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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9 replies »

  1. Does anyone know how much the IRS will save if they get rid of the tax deduction employers pay for health insurance premiums? Most probably we can balance the budget if we eliminate that tax deduction.

  2. If the proposed U.S. Healthcare system is supposed to cover every American from the time they are born to the time they die what purpose does Medicare and Medicade serve?

  3. We already tried a national healthcare inflation rate.
    It was called the SGR (sustainable growth rate) for doctors’ bills.
    It was a complete failure. Congress would never implement it because it was a such a crude, blind tool.
    We need to eliminate waste in our healthcare system with a scalpel–we can’t try to whack it with an axe.
    You can’t simply pick a number out of a hat (or pick a number tied to GDP growth) and say “Health care spesnding can’t rise more than this. And if it does we’ll . . .do what?
    We need to cut spending where patients are receiving little benefit, lift spending where patients will receive greater benefit.
    Some of your solutions are great, but are far easier said than done.
    Simply buying the right equipment from the right company is not the answer. Ask Dr. Don Berwick how one reduces hospital error? It takes leadership at the particular hopsital, and a flat -out commitment by hundreds of hospital personnel.
    How many of the employees who lose weight under employer wellness programs actually keep it off for five years or more? Very few.
    It takes years to grow an accountable care organization. It’s a matter of building a culture, not simply buying the right business plan, program or HIT.
    We know that the best Medicare Advantage HMOs (better outcomes, lower cost, higher patient satisfaction) are “well-established HMOs” (MedPAC). Again, this takes years, and some luck–like-minded people coming together in the rigih place at the right time.
    And there is no blueprint. Mayo, Geisinger, Cleveland Clinic, Intermountain all do it differently. These systems grew organically–over time.
    It takes leadership, vision, will and collaboration. It takes professionals who are willing to put patients interests ahead of their own interests.
    It can be done (at least in parts of the country–I’m not at all confident about the corridor from Boston to NY, or Souterhn California, or parts of Texas & Florida.) But accountable care organizations will have to be build one by one–this is not a program that you can roll out nationwide.

  4. I think the debate focuses too much on prepaid health care instead of health insurance. The American people deserve real reform not more federal mandates.
    Congress should create a bill to repeal the McCarran-Ferguson Act of 1945 and replace it with federal regulation that culls the best from California and New York rules to enable health care offerings across state lines. There would certainly be a ready pool of regulators available from redundant state agencies. This regulation should require guarantors (insurance companies) to identify their subscribers and their subscribers’ annual cost to the IRS so that tax credits could be automatic.
    In a separate bill federal legislation should create a health care exchange, Massachusetts or Vermont style. Such an exchange should allow guarantors to offer plans having no federal mandates beyond guaranteed coverage the insurance industry already agreed. There should be no mandates on premiums, deductible amounts, co-pay amounts, coverage limits, types of coverage, covered services, … Instead, Health and Human Services would evaluate each plan offered listing in summary all benefits and all costs with an easy 800 number for those who struggle to comprehend. Insurance regulators would also compare plans offering their HHS “Regulator’s Choice” awards to the best offerings. I believe the insurance industry would eagerly compete as they do for Medicare part ‘C’ and part ‘D’.
    In another bill Congress should eliminate the income tax deduction for business sponsored health plans. The bill should introduce a new FICA payroll tax program levying 4% of income up to $2000 total tax that could be payable to any recognized health care plan chosen by the individual. Additionally, Congress should offer a refundable tax credit (over and above the new FICA levy) for expenses paid to any recognized health care plan. And, most of all, Congress should expand health savings accounts to everyone administered by any qualified retirement account administrator.
    I think those bills would bring competition back into the health care marketplace lowering costs across the nation. It seems evidently true for Medicare part ‘C’ and part ‘D’. Congress could take a year or more to examine the structure of subsidies enabling those in the second and third quintile of income purchase a health plan within their budget. The first quintile of income is covered by Medicaid. The fourth and fifth quintile of income represents professionals of which I am one.

  5. I find it just a bit ironic that Nate would gleefully support #6 especially given how he decries any time the gov’t tries to lay down any sort of regulation coaxing certain types of behavior change/modification among individuals.
    So Nate, it is not o.k. for the gov’t to change people’s behavior (e.g., you ragged on the idea of an excise tax on soda if I recall correctly) yet you support the right of an employer/insurer to potentially mandate people’s basic behaviors including their exercise and dietary habits?

  6. Do you have any idea just how much “accountability” adds to the price of health care? A ton! Everyone promises accountability so it looks like the public funds are being spent wisely. BS!!
    The only way to cut costs is to decrease demand. Right now there is unbridled demand for unnecessay care. This is entirely discretionary on the part of the patient. Well, insurance should not cover discretionary care. It never did prior to the HMO era when people prepaid for care they did not need. Eventually they started “needing” it because they could get it for nothing. Now people can’t even take care of a cold without a doctor holding their hand.
    At the same time, doctors no longer send home the entirely normal kid with a head bonk without a CT scan. There is no reason for the parent not to demand and expect one (because it costs them nothing),and there is no reason for the doc to be his own liability insurance carrier and take on the risk of not doing one (because to lose that bet costs plenty.) Now there are guidelines to predict who does not need a CT scan. Those guidelines will be of no value in court when the kid actually has an injury and suffers because of “failure to diagnose” his bleed.
    There is no free lunch. There is no free healthcare. You can’t tax us into prosperity and you can’t borrow us into budget surplus. No amount of free health care will make your life happier. A whole lot less government would make everyone happier and save money for healthcare..,.private health care.

  7. Mr. Waxman, you forgot 7. Set provider reimbursements 8. Allow Medicare and any public option to negotiate drug prices 9. Set universal budgets. But wait, isn’t that a single-pay system, yes it is, the only solution in the end.

  8. costs can be cut and quality improved simultaneously
    A public option will force some of this because the insane and perverse incentives for constantly increasing profitability will be tamped down.
    Dr. Rick Lippin

  9. 3. After sitting through a session on EHR why in the world would anyone want to create these let alone accept them? As a payor I don’t want to ever touch an EHR, even with best pratices and the best intent in the world it is only a matter of time till humans do what humans do and some information is exposed. Even if nothing is done with that exposure and no harm results it would be enough to bankrupt a company. Same for the red flag rules that can be applied to payors. Instead of being on the cutting edge of adapting this due to government over regualtion we will fight it as long as we can.
    6. This is a good idea, are they going to repeal GINA and reign in EEOC and ADA so we can actually do it?
    The only road block to affordable insurance and healthcare is the government. After today I think we are one step closer to burning down the one we got.

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