Henry David Thoreau said, “There are a thousand hacking at the branches of evil to one who is striking at the root.”
We have hacked at healthcare costs for what seems like thousands of times, with very limited success. It is time to strike at the root. Rather than focus on reducing costs after preventable diseases have taken hold, it is time to focus attention on eliminating the disease.
Let us look at two specific examples.
1. The CDC (Center for Disease Control and Prevention) has estimated that the cost of smoking(estimated cost of smoking-related medical expenses and loss of productivity) exceeds $167 billion annually. The CDC has also estimated that 326 billion cigarettes (combustible tobacco, to be more precise) went up in smoke in 2011. In other words, every cigarette consumed costs the nation about 50 cents; every pack, $10.
Put another way, while the smoker paid approximately $5 a pack up front, there was also an additional $10 secret surcharge — the cost of which is born by all of us (such as taxpayers, anyone who buys health insurance, even private companies who suffer from lower productivity as a result). It is as if we are telling the smoker, “I know you can’t afford to pay $15 for a pack. So we will give you $10 so you can afford to smoke.” We are not this generous even with people who don’t have one square meal a day. We spent $78 billion on food stamps, with constant pressure to bring that down further even if some people will be left without food as a result.
Instead of subsidizing smokers, if we were to front-load all these costs on every pack (to $20 a pack, or even $25 a pack, if we also want to include costs associated with cessation programs, training, etc.), we win no matter what:
- If smokers continue to smoke at the same rate, we have the funds to account for all those extra costs.
- If smokers drastically change their behavior, even better, as all those costs will get eliminated from the system.
We can’t think of a more lasting legacy that President Obama, who himself quit smoking last year, can leave behind. The millions of smokers who quit because of this steep cost increase (and all their friends and family) will be eternally grateful to the President for forcing the issue and helping them quit. (We personally don’t know of a single smoker who has not attempted to quit at least once).
2. The CDC estimates the cost of diabetes (direct medical costs and indirect work loss) to be $174 billion annually. We could write a multiple regression equation to find the relative weight of all the factors that make up Type 2 diabetes. (Type 1 diabetes, or “juvenile diabetes,” makes up just five percent of cases in America today, so we are focusing on the 95 percent of cases that are Type 2.) For now, let us go with a simple model that takes one factor — sugar consumption.
In 1822, the average American ate the amount of sugar found in one of today’s 12-ounce sodas every five days. Now, we eat that much every seven hours. Our sugar consumption has gone up from about 5 pounds per year per person, to a staggering 100 pounds per year person — a twenty-fold increase. No wonder diabetes is such a rapidly growing disease.
And it is one of those diseases that loves companionship — complications include heart disease and stroke, hypertension, blindness, eye problems, nervous system disease, amputations, and pregnancy complications. Trying to cut costs for the treatment of each of these complications is hacking at the branches. To discourage the sugar habit is to strike at the root.
The US wholesale sugar price is about $0.40 a pound. We consume 22 billion pounds of sugar every year. If you apportion the $174 Billion cost of diabetes across the 22 billion pounds of sugar, it works out to almost $8 per pound. If we were to front-load all these costs, we should be paying $8.40 per pound (more like $10 / pound to keep some money for retraining the people that will be affected by a shift in resources etc.) Far more than the cost is the human toll — not only the person suffering from the disease but their friends, family, colleagues. In the case of Type 2 diabetes, this suffering is preventable.
Healthcare, in our opinion, is a euphemism. It should be renamed “sicknesscare,” because 98%+ of the time, money, resources and attention all go into sicknesscare. When we start tackling the root causes of preventable diseases, have strong incentives to discourage unhealthy habits and encourage healthy habits (rebates for gyms, yoga classes, meditation classes, etc.), and start paying equal time, money, resources and attention to prevention and elimination — the healthcare industry will finally be born. And when a true healthcare industry emerges, there will be far fewer costs to worry about.
Vijay Govindarajan is the Earl C. Daum 1924 Professor of International Business at the Tuck School of Business at Dartmouth. He writes a blog and a newsletter on innovation and execution. His book, The Other Side of Innovation: Solving the Execution Challenge, will be published by Harvard Business Review Press in September 2010. Srikanth Srinivas is a Director of Consulting at River Logic and focuses on effective performance management. This post first appeared at HBR’s blog.