshest. For colleagues in California if I’m in Washington I can get things off to them first thing in the morning; or we can schedule meetings over their lunch and afternoon for me. I make a point to check in regularly with the key partners.

What does your workstation look like?

I keep it simple: Macbook, one or two external monitors, and a writing pad next to the mouse so I can switch from mouse to pen as needed. When traveling my iPad becomes a more important tool. I use all Apple products; I think I’m their target customer. The design and functionality work intuitively better than anything else. Other people have their own preferences and I think it’s important for people to match with their preference – we spend a lot of time with these tools.


What platform/tools do you use for your professional life?

For writing and presentations, I use standard Office and Google tools. I like to design and presentation tools through Adobe, and web-based whiteboarding apps. For quantitative analytical work, we use Stata and R, and for qualitative we use Dedoose. For surveys we use Qualtrics. I’m flexible on the platforms, whatever gets the job done smoothest and most intuitively.

What secondary software and apps do you use daily?

Whatsapp chat groups and regular texting are my main vehicle for talking with friends and collaborators, in addition to emails. RAND uses Microsoft Teams so that’s our main video conferencing within the organization. Outside the organization I used Zoom. Very straightforward. I tend to default to what’s most widely used.

How do you stay up to date on news and resources?

For news, I regularly check the New York Times, Wall Street Journal, and Washington Post apps; as well as the Financial Times and the Economist weekly. For radio, I listen to NPR and my wife has turned me on to PBS Newshour. I then check in with Fox News, Breitbart, and Newsmax to see how they are covering things. Since being at RAND I’ve internalized the organization’s maxims of rigor and objectivity which are thoroughly baked into the culture. Part of this means taking in information from many sources and being analytical. Part of it is being discerning, recognizing not all sources of information are created equal.

It can be challenging to move past the horse race of events. So much important news is off the front page, and I struggle against the temptation to just look at what’s attracting the most attention. It’s important to look past the urgent to see the important.

What have been the most influential podcasts, or other resources?

I try to find podcasts with interesting analyses. I’ve joined the bandwagon that thinks Scott Galloway has consistently very interesting insights. In addition to individual podcasts, I seek out interviews with specific people. I try to catch anything by Larry Summers because I like how he thinks out loud in very logical, structured ways. The best course I ever took was a small seminar at Harvard Law School co-led by Summers and Cass Sunstein, about government regulation. Watching those two argue with each other for two hours every week – was extraordinary. Others that I follow include Warren Buffett and Charlie Munger, Amartya Sen, Larry Bacow, Jill Lepore, and Jeffrey Goldberg, to name a few. Ultimately I think I learn the most from my friends, senior colleagues, and collaborators; and by reading as widely as possible.

Amartya Sen, preeminent philosopher and economist. He was an invaluable advisor for me during my time 
in the master’s program and for two years after, providing guidance on political economy 
and the approach of 18th century philosophers to system design.

What tools do you use in your personal life? Cook? Self-Care?

Most of this interview has been focused on work. But the most important thing in my life is my relationship with my wife, and the life we share with family and friends. We prioritize sharing the “journey” with those we love.

I view work as a vocation and relationships as an essential aspect of a full life. In the final analysis family and looking after one’s neighbor are ultimately what matters.

For physical health I watch what I eat and aspire to regular exercise – mixture of running, boxing, skateboarding, and surfing when in California.

Advice for other scientists who want to get started or are just starting out?

This will be different for everybody, so I can give a few lessons that have been important for me. This is targeted specifically at people early in their careers, maybe approaching or in graduate school.

  1. Find whoever is best at what you want to do, who has good character and is respected, and do whatever you can to work with them.
  2. Prioritize working with good people, who help you grow, over the name of the institution or compensation – especially early career.
  3. Collaborate with people, always. A senior colleague said to me once, after I had deviated from our team strategy and achieved some task and was very pleased with myself: “That’s nice. But it’s not what you can do by yourself, but as part of a team.” I’ve never forgotten that.
  4. Find one or two big ideas that can provide long-term vision and direction to your work.
  5. Seek a “durable world view,” or ways of thinking that can guide you as you identify and respond to opportunities. Buffett has one of these, as did Steve Jobs. It helps increase their batting average. Us ordinary people can too.
  6. Develop relationships with mentors by being authentically curious and asking questions. By engaging people – reaching out, asking questions, being authentic – you are inviting them to go on the journey with you. It only takes a few relationships to make a big difference.
  7. Ultimately you will grow most quickly by working with experienced, talented people with good character, who are willing to collaborate and share credit.

Thank you very much for your time, Tim. Where can we go to learn more?

Professional web page:

RAND website Redesigning Systems for the Public Good:



Dissertation committee following my proposal defense. From left, Paul Davis, Laurie Martin, 
Alain Enthoven, and Robert Lempert (chair). This was taken at RAND’s headquarters 
in Santa Monica, CA.

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