The Economic Realities of Health Care

Adam Smith is credited as being the father of economics. He introduced the idea of the "invisible hand" where (as his thinking went) people pursuing individual self-interests simultaneously served the interest of society. He also introduced the initial thoughts related to "perfect competition" which has provided the basis for our own free-market thinking today. Perfect competition, however, had several key components required before a real free-market existed. These components included: 1. No single participant can influence prices, 2. a free-flow of information exists among all market participants, 3. There are no barriers to entering a market, and 4. There are a large number of buyers and sellers.

As our health care debate continues, and despite our preference for free-market approaches, it is fairly apparent that our health care economy isn't operating by any "invisible hand" and doesn't include any of the components of "perfect competition" so some level of intervention is likely needed. The level of that intervention is at the center of the debate today and the key is going to be striking the right balance between the two. This idea has been the centerpiece of the Collaborative Health Care System principles we established three years ago.

A study completed on behalf of the American Medical Association found that out of 314 metropolitan markets across the country, 94% are controlled by one or two health insurance companies, or fewer. In 15 states, one insurer has 50% or more of the entire market. While the insurance industry questions the methodology used in this study, other studies have supported the fact that limited competition exists in most markets for the delivery of health insurance services. And, as the consolidation of the health care market continues, these numbers will likely continue to increase. That's the reality.

On the other side, a 2006 study of hospital systems found that one or two hospitals controlled the market in 88% of the nation's largest metropolitan areas. When you have dominant carriers going up against dominant delivery systems, it's no wonder we have a difficult time in coming up with a "free-market" pricing structure that benefits the system as a whole. We're lacking the invisible hand.

We honestly don't know if a "public option" is the answer. Those supporting this approach are using the idea of introducing more competition into the marketplace as the reasoning behind it. We question whether a government injected solution is the right approach.

Once again, it's all about the message. It's not about whether we have a public option included or not. The real issue is about the need to change the basic economics of a system that desparately needs to change. Monopolies dealing with monopolies just don't work. So, if we're going to strive more closely toward a free-market, perfect competition approach, the free-market supporters had better come up with a better solution than what is being thrown around today.

We haven't heard it so far.

Health Care Reform- Public Opinion Is Changing

A new Washington Post/ABC Poll shows that public opinion on the health care reform debate is starting to change. The public's approval of Obama's efforts has dropped from 57% in April, to 49% today. Disapproval has increased from 29% to 44% during the same time period. Most of the change is the result of the change of view of the independents who make up a significant portion of our electorate today.

We now expect the "p.r. machines" on both sides to start to work to try to influence the numbers- just like in the 90's. And, it's quite sad. It is very likely that whoever comes up with the best marketing gimmicks (whether truthful or not) will get their way.

We understand that this is all part of the democratic process. We welcome the dialogue and debate that should occur between ideas to come up with a compromise solution that is best for our country. We too are concerned with the deficits that are being built-up that will be left to our children, our grandchildren, and our great-grandchildren to get us out of the mess we are in today. But, we are even more concerned with remaining with the "status-quo". The numbers speak for themselves- reforming the way health care is delivered in our country is key to our economic stability in the future.

A recent Harvard University study found that in 2007 over 60% of the bankruptcies in our country were in some way related to medical/health care issues. Numerous studies predict the out-of-pocket costs paid by individuals will continue to increase and at some point will become unaffordable. Savings built during a lifetime of participating in the work-force are being wiped-out by a single medical event. Employers will continue to struggle with the costs of healthcare as they continue to be a significant competitive disadvantage when competing in a global marketplace.

The public needs to understand that health care reform isn't about whether we have a "public plan" option or not. In many respects, it's not about the "uninsured". The public needs to understand that the model we have today will very likely lead to economic disaster in the future. The public needs to understand that we are already rationing care with the system we have. The public needs to understand that the system we have today is simply not sustainable for the future. And, the public needs to understand that there are less costly options to really reforming our health care system than some of the options being promoted today simply due to politics.

It is wonderful that public opinion carries the weight that it does in the democracy that we have. We only hope that the public is provided the truthful information it needs to be able to make an informed opinion in the first place.

At this point in the debate, we don't think it does.

Health Care Reform- Keeping The Big Picture In Mind

Last March we published a newsletter outlining our “Obama Score” of where health care reform stood from a public policy perspective. In it, we highlighted the 6 basic principles that are going to be required to make meaningful (not incremental) changes to our health care system. Obama had done relatively well up to that point and he still carried significant public support as his Administration was still new. But we had some important “wild cards” that needed to be addressed before we felt true health care reform would become a reality.

Now, we’re at the really messy part of the process. Since March, things have moved along quickly and we are glad to see that health care reform has remained near the top of the domestic agenda. But, as expected, the other significant issues our country faces have now become part of the debate and the public support, while still there, is tenuous now that we put the dollars with the ideas. In our view, the primary principle we were concerned about in March (Mastering the Legislative Process) has become weaker instead of stronger. This single principle has killed most initiatives before, and we hope Congress (and the private markets) can come up with solutions that are good for the country as a whole, and not just continue to protect self-interests as has occurred so many times before.

We’ve posted a side-by-side comparison on our site of 11 of the major initiatives currently making their way through the health care reform debate. This was put together by the Kaiser Family Foundation and you can grab it here if you want to look at it. This will likely be changing quite frequently but we believe everyone should have a basic understanding about what is being discussed with the best information available.

Unfortunately, the public perception of health care reform has become centered on whether we have a “public option” included or not. While this is an important delivery component, the average consumer should also understand the broader need for transforming the way health care is delivered in our country before making any judgements. For those that have health care coverage, and for those that do not, we need to understand and accept that the way our health care delivery is structured is not sustainable, especially when significant numbers of our population (Baby Boomers) begin to access the model we have today.

Payment reform, transparency, administrative efficiency, clinical effectiveness, wellness/prevention, and care integration are also critical elements that need to be understood and considered by the public before making any judgments.

Whether we realize it or not, the health care market is already changing. The reform outcome will certainly have an impact on the speed in which it changes, but all stakeholders (health plans, providers, and consumers) will need to appreciate these changes for participation in the future.

We believe that access to care high-quality health care for all Americans is a critical factor of the final solution and is part of what our country stands for. We just hope the real transformation we need isn’t derailed due to the politics or economic philosophies that have proven not to apply in the health care market we have created. And, let’s make sure the general public has a good understanding of all aspects of what the debate is all about in the first place- not just what we want them to hear.

Health Care Cooperatives- We're Missing the Point

We shouldn't have been surprised.

The primary focus of the health care debate is now centered on what level of government involvement is justified to deliver health care in our country. It's the same debate we've been having for the past 100 years.

While the lines-in-the-sand are now very visible, Senator Kent Conrad, D. ND; Chair of the Senate Budget Committee threw out a new idea to try "bridge the gap"(chasm) that has evolved between the two sides of the health care public policy debate. His effort was obviously a compromise in an attempt to make certain the reform efforts continue to move forward.

On the one side we have those in support of a "public option" that is supposedly built on the principles of improving availability, improving quality and efficiency, and challenging provider consolidation (read driving down prices). On the other hand we have those that feel any (and I mean any) involvement by the government is on the road to single payer/socialized medicine.

Neither side is willing to move- and we believe both sides could use some real bi-partisan compromise in their positions.

Conrad's idea is based on the concept that instead of a national public option, states could set up independent "cooperatives"; non-profit entities owned by their members to deliver health care services to the community or population. The idea was based on his personal experience with cooperatives in his home state of North Dakota, and was one idea submitted to bridge the gap that exists today. It's generated a lot of discussion in the political camps- and Chuck Grassley (R, Ia) has indicated some intrigue with the idea as a public option is out of the question and a show-stopper from his perspective.

Unfortunately, we're missing the point again. Our health care system is in the mess it is in because of the way it is organized and paid-for. It has evolved into a fragmented mess and until there is some level of organization and collaboration between doctors, hospitals, health plans, and yes, our political leaders, its going to continue to be a fragmented mess that costs a lot of money.

There are many economic arguments against introducing 50 new health care cooperatives into a landscape that is already fragmented. There are many social arguments against introducing a broad-based public option into the health care market. And, there are many more economic and social arguments against leaving the system alone and let it continue to operate the way it is today.

The debate should not deteriorate (as it has done before) into health plans vs. the world, doctors vs. the world, or government vs. everyone else. We cannot let this deteriorate into a public relations message with the winner being whoever has the most money- or screams the loudest. This is a social issue that needs to be resolved for the good of our economy and the legacies we will leave our children. The discussion should be about what is best for the American people. And, the outcome should a solution- not a compromise based upon political strategies.

Get with it guys and gals. You may only have one shot at this. Let's do it right.

Risk Segments and Funding Alignment- A Requirement for Reform

When the whole health insurance idea was introduced in the 1930's the concept was pretty simple. The idea was to insure employees and protect them from the expenses of catastrophic health events. Even though the use of the term "insurance" in its purest definition was still a stretch- the primary focus was to protect individuals from the generally predictable hospital and doctor events existing in the population. Our reimbursement methods and funding (premiums and benefit design) were established and have evolved based on these original principles.

McKinsey recently issued a really interesting study showing how the risk categories in our population have changed over the years (primarily in the last 20 years) and how our methods to pay for the care and design benefits to represent these new risk categories have not changed at all. We've posted the study on our site- and you can grab it by clicking here.

This study indicates that today over 60% of our health care costs are now not even related to the categories for which our health care system was originally designed. In addition, over 30% of our costs are directly related to the management of chronic conditions (of which a significant portion is directly related to the lifestyles we lead).

In order for us to really reform our health care system we'll also need to look "outside of the box" to design reimbursement structures that represent the risk categories that have developed (and are very real) over the years. More importantly- benefit structures for individuals should be redesigned to reflect the needs of these new categories which will ultimately benefit our overall health care model. Consumer Directed Health Plans (high-deductibles/savings accounts) were a start, but they merely shifted the costs to the individual with some tax benefit. We really need to start to look at redefining benefit structures themselves to represent the needs of the population and to provide the incentive people need to take care of themselves in the first place.

Merely adjusting copays and deductibles will not work any more. Our health care population has changed to much and the cost is too great. It's time we get current.

It's No Wonder Physican Offices Can Be Cranky

There's been quite a bit of talk about the inefficiencies of our existing health care system- here's another example.

We all know the route many of us take as patients- we go to the doctor (sometimes we have our health insurance cards, sometimes we don't). We have no clue what our benefits are. If we don't get fixed immediately (we're impatient) we go somewhere else. For those with chronic conditions, we may have to run from one specialist to another, filling out the same forms, and repeating the process all over again. We don't worry about all of the "administrative details", that's the doctor's office problem. We'll just complain when we don't understand the bill.

[I may be a little critical on the "consumer/patient" here- but, unfortunately, it's reality. It's another part of the system that needs to be addressed- consumer understanding/education]

So, what does all of this cost the doctor's office to wade through the mess and hold our hands to deal with "health insurance"? Not surprisingly, a lot.

The May issue of Health Affairs included an interesting article summarizing a study that tried to answer the question of "what does it cost for physicians to interact with health plans today?" You can take a look at the entire article on our site by clicking here.

The study estimates our current process costs our system between $20-$30 billion dollars per year. Each physician/practice deals with over 10 very different and individual "health care programs" and spends on average 3 weeks per year trying to manage the rules of each program. Clerical staffs average almost 40 hours per week (one full-time person) simply to coordinate billings, authorizations, credentialing, and claims. And RN/MA/LPN resources eat up over 9 hours per week trying to navigate through the multiple arrangements. You can probably multiply these numbers further when you include mental health, chiropractic, physical therapy, and some of the other care providers that weren't included in this study.

That's a lot of money- and it is a confusing and frustrating process for everyone involved.

"Technology" is already entering the picture and starting to automate some of these provider/health plan interactions. That's where a lot of our projected savings are going to come from and its the right direction to go. But, getting the technology in place is going to take time.

By simply looking at the numbers, it would seem to us that moving toward some common definition of benefits, formularies, care management protocols, claims processes, and prices between all of the private payers would have the potential of saving a ton of money and reallocate the time currently being spent on "administration" to "care for the patient".

It's pretty obvious that whatever final reform structure we take- we have got to figure a way to organize the mess of programs that are currently out there. It will be better for the payers, the providers, the consumers, and the health care system as a whole.

And, those that are delivering the care to us are likely to be a lot less cranky.

Doctors and Hospitals Join In; AHIP Day 3

Today, the President of the American Medical Association and the President/CEO of a major Los Angeles hospital participated in the primary (annual) meeting of the health plans from across the country. I guarantee you, a year ago these groups wouldn't have been part of the dialogue here. It shows how things have changed.

I think I heard the word "collaboration" today more than I've ever heard it before- and in the right way. And, I heard the dialogue and discussion between diverse stakeholders much more "honest" than I've ever heard before. The fact that the doctors, the hospitals, and the health plans are even talking together shows how far things have come. We aren't at the "hugs and kisses" stage yet- but the fact that its even happening recognizes that there is some common ground that can be built upon to come as close to a win/win outcome as we can. This is what we've been talking about since we created Collaboration Health Care three years ago. It can happen, and it can be done.

This group, (and three others) sent a letter to President Obama last week and we posted it on the resource page of our site http://www.collaborationhealthcare.com/. This letter was an attempt to provide more color and detail behind strategies that would be used to support their collective committment to "bend the cost curve" in health care spending in a collaborative process. There is no doubt that we still have a ways to go- but stakeholders are recognizing that we need to break down the silos that have evolved over the years to make this work. Those that aren't willing to collaborate and dialogue are going to be left behind. It just requires a little different perspective and a little different thinking than we're used to. (And, yes I recognize I was a little skeptical when this group originally announced their committment a few weeks ago- see previous blog- but, after listening to their rationale today- I believe the intent is more sincere than I gave credit for)

We also heard quite a bit about the "Massachusetts Experiment" today. Suffice it to say, it's not going real well in Massachusetts. But, once again, I hoped we've learned something from it. We've proven the fact, once again, that if you don't address cost and access at the same time when you are designing a delivery model- it's going to break the bank (same thing we did with Medicare).

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So, the AHIP conference of 2009 is over. In summary, I'd say the attendance was about the same as in the past (maybe slightly lower), smaller (but still respectable) number of exhibitors, and a little more somber mood. We all heard some very dramatic statistics and predictions about what could happen if we don't do something- and urgently. The time for talking about it is over- too much is at stake. I think everyone at the conference would agree. And, I actually think all of the stakeholders are beginning to understand that they can't do it themselves. I don't have the answer about how much should be controlled by a "government function" and how much should be placed in the free-market. We know that too much of the controlled function is not what this country is all about and too much of the free-market just doesn't work in a multi-segmented health care structure. As we said back in 2006, it's a combination between the two. We've just got to keep talking to each other to capitalize on the commonalities and reach the right combination.

In the world of health care- this is an historic event.