Innovation + Economics: Keys to Successful Healthcare Reform

Now that the economic stimulus package has been negotiated and signed, healthcare is on deck. Not just for Congressional action, but also for the biggest wave of reform the industry has ever experienced. It *could* be a very good thing – not only for patients, providers and payers, but also for innovators and investors who contribute to the “new healthcare economy” that will emerge.

Everyone knows “change” will have to find its way into the hospitals, clinics, labs, doctor’s offices and insurance providers that make up our current healthcare “system” in America. The rate of healthcare inflation – which is currently twice the core inflation rate – can clearly no longer be supported, and changes are required to address the explosion in America’s aging population over the next two decades. Experts estimate that roughly one third of all medical care delivered in the United States is wasted or in error, suggesting there is ample room for improvement.

In spite of the bleak near-term indicators, we predict that the United States is poised to establish a new healthcare economy. Starting in 2009, we expect to see a ten-year transformational cycle that will re-define many dynamics of the American healthcare system. The new healthcare economy will depend on innovation to simultaneously drive down costs and improve quality of care – core criteria cited by President Obama in his inaugural address. It will also require better alignment of economic incentives across payers, providers and patients.

As long-term healthcare investors, we are optimistic about the incredible opportunities and growth ahead in the new healthcare economy. At the same time, we can’t ignore the shocking contrast in priorities between President Obama’s healthcare plans, which call for billions of dollars in funding to improve healthcare IT and services, and the American venture capital industry’s traditional lack of investment in healthcare innovation.

According to 2008 data released by the National Venture Capital Association, just $195 million of the $28.3 billion invested by venture firms in 2008 went to healthcare services – less than one percent. Similarly, Dow Jones VentureSource shows only $354 million invested in healthcare IT and $357 million for healthcare services in 2008, accounting for less than three percent of all venture investing. Unfortunately, this lack of investment in a critical area of our economy is not a new phenomenon. In fact, NVCA data shows healthcare services in 2008 had fewer deals and dollars invested than any of the past 10 years, and VentureSource shows declining funds for healthcare IT for the last six years.

To address this “innovation gap,” we are urging the venture capital industry to step up “health tech” funding similar to the way it has stepped up “clean tech” funding, which grew 52% in 2008 to reach $4.1 billion. Specifically, we challenge the industry to expand its annual investment rates to more than $1 billion in healthcare services, $1 billion in healthcare IT, and $3.6 billion in medical technologies (including both medical devices and diagnostics).

Combined, those “health tech” levels would represent 20% of the current annual venture funding rate, well above today’s 13% to 14% (which includes medical devices, healthcare IT and healthcare services, but not biotechnology which we include with pharmaceuticals as a separate category of “life sciences”). Since healthcare currently represents 16.2% of U.S. GDP and is expected to grow to 19.5% of GDP by 2017, this increased venture investment would help over-correct the current shortfall and give the new healthcare economy a needed “booster shot” of innovation.

This venture-driven investment will be critical to spur development of the new healthcare economy. As with most mature industries, innovation will be driven by smaller companies and private ventures, which can afford to make riskier long-term investments, while larger healthcare providers and payers focus primarily on preserving market share and navigating reforms. Longer term, we predict those innovations will be adopted by mainstream providers and payers as the only way to achieve the dual but consistent goals of cost reductions and quality improvements.

The bottom line: This is an exciting time for all of us to fix what ails the American healthcare economy. Reforms should naturally reward innovators and investors who apply methods of achieving value and efficiency, as we’ve seen succeed in other industries. In our case, we particularly hope venture investors see President Obama’s plans as a wake-up call to get serious about the economics of healthcare, not just the science of biotech. The risk and reward dynamics are tailor-made for entrepreneurs, and our nation needs the venture capital industry as partners to fill the innovation gap.

Dr. Albert S. Waxman PhD is CEO of the Psilos Group, a venture capital firm with a focus on providing growth capital to companies operating in the healthcare economy.  Before founding Psilos, Dr Waxman served as Chairman and CEO of American Biodyne and Medco Behaviorial Care for nine years. In addition to his responsibilities with Psilos, Dr. Waxman currently serves as Commissioner for Healthcare for the state of New Mexico.

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  2. This is a little out-dated, but didn’t Obama state in his State of the Union Address he is going to get rid of the many loop-holes in the health care industry and tax fields?

  3. It is surprising to me that when we talk about innovations in healthcare, that we are not talking about innovations in how we deliver healthcare, how we manage our healthcare organizations. Having worked for many years in a large healthcare insurance organization, I know first hand that they pride themselves on never being on the front edges of technology. They call it the bleeding edge. But innovation isn’t done from the creamy center of the oreo cookie. And we need real change and innovation in how we deliver healthcare in this country. And yes, it must happen from the top down. Our CEO’s need to be innovative – and if they aren’t (which most aren’t because we reward defend and extend mentality) we need to replace them with ones that are. The change is here – the market is shifting – and Healthcare Organizations need to choose to be Apple or Sears. I frequently read a blog written by Adam Hartung for Forbes and this weeks entry is particularly apropos. It is titled Why Steve Jobs Couldn’t Find a Job Today (http://bit.ly/hltfhL) and talks specifically and eloquently as to what is wrong with the hiring of CEO’s in our companies. And begs the question – do we really want innovation or do we really just want to talk about innovation and reap the benefits of the word without doing the actual work and making the difficult decisions.

  4. I wonder how often effective innovations go unnoticed or under utilized. The title, ‘Innovation + Economics’ immediately brought Carepath to mind. Carepath has developed a system that increases positive outcome in cases of Traumatic Brain Injury which has been successfully implemented in one or two states. I would think with the possible reduction in Medicaid and other health care costs it would be part of national healthcare reform discussions

  5. “Private insurance would lower their reimbursements and also lower their premiums 10-20%. Employers and individuals would receive a 10-20% reduction in premium rates if Medicare/Medicaid reimbursed at fair rates”
    First Nate you’d have to define “fair rates”. Just because this blotted for profit system raises healthcare costs by 6% – 10% per year does not mean it’s charges are fair. Second, by doing what you say does not lower the overall cost of healthcare, it just transfers it to the taxpayer.

  6. The health care industries are some of the most recession proof jobs that are always available. Even in our current economic status , healthcare is still experiencing growth. There are also many options you can take when deciding on which field you would like to work in. You could be a medical call center specialist, a medical coder, a medical transcriptionist, etc All of these jobs you can work from the comfort of your own home

  7. “So, if the government just paid the going rate (whatever that is) insurance companies would raise their reimbursments or lower their reimbursements?”
    Private insurance would lower their reimbursements and also lower their premiums 10-20%. Employers and individuals would receive a 10-20% reduction in premium rates if Medicare/Medicaid reimbursed at fair rates

  8. The net effect of medical care is very low on mortality. The people coming to a primary care practice, in general are not having an emergency. To an ER doctor, they are not sick at all, generally. Most of what a primary care doctor does is treat, expensively, conditions that generally go away by themselves. It isn’t exactly defensive, more like overtreatment in the office.
    People like that, whether it does any measurable good or not.
    Freak conditions come to medical attention sometime. When they do, the naturally look more forseeable in retrospect than in real time. If we want to have medical care that won’t bankrupt the country, we have to say, when something happens that has only a 5% likelyhood, that’s too bad; instead of seeing dollar signs in our eyes.
    It is extremely expensive to exclude rare, or even uncommon diseases. It is millions of times more expensive to eliminate the one in a million possibilities, because for any patient, there may be a hundred or more very rare possiblilities. ( Doesn’t anyone watch House? ) Each is very expensive to work up. We can’t afford it.
    Doctors are protecting themselves by spending our national treasure trying to avoid the trial bar, which for them works like a lottery in reverse.
    Ms. Maher is alway thinking that doctors are driven be greed. Greed blinds their professional ethics, and corrupts their decisions, in her mind. She thinks salaried doctors are more pure. At the Cleveland Clinic they actually are. At the @@@ Clinic in your town, they are usually just like a real doctor but lazier and less committed to his profession.
    Sometimes, I bet she is right about greed.
    The rest of the time, it is fear of financial ruin, not greed that results in spectacular over testing and over treatment we are experiencing. Courts are irrational in civil matters, especially medical ones. Almost all the cases with which I am familiar with have an overwhelming plaintiff lawyer bias. In medical matters, the retired postal workers usually get it wrong.
    According to our legal system, an OB does far more harm than good. Paid like a plumber when the delivery goes well, and she assumes million of dollars when some defect is found. It cannot go on like this. No other professional is subjected to such arbitrary and capricious justice. ey
    Do we really think this?
    I never see this discussed by any of our genius bloggers..only doctors comment on this.

  9. Peter,
    It is exactly when their conditions worsen that they turn to the ER. I have high regard for defense lawyers. I have had two in my career. I am not irrational about it. I don’t overtest. Plaintiffs make most of their money by settling prior to trial. Doctors tend to cave rather than defend. My group has defended and won three cases in the last five years. We have lost none. We have settled none. Regardless of the outcome, it is a very draining experience.
    My point about 80% is that they don’t need to be in the ED at all, but there is no legal way to just say go to your doctor. If that figure causes you grief, then make it 50%. Irrigardless, it is not 5%.
    There are levels of anxiety that cannot be overcome in the ER, no matter how good you are. Of course the hardest patient is the worrier who also has real disease.
    Single payor would be like having one political party…bad.
    Universal care would be universally bad.

  10. Well MD I guess I’m not convinced by your argument, especially when I see statements like 80% of all care in ER is defensive. I don’t disagree that defensive medicine is in play, but also are economic incentives to over treat, poor diagnosticians, and docs who are irrationally scared of law suits. I also see this as a goal of docs who not only want to be absolved from error but also don’t want their guild to oversee them as well. If families and patients are a little scared then you have not done your job of reasuring them. I would like to see a better way of resolving legal issues, but you talk as if defendants lawyers are incompetent boobs. You also forget that the plaintiff’s lawyer doesn’t get paid unless he wins, so he must look at the probability of winning before accepting the case as medical lawsuits are very expensive to take to court. I have also said that if we had an affordable system of universal care (single-pay for me) then medical awards would be off the table and people would use their PCP instead of the ER when their condition has worsened and gotten them scared.

  11. Peter,
    Primary care docs is their offices are seeing patients who scheduled their appointments arbitrarily days, weeks or months in advance. By the appointed time, there is little chance of a low probability, high consequence illness being either urgently or emergently unstable. But when the patient or the family get a little scared, they want the test. It will be scheduled…for a week to two weeks from the visit. If you are in the military it will be a month from the visit, if you got an appointment in the first place. I disagree with your premise that primary care docs are not doing the samt thing. They use somethings even more expensive…the referral. Sometimes an entire squad of specialists. All the specialists have talents to find real disease. But please remember two things. 1. Most patients are the worried well (or stable).
    2. All patients will die.
    We just don’t deal with that directly. The patient wants to know that it is not now. We don;t tell patients that the 5 year mortality rate for Congestve Heart Failure is 50%. We tell them they only have a little fluid on their lungs. They will be fine if they take this little pill to make them pee. See you in three months. This last sentence is the “care” part. A family doc used to care that they would come back in three months. Now, the Care ain’t there. But at any particular moment in time, it will always be cheaper to hold a hand for a moment and tell them they are doing great for 84 than it will be to prove they are not having an acute, unstable event. Enter end of life medicine. The PEG tube. Just focus on the PEG tube (feeding tube). Have a national discussion about this little piece of tubing and the effect on quality of life, the length of life, the length of suffering, and the cost of care. It is far too easy to talk about EMR. Focus on the PEG tube. If the politicians and the policy wonks can arrive at a position on who gets this and who does not get it (inserted), create a national standard and pass the law or promugate the regulation, then they will know how to tackle all of healthcare.

  12. MD & Christopher George, Why are hospital ERs doing all this defensive medicine and primary care docs are not? Don’t they have to contend with the same lawyers? Why is it that thousands of people visit PCPs every day and hardly any get sent to ER for CT scan?

  13. I agree with MD as … , over utilization is so ingrained that few doctors remember when a drunk could come into the ER and be identified as such without a CT scan. We are, I think, talking about almost all care in the ER. CT scans are becoming a public health problem from a radiation perspective.
    As long as bad outcomes are viewed retrospectively, rather than prospectively, based on the presentation and EVIDENCE, it is truly hopeless.
    We really can’t afford Medicare, as it is. When it is expanded we will spend all our available capital with little to show for it. A doctor’s judgement must be nearly an absolute defense if you really want to have a healthcare system. That is how it is done in Europe, which everyone here seems to think is so perfect.
    The Clinic Practices, often associated with a Famous Institution, are just as wasteful. Their waste is sometimes in over-treating the worried well for sniffles, and undertreating for real disease. Othertimes it is in the top heavy administrative staff who take credit for the natural healthiness of their patient population. The overhead would make GM blush!
    It doesn’t show up in the quality indicators, because they cater to EMPLOYED, Healthy people. These people have good outcomes regardless of care. It is very perilous to compare different self selected inhomogenius patient populations.As I have said before, medical care does not improve survival for the general population in aggregate very much.
    Poor people may be stressed and develop bad habits, or they may be poor because they have bad habits. It really doesn’t matter. They have bad outcomes.
    Religious group which shun medical care, as well as cigarettes, drinking, and promiscuity have much better survival than any identifiable treated group of patients. Quality is a fungable, nebulous endpoint.
    Almost everything I see done in medicine is overdone to creat a defensible paper trail. That is a lot of extra work on 10,000 patients to defend one lawsuit. We just can’t afford it. Malpractice awards are growing faster than healthcare costs in general. Almost all of the money goes to lawyers. We will have to address it sometime.
    If we do it now, we will have breathing space to craft a leaner medicine.
    ALSO: Two tiers are essential. Don’t ask the rational to pay for the overkill medicine demanded by a minority. It will allow new treatments to enter the system. Also, joint replacement for you may seen extravagant to me. But my hip replacement might give me a new lease on life.

  14. Peter, I read the referenced articles. I don’t think they address my point. And I concede that my estimate may be high, but if 80% of the people in the ED do not need to be there at all, or in any medical setting at all, I consider the expenditure on that service purely defensive. In fact, prior to EMTALA, my ER used to evaluate all nonemergency presentations for free. If the patient had no emergency and had no doctor of their own, they were given the number of the appropriate on-call doctor who would see them in the office. It was not free in the office, but the patient did not need money up front. That ended in 1989 when court decisions made it clear that EMTALA did not permit anything short of treating the patient to assure they were medically stable. We had 18,000 visits per year of treated patients and about 5000 referrals per year. Now in the county with roughly 20% more people we have 55,000 visits per year. When people knew we did not reward coming to the ER unnecessarily, they did not come. When that obstacle was removed, we had an explosion of utilization. I am merely doing rough estimates. I also am asserting that all expenditures for people who do not need to be in the ED in the first place are defensive, because we used to do it for free. Now we can’t because of the considerable resources required to do the work. The primary care doctors were on board then. Now there is no such commitment to keeping people out of the ER.
    As far as the effect of tort reform on handling claims, the unmeasured number is the number of claims not filed because of the data on cases which allow a reviewer to see the futility of pursuing a claim in the first place.
    Being a defendant in a malpractice action is very stressful and should be avoided at all costs. And it will be the patient’s cost or the hospital’s cost or the insurance company’s cost. EMR is all about having a defendable record, mostly for the hospital, as well a documentation for coding and billing. It is not an efficient patient care tool. Yet the hospital devotes considerable capital to IT. And the risk management people have considerable clout at determining what goes in it.

  15. Defensive medicine is the real deal. Lean medicine is impossible when a jury of lay persons will decide, based on a crash course provided by expert witnesses, whether there was negligence in a bad outcome or in a failure to diagnose case. Until I have some protection against losing in court, I need to generate my own protection, namely data that bolsters my thinking and decisions. The worried well are a huge driver of costly testing and admissions. By definition, they are well. But to treat there anxieties they get stress tests and heart caths, because there are atypical presentations of bad stuff. Until there is some acceptance of unexpected outcomes, there will continue to be medically unnecessary practices and procedures. Why does a classic presentation of appendicitis now need a CT scan? Answer: If it turns out that the appendix was normal at pathology and the patient suffers a major surgical or anesthesia complication, there is no evidence that the surgery was in fact necessary. So we scan the hell out of people. Xray dye is an unacceptable risk for kidney stone diagnosis. A fatal anaphyllactic reaction to dye, when a CT without dye is available, is an inexcusable occurrence in today’s legal climate. Missing a pulmonary embolus or a subarachnoid hemorrhage is a nightmare best avoided by CT. In the case of SAH, a lunbar puncture is necessary to find 5% of these. It is amazing how often the patient chooses to act as the consumer and refuse the painful, scary, cheap test.
    Defensiveness is not reserved for doctors. Every head bonk at assisted living centers come to the ER. EMS routinely applies collar and spine board to patients who are walking around at the scene of a car wreck, totally as a defense against the patient having a neck fracture. Every nurse advise line caves when the patient is not accepting telephone advise gladly. Even other doctors are unconfortable with making lean decisions in their offices, so they send patients to the ED. Even the military medical machine is risk averse, although they cannot be sued in the first place.
    I bet defensive medicine in the ED is 80% of the total bill. Most patients don’t need to be in the ER, but they want to be gratified, eased, reassured or given a doctor’s note for work or school.
    Sorry this is so long. But without serious tort reform, there will be no decrease in defensive medicine. Without giving the patient a reason to do otherwise, they will seek all the care they want, whether they need it or not.

  16. Nate, with 6% to 10% healthcare cost increases per year someone’s raking in a lot of money. How come it costs this country about double other countries when everyone here is claiming hardship and just making minimum profits?
    “If Medicare/Medicaid reimbursed at fair rates hospitals wouldn’t be in financial peril and private insurance wouldn’t be subsidizing them 10-20%.”
    So, if the government just paid the going rate (whatever that is) insurance companies would raise their reimbursments or lower their reimbursements?

  17. “We’ve also seen in posts on this blog that when hospials take measures to be more efficient that result in less billings they find the savings go to insurance companys while the hospital suffers financial hardship.”
    Peter you need to stop making crap up. Insurance company profits HAVE NOT INCREASED, contrary to your propoganda any savings are realized by the person/company/government paying the premium. Granted that doesn’t make for a nice poster for the simple minded but get some common sense man. If Medicare/Medicaid reimbursed at fair rates hospitals wouldn’t be in financial peril and private insurance wouldn’t be subsidizing them 10-20%.

  18. Peter,
    Let me just comment on the malpractice issue:
    Malpractice is a real problem because it leads to defensive medicine. The 9% figure in your link (I don’t have the original Health Affairs atricle at hand, but I think I have read it) is likely taken out of thin air (as any other number) because tests are ordered for multiple reasons other than medical indication: to please the patient, to increase revenue, and out of defensiveness. It is impossible to figure out what accounts for what, since no doctor is able to say: I ordered this (superfluous) MRI 60% because the patient wanted it and 40% out of defensiveness. It is like saying: 27% of marriages brake apart for financial reasons.
    You will find very few practicing doctors, left or right or libertarian, who will think differently. I am positive defensiveness is a major factor (not the only major one for sure), it just eludes science.

  19. “disclaimer: I am on the “free market” side of things.”
    “1. means-testing all care”
    Which “free market” organization is going to do this?
    “2. give consumers who do not have the means [especially uninsured] a stipend and let them buy the care”
    Stipend doesn’t sound very big. Will it be enough to purchase care with 6% – 10% compounded rate increases per year?
    “Then like it says in THCB & Wachter [patient safety guru], when the family must pay a portion of the “$100K for 1 week of life for 90-year old with dementia”, the family will make the right decision.”
    Which family, the one with a “stipend” or the one with Wall Street sized bonuses that the government, not the “free market”, is bailing out right now?
    “I don’t think that a Medicare administrator makes the right decision in this and many “expensive” cases. Right now, Medicare always pays in this case!”
    Which “free market” organization would you have do this instead?
    “Also I will re-state what has been said: Universal Tort Reform is what we really need.”

  20. There is no rationing or coercion in lean medicine. The physicians are simply asked to practice the way they were (hopefully) taught. If you are one of the tens of thousands of physicians or care providers in the TMCA system in the 1990’s then you may remember the rewards for practicing lean medicine. The employers who participated certainly appreciated the lower medical costs. Malpractice can be handled through the care management system which overseas the program. One reward of lean medicine is fewer lawsuits. At least that was our experience. We had Zero lawsuits in the eight years I was with the program.
    For those commentators who would put the onus on the patients for the cost of care, I would point out the patients rarely have the knowledge or chutzpa to take charge of their own care. It’s the rare patient, indeed, who would say, “Doc, I really don’t need that MRI.”
    Lean medicine requires willing physicians and care managers to oversee care. Oversight can be personal, doctor to doctor, nurse to patient, or simply computer systems processing reports and bills.
    MD as Hell – you sound like the perfect doctor for lean medicine. No pre-approval, no denial of care, all medical bills paid within 30 days. All lean medicine asks is that you treat patients with the same care in which you were trained. If you were trained to send every patient with a sore shoulder for a MRI, then you would need to speak with the care coordinator. If defensive medicine has become a religion then you need an exorcism. There is no defensive medicine in lean medicine.
    The problem we are having with health care reform is seeing past the forest of problems to the individual trees. Lean medicine focuses on the doctors where decisions are made. Remember in all the talk about the cost of hospital medicine, it is still the individual doctor who prescribes the medical service.

  21. Peter:
    > “Connect each consumer to the payment of the service, and this will all get fixed in one second.”
    disclaimer: I am on the “free market” side of things.
    I am just calling for:
    1. means-testing all care
    2. give consumers who do not have the means [especially uninsured] a stipend and let them buy the care
    Then like it says in THCB & Wachter [patient safety guru], when the family must pay a portion of the “$100K for 1 week of life for 90-year old with dementia”, the family will make the right decision.
    I don’t think that a Medicare administrator makes the right decision in this and many “expensive” cases. Right now, Medicare always pays in this case!
    Also I will re-state what has been said: Universal Tort Reform is what we really need.

  22. Remind the benificiaries of the “theft by legislation” programs what their test actually cost someone. They will no that their “prize” is even more valuable and will want two! They don’t care what it costs. They are “entitled” to it. Woe to the politician who takes away the free cheese.

  23. Peter, I am rather on the “left” with supporting single payer, and yet I actually think there are a lot of people who need to be reminded what their unneccessary MRI or endoscopy or whatever costs (I guess that concerns mostly medicare and medicaid, privately insured people seem to get a benefit statement).
    The problem with copays is that they reduce necessary and unnecessary care.

  24. “Connect each consumer to the payment of the service, and this will all get fixed in one second.”
    I think that’s already being done with premiums, co-pays and deductibles. But we could just send you the bill for that $100,000 hospital surgery. The uninsured are connected to the payment of the service, is that what you mean?

  25. This is an excellent discussion!
    The worrisome thing is we [mostly] already know what the problem is and have several suggestions [on this blog and elsewhere] that don’t cost $20 billion.
    Maybe some docs are arrogant, so what, does anyone deny they want to help people! Every doctor I have ever met answered my questions, as a health consumer, as best they could!
    Government understands problems but their remedies incentivize the wrong things. Connect each consumer to the payment of the service, and this will all get fixed in one second. Why don’t we regulate muffler shops? Because the consumer will ask all pertinent questions when it is his money!
    When I think about things like this, I guess that the only fix is to “blow up the system”.
    I want to be optimistic but… 🙁
    Roger Williams
    Franklin Laboratory

  26. Of course you are doing health care, MD as hell, but only an (important) part of it (everyone is doing a part only any way). You cannot manage chronic conditions in the ER, and most ER docs do not even try. My point was: Access to ER care is not even close to reasonable health care coverage.
    If you want me to define reasonable health care coverage (since I don’t think you are really interested in a definition of HC), my first try would be: all medical tests and interventions (incl. screening exams, BTW – colonoscopies shouldn’t be done by technicians) that are reasonable to prolong an individual’s life and/or improve quality of life.
    The “reasonable” part is the big problem in the US. Christopher George in his 2nd post (I think it’s about #14 from top) did hit the nail on the head.
    I actually wonder why there isn’t a US physician interest group dedicated solely to medical tort reform (I know that the AMA pushes for it a little bit, but I disagree with the AMA on multiple other issues). This is actually something virtually all physicians can agree on. If any docs here would be interested, I would consider working on it. Just a thought … especially since the Obama admin. is as likely as the GWB admin. to do anything meaningful, despite some lip service during campaigning.

  27. rbar,
    Sometimes it seems you get it and then there are times when you clearly don’t. I fail to see what you think healthcare is? As I have said in other comments we have yet to define the terms of the discussion. But I like your approach. Once we decide what it is not, then it must be all that is left. For example, healthcare is not the insurance part or the dinance part of the discussion. That part is healthcare finance. Healthcare is not public health, the dissemination of information which when followed will lead to a healthier population, as well as the inspection and certification of sanitary standards of food and water. Kealthcare is not disease screening. Screening is not prevention. Screening can be done by a technician.
    Let’s go back to the word “healthcare”. It is a federalized word designed to neuter the doctor. It replaced the phrase “medical care”; care provided by doctors of medicine. “Dental care” is provided by dentists, unless you are in the ER where there is no dentist. It also wrapped in “nursing” or “nursing care” to give it parity with medical care. I think we shuld have a national discussion about what healthcare is not. But it seems that certain circles are ecstatic that we ae about to spend torrents of money on things that healthcare is not.
    One thing is certain. And that is it is not free. It is not a right. It is not a panacea (except for all things political}.
    I’ll get back to work now, not doing healthcare.

  28. I don’t understand something. The Dartmouth Atlas folks are saying that we already have too many physicians in this country and we should resist the temptation of graduating more. I thought that was peculiar, but they are well respected.
    Here and elsewhere, each time insuring the uninsured subject is discussed, the overflowing ER scenario is brought up. So do we, or don’t we have enough physicians and med students, particularly PCs?

  29. MD as hell, I get the impression that, even though you know better, you perpetuate the “ER care equals health care” myth peddled by, among others, GWB.
    Stabilization acc. to EMTALA is not health care. Doing a head CT and giving Toradol or narcotics on someone with migraine or stabilizing a diabetic is not healthcare, it only part of it (emergency stabilization).
    With the poor people in the ER having some kind of secret wealth, you try to make an exception a rule. I don’t think you wuold claim that there is no poverty in the US, that everyone has some money hidden somewhere.
    And the ER overuse – attach a FP to the ER and triage people to go if they don’t have a true emergency (and charge them a substantial convenience fee if they need nonurgent care at 2 am). Restructure reimbursement and/or incentivize PC otherwise (loan forgiveness, visa waivers). One could bring the number of PCPs up substantially within years.
    I agree with you to some extent on the responsibility issue. If I was health care king, my public plan would give substantial financial incentives for healthy behaviors that can be verified (ideal weight, nonsmoking, moderate drinking/abstinence, compliance with treatment of chronic conditions such as HTN, DM).

  30. http://calhealthreform.org/content/view/41/
    No matter what system we arrive at, universal gov-run single-pay or any variation of, medical treatment in the ER for what should be primary care is not cost effective. Making people wait until their condition is serious enough so they have no choice but to go to the ER is not cost effective.
    This from Canada:
    And this:
    Which tells us that bad management is bad management.
    And this response in 2008 in Ontario:

  31. When we decide that a proposed treatment is too expensive for general use, costing more than $50, 000 per expected year of life, ( or whatever the standard is ) do you think that standard will carry over to the courtroom? I didn’t think so.
    The reformers are afraid of offending their patrons, the trial bar, who not only work bankers hours, but are paid like star professional athletes.
    After reform, I believe that the poor will get outcomes which are no better than now, since the medical aspect of health is not the limiting problem. Everyone else on the other hand if you are not poor, your care will get worse and worse.
    By the time legal reform comes, our utilization will be so distorted by physician efforts to protect themselves and their families from an irrational court system decides cases wrongly, punishing bad outcomes without medical error we won’t know what reasonable care actually is.
    I agree with everything you say, MD.
    I will add that when care is free, the ER will have to find the small number of actually sick people from an even larger number of minimally ill or simply social ER visits. The true positives won’t go up; you are already seeing all the really sick people right now anyway. But it will be harder to find the small number of sick people when you have to pick them from a larger and larger cohort of inappropriate visitors.
    Peter, I think the answer to your question is going to depend on a variety of intended and unintended consequences of policy and rate decisions… A friend of mine in Texas is a hospital VP. A week lost to the hurricane, and the hospital is on shaky financial ground.
    Medicare cuts are usually to doctor fees. Usually these are associated with facility fee increases. This is because hospitals are seen as a full employment initiative and that makes cuts a problem. Carriers keep out competing Surgical centers by threatening to raise their day rate if the new facility is well paid. The carrier needs the hospital for its network, and caves. This has supported a non clinical staff that numbers in the thousands for a medium sized hospital.
    Here is a hint: most of the money spent in medicare is for hospital services. Keep that in mind when you drive by the empty staff parking lot on a Sunday morning or a Tuesday night. I don’t know what all these people do, but whatever it is, the hospital seems to run fine when they are at home, which is most of the time.

  32. Peter,
    I don’t discuss charges with anyone. It would be an EMTALA violation to do so prior to stabilizing an emergency medical condition. And, yes, I do get a bed for them and transfer them if needed to whatever center can best help them. And people on Medicare do get the same care as “the well insured”. And, Peter, it is the Medicare population that consumes the most resourses for the least return on expenditures. The “well insured” for the most part are healthier than Medicare patients. Where do you think the newly insured (under reform) are going to go for their care? I think it is to the ER, since there is no other capacity in the system that is as accessable. You and others seem to regard ERs as being staffed by the lowest qualified physicians in the country. My ER group has been at our hospital for more than thiry years. I have been there for 27 years. I am only speaking from experience, where the rubber meets the road. My community has a huge number of dialysis patients due to hypertension and diabetes, largely untreated or undertreated for a lot of reasons. We have a federally funded clinic system in our area that is run by a non-physician. They have bankers hours. We have a large number of immigrants, legal and illegal. We have a military base and a large number of retired military on TriCare. We have a large number of uninsured and Medicaid patients. We have a statewide mental health system that is totally dysfunctional. My group and I are the major safety net. My group are all board certified by the Amerocan Board of Emergency Medicine. I relate this only to give backgroud for where my opinions arise. All I know is that reform must include addressing the behaviors of people and how they take care of themselves and how and when they access care. I want people to be as healthy an happy as possible. Good thing most people are healthy already. It does not take a lot of money to stay healthy. It does not require a doctor to tell people to not smoke, to not use illegal drugs, to not drink alsohol to excess, to not engage in unsafe sex, to always wear seatbelts, to avoid obesity and sedentary living. It does not require EMR to be healthy. You can lead a horse to water…you can prescibe good medicine to patients, but you can’t make them take it. That is where the tough political choices come in; when are consequences not a covered item? Reform must properly define achievable goals and adjust the expectations of the public regarding what healthcare can do and what it can’t do and what it won’t do. When are you on your own? And reform must include tort reform on day one.

  33. “They are not getting a lot of futile, feel-good, what-if care,”
    So MD as Hell, when an uninsured comes into your ER and is diagnosed with say, a failing heart/kidney/whatever that needs a transplant do you say; “Don’t worry Mr. Patient, I’ll get you a bed and a new organ as quickly as I can, and by the way, that’ll be no charge”? The uninsured only get stabilized and discharged from ERs when they have something serious, not treated. Do you actually think people on Medicare get the same level of healthcare as the well insured?

  34. There is no proof that the “uninsured” are not getting needed healthcare. They are not getting a lot of futile, feel-good, what-if care, because they either are not seeking it or don’t need it. Of course there are exceptions, some people are not getting care they need. But the insured are just the opposite; they are getting all kinds of care they really don’t “need”, but are getting because they seek it and have coverage, or are getting tests for defensive medicine purposes. Even some insured people are not getting the care they “need”, because they do not wish to or do not know they should worry about a pain or weight loss or a cough or a lump, or simply go into denial about that fungating mass on their breast.
    We have yet to define the terms of the discussion. What is “decent healthcare”? What is “unnecessary”? Right now, today from 4:00 p.m. until Midnight or later, anyone can come in to my ER and get from me whatever care they need to be sure a medical problem, if one exists, is stable. No one will turn them down for needed care. The uninsured do not bring their bureaucracy with them. When they become insured, not only will it cost the system the care they receive, but the bureaucracy that tracks them. Where is the opportunity for savings?
    But the uninsured do not get screening, because they don’t have coverage. Screening is not healthcare. It is public health. Remember, we haven’t defined the terms. Screening for what? Insurance does not include screening now. Add that in and the costs really go up.
    Will there be a deductable or will there be first-dollar coverage? The poor will not go if there is a deductable, some say. Right now there is no deductable for ER visits for Medicaid patients and a small cash deductable for office care…..so what you just thought is actually what happens. First-dollar coverage cannot possibly provide an incentive for the patient to be involved with choices that add to costs, from risky lifestyle choices to accessing the system for care. There must be a cost to the patient for each service. There can be no exceptions. The present system assumes that some people are actually too poor to pay anything. There are people who look too poor, but when you dig a little deeper you find that someone in there life, not tracked by the social agencies for people who look poor, provides significant untracked support. This in fact has been the death knell of all social service programs; people conning the system. So it must cost something for everyone.
    EHR, who has time to read it or write it. If the practicing physician or PA-C or the nurse practitioner must read about every patient from a national data base and contribute documentation to it, making it ever larger and lees useful, then those providers will see fewer and fewer patients per hour. The Department of Defense has kept a record of each member’s medical care from enlistment to discharge. It hase been a paper record, but it stays with the member. They hand carry them from base to base. After a few years, the record gets a little BIG. It also becomes irrelevant for day to day care.
    Planning reform from the top down will really acrew things up. Why not assume everyone is enrolled, without a huge bureaucracy for enrollment, and just cover everyone no matter where they get seen? The fees paid cannot be ultralow, or no providers will play. It makes every patient a desirable client for any practice. The answer to my own question is: there is not enough capacity in the system for millions more accessing the system for care. This is why there must be a direct cost for the patient, to modulate the demand. The only other mudulating force is time. How long will you wait for your appointment? How long will hyour ER wait be? Well, it will be months or years for an appointment and days for your ER wait, until people learn that minor non-emergencies are not worth paying the time price for care not needed. Go home and get out the homecare website and take care of it yourself.
    From the bottom, healthcare reform is like putting more deck chairs on a larger Titanic, to hit a larger iceberg harder, to sink it deeper than can beimagined so as to never ever float again. Oh, there will not be enough lifeboats, either. It will be its maiden voyage. Will all the bigwigs be on board? Are you kidding? They will fly.

  35. This is a very intersting article on the new stimulus package including healthcare. I was actually very happy to hear about it and also beleive in the innovations and upsides as well. But as I was blindsided and I think Obama was as well, the immediate reaction from this was the healthcare stocks dropped dramatically. It is kind of like a downward spiral for ur economy. I truly hope that everything pulls together as we all are equal and we should all have decent healthcare as well.
    We should all be able ask a nurse a question from personal health questions to disease management and be able to get a straight answer without getting charged a million dollars

  36. If hosptials get their income from insurance/medicare/medicaid billings and we do get “over-utilization” down to “acceptable” levels, then how will the hospital make up for the lost income? And if utilization is cut do you think specialist/hospital charges will come down so those using the system “wisely” will still be able to afford it?
    This from Paul Levy’s blog:
    Two new analyses show that the “economic decline is continuing to ravage the nation’s hospitals, with half of them operating in the red, and many planning service and staffing cuts.” The Times explained that “hospitals are ailing because of a number of problems hitting in close succession.” The problems include “investment incomes” plummeting, while more people “put off elective procedures and insurers” tighten “their grip on the length of hospital stays they cover.” According to the new data, “an unprecedented 50 percent of the nation’s hospitals appear to be losing money.” The bottom 25 percent of hospitals “posted margins below minus seven percent, or seven percent worse than the break-even point, while the top performers’ margins exceeded 4.5 percent. Even operators of the most robust hospitals are bracing for another difficult year as the effects of layoffs and employer cuts in health-insurance benefits take hold.” A second study found that “44 percent of hospitals have seen declines in surgeries, with hip procedures showing the steepest drop-off at 45 percent.” This has caused “47 percent of the hospitals surveyed expect to make staff cuts, and 69 percent plan to cancel or delay equipment purchases.”
    So, the recession/depression IS cutting utilization as people ONLY access medical care that is absolutly necesssary and we find that hospitals are barely staying afloat. I can confirm the analysis above in my wife’s own hosptal which survives better so far because it is the state hospital. So can we say this shows we actually have too many hospitals with too many staff because people don’t really need all that care anyway, or are people suffering with afflictions and pain because they can’t afford or are afraid to afford medical treatment – lawyers or not?
    We’ve also seen in posts on this blog that when hospials take measures to be more efficient that result in less billings they find the savings go to insurance companys while the hospital suffers financial hardship.
    Wouldn’t it be better to allocate care based on medical need rather than financial need and a better way to fund hospials not through billings which can reward them for cost cutting rather than punishing them?
    Christopher George , my previous comment was meant to be sarcastic, not sure if you picked that up or not.
    But please comment on the above and how you would envision the results/benefits of all this utilization reduction you want through tort reform or other means.

  37. Finally a discussion from smart people who get it. Defensive medicine is a killer when it comes to costs. The huge expenditures in healthcare must be addressed with political changes. Dialysis was expanded in the 1970’s because of political decisions. Medicare expanded to include disabilities because of political changes. Tort reform must be part of healthcare reform, or no one can save money. Today we are now going to fund embryonic stem cell research. Can you imagine the clamor for the stay young gene? Can you imagine what it will cost? Can you imagine the politics of denying it to anyone?

  38. Peter’s comment’s regarding lean medicine are what I wanted to say, but I didn’t know to say it.
    When I was in medical school CCJ Carpenter, legendary infectious disease giant, used to brow beat the poor interns for ordering so much as an un-necessary serum calcium level for which a good reason could not be articulated.(At the time probably a $10 test.) The exact opposite of today. No test is too unlikely to order.
    I would only add that the current would-be-masters of the universe seem to think that the nivana of diffident European Healthcare can only be obtained by going through the doctors. Demonizing doctors is going to be expensive, but not the way they think it will be. Demoralized, alienated, “Skinner boxed” by ad hoc payment schemes, or payment cuts masquarading as Orwellian quality inititives (one more hairbrained than the next) are going to order a lot more tests and procedures than an empowered workforce. Go to any ER and you will find the dumber, the less educated, the less experienced, the more harassed, the lower the self-esteem, the nurse or doctor is the more silly expensive tests will be ordered. It appears that the reform narrative casts the doctor as the villain, so it will be easy enough to see if I am right…just stay tuned.
    Again, like a broken record, no meaningful reduction in utilization will happen without tort reform. The un-empowered, demoralized professionally castrated doctor is not the one who will make the decision to NOT order something stupid. Instead, he order out of the fear that it might, in retrospect, if it were positive, seem logical to do. These are the tests that are killing the system.
    Recent example: 17M for John Ritter’s estate, no doubt already quite large, for not doing a CT scan to rule out a condition which is literally one in a million. Think about the implications: if every chest pain patient now gets a CT scan at $1000, it might cost a BILLION dollars to find another aneurysm. If you scanned one patient in a thousand, it would still cost a million dollars with a diagnostic yield of zero. As a result of this tragic case, in which the medical care was excellent, we are already seeing more doctors order CT scans on heart attacks.
    This is why defensive medicine is so so expensive. Our protocols have ALREADY incorporated so much diagnostic overkill. Using clinical judgement saves lives, saves time, and saves money. Without comprehensive tort protection no one is going to risk personal bankrupcy to save the insurance company a thousand dollars of THEIR money. Overtesting is so ingrained in new trainees that it has become the standard of care.
    This is really scary. A lot scarier in the long term than a few uninsured people that are largely young and healthy.

  39. “innovation will be driven by smaller companies and private ventures, which can afford to make riskier long-term investments, while larger healthcare providers and payers focus primarily on preserving market share and navigating reforms.”
    Any time someone gets successful in reinventing the market politicians shoot them down. There is no opportunity to fix the systems because it is contrary to the goals of washington and the states. Simple example is the burdens politicians have placed on self funded plans to kill them off. They are considerably more efficient then insurers and have much higher member satisfaction but are opposed by politicians that pass laws to make it unaffordable, risky, or outright illegal.
    Until healthcare is taken back from the government we will never be able to fix it.
    Nesbitt we use to have lean medicine back in the 60s and 70s and it worked great. It’s called member responsibility. Americans use to pay 50% of their healthcare cost out of pocket. When it was their dollar a test wasn’t ordered until it was needed and they sure in heck didn’t run another one cause the doc didn’t want to order records from the other doc that ran it last month. High Deductible health plans would solve a large portion of our cost problem. What is saved in premium payments could be given to employees in HRAs, HSAs, or FSAs and more then cover the additional cost.

  40. Can’t wait for the prices to come down. When can I expect to be able to get a heart bypass for $20,000?

  41. I have to agree with Christopher George (for once). The only experience I ever had in hospitals with IT was bad, from both ends – e.g., from trying to buy new systems from used-car-type salesmen for our hospital medical laboratory (and cope with the enraged docs who couldn’t get their microbiology results out of it), to using it myself to try to enter surgical pathology reports – which the system would subvert and reformat, again enraging the clinical docs who were trying to treat patients from this info.
    The only “innovation” I see from all this new $$ is more mouths feeding at the trough. Sorry to be so cynical, but people JUST DON’T GET WHAT IT’S LIKE INSIDE THE SYSTEM. (Yes, I am shouting. Please wake up!)

  42. More high tech mumbo-jumbo which I see a lot of on the blogs and health care discussions. None of this is going to control or reduce medical costs. If we want to control medical costs, we have to eliminate coercive managed care and seduce physicians into practicing lean medical care. For example, lean care means, “Prescribe tests and studies only when indicated by clinical findings”. The same with specialist referrals. Let’s try seducing physicians into practicing lean medical care by rewarding them:
    1. Pay them fairly and stop pushing down on medical fees. It’s not the fees killing the goose, its the utilization;
    2. Allow physicians to play god and make the decisions regarding patient care. Eliminate the demons of pre-approvals and denial of service. If a physician is slip-sliding, provide coaching to bring him into compliance with the system;
    3. Pay physicians promptly for services rendered. Process all payments within 30 days.
    Like most seductions, this one has a cost but it is a very small price to pay and one in which most physicians will gladly accept. All we ask of them is to practice lean medicine and ensure that utilization is related to clinical findings. Do not mistake this for rationing, it isn’t.
    Managing a lean medicine health care program does require sophisticated software and a medical team for evaluating medical reports and bills but their role is not adversarial. Rather, they are available to help manage care when the physician needs assistance and to coach.
    Since this is the only suggestion on this blog that actually has a chance of controlling medical costs, I’d like to see some discussion of the concept of lean medicine. There is much more to it than the brief outline I’ve given here.

  43. Dr. Waxman:
    I wholeheartedly agree with your message, but in this uncertainty even Psilos has retreated toward later stage funding rounds with less risk. We need to somehow stimulate early stage seed financing of innovative new ideas that will drive change in cost and quality so that VCs such as Psilos have the deal flow necessary to make this happen…

  44. Not there yet. Not even close. How people can believe that EMR is going to save money is beyond me. Some of these people also think insuring everyone will save money. ( This later is good public policy, but certainly won’t same money. )
    As a doctor, my experience has been that EMR decreases individual productivity dramatically, and provides data to bureaucrats. These self styled reformers than mine the data to support their biases about cost effective care. This data which is supplied at great cost to me, is provided free to the regulators to retrospectively analyse. As you know retrospective analysis is not very reliable. Huge boondogle for IT, inchoate software, a huge time sink requiring endless debugging for the doctor who typically has an actual job to do. They then sell their software back to the healthcare system at prices which would make an investment banker blush.
    In the operating room, it is now next to impossible to get our nurse’s nose out of her laptop and observe the actual live patient.
    On the bright side, the cart is easier to read. Twice as long..but now it is legable.

  45. Obviously technology it going to be supremely important in making the delivery of healthcare less redundant, safer and easier. In my experience in HIT, which is from the financial application side (not diagnostic) is that the technology being sold to institutions is rigid and proprietary. How many companies sell their IT solutions in healthcare as proprietary? Most of them, it is still a realm where the thought of having a closed-tool that your neighbor/competitor provider doesn’t have makes you better.
    That leads to less interoperability, and escalated costs when patients are transient…one-doctor to the next, one hospital to the next. This insurance this month, that insurance that month.
    HIPAA transactions are standards-based EDI sets that have been intended to allow freer exchange of information, but the problem is that they are just conduit standards, not platform standards. This means that existing applications require way too many costly bolt-ons to comply with standards.
    The storage, access and exchange of data needs to be simplified. And IT solution providers need to be held to providing flexible, transparent and open-source solutions by their potential customers.

  46. Even though I am a physician, I am also a vendor of an EMR system, so consider the source. I get to communicate with dozens of small medical practices on a weekly basis (i.e. the type delivering a majority of medical services). They are almost all bewildered and demoralized at present. There is skepticism that the increased reimbursements for “meaningful use” of information technology will be enough to recover the cost of implementing the technology. The few physicians that have any real knowledge of the proposals for either security or interoperability have categorically rejected both approaches. They are largely flabbergasted by P4P, incentives programs that neither include anything to incentivize patients, nor factor in data that brings patient compliance into the formula.
    From my perspective, the situation is not nearly as bleak. Most practices will be well served and will mostly accept approaches such as GoogleHealth that empower the patient and/or the patient’s trusted physicians. Also, the specifications for the recently passed legislation in New Mexico are the first ones for a government-sponsored RHIO (that I have seen) that appear to have the characteristics that most can accept. So there are some bright spots on the horizon. The hospitals, practices and patients that keep their focus on patient-centric (controlled) solutions are likely to be the first to see real successes. Interestingly, the patient-centric solutions tend to be the ones that are more incremental and lower in cost as well. I consider it an interesting paradox that the approaches that are more gradual-incremental and lower cost are also the ones most likely to disrupt the current sick care system. I predict this is where the entrepreneurial opportunities will arise.

  47. Any medical doctors want to weigh in?
    You have folks talking about how IT is going to make things better. But right now hospitals are in bad shape nation-wide. They are cutting IT spending now to survive the recession.
    Plus there is no clear IT standard. So to get to point B from A it seems like you guys are skipping a lot of steps.
    Also, the benefits of IT have been greatly exaggerated in many of the academic studies.
    If IT is so obvious of a solution then why aren’t we utilizing EMRs a long time ago, when Al Gore invented the Internet.

  48. Dr. Albert,
    we all agree on the need for change. I think innovation will help…I just do not know how much. I assume you are talking mostly about technology when you say innovation?
    Under the premise of technology, let us look at it. We have more and more expensive machines to do finer and finer diagnostics. Machines have been sold with the belief of it improving quaility of care and speed. GUESS WHAT? The cost has only gone up.
    So, that begs the question, how would having better technology will cut cost and defects? If these had reduced the cost and defect, we would not have 50 million people or close to without insurance.
    For healthcare to become better, we need much more than innovation in technology. We need innovation in policy, strategy, delivery, and yes in technogy and many more things.
    A abridged version of some of the things I wrote few weeks back on my blog “an all out solution to healthcare crisis”. On a side note, one of my partner has, I think, the best idea and product for EHR…it is cheap, safe, easy to handle and gives you much more than any one is offering. We have thought about going after some venture to refine the product packae and marketing and sales….We just have not had time to prepare business plan. If someone wants to discuss informallly, we might be open to the idea of capital infusion. Having said that, the reason I brought this up is that it is something not about innovation in technology but how we look at healthcare and its delivery.

  49. Amen!!!
    There has been much talk about government-funded, government-developed and government-mandated HIT as the solution to the less than perfect state of the EHR market today. Something along the lines of the Department of Veterans Affairs solution. Somehow that never seemed to me like a hot bed for innovation.
    Dozens of hi-tech products, developed simultaneously, looking for blue oceans and competing for known and yet to be discovered opportunities are more likely to bring efficiency and cost savings to the beleaguered healthcare sector and along the way provide some very handsome returns to visionary investors.
    Sounds like a win-win proposition to me.

  50. Dear Albert: This is a great post! I agree with your premise that there are going to be significant entrepreneurial opportunities to innovate health care processes and services in ways that make health care more affordable, personalized, and convenient. Instead of just feeding the beast, we need to make the beast leaner and faster. The “new health care economy” you wish for, however, is still quite fragile. It really depends upon the creation of a “will to be well” among the American people that transfers to the political arena as a commitment to stop paying for faulty, ineffective, or just damn useless care. That one third of health care spending that is waste has its own powerful constituency!
    In any case, I’m excited by your enthusiasm, and I believe the first step in this long, arduous turn-around is the belief that it can occur.
    With kind regards, DCK