Charlie Baker is the president and CEO of Harvard Pilgrim Health Care, Inc., a nonprofit health plan that covers more than 1 million New Englanders. Baker blogs regularly at Let’s Talk Health Care.
Back in December, 2008, the folks at McKinsey – one of the world’s most well known consulting firms – wrote an interesting article on health care reform in the U.S. What’s striking about it now as we all watch the debate unfold in Washington, DC is how different McKinsey’s approach is to the one being taken in our nation’s capital. McKinsey focused on three things – personal behavior, cost and quality transparency, and administrative simplification. The Washington debate is focused mostly on whether or not to create a government run health insurance plan, individual and small group health insurance market reforms, Medicaid and/or Medicare expansions, how much deficit spending is too much, and administrative simplification.
People in DC would argue that doing anything about personal behavior is virtually impossible, so why bother, but McKinsey’s case on this one is pretty compelling. In fact, McKinsey argues that the whole “40% of individual health care expenses occur in the last year of life” is no longer true – primarily due to the rise in costs associated with managing chronic conditions. Quote – “…our findings suggest that the management of chronic disease outside of acute-care environments accounts for at least 20 percent of total U.S. health care spending, perhaps more. That level of expenditure, compounded over decades in many cases, dwarfs the cost of end-of-life care…” They indicate that end-of-life health care spending – on average – for people who pass away between the ages of 65 and 95 represents less than 10% of the total amount of money they spend on health care during their lifetimes.
McKinsey references obesity as a specific example. The incidence of clinically defined obesity has doubled in the U.S. since 1980 – to roughly 34% of the adult population. Clinically obese patients spend almost twice as much as someone with a normal body mass index on health care – every single year. Put another way, if we were as obese today as we were in 1980, we’d spend $60 billion less on health care. McKinsey says ignoring the impact personal behavior – and here, I’m mostly referencing diet and exercise – has on the rising cost of health care is a huge missed opportunity, and their data points make a compelling case.
Second, McKinsey points out that the same service provided by two different providers in the same geographic area with the same patient and the same outcome can vary in cost by as much as 40%, and no one knows it. “In no other industry are service attributes and prices so opaque.” No kidding. Some of us having been banging this drum for years, and we are still in the crawl stage in terms of making this sort of information publicly available. And while I’ve always thought of that as a way to rationalize provider prices, McKinsey thinks it could also rationalize insurance plan design and re-frame the health care conversation generally. They note that without publicly available information on price and performance, the move from delivery and insurance models that are based on acute episodes of injury or illness to ones that are based on promoting healthy behaviors and managing chronic conditions will take forever to occur.
Third, McKinsey discusses the price of administrative complexity – and while Washington does seem interested in taking this one on, some of McKinsey’s observations about what drives complexity require a more nuanced approach than the ones currently under discussion. For example, McKinsey notes that regulation drives complexity, that providers and payors each own a piece of the complexity around claims processing and payment, and that the government as payor has contributed significantly to this conundrum as well. Are there opportunities here? Yup, but it’s not as obvious as it seems. Remember, when someone talks about standardizing processes and rules, they usually standardizing everyone else to the way they do business.
I wonder if the whole diet/exercise question – or the transparency issue – will find their way into the health care reform discussion. My guess is the answer will be “no.” They are too beside the point for a discussion that’s primarily about financing and paying for services rendered. That’s too bad. McKinsey’s piece makes it pretty clear that reducing the rate of growth in health care spending and improving care quality is about a lot more than whether or not we have a government run plan for the non-Medicare/Medicaid population.