A Crucial Requirement To Cure U.S. Healthcare Long-Term: Curb Raging Inflation

The Senate Finance Committee pushed the likelihood of mandatory U.S. healthcare insurance a giant step forward this week by passing a healthcare reform bill that is likely to become law in some form by year-end. That’s the good news. Unfortunately, this is dwarfed by the bad news: The focus of the legislation is the implementation of healthcare for the uninsured, not fixing the healthcare system overall. So the need to substantially trim crippling U.S. healthcare inflation rate is getting lost in the shuffle.

Healthcare premiums have soared because healthcare inflation is nearly triple the overall inflation rate. Last year, during a period of general deflation, healthcare inflation rose 5.5 percent. Healthcare costs are expected to consume nearly 20 percent of the GDP by 2017, the year that Medicare is projected to become insolvent.

While there is still time, policy makers must take steps to substantially amend the nature of healthcare reform. They must set clearly articulated goals, including a normalized healthcare inflation rate. They must build alignment across multiple interest groups to make sure that all key stakeholders are truly on board, not just passing legislation. Most important, they must shift the focus of the debate from “who pays” to “how much” America should pay for an effective healthcare system that delivers real value. If this isn’t addressed, no changes will ultimately succeed.

Fortunately, multiple players in the private sector, including Psilos Group’s portfolio companies, have made considerable progress addressing healthcare inflation on various fronts. They have proven that costs can be cut and quality improved simultaneously, which is key for reform itself to pay much of the tab. Here are six ways this can be accomplished:

1. Embrace “accountable care” for chronic illness. Chronic illness is the biggest burden on healthcare. Fifteen million elderly Americans have at least four chronic illnesses, such as diabetes and high blood pressure, costing the government $350 billion in Medicare alone. Accountable Care Organizations have produced significant quality improvements and cost reductions and could save $750 billion over 10 years.

2. Use technology to eliminate hospital-based errors. Hospital-based errors account for $7 billion to $10 billion annually in excess Medicare costs alone. Several U.S. companies now have products that significantly mitigate or eliminate these errors but whose technology is not widely adopted.

3. Create electronic personal medical records. Patients’ medical records must be digitized and consolidated around the patient, not the physician or hospital.  These records should be delivered directly to physicians at the point of care to improve medical decision-making and eliminate redundant tests. This could produce savings of $500 billion over 10 years.

4. Reform “defensive medicine” practices.  Physicians often provide treatments, even when they know they are unnecessary, excessive or redundant, because failure to do so may result in a malpractice suit.  We must establish a culture of doing the right thing and adopt legal reforms that enable good medicine to flourish.

5. Replace “fee for service” with performance-based reimbursement. Accountable Care Organizations are an excellent role model for this. They reward clinical outcomes, rather than reimburse providers based on the number of procedures performed.

6. Provide incentives for healthier lifestyles and behavior. New “value-based” health plans incentivize patients to take care of themselves through preventative wellness programs and compliance with chronic illness treatment plans.  These plans have demonstrated substantial savings to both patient and payer.

Healthcare reform is essential and the tipping point is here.  We can still cover the uninsured if we refocus reform on creating true value for healthcare spending and align patient, provider and payer incentives around good medicine. Many of the above ideas have been proven on a smaller scale.  Now is the time to convert these models into systemic change so we can deliver sustainable reform for all Americans.

Dr. Albert Waxman has more than 40 years leadership experience as an entrepreneur and investor in the healthcare economy, fueled by a particular focus on driving down costs, improving quality and aligning incentives across payers, providers and patients. As the CEO and founding partner of Psilos Group, co-headquartered in the Bay Area and New York City, he and his firm have funded and developed more than 38 innovative companies dedicated to this vision, including ActiveHealth, AngioScore, Click4Care, Definity Health, ExtendHealth and OmniGuide.

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