Health Care Costs

flying cadeuciiHealthcare costs far too much. We can do it better for half the cost. But if we did cut the cost in half, we would cut the jobs in half, wipe out 9% of the economy and plunge the country into a depression.

Really? It’s that simple? Half the cost equals half the jobs? So we’re doomed either way?

Actually, no. It’s not that simple. We cannot of course forecast with any precision the economic consequences of doing healthcare for less. But a close examination of exactly how we get to a leaner, more effective healthcare system reveals a far more intricate and interrelated economic landscape.

In a leaner healthcare, some types of tasks will disappear, diminish, or become less profitable. That’s what “leaner” means. But other tasks will have to expand. Those most likely to wane or go “poof” are different from those that will grow. At the same time, a sizable percentage of the money that we waste in healthcare is not money that funds healthcare jobs, it is simply profit being sucked into the Schwab accounts and ski boats of high income individuals and the shareholders of profitable corporations.

Let’s take a moment to walk through this: how we get to half, what disappears, what grows and what that might mean for jobs in healthcare.

Getting to half

How would this leaner Next Healthcare be different from today’s?

Waste disappears: Studies agree that some one third of all healthcare is simple waste. We do these unnecessary procedures and tests largely because in a fee-for-service system we can get paid to do them. If we pay for healthcare differently, this waste will tend to disappear.

Prices rationalize: As healthcare becomes something more like an actual market with real buyers and real prices, prices will rationalize close to today’s 25th percentile. The lowest prices in any given market are likely to rise somewhat, while the high-side outliers will drop like iron kites.

Internal costs drop: Under these pressures, healthcare providers will engage in serious, continual cost accounting and “lean manufacturing” protocols to get their internal costs down.

The gold mine in chronic: There is a gold mine at the center of healthcare in the prevention and control of chronic disease, getting acute costs down through close, trusted relationships between patients, caregivers, and clinicians.

Tech: Using “big data” internally to drive performance and cost control; externally to segment the market and target “super users;” as well as using widgets, dongles, and apps to maintain that key trusted relationship between the clinician and the patient/consumer/caregiver.

Consolidation: Real competition on price and quality, plus the difficulty of managing hybrid risk/fee-for-service systems, means that we will see wide variations in the market success of providers. Many will stumble or fail. This will drive continued consolidation in the industry, creating large regional and national networks of healthcare providers capable of driving cost efficiency and risk efficiency through the whole organization.

Continue reading “Half the Cost. Half the Jobs?”

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Screen Shot 2014-06-20 at 11.28.40 AMOn the front page of last Tuesday’s Wall Street Journal was this headline:  “Taxpayers Foot Big Bills from Handful of Doctors.” It is a two-page story about a clinician whose practice drew attention from the WSJ research team that combed through the recently released Medicare Utilization and Payment database released in April. They wrote:

“Ronald S. Weaver isn’t a cardiologist. Yet 98% of the $2.3 million that the Los Angeles doctor’s practice received from Medicare in 2012 was for a cardiac procedure, according to recently released government data…The government data show that out of the thousands of cardiology providers who treated Medicare patients in 2012, just 239 billed for the procedure, and they used it on fewer than 5% of their patients. The 141 cardiologists at the Cleveland Clinic, renowned for its heart care, performed it on only 6 patients last year. Dr. Weaver’s clinic administered it to 99.5% of his Medicare patients…”

Lets face it: curiosity about what other people earn is a national pastime. Pro golfers qualify for their tournaments based on their publicly accessible official winnings. NFL agents bargain for their clients based on position-specific compensation comparables. We are frequently reminded that members of Congress “officially” earn $174,000 plus attractive perks, and of late, executive compensation for most of America’s public companies has become a major focus for Board Compensation Committee’s who are being pushed by shareholders to reign in their generous comp packages. So it’s understandable that physicians bristle at stories like this one. We would as well if in their shoes.

Here’s why the story is particularly challenging for the medical profession:

1-Physician income is high relative to what most American’s earn. Though wide-ranging across the various specialties in medical practice, the ratio of physician income to the median income in the U.S. ($51,324) is from a low of 3.6:1 for family practice to 13.9:1 for the highest earning clinicians in radiology, orthopedics and others (and that does not include their income from ownership in surgery centers, testing facilities and other services). Physicians think they deserve to be paid more than any other profession, reasoning theirs is a higher calling, their debt higher (averaging $170,000 for the 86% that borrow for medical school) and their training and expertise more valuable to society than others. Stories like this draw attention to how much physicians “might” earn and lend to suspicions that belly-aching by some in their ranks claiming they earn too little is more about greed than the greater good. Income potential is important to everyone: physicians want to earn as much as they can, and keep score against their peers and other high-earning professions. Many feel underpaid; some indeed are. But relative to what’s made in the vast majority of households, they are well paid.

Continue reading “Are Doctors Paid Too Much? Behind Medicine’s Nasty Little PR Problem”

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flying cadeuciiRube Goldberg was an American cartoonist and inventor, perhaps best known for the extremely complicated contraptions he devised for performing the simplest tasks.  Each year, a national Rube Goldberg Machine Contest is held, challenging competitors to devise bizarre contrivances that can shine a shoe or zip a zipper.  One day while watching a group of children marvel at such a machine in a museum, a thought occurred to one of us: As healthcare becomes more complex, the interactions between patients, physicians, hospitals, payers, and communities increasingly resemble a Rube Goldberg machine.

Consider a recent case.  Ms. Jones was a 50-something year old African American woman with type I diabetes, high blood pressure and end-stage kidney disease requiring peritoneal dialysis, a form of dialysis performed nightly at home.  She was recently admitted to the hospital because of an apartment fire that destroyed everything she owned, including her home dialysis equipment and medications.  Once she was hospitalized, the medical team restarted her dialysis, restored her blood chemistries to normal, corrected her blood sugar, and began to make plans for her discharge.  There was just one problem.  They had no place to send her.

Ms. Jones could not return to her apartment, which had essentially burnt to the ground.  She did not qualify for admission to a nursing home.  And she couldn’t afford to rent a new apartment, at a cost of about $1,500 per month.  She had paid for insurance on the apartment for years, but had recently let the insurance lapse to help finance the purchase of an $8,000 living room suite.  The medical team had heard that social service agencies would provide one month’s rent, but it turned out that she could get only one-time distributions of $100 from the Red Cross and $200 from the Salvation Army – not nearly enough.

As the days rolled by, the medical team caring for Ms. Jones began feeling escalating pressure from hospital administration to discharge her.  Her medical problems had been taken care of, and there was no medical need for her to remain in a hospital bed at a cost of $1,500 per day.  The team arranged to get her dialysis supplies delivered to her sister’s house, hoping that she could stay there until she found a place of her own.  But it turned out that too many people were already living there.  Attempts to find temporary housing through friends and her church dead-ended.  Hotels she contacted were all too expensive.  Going to a homeless shelter was not a viable option; it would give her a place to sleep, but she couldn’t perform her dialysis there.  She volunteered that she could live out of her car, for which she reportedly used some of the $300 to buy gas, but it later turned out that she did not have one.

As pressure to discharge Ms. Jones mounted, team members became increasingly frustrated.  Each new hope was thwarted by an opposing reality.  The team had provided their patient with the best available medical care, marshaling the impressive resources of a major academic medical center to solve her acute medical problems as effectively and efficiently as possible.  But now they had run up against a barrier for which they lacked the necessary training and resources – not a medical problem so much as a social one.  Treating acute illness was doable, but looking out for their patient as a whole person with a real life outside the hospital was proving quite another matter.

Continue reading “Health Care’s Rube Goldberg Machine. Who Is Responsible?”

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Brian-KlepperBy BRIAN KLEPPER
One of America’s most enduring mysteries is why the organizations that pay for most health care don’t work together to force better value from the health careindustry.We pay double for health care what our competitors in other developed nations do, but studies show that more than half of our annual health care spend – equal to 9% of GDP or our 2012 budget deficit – provides zero value. Every health care sector has devised mechanisms that allow it to extract much more money than it is legitimately entitled to. Health plans contract for and pass through the costs of products and services at high multiples of what any volume-based purchaser can buy them for in the market. Medical societies campaign for excessive medical service values that Medicare and commercial payers base their payments on. Hospitals routinely over-treat and have egregious unit pricing. There are scores of examples.Decades of these behaviors have made health care cost growth the most serious threat to America’s national economic security. Medicare and Medicaid cost growth remains the primary driver of federal budget deficits. Over the past decade, 79% of the growth in household income has been absorbed by health care. Health care’s relentless demand for an ever-increasing percentage of total resources compromises other critical economic needs, like education and infrastructure replenishment.Health care costs have been particularly corrosive to business competitiveness. Three-fourths of CFOs now report that health care cost is their most serious business concern. Commercial health plan premiums have grown almost five times overall inflation over the past 14 years. Businesses in international markets must overcome a 9+ percent health care cost disadvantage, just to be on a level playing field with their competitors in Australia, Korea or Germany.The health care industry’s efforts to maximize revenues have been strengthened by its lobby, which spins health policy to favor its interests. In 2009, as the Affordable Care Act was formulated, health care organizations fielded eight lobbyists for every Congressional representative, providing an unprecedented $1.2 billion in campaign contributions to Congress in exchange for influence over the shape of the law. These activities go on continuously behind the scenes and ensure that nearly every health care law and rule is structured to the industry’s advantage and at the expense of the common interest.Health care is now America’s largest and most influential industry, consuming almost one dollar in five. Only one group is more powerful, and that’s everyone else. Only if America’s non-health care business community mobilizes on this problem, becoming a counterweight to the health care industry’s influence over markets and policy, can we bring health care back to rights.

Continue reading “How Business Can Save America From Health Care”

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As the new year started, all kinds of predictions come to our attention, mostly of things that will enter our lives.

How about things that will dissolve from our lives ?

Of all species that became extinct the Dodo has become sort of synonymous with extinction. To “go the way the Dodo”means something is headed to go out of existence. (picture and quote source The Smithsonian)

So this goes not only for species but also stuff we use or things we do.

You might want to have a look at the extinction timeline and find things you did, ‘some’ time ago, and don’t anymore.

But what about health care? What will vanish, will the doctor due to all of this new technology disappear, or the nurse? Will we no longer go to a hospital or to the doctors office? I don’t think so.

We still will be needing professionals with compassion and care. However shift is happening and some things will start getting obsolete. In the following I am in no way going to try to be exhaustive, so feel free to add in comments or thought on what you think will disrupt from our lives in terms of health(care).

Continue reading “Is Health Care about to Go the Way of the Dodo?”

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Innovation has been a driving force behind health care from the beginning, yet with the U.S. health care system in the midst of an unprecedented transformation and a focus on lowering costs, many are asking, “What will become of innovation?”

The answer to that question is also a potential solution for hospitals facing financial pressures – a solution that has the power to improve patient care as well.

A growing number of hospitals are looking to develop a new revenue stream through the commercialization of medical innovations. They’re not doing it alone.

Just as Cleveland Clinic collaborates with other health systems on cardiovascular or cancer care, Cleveland Clinic Innovations has formed a national Innovation Alliance network to collaborate on the commercialization of medical innovations.

Cleveland Clinic Innovations, the corporate venturing arm of Cleveland Clinic, has a track record of converting and commercializing medical expertise, creating 55 spin-off companies and more than 300 licensed technologies that began as doctors and researchers’ ideas. Those companies have received nearly $700 million in equity investment.

Continue reading “The Future of Medical Innovation and Commercialization”

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The landmark 2001 document from the Institute of Medicine’s (IOM), Crossing the Quality Chasm, should have guided us out of the healthcare cost-quality crisis. It argued that the root cause of our difficulties has been a failure to meet the needs of patients with chronic disease. We have not solved this crisis because we have almost entirely ignored the recommendations for reform found in that document.

The claim that we have the best healthcare in the world is correct only if you have an acute condition. If you are having an event, such as a heart attack, our system can provide an emergency stent — for as much as $50,000 — that will open the blocked artery, immediately relieving the pain and saving your life. We are really good at rescue medicine-crisis medicine.

But acute conditions generate enormous costs only because we have not addressed the chronic condition earlier, interrupting the disease progression that produces the acute events. Since most healthcare cost growth over the past 2 decades has been related to patients with 4 or more chronic conditions, this should be recognized as the foremost issue in healthcare reform.

In fact, the IOM charged that, despite the central role of chronic disease in most pain, disability, death, and cost, care continues to be designed around the needs of providers and institutions, and most patients with chronic conditions do not receive the care they need. A 17-year lag in implementing new scientific findings results in highly variable care.

That cardiologists favor coronary stenting over optimal medical therapy — that is, managing vascular disease using $4 drugs and recommended lifestyle changes — provides a powerful case in point.

Continue reading “The Only Way Out of the Health Care Wilderness”

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recent analysis of the ACO market by Oliver Wyman market suggests we’re well on our way toward being “there.”

My personal take on this report:

Provocative, fresh, thoughtful, well reasoned, expansive — albeit a bit of a stretch

However, I suspect many others will describe it as:

Speculative, harebrained, unsupported, overly extrapolative, out-to-lunch, wishful to the point of being woo woo.

So now that I hopefully have your attention, what’s this report all about? In a nutshell:

The healthcare world has only gotten serious about accountable care organizations in the past two years, but it is already clear that they are well positioned to provide a serious competitive threat to traditional fee-for-service medicine. In “The ACO Surprise,” our analysis finds that 25 to 31 million Americans already receive their care through ACOs—and roughly 45 percent of the population live in regions served by at least one ACO.

Let’s dig in to the report. In this blog post, I’ll summarize their math, surface their critical assumptions and observations, and comment on their reasoning. I’ve indented direct quotations from the report.

While I don’t agree with all of Oliver Wyman’s math and assumptions, I applaud them for the process they have gone through. Please take my commentary as “quibbling at the edges” and that overall I’m on board with their methodology and conclusions.

Continue reading “ACOs: Is There a “There” There?”

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At our first meeting years ago, Tom Emerick, Walmart’s then VP of Global Benefits, told me,

“No industry can grow indefinitely at a multiple of general inflation. It will eventually become so expensive that purchasers will simply abandon it.”

He said it casually, as though it was obvious and indisputable.

Health care is playing out this way. From 1999 to 2011, health care premium inflation grew steadily at 4 times the general inflation rate. During that same period, the percentage of non-elderly Americans with employer-sponsored health coverage fell from 69.2 to 58.6 percent, a 15.3 percent erosion rate.

Health care’s boosters like to argue that it has buttressed the economy, and that it means more jobs and economic prosperity within a community. A February 2011 Altarum Institute report estimated that private sector health care jobs now account for nearly 11 percent of total employment. Since the recession began in December 2007, health care employment has risen by 6.3 percent while employment in other industry sectors fell by 6.8 percent.

But there’s a darker side. Health care’s ever-increasing revenue growth has come at the expense of individuals and firms that pay its bills, directly through health plan premiums, and through taxes, often instead of buying other goods and services. It transfers wealth to health care from everyone else. Like the finance services industry, health care has become a disproportionate “taker” industry, sapping economic vitality from America’s communities.

Continue reading “Irresistible Forces”

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Diet and exercise: they were supposed to be the answer to all that ails America’s obesity and health care cost problem.

Signs of this Utopian vision are everywhere.  From entire government departments encouraging healthy lifestyles through fitness, sports and nutrition, government websites that encourage “healthy lifestyles,” and entire community efforts to partner with health care organizations to fight obesity with the hope of cutting health care costs.

What if, believe it or not, when it comes to people with Type II diabetes, diet and exercise don’t affect the incidence of heart attack, stroke, or hospital admission for angina or even the incidence of death?

Suddenly, all health care cost savings bets are off.  Suddenly, we have to re-tool, re-think our approach, understand and appreciate the limitation of lifestyle interventions to alter peoples’ medical destiny.  Suddenly we have to come to grips with a the reality that weight loss and exercise won’t affect outcomes in certain patients.  Suddenly, there is a sad reality that patients might note be able to affect their insurance premiums by enrolling in diet and exercise classes after all.

These thoughts are so disruptive to our most basic “healthy lifestyle” mantra that few can fathom such a situation.  Nor would any members of the ever-beauty-and-weight-conscious main stream media be likely to report such a finding if it came to pass.

And yet, that is exactly what has happened.

Continue reading “The Return of Counter-Conventional Wisdom”

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FROM THE VAULT

The Power of Small Why Doctors Shouldn't Be Healers Big Data in Healthcare. Good or Evil? Depends on the Dollars. California's Proposition 46 Narrow Networking

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