HEALTH PLANS: Three Inconvenient Truths: The Future of Health Plans in a Connected World

In the same vein as Wyden’s speech to AHIP yesterday, this is the talk I gave to the Western Regional Conference (a group of Blues plans) on October 14, 2007.

Hello my name is Matthew Holt and I’m here to tell you the truth. Now I know that you are a bunch of senior executives at health insurance companies, so you may not be very used to that….

I also understand that the person I’m replacing as a speaker here is Governor Arnold Schwarzenegger, who starred in some famous movies involving the end of the world and invasions by aliens, predators and terminators–something which might seem metaphorical to you after you’ve heard my talk.

I’m here today to tell you three potentially inconvenient truths.

First, you’ve done very, very well for the past several years. But the chances that you will be able to keep running your businesses in the same manner in a decade or so are very low. In fact if you keep running your businesses the same way the chances are good that you won’t be in business. That may not matter to those of you close to retirement, but it probably does matter to everybody else.

Second the world is changing under your feet, and if you intend to be a health insurance company that contributes value to society, you have to understand the changes that are happening in that wider society.  I’m not just talking about American Idol and the ability to track minute by minute developments in the life of Lindsay Lohan, although of course that’s a crucial component of societal change. I’m talking about the significant advances in technology and business leading to significant changes in the way we purchase, consume and—yes–produce health-care services.

Third, I’ll tell you some potentially good news.  Although I’m essentially on the same speaking circuit as the Liberals who think that Hillary Clinton is too right wing, I’m here to tell you that there is a role for an intermediary between the consumer and the healthcare system, and that intermediary need not be the government. That’s because, if the right incentives are created, healthcare organizations — on both sides of the payor – provider divide — can substantially add value to society, by improving the healthcare delivered and the health outcomes produced at a substantially lower cost.  But this is only good news if you’re prepared to fundamentally change your organizations, so that, when society finally demands better performance from its healthcare system, you are ready.

So first, why do your businesses need to change?  To be fair, it’s
by no means guaranteed that I am right.  The naysayers and the doom
merchants have been saying that the American health care system was on
an unsustainable course for a couple of decades now, and if I look
around the room I see plenty of executives running very profitable
companies — albeit most of them officially non-profit — using the
same old techniques of underwriting, price discrimination, and
aggressive provider contract negotiations, that served your
predecessors well 20 and 30 years ago.

The problem is that with a brief exception of the Phantom
managed-care quote unquote "revolution" in the mid-1990s, it’s been
completely unnecessary for health insurers to attempt to systematically
change the behavior of the providers who service their members. And
make no mistake, that’s a very, very hard thing to do. So here’s the

This is the chart of the increase in health care costs as a share of
GDP over the past few decades. Of course in the past few years, the
slope of that chart has got worse. And that has been during a time when
the economy as a whole has been growing. This hasn’t mattered a whole
lot to the health insurance industry, and it’s even managed to keep a
bigger chunk of that increase! (You call that reducing your MLR). But
there were two signal events at the biggest for-profit health insurance
company United Healthgroup that symbolized what happened to the health
insurance business after the failure of the Phantom managed-care
revolution. The first was in 2001 when United Healthcare gave
up its policy of utilization review. That was a signal to the provider
community that health insurers were simply going to turn round and pass
on costs to employers, and to the government.

The second was in late 2003 and concerned this character, Patrick
Rooney, the founder of Golden Rule insurance company. Rooney may not be
the worst example—in fact I think Mega Life and Health whose CEO sits
on the AHIP board may be worse–but Rooney is the biggest symbol of how
to run an extremely profitable insurance company by making sure that
you don’t sell health insurance to anyone who might actually need it.
While many of you in this room over the years have been opposed to some
of what Rooney and his cohorts have been up to, that didn’t stop United
Healthgroup making him almost a billionaire when they bought Golden
Rule in 2003.

And of course the man behind both those decisions, Bill McGuire, may
well be joining several other CEOs at Club Fed due to his backdating of
stock options—another symbol of greed run amok.

So the leaders of health insurance today are a gang of billionaires
whose major interest is in avoiding covering the care of sick people
while looking out only for themselves. And they’ve been successfully
characterized as that by Michael Moore.

We don’t have to argue the merits or the veracity of Moore’s
analysis to understand that there’ll be little sympathy for health
insurance companies or their executives in the future.

So what does that future going to be like? Insurers have
traditionally had big and small employers as customers. The problem is
that the workforce has changed–fewer and fewer Americans are receiving
insurance at work. And as the cost of care skyrockets the insurance
they are receiving is costing them more and covering less.

The remarkable thing is that unlike in the 1990s when insurance
coverage at work increased as the economy boomed and labor force
increased, since 2001 the absolute number of Americans covered by
employer health insurance has gone down as the numbers in the workforce
has gone up.

There are two results from this. First the number of un- and
underinsured has increased, and more people had been forced into the
absolute gong show that it is the individual health insurance market.
And despite what your consultants may tell you, they are not happy. 

Second, the number of un and underinsured has not increased
dramatically more only because of expansions in Medicaid and now
re-famous S-CHIP programs.

There are two consequences from this general trend.

First the number of middle income Americans who experience some
discontinuity of health insurance coverage has gone up dramatically.
When the CEO of Safeway can’t get insurance for his son, you know this
has reached up well into the middle class.  That has obvious political

But it also has less obvious political implications. That’s because
the major protection that health insurers, the healthcare system, drug
companies and the rest of corporate America have been afforded by the
last 30-odd years of laisser-faire government, have largely been the
result of a strange coalition between upper income business interests
and the lower-middle-class religiously motivated voters who are the
core of the Republican vote. 

If, as one drug company CEO mentioned to me, your best bet is to
hope the Republicans keep the White House in perpetuity — even
ignoring the morass the present occupants of the White House have
created in Iraq — the demographics of the issue do not favor
Republicans. That’s because the baby boomers are getting older, while
their employment and their health insurance are getting less secure. So
those core Republican voters who are middle-income white males in the
South are now becoming those people in their 50s who are more and more
concerned about their health.

Pollsters will tell you that most Americans think the Democrats are
a better bet on healthcare than Republicans. In fact, many liberals are
now quoting recent polling data which suggests the overall philosophy
of the nation is now as liberal as it was during the Johnson
administration. If this is true, at some point in the next decade
you’re likely to be facing a government which will not automatically
espouse free-market solutions — especially to a problem that the free
market has yet to show it can cure.

The second consequence of this trend is that regardless of the
political party in charge, more people and a greater share of the
healthcare system are coming under the government’s budget, and
therefore being paid for by the taxpayer—or more accurately by the
taxpayer and the Chinese central bank.

Peter Orzsag, the Congressional Budget Office director, has been
walking around Washington, telling the story that on its current course
the increased costs of  Medicare and Medicaid are likely to take up
essentially all discretionary spending (and much more) in the
government budget within the foreseeable future. 

As I just told you, health insurance companies have not seen
significant growth in the employer market and instead have been looking
to government programs, especially Medicaid and Medicare to increase
their top & bottom lines. And we know how controversial that is.
Well, if you believe the CBO, it is a reasonable assumption that at
some point that spigot will have to be turned off. At some point
society as a whole will become really concerned about the amount it’s
spending on health care–and with the baby boomers filling Medicare it
may well be relatively soon. Perhaps coinciding with the next recession
– when health care costs tend to grown much faster than the economy

But looking around the world no free-market solution has ever really reduced the cost of health care.

But government funded systems have. In both Japan and Canada in the
1990s the absolute dollars spent on health care went down. So it can be
done—even it’s not likely to be very pleasant. But even the American
government can make cuts if it has to, as it did with defense spending
in the early 1990s. If we get to that stage, more politicians may echo
the cry of “what use are those insurance companies taking their 30%
cut.” And it’s not hard to see the electorate agreeing with them.

Okay. I’ll agree that this is a bleak scenario. It is quite possible
that instead we could muddle through and health insurers could keep
doing what they’ve been doing. But on the other hand the demographics
of the baby boom, and the relentless rise in the cost of health care
are unlikely to change. And if health insurers can’t prove their value
to employers, the government and consumers, why should they be kept
around? The industry as it now behaves is unsustainable.  And as Herb
Stein once said, if something is unsustainable, in the long run, it
will end.


So now to my second point—the change in technology and society. This
I am going to make very briefly. As the baby boom has aged, American
households have got richer, better educated  and far more savvy about
using information technology. There is generally a new type of
consumer, and this of course is best illustrated by the incredible
growth of the Internet, and more recently the use of online social
networking — — that’s all your kids on MySpace and Facebook

This consumer is already seeking healthcare information online
voraciously, and is now expecting the same type of immediate
self-service and gratification from the healthcare business that it
gets from many others online. And frankly, many of you to this point
have done a pretty lousy job in that regard.

The good news is that because healthcare is only an occasional
problem for the majority of the younger baby boomers, and those below
them, and because the decision maker on healthcare has been the
employer, the government, and the provider — not the end consumer —
health care organizations have got away with this so far. But the
demographic trends are marching in this direction, and just as they are
having increasing concerns about the security of their health coverage,
those baby boomers are bringing their increased expectations to the
healthcare system.

And then there’s more, and this news gets worse. The combination of
more drug and high-tech treatments, and increased diseases like
diabetes & asthma particularly amongst the still significant
numbers of lower income Americans means that both you’re going to have
to do more with less and answer to have higher expectations from those
you’re serving.

And to be clear, there’s no real reason it has to be a health insurance company doing that “serving”. 

More than a decade ago my IFTF colleagues made this chart describing
the five core functions of a health insurance plan.  I won’t go through
all the functions, but you can see that many other kinds of
organization can put together those services. For example two weeks ago
Microsoft announced that it was creating “HealthVault” in which
consumers can store all their health information. You can be absolutely
sure that Google and a host of others are right behind them, and I
don’t have to tell you how many more people go to their websites to run
their daily lives, than go to yours. Not to mention the half trillion
dollars in market cap that these non-healthcare companies bring to the

Later this morning you will have some examples of non-health
insurers providing services which fit well into my five functions. And
of course at some point the question is, why do you need a health
insurance company to provide those services at all?

My third point is a call to action. There are significant problems
with the healthcare system that I don’t think the government or
consumers by themselves can fix. In most things, you pay more, you get
better quality!

The chart from Jack Wennberg’s group at Dartmouth shows the regional
variations in cost caused by the huge variations in clinical practice.
And people outside the health wonkery realm are beginning to pick this
up — it’s no accident that this subject has appeared in the New York
Times several times this year and is the subject of Shannon Brownlee’s
new book Overtreated.

We also know that the treatment of Americans with chronic conditions
is almost unbelievably inconsistent and that that poor care is
responsible for a huge chunk of healthcare costs.

Sorting out this mess is your job.

That includes–the use of information technology and data to detect
this waste, the development of new incentive systems for providers, and
the creation from scratch of advisory and motivational systems for

These are all needed to improve the care being delivered and the outcomes being produced.

To my mind, that is the only feasible long term role for health intermediaries.

No question, it is much easier to play pricing games, to avoid
insuring sick people, and to stick the big increases to your customers.
But if you can’t do that any more, then you have to prove to your own
customers – and society as a whole — that your role as intermediary
between consumers and providers is doing three things:a) saving money by reducing inappropriate care, b) improving healthcare process by promoting appropriate care, and c)
(eventually) improving overall health outcomes by helping to figure out
what motivates people to improve their health decision making.

And I fully expect you to be scored on your performance in doing all three of these tasks

I wish you luck in pursuing our future, I hope to be back here in 10
or 15 years time to hear how your organizations rose to that challenge.
Because if you fail, we may all be doing very different things in 15
years time.

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25 replies »

  1. Hi Matt,
    Some insurers, like UnitedHealthcare, are already leveraging evidence-based medicine to reduce waste in the system and drive down costs. What do you think of their efforts?

  2. To expand on one of your suggestions that the medical establishment was just going to have to deal with the increase of chronic and degenerative conditions, I might have included a method of doing so. I would have proposed that consumers begin to be told by their medical doctors that, having received training only in Allopathic western medicine, (which by definition teaches how to address SYMPTOMS of disease with drugs and surgery), they have limited ability to help them regain their health once diagnosed with a chronic and degenerative disease– as all they were taught to do is to manage the SYMPTOMS of the disease in medical school.
    Once they disclose their limited ability to help, they should STRONGLY URGE the patient seek a second opinion from a doctor who is naturopathically trained in medical school who has obtained an N.M.D. degree from an accredited institution and has experience treating the specific condition. By definition, the medical doctor should explain, the naturopath is the more appropriate kind of doctor to help the patient with these kinds of problems as they are trained to find CAUSES of disease and by helping to eliminate the cause (by helping the patient strengthen the immune system), can eliminate the health problem altogether.
    People seeking out a naturopathic doctor would be delighted to find that not only could the naturopath help them become healthy enough so they could be gradually taken of their prescription medications but
    eventually not even need natural medicines as their robust health would be fully restored!
    This of course will never happen in this country and the natural modes of medicine will continue to be maligned by the conventional western medical establishment as there is no profit in helping people get well. There is much more profit in managing symptoms with prescription drugs.
    Furthermore in addition to being honest with patients about the fact that allopathic medicine is best saved for acute care as it can stablize a patient in a life or death situation and save his life, but has little to offer the patient with chronic and degenerative diseases, there ought to be much more information disseminated to the public about the very real dangers of western medicine. These statistics compiled by medical doctors and taken from sources such as the Journal of the American Medical Association (JAMA) out to become common knowledge among the general public http://www.chiro.org/LINKS/FULL/Death_By_Medicine.html
    Just insisting that honesty and disclosure are part of the protocol, and suggesting that medical doctors do NOT have all the answers and know everything there is to know about all kinds of care would go a long way to reducing health care costs by at least making the options available to consumers as well as the risks associated with them.

  3. Barry,
    Insightful comments on making surgeons salaried. I had tended to think of it as a general change for all physicians, but on reflection it probably does make sense to first turn to physicians who work in the hospital to change the reimbursement system. You need a large organization to take on the responsibilities of structuring the employer-employee relationship in a productive and stable way. A hospital could do exactly that.

  4. PCB – you raise some very valid points, and it is precisely this dilemma of serving two masters that leads to many of the issues we face today. In the scenario I was raising, it would be shared money (physician AND patient), to be spent on healthcare. The amount a doctor stood to gain by practicing cost-effective, evidence-based medicine for any one patient would be small – ideally so small as compared to what the patient themselves stood to gain from frugality that we might actually find ourselves working to persuade patients to PURSUE testing or treatment. However, multiplied by a typical patient panel of 2500, the cost-effective physician will reap real rewards, and his/her patients will benefit from good medicine.
    Further, if a patient did feel that a particular physician/medical home were not acting in his/her best interest, they would be free to take their portable HSA type plan allocation to another medical home, leaving the rebuffed home to receive nothing. Hence, there would be a simultaneous incentive to not only be cost-effective, but also open, honest and above all, patient-centered. After all, it is these very qualities that my malpractice carrier tells me over and over again are the absolute essential ingredients in risk reduction.
    Patients who want “everything available”, I believe should have that option available to them. I just don’t think it should be on the public dime. On the contrary, for a price I’m sure some insurer will sell them a policy tailored to their whims. They’ll have money to spend in their plan, and will seek out physicians willing to pursue “everything” for them. Such physicians will still get paid, they simply would not share any sort of bonus for cost-effectiveness with their patients.
    In my opinion, I think physicians waste far more of the healthcare dollar than do any patients, insurers or bureaucrats. I could go one and on about patients on the hospital floor receiving IV coticosteroids while eating lunch (IV cost $150/dose, pill $0.50/dose), and myriad other similar stories. (Don’t get me wrong, though, ALL create their share of waste.) I truly believe that the only way costs will every be brought under control is if patients and physicians alike are incented to be cost effective.
    Mr. Carol – I have long been curious as to where the money goes as well. Hospital encounters are definitely very costly on a “per occurance” basis, but I can tell you managing someone in the ambulatory care setting for musculoskeletal pain can readily reach into the five digits in short order as well.
    I also really like your Fed Reserve idea. As you point out, many industrialized countries utilize quasi-government agencies to evaluate cost-effectiveness of new treatments and tests. In America, neither physicians nor patients seem to take well to being told “no”, however. Personally, I think the answer should be “Sure, if you’re willing to cost share!”
    As for your allusion to HIT being a potential cost savings vehicle, I believe you are again on target, albeit not in the current iteration of EMR adoption. The amount to be saved through elimination of duplicate efforts is nominal (though important!), but the amount to be saved by steering physicians to practice cost-effective medicine is enormous, I feel.
    The studies by Wennberg et al show the macro savings to be realized; what I think is greatly underappreciated is the micro-level saving that can be acheived. For instance, a quick chart review at one hospital I worked at showed my average inpatient stay to be something like 3.4 days at a cost of $5300, whereas my most expensive colleague had an average LOS of over 5 days, at average cost more than double mine. Similarly, he accounted for fully half of all CT scans ordered in our 7 physician group. Some of this may be due to different patient population or other difficult to tease out variables, but I dare say most of the variation was not justifiable. This is where the real leverage for cost savings lies.

  5. Dr. Jeffery,
    A couple of points. First, I personally have no problem with the government establishing a Comparative Effectiveness Institute modeled after the Federal Reserve that could make judgments about the relative efficacy of various drugs, devices, and medical procedures and base both coverage decisions and copays on those judgments. I think it would also be useful if the medical profession studied medical practice in other developed countries as it relates to end of life care. In the U.S., we don’t seem to know when to stop.
    Correct me if I’m wrong, but my perception is that, aside from cancer treatment, it is extremely difficult to incur more than a couple of thousand dollars in costs from a single encounter between a patient and a doctor in the doctor’s office. By contrast, even a routine surgical procedure performed in a hospital, even on an out-patient basis, can easily generate charges into five figures. Hospital episodes are where the dollars are (including doctors’ fees for services and procedures performed in the hospital), and this is where serious cost control efforts could bear the most fruit.
    As a taxpayer, I would like to see interoperable electronic records to reduce or eliminate duplicate testing and adverse drug interactions when multiple doctors treating the same patient don’t know what each other is doing. I think radiologists, anesthesiologists, pathologists, and emergency medicine doctors should be on salary, and their services should be built into the hospital’s reimbursement for the case or for its per diem rate that it receives from insurers. The reason I think they should be on salary is that the patient generally has no role in choosing them even for procedures that are scheduled well in advance. Under the current system, that fact creates an incentive for these doctors to stay out of insurers’ networks so they can receive higher reimbursement rates than they would get if they were in the networks. Finally, I think there is a lot more that doctors (especially surgeons) could do to work more closely with hospitals to bring about episode or package pricing for all the care required in connection with expensive surgical procedures including physical therapy and other services that might be required. All providers would need to agree among themselves how to fairly divide up the revenue from the reimbursement for the episode.

  6. KS,
    Do you think patients would tolerate a transparent system where physicians benefit financially from limiting testing and other interventions?
    There is so much information asymmetry between patient and doctor regarding the need for medical services for given problems that, as much as we wish it were otherwise, it usually comes down to trusting that the doctor is acting in the patient’s best interest. If patients feel there is a chance that the doctor’s financial interest might be influencing recommendations, there is a gigantic wedge of distrust and suspicion thrown into the relationship.
    Patients tolerate current fee for service incentives for MORE care, mainly because most of them aren’t paying directly for the care and because most people think more care equals better care. (additionally, the financial incentives are opaque and often buried within complex production calculations or coding details) But the reverse situation is a different ballgame. As soon as the doctor looks the patient in the eye and says “I’m not sure we need that test yet” or “let’s see how things go for a few weeks before ordering that MRI” it will be hard for the patient who understands the incentives at hand not to immediately see dollar signs in the physicians’ eyes.
    How does the situation not become adversarial? Putting some of the patient’s money in the game helps some, but I’m not sure it significantly buffers against what I see as inevitable distrust regarding any conservative advice from a physician. Additionally, when bad outcomes occur (inevitably) after judicious physician decision making (even when appropriate), those financial conficts will be hard to ignore for the grief stricken.

  7. rbaer –
    Thanks for your question – I really should clarify what I mean. When I say “bottom up”, I am referring strictly to the immediate participants in the specific healthcare encounter – typically a physician and patient. In contrast, “top down” refers to any other position seeking to impact the encounter, one that is not directly involved in the encounter.
    Thus, when United Healthcare sought to influence physician behavior through utilization review, this was a top down approach. United Healthcare neither delivered nor received any healthcare; they simply sought to impact it. Similarly, CMS in setting the minimum SGR is acting in a top down manner.
    As I stop to think about what I am trying to say, however, I realize that “top down” and “bottom up” are really not very good term choices. What I am really attempting to get at is simply this: I would like doctors and patients to be the arbiters of what “worthwhile” and what’s not.
    This may sound radical, even impossible, but I believe it will only be when we as physicians have some “skin in the game” that we will ever begin to bring the extraordinary growth under control.
    A mechanism whereby this might actually be accomplished would be to create HSA-like accounts which are co-owned by patient and patient’s “medical home”. All money placed into this HSA, whether by the government, the patient’s insurer or whomever, is earmarked and readily available for healthcare expenses. At the end of some time period, some portion of the unspent money – if any – might get distributed to the patient and the “medical home”.
    Now, both patient and patient’s medical home providers are incented to judiciously spend this scarce resource. It just might be that in having very open and frank conversations between patient and provider as they discuss healthcare expenses that the bond that once existed when patients and doctors were partners might once again be restored, even strengthened. Furthermore, the decisions would be local and personal – each patient/physician is free to act in their own perceived best interests, as opposed to acting in accordance to what someone else might believe to be best.
    I could go on and on about the pro’s and con’s of such a system – I’m sure you and anyone reading this have numerous thoughts flooding through your mind right now. But to my mind, physicians MUST be held accountable for their spending decisions to an extent equal to or greater than patients, and this must occur in such a way so as to realign patient and physician interests. I believe it is possible to reduce spending while at the same time accomplish this erstwhile goal of reinforcing the patient/physician bond once again. That’s what I guess I really mean when I say “bottom up”…

  8. “I rather favor an approach that impacts directly step two, and I wish it would be by the patient and physician themselves, of their own accord.”
    I read all your posts and I am still unsure what you means in practical terms … let’s say, a patient with migraine headaches wants a brain MRI, which is not really a necessary test in an otherwise neurologically intact individual … what would be your suggested approach? The doctor convincing the patient that it is an unnecessary test (counselling)? Copay/self pay that makes the exam unattractive to the patient? The former would be “bottom up”, the latter rather “top down” steerage … just curious.

  9. jd and Peter –
    Thanks to both of you for your comments and feedback. Some very good points are being made.
    I think on the whole we are in agreement that medical utopia is a mirage, but whether we’re talking Canada, the US, the UK, Germany, or most anywhere else, I think we also can all agree that ample opportunity exists to create a system that more closely aligns societal expectations with economic realties.
    It is my belief that the essence of the debate centers on the choice between a “bottom up” approach (spending restraints integrated AT the point of care delivery) or a “top down” approach (cast controls imposed ON care delivery). This is a valid, and complex, debate.

  10. “My foreign colleagues seem to spend as much time decrying their ‘systems’ as do my American colleagues, and with wholly valid reasons.”
    KS Jeffery, I am a Canadian living in the U.S. who has used both systems. My first real experience with the U.S. system, other than paying premiums, was when I needed cataract surgery. The experience with BCBS for this minor event was so distasteful that I am now uninsured/self-insured by choice and will avoid care here. I can go back to Canada or to India and pay cash for a fraction of the cost here. No Canadian ever has a need to battle insurance companies and physicians (and hospitals) always get paid, by ONE insurer (government) with ONE set of rules. My experience in Canada with physician (dis)satisfation (CMA) is that it usually relates to reimbursement and not much different from the self interest income concerns addressed here constantly by the AMA. I do conceed that you may have other patient issues though that drove you out of private practice. The Canadian Institute for Health Information (CIHI) is the prime source of (hopefully) unbiased health research. I give you a link to this report on Canadian phyisician satisfaction.
    “Likewise, patient satisfaction surveys I’ve encountered are uniformly unenviable, whether conducted domestically or abroad.”
    Canadian patients complaint with their system usually relate to wait times. In Canada, as you may know, part of the cost control employed is an attempt to better utilize limited facilities. Numbers of MRIs seem to be the common example of comparison between what they get to utilize and what the U.S. gets to utilize. But wait times is not that simple and is also subjective if you talk to patients. Canada is recognizing that it needs to spend more money to reduce wait times and is doing so as well as montoring the situation more closely. If you want the low down Canadian opinion though, just ask anyone there if they would like to fix their system by going to the U.S. system – the answer will be NO. For a series of CIHI reports on wait times you can read these:

  11. Matthew-
    Seems like a well reasoned lecture…I hope you can give us a sense of how it went over! Perhaps discussions ended up being similar to these comments?

  12. What I said in both posts was that we should in general expect that health care will take a larger share of national GDP due to economic and social forces outside the industry itself. A system like ours that is so bloated and performs so much of the wrong care at too high of a price has some “fat” that can for a time be trimmed to counterbalance this long term economic trend. Realistically, I think the best we can hope for is to freeze the expense on our medical-industrial complex, but if we do that for a decade we will be back on track.
    As for national approval ratings, there is only so much we can read into it. Expectations are set by experience by and large, so even if a system does better on all kinds of objective metrics people will re-set expectations and take for granted many of the good things and complain about the remaining bad things. Likewise, most Americans don’t know how much easier people have it in other economically advanced nations. A good test would be to survey people who have experienced first hand the systems in the US and nations with universal health care (preferably as citizens).
    I’m not sure it’s correct to see physicians as “disempowered” when it comes to things like coordinating care or doing the most cost-effective thing. The same reimbursement system and most or all of the same managed care restrictions exist in Minnesota and South Florida, yet they are vastly different in how they deliver care. The main difference is in the culture among providers.

  13. jd – If I’m understanding you, you posit in your earlier post and in the first 2 paragraphs of this most recent that the amount the US as a whole spends on healthcare is OK, even expected. I follow that this may not be an unreasonable position to entertain, for all this spending keeps many, many people employed driving the economic engine of healthcare. I don’t think many would agree, however, nor do I, that 16% of GDP in 2007 – heading to 25% of GDP in 2025 – is an “OK” level for healthcare spending. (CBO report, Nov 2007).
    I do agree, however, that there is room for improvement in how we spend the healthcare dollar – regardless of how many of them we might ultimately decide is an “OK” number of them to spend. So, I think you and I are really on the same page… how might we improve the efficiency or “value” of the expenditure.
    On this note, though, I do not see, as you seem to, many useful lessons from other countries that ought shape our experience. My foreign colleagues seem to spend as much time decrying their ‘systems’ as do my American colleagues, and with wholly valid reasons. Likewise, patient satisfaction surveys I’ve encountered are uniformly unenviable, whether conducted domestically or abroad. To emulate failed foreign systems, simply to detour away from our own failed system, makes little sense to me.
    What makes sense to me is to look simply at the delivery of healthcare, identify opportunities to intervene, then empower those who ultimately will intervene (whether that be the government, the insurers or the supplier/consumer dyad – read doctor/patient – is what is yet to be decided). Since 80 cents of every healthcare dollar is directly spent by physicians, encouraging doctors to be more cost-effective – and empowering them in this effort – is what makes sense to me.

  14. KS Jeffery,
    I really don’t think it is meaningful to accuse the US health care industry of having costs that go up every year as an indictment of US health care, nor is it meaningful to point out that other nations also have costs that go up pretty much every year as an indication that these systems do not have costs under control either.
    We should expect that health care will take up a modestly increasing share of GDP at this stage of economic development for advanced nations. As I said, the share of GDP for things that involve industrial production generally has been declining. Cars, homes, gadgets, furniture, etc., etc. have been slowly becoming relatively cheaper as a share of the average person’s income (not in absolute terms). Even food is cheaper because we have been able to apply mass production techniques to it. But that means that other parts of the economy are taking up a larger share of GDP though they aren’t necessarily getting “more expensive” in the sense of being less affordable. Tourism is a good example of this. I think that even if we get costs “under control” in health care, it will still be an example of this as well. It won’t go up forever, but don’t be surprised if it goes up even in the best-run health care systems for the next 10 or 20 years, maybe more.
    So what we really need to do is point to US health system performance VS that of other nations. And here the US is comparable to peer nations only on the quality of care for those who have a disease and insurance. It does very badly on access to care and does abysmally on cost of care. Not only that, it is getting worse on these measures with respect to economic peer nations, not better. Sure, costs are going up in Canada, but if you look at your own chart they haven’t gone up nearly as much as in the US. They began nearly equal in 1970!
    Our system underperforms every system in economic peer nations by a large margin, whether they are multi-payer or single-payer.
    As for the dream of wanting a system that controls costs by patients and providers doing this “of their own accord” I’m not even sure what this means unless you want to do away with any third party financing and have all expenses paid out of pocket. That’s never going to happen, for public health reasons if nothing else.

  15. Jd – what I meant is really quite simple. No matter the country of interest, healthcare expenditures per capita over time are rising in all of them.
    Single payor systems may lag the US in absolute spending terms, but year over year increases occur nonetheless. If you look at the slopes of the referenced curves, calibrated for lag by shifting the US curve rightward by 10 years, you will note they do not differ substantially. Thus, these curves directly refute Matt’s assertion that “government funded systems… reduce the cost of healthcare.”
    (Incidentally, this “lag” has a simple explanation, I think, called the period of healthcare diffusion. For this is what seems to be utilized by single payor systems to “control” costs – they appear to limit diffusion of medical procedures and technology, the main driver of exponential growth over the past several decades or better. Once they catch up, single payor systems appear no more effective at controlling costs than was the US at that point.)
    I also caution you not to draw conclusions as to my preference for none was stated. All I know is the ‘solution’, should one exist, will not be simple. But, it seems to me that if we look at the healthcare equation in the most simplistic of manners, it consists of only three steps:
    1. A person decides to seek healthcare
    2. A healthcare provider provides healthcare
    3. Someone pays for that healthcare
    Hence, any effort to control costs must necessarily act at one of these three steps. CDHC attempts to intervene at step one, and will perhaps yield some overall restraint in spending. Insurers (including the government) presently make tremendous efforts intervening at step three, by controlling payments. I rather favor an approach that impacts directly step two, and I wish it would be by the patient and physician themselves, of their own accord.

  16. Mr. Carol – trained as an FP, I left primary care three years ago in no small part due to frustrations over a system that served neither my patient’s, nor my, interests to anywhere near the extent I believe possible. I now am an emergency medicine physician.
    Your three questions are very sagacious, and key to any meaningful discussion of reform. The answers are, I feel, far too complicated to be given fair treatment via a brief reply in this forum. Further, they would merely be one physician’s opinion, shaped by what I’ve read and personally experienced.
    I will say, however, that non-value-added medical visits, procedures and pharmaceuticals are substantial. Depending upon one’s perspective and one’s definitions, I would venture to say that “wasteful” medicine far exceeds the commonly quoted 30%.
    While I strongly favor health courts, I am not optimistic that they will dramatically curtail defensive medicine for I routinely see my colleagues ordering “let’s just check to be sure” tests not out of fear of lawsuits, but rather as a consequence of their own uncertainty (dare I say, insecurity?), a behavior I find unlikely to change in the absence of direct financial consequence.
    As for DTC advertising, I personally do not find this to be a major problem, and unlikely to be a major contributor overall to healthcare growth.
    The end-of-life care issue, however, IS a big one. If only I could predict with certainty which patients will be dead in six months, regardless of medical interventions. Were this achievable, the potential for cost curtailment would surely be massive. But since I cannot predict with sufficient certainty, I acquiesce to family wishes, for to do otherwise, and later be shown to be wrong, would certainly end my career. I will offer them my professional opinion, couched in terms of inherent uncertainty, to help them make the best choice for them. I think most people, when given a voice in the decision process, tend to make very appropriate choices. When the decision is made by someone other than the patient, that’s when I see the waste occur.
    Your penultimate point about price transparency is very important, not just for patients, but especially for providers who tend to steer patients in their care decisions. After all, the patient may be responsible for the initial decision of whether or not to seek care, but by and large it is the care provider that calls the shots thereafter. And it is HERE that I personally believe the true leverage for containing expenses lies.

  17. “(see http://www.cmaj.ca/cgi/content/full/177/1/51/F118 for a direct rebuttal of your claim by the Canadian Medical Association)”
    Kent, the CMA is still angry that Canada banned extra billing. Their argument (bogus I believe) is simply that there is plenty of non healthcare dollars out there so CMA members should get more of them, not that the Canadian system has not kept costs low. Here is the U.S. there are far too many dollars being captured by healthcare at the expense of the rest of the economy.

  18. Matt,
    I’m surprised you took that approach with your opportunity to speak to a room of insurers. You catch more flies with honey than vinegar. And by that I don’t mean to suggest you should have changed any of your three inconvenient truths, only the somewhat sneering way in which you delivered the speech.
    Some specific points:
    First, you know better than to say that insurers take 30% of premium. An MER of 80% is considered low, and for the Blues it’s more like 85%. I wish I knew someone who has taken the time to add up all the insurer medical and admin costs in a recent year so we can use an exact number. My guess is that industry MER will be around 83%, AER around 13% and net income around 4%. I would be very surprised if that is off by more than 2 percentage points for any of the three components. You’re perfectly free to respond that this is still too high, of course, but when you throw out an admin+profit number like 30% to a group of insurers they immediately think “bullshit” and are less prone to take the rest of what you say seriously.
    Second, there are a lot of insurers who for a long time have wanted to make the change you talk about. Even United only surrendered utilization review as a white flag when it took too much heat from actually managing care (not to say they had been managed care in the best way before). The main problem is that the consumer backlash of the 90’s changed what employers wanted in health insurance. Speaking as someone who works in the industry and who is trying to use HIT to improve care management and preventive services, I can tell you without doubt that the biggest problem is that outside of a few large leading-edge employers, most employers still don’t get it. They don’t get Wennberg; they don’t get the value of wellness programs; they don’t get PHRs and other e-tools geared towards prevention and disease management, etc. They don’t get it and they won’t pay extra for many of the things you and I know have to be done. A few insurers are making big investments and taking the risk that the market will soon be ready, but more often large budgets for these things don’t get approved because the clients aren’t asking for it. I agree this is shortsighted, but behind closed doors many insurers want to do exactly what you suggest….and they are doing it, but in small incremental steps.
    I appreciate trying to give people a kick to get them to take the long-run risk of status-quo behavior more seriously, but I wish you had given those folks a little more credit. Not because you owe anything them, but because I suspect it would have been more effective.
    Of all the progressive bloggers on health care, I think Ezra Klein has really started to get where health insurers stand in the reform picture. I recommend reading his posts after attending the recent AHIP conference if you haven’t already.

  19. Kent Jeffery,
    Please clarify what you mean by this: To state that “no free-market solution has ever really reduced the cost of health care… but government funded systems have” is a matter of conjecture and interpretive liberties that I suspect any casually informed insurance executive dismisses readily – as I do.
    The first part of Matt’s statement is correct. No free market solution has reduced the cost of care, adjusted for inflation, over time. That shouldn’t be a surprise for several reasons. First, as productivity increases there is more money to go around and most industries expand year to year in real terms. Second, health care is a service industry, and as manufacturing became massively more efficient through assembly lines, just in time manufacturing, etc., etc., the share of GDP devoted to manufacturing declined and the share devoted to services like tourism, health care and restaurants has increased.
    What Matt I think really meant is that the free market in health care has never shown that it is superior to health care systems with heavy government involvement. That is not conjecture. That is a fact, and the chart you provide in the link confirms rather than contradicts it. It is a conjecture on your part that by reducing government involvement in our market you can improve efficiency compared to more heavily government-regulated or controlled systems. Show me that nation you wish we were like, in which quality is as good or better, access is as good or better, and cost is far lower. You can’t. But both the single-payer advocate and the advocate of a multi-payer universal health care system with substantial government involvement in structuring the market can point to systems that meet those requirements. In particular: France, Germany, the Netherlands, Switzerland and Sweden (in no particular order).
    The conjecture is all on your side.

  20. Dr. Jeffery,
    Good comment. Are you a primary care doc?
    I wonder if you could estimate what percentage of the health care dollars that you “spend” on your patients’ behalf is attributable to defensive medicine and how much could that be reduced by a more sensible medical dispute resolution system like health courts.
    Second, to what extent is your healthcare “spending” driven by patient demands for drugs, imaging or other procedures that they saw advertised on TV or read about on the Internet or heard about from a friend?
    Third, how easy would it be for you as a doctor to tell a patient who is nearing the end of life that hospice care is probably the best course and that we shouldn’t be doing everything technically possible to keep him alive as long as possible even if that is what he and/or his family wants?
    From a patient’s perspective, I think it would also be useful if we had robust price and quality transparency so patients could more easily find the most cost-effective care for procedures that are either elective or can be scheduled in advance as opposed to needing to be delivered under emergency conditions.
    Finally, I think doctors need to work more closely with hospitals to bring about episode or package pricing for all care required in connection with expensive surgical procedures like CABG, hip replacement, etc.

  21. Good talk with salient points, though a bit too political for my taste. I absolutely agree that it is incumbent upon insurers to prove their worth, both to me as a doctor and to my patients as consumers with an inceasing financial stake in the game.
    I disagree with your not so subtle suggestion that the solution to the impending healthcare implosion lies with governement, however. To state that “no free-market solution has ever really reduced the cost of health care… but government funded systems have” is a matter of conjecture and interpretive liberties that I suspect any casually informed insurance executive dismisses readily – as I do. (see http://www.cmaj.ca/cgi/content/full/177/1/51/F118 for a direct rebuttal of your claim by the Canadian Medical Association)
    To my mind, essential to any effort to bring the growth in healthcare costs under control is a means whereby I (as a doctor and ‘spender’ of $0.80 of every healthcare dollar) am motivated to be more cost conscious in spending my patient’s – or my patient’s insurer’s – money. One way this may be accomplished is to have MY money tied to every medical decision I and my patient make, either via reward for being cost conscious, or penalty for not being so. And here’s the rub… who will accomplish this? The insurer? The patient (via consumer directed health care)? The government?
    Personally, I wish my profession would take it upon itself to do so, to realize the present situation is unsustainable, and to identify that we must change from being our patient’s advocate, as we are taught and trained since antiquity, to becoming out PATIENTS’ advocate, looking out for the whole of society.

  22. Brave and brilliant stuff, Matthew. I’m just surprised you survived long enough to lead the (wonderful, by the way) Health 2.0 Spring Fling. You must employ a food taster and travel with security.
    And god forbid if you need coverage from your insurer.

  23. What was the audience’s reaction?
    Did Karen Ignani grab you and ask for your help?
    I think a lot of the people who work for health insurers understand (and maybe agree) with what you’re saying. It’s their shareholders that might need some convincing…

  24. Yay, Matthew! Excellent talk which hits virtually every salient point. I bet they don’t listen.