Would Newt Pay the OB/GYN for Arnie's Love Child?

I know many will perceive the following as heresy.  Nevertheless, I believe the comments made by Newt Gingrich this past weekend were more important than the revelations disclosed by Arnold Schwarzenegger regarding his heretofore hidden love child.  Yes, I actually believe what I just wrote.  I don't always agree with them, but Gingrich’s comments reminded me of the serious debate that is occurring across this country and the parlous state we are in due to the level of our healthcare spending and the results we get for it.

Healthcare Benefit Costs are the boa constrictors that are slowly squeezing the life out of the companies that we are trying to build in the United States and are choking the state and municipal governments in America.  We feel the pinch in our portfolio companies at my firm.  Moreover, the Hay Group released a report for the Bedford Central School District that I serve that demonstrates alarming annual required contribution numbers.  Our district is accruing liabilities at a terrifying rate and we must change the system or…either the taxes to support the current system will crush us or the costs of doing business through providing traditional healthcare benefits will.  The situation is not all that much different for traditional, low deductible “Cadillac” healthcare plans in the private sector.  They, too, have simply become unaffordable.

I am revisiting a topic that I touched upon back in February when I began a discussion regarding Healthcare IT.  Getting a better handle on how, why and where we spend our healthcare dollars is an excellent idea and mapping spending and tracking procedures, regimens and outcomes is both good business and good science.  Nevertheless, unless and until we move away from a third party payer system except for catastrophic illnesses, we will not make any real progress on costs.  The current situation presents nightmarishly bad incentive structures.  Physicians recommend diagnostic procedures and treatments to patients (everything under the sun to avoid liability) and patients usually accept whatever is recommended because they are not paying for anything beyond the deductible or co-pay amount, which is the responsibility of the insurance company or the government under traditional plans. 

No matter how good we get with any healthcare IT analytics systems, we can never overcome this horrible incentive structure.  All experiments that try to tweak the healthcare system in some way without fundamental reform will ultimately fail.  The only solution that will work to reduce ever escalating costs is for the patient ultimately to have control over the payments to be made to the physician.  The patient will then have a strong incentive to shop for the best physician at the best price.  The debates should be over the amounts and the mechanisms of allocating and transferring funds to the control of the patient.  Patients would then be free to purchase high deductible plans of their own choice, pay directly, or even purchase supplemental private plans.  Since not everyone will be able to afford insurance, there must be consideration of the level of taxation necessary to cover those who cannot afford high deductible, catastrophic insurance and some type of health savings account for regular or preventive care.  It is not fair or a good use of resources to have indigent patients clogging up emergency rooms.   Such facilities would then not be available when truly needed.  If our country were to move in this direction, I believe it would be a system not unlike the one used in Singapore today and it would cost much less than what we spend on the private and public side in the United States. 

Empowered and informed patients are better patients and better consumers and they save companies money.  Their care is equal or better than their counterparts’ at companies with traditional plans.  The Cigna Choice Fund Experience Study simply cannot be ignored. Yes, we can all argue that such a study is self-serving.  But that is far too simplistic an analysis and unnecessarily dismissive.  The logic and the incentive structure behind the Cigna Choice Plan is too compelling to ignore and it is time to move toward a system with a high deductible health care plan and something akin to health savings accounts and that these are funded for those who cannot afford them.  We can do this as companies and as a nation or become less competitive, more highly taxed and poorer.  The choice is ours.

Healthcare IT – A Prescription to Stop the Hemorrhaging?

“ENTITLEMENT, n. – A right you believe you have that I cannot afford to pay.” – Graham Anderson’s most recent entry to Ambrose Bierce’s The Devil’s Dictionary.

As part of the American Recovery and Reinvestment Act of 2009, the Obama Administration pushed forward the Health Information Technology for Economic and Clinical Health Act (HITECH).  Beginning this year, the Act provides up to $36 billion in incentives over several years for healthcare providers (physicians, hospitals, nursing and other care-giving facilities) to adopt various healthcare information technologies.  The Act also provides penalties for those that are slow to adopt certain new technologies – particularly electronic health records.   Moreover, the Act charges the Secretary of Health and Human Services to invest in infrastructure necessary to enable the electronic exchange and use of health information. This Act certainly looks like the full employment act for healthcare IT consultants.  Accenture and IBM’s healthcare divisions are probably doing the happy dance in 2011 and beyond; Athenahealth probably couldn’t be much Athenahealthier as well. 

Will any of this money do any good?  Will any of this spending make our healthcare system any more efficient at delivering healthcare services and help reduce America’s crushing entitlement burdens?  Our nationwide healthcare system will probably become only marginally better as long as it remains in its current form.  If the money provides any benefits or gains in efficiencies, it will be because healthcare consumers will have greater access to personal healthcare data that is transferable among providers and patients will also have outcomes data for providers so that they may compare doctor and hospital performance outcomes versus delivery costs.  If we are lucky, perhaps providers will perform far fewer duplicative diagnostic tests.  And patients will then have the information to be able to choose better, more efficient healthcare providers.  Worse providers simply will get less business and, with any luck, will eventually go out of business.  Unfortunately, this process does not happen quickly.

Healthcare is also not a very rational market, and as long as we live in a third party payer world we are almost certainly doomed to overspend on such services.  That is why the costs for the final six months of life are overwhelming our society and emergency room visits are bleeding the life out of our country.

The undeniable fact is that individuals are willing to spend almost infinite amounts of other people’s money on their own healthcare or healthcare for their loved ones.  Most people do not have a moral problem with this situation when faced with it in real time.  When the alternative is a very serious health consequence or death, they will do whatever is necessary.  Thus, rational people (or their caregivers) will fight to their (sometimes literal) dying breath to extract the most “care” (read cost) they can from a third party payer system even if the care is not particularly good or beneficial. 

Today, patients often don’t know how effective treatments really are versus the myriad of costs associated with them.  Extracting additional information out of the system through much better uses of healthcare information technologies can only provide so much benefit as long as the system itself has incentives that are not properly aligned with making wise choices.  For example, for a patient beyond a certain age, should a third party payer system pay for a hip replacement instead of painkillers and a walker or motorized scooter and part time assistance?  In my opinion, individuals should be free to pay out of pocket for whatever services they choose, even if the benefit is marginal or non-existent.  But as a society that is picking up the bills, we must consider the risk of infection, healing time, rehabilitation, and all sorts of other costs associated with such procedures. 

In practice, it is very difficult to place a value on a life or a limb ex ante.  For the most part, I don’t think we need to get into that type of a philosophical debate to address the serious cost problem that we face.  To a certain extent, we must weigh all the costs of various treatment options against all the benefits and rarely do we do so today.  The problem is most acute in the last 6 to 12 months of life, but it exists throughout the spectrum of healthcare services.  Healthcare IT can help us frame how to consider some of these types of issues, but ultimately, we will have to have a system that will take into account costs and patient outcomes if we are to have any hope of realizing more than marginal benefits from a proposed $36 billion investment in healthcare IT.  No matter what we decide to spend on healthcare IT, if we do not change our fundamental approach to how we pay for healthcare, the United States will continue to spend more per capita on healthcare than any other nation in the world (and not get the best results except at the high end). 

As I see it, we have only a couple of longer term choices.  We can move to a sub-optimal, but much better system than we have today.  The US can move toward an integrated healthcare delivery model system run  more like that managed by organizations such as Geisinger.  Or we can move more optimally toward a high deductable, catastrophic plan or true insurance system supplemented with health savings accounts which patients control for non-catastrophic needs – i.e. relatively routine and preventive medicine.  Government then provides the funding for those who cannot afford to fund their own accounts to certain minimum levels.  Such a system would cost far less than what we do today because patients would be responsible with their own money for the vast majority of everyday decisions.  Ultimately, healthcare IT data would then help patients, who are allocating their own healthcare dollars, choose the best providers of services.  Patients making quality choices every day would help keep the quality of services up and the costs down with fewer mistakes made, fewer return visits to the hospital, better diagnoses, and faster recover times, etc. 

In combination with an overhaul of how we pay for healthcare, healthcare IT could provide a bandage to help stop the dollars from bleeding out of our pockets and into the system.  It will be some time before it is successful in doing so, however.