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Category: The Business of Health Care

Why the Supreme Court’s Healthcare Decision Will Mean a lot … and Not so Much

Like waiting outside the Vatican for the puff of white smoke, the nation sits on edge awaiting the Supreme Court’s ruling on the Affordable Care Act. The ruling, which is likely to be announced next week, could toss out the entire healthcare reform bill, chop off one of its limbs (probably the so-called individual mandate), or leave the ACA intact. Whatever the ruling, it will be chum for the blogosophere, particularly in the heat of presidential silly season.

The two fundamental challenges to American healthcare today are how to improve value (quality divided by cost) and how to improve access (primarily by insuring the tens of millions of uninsured people). The bill sought to address these twin challenges in ways that were complex and intertwined. I’ll argue that a decision by the Court to throw out all or part of the ACA will have a profoundly negative effect on the access agenda, but surprisingly little impact on the value agenda. To understand why requires that we focus less on the bewildering details (mandates, insurance exchanges, PCORI, CMMI, IPAB, etc.) and more on some big picture truths and tradeoffs.

The job of any healthcare system is to deliver high quality, safe, satisfying care to patients at the lowest possible cost. Although America certainly does specialty and high tech care like nobody’s business, on all of the key dimensions of value we aren’t very good. The numbers tell the sorry tale: we provide evidence-based care about half the time, there are huge variations in how care is delivered, we kill 44,000-98,000 patients per year from medical errors, and we spend 18% of our gross domestic product on medical care, far more than any other country.

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The KP Model in the UK

I’ve had a couple of meetings recently with leading figures in UK health policy – one of them a senior figure at a doctors’ organisation, the other at a private health company – who both talked excitedly about the lessons Britain could learn from the US.

That’s rarer than you might think. Our National Health Service may be cautiously embracing market-led reforms, but there’s still plenty of scepticism about the US’s full-on competitive system, and people here tend to be nervous about citing it as an inspiration.

Still, the two figures I am referring to, both leading players in the British Government’s NHS reform programme, were talking not about US healthcare as a whole, but about one particular organisation with something of a cult following on this side of the Atlantic.

I am referring to Kaiser Permanente, and its ideas are about to become very big over here.

Kaiser is one of those iconic organisations that aren’t just known for what they do, but whose names come to define their particular way of doing things – in Kaiser’s case, managed care.

It is the classic managed care organisation, running all the disparate parts of the local health system as a fully integrated whole, and deftly incentivising doctors to make sure patients receive their care in the part of the health system where it can be delivered most efficiently.

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Healthcare M&A: Keep Calm and Carry On

With just a couple of weeks to go until we hear from the Supreme Court on the fate of Health Reform, bankers and the investment community are making grand pronouncements that M&A activity is “on hold” until the Court opines.

This is just not true as you will see below.

Here’s an excerpt with an evocative title from PEHub’s coverage of the annual Jeffries Healthcare Conference just this week (emphasis added):

PE-Backed Healthcare M&A on Hold for Election, Supreme Court Decision on Obamacare

Private equity investing in healthcare is on pause this year, according to executives speaking Wednesday on the panel “Financial Sponsors Perspectives on Healthcare Investing.” The industry is waiting to see whether Mitt Romney succeeds in overtaking President Obama. Also, dealmakers wants some clarity on President Obama’s healthcare reform bill….

Healthcare M&A has slowed this year. So far there have been 1,073 global announced M&A deals, valued at $75.3 billion. This compares to 2,729 deals in all of 2011 which totaled roughly $229.6 billion….

“Once we get clarity, and past Obamacare and the presidential election, we will see more deals,” the exec said.

The problem with this is that it might make for good reading or for an “entertaining” panel discussion at an investment banking conference, but it doesn’t reflect reality.

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Seriously: Is Digital Health The Answer To Tech Bubble Angst?

As an ever increasing amount of money seems determined to chase an ever greater number of questionable ideas, it’s perhaps not surprising that inquiring minds want to know: (1) Are we really in a tech bubble? (2) If so, when will it pop? (3) What should I do in the meantime?

I’m not sure about Question 1:  I’ve heard some distinguished valley wags insist we’re not in a tech bubble, and that current valuations are justified, but I also know many technology journalists feel certain the end is neigh, and view the bubble as an established fact of life – see here and here.  The surge of newly-minted MBAs streaming to start-ups has been called out as a likely warning sign of the upcoming apocalypse as well.

I have the humility to avoid Question 2: as Gregory Zuckerman reviews in The Greatest Trade Ever, even if you’re convinced you’re in a bubble, and you’re right, the real challenge is figuring out when to get out.  Isaac Newton discovered this the hard way in the South Sea Bubble, leading him to declare, “I can calculate the motions of heavenly bodies but not the madness of people.”

I do have a thought about Question 3, however – what to do: reconsider digital health — serious digital health.

Here’s why: Instagram and similar apps are delightful, but hardly essential; most imitators and start-ups inspired by their success are neither.  It doesn’t strain credulity to imagine investors in these sorts of companies waking up one day and experiencing their own Seinfeld moment, as it occurs to them they’ve created a portfolio built around nothing.

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Size Matters: Hospital Consolidation and Physicians

As health reform evolves,  I’ve been watching multihospital systems grow in size and power and speculating what their gigantic size means.

Here, as of 2008, were the 10 largest systems in revenue size

1. Veterans Administration Hospitals,   $40.7 billion
2. Hospital Corporation of America,  $28.4 billion
3. Ascension Health, $12.7 billion
4. Community Health,  $10.8 billion
5. New York Presbyterian, $8.4 billion
6. Tenet Health, $8.3 billion
7. Catholic Health Initiatives,  $7.8 billon
8. Catholic Health West,  $7.6 billion
9. Sutter Health, $6.9 billion
10. Mayo, $6.1 billion

What strikes me about this list are that such giant systems like Kaiser, the Cleveland Clinic,  Johns Hopkins,  Duke, and Health Partners in Boston don’t even appear, and the large  number of Catholic multisystem chains.  The revenues of multihospital systems has undoubtedly grown since 2008.   In 2011, hospital  mergers and acquisitions hit an all time high.

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Who’s Running Your Company: You or Your Client?

Venture capitalists like to use the word “traction.” It sounds all glamorous, like an ad showing a Range Rover toughing it out up some impossible incline. But when I hear a company talk about ‘early traction’ in its pitch, I’m always leery of the “First and Worst” effect.

My first customer at my first company was a grandfatherly CIO at a big hospital. Of course I wanted to please him, and was enthusiastic about doing so. But I was also very focused on taking over the world with our software. I told him, “We’ll change anything you want about the product, as long as it’ll be good for all our future [gazillion] customers.”

Of course, The Grandfather wanted lots of one-off customizations that would really only be good for him. I told him that all the time we spent doing custom work for him was going to make us less profitable, and less likely to be able to sell the product to other people. And to survive long enough to do any improvements to the product at all, we needed to be profitable. He seemed to think that made sense, and begrudgingly agreed.

In the end this arrangement was a win for both of us. Our product was a home run for his hospital. We got an evangelical reference customer, and his hospital helped make our product better. The precedent we’d set with The Grandfather gave us the courage to refuse other customers who wanted one-off changes. Sure, we could have done this for one or two hospitals, but by the time we got to hospital 300, it would have been a mess.

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The Irrelevance of the Supreme Court Decision on Obamacare

When I’m not writing pieces here, my “day job” is working with healthcare providers recognized as Disruptive Innovators who are reinventing healthcare and slaying the healthcare cost beast as a byproduct. In some cases, these are entrepreneurs. In others, they are pioneers within existing healthcare providers.

Even though this is the month that the Supreme Court is supposed to rule on the constitutionality of Obamacare, it is striking this fact rarely that ever comes up in discussions with healthcare providers.

Philip Betbeze described this in a HealthLeaders Media piece entitled “Disruptive Healthcare Innovations Trump SCOTUS Worries“   when he asked senior executives about their perspective regarding upcoming the Supreme Court decision.

But when you ask one question, you might get an interesting answer about something else entirely. That’s the way my sources for this off-the-record conversation surprised me. They agreed they are much more concerned about disruptive innovation than what nine people in black robes are going to say at an indeterminate date sometime this month.

The roundtables, set up for me by the good folks at Premier Inc., which is holding its annual “Breakthroughs” conference here in Nashville this week, revealed that these leaders fear less what the government may do in response to whatever decision the Court makes, and more what nontraditional competitors may do to their resource and capital-heavy healthcare delivery systems.

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Even Aetna CEO Admits: We’re Toast

I’ve been saying it for years (and in 3D and Technicolor in my new book Healthcare Beyond Reform): The Standard Model of Healthcare (the traditional unmodified fee-for-service, commodified, defined-benefit payment system) is broken and doomed. It’s fascinating to hear that even the CEO of Aetna, Mark Bertolini, said exactly that recently at a major healthcare technology conference — and that Forbes, a bastion of business and the private approach to everything, would publish an article on his remarks.

At Health 2.0 last fall, Bertolini said that he no longer thinks of Aetna as an insurance company, but primarily as an information company. This time, he made these main points:

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Dispatch from Washington

In its wisdom, the Supreme Court of the United States may decide to overturn the Obama administration’s health reform legislation.

The Supreme Court of the United States may decide not to.

Mitt Romney may unseat Barrack Obama and wrest the Presidency away from the Democrats. Or he may not.

In a way, these things may not actually matter.

There may be uncertainty on Wall Street and in the media about the fate of the Affordable Care Act (ACA) and the upcoming presidential election, but the mood in the crowd gathered at the 9th session of the World Health Care Congress last week in Washington was  curiously upbeat.

There was a sense that health care is making progress.

And that is a good thing.

Innovations like accountable care organizations (ACOs), scientific management principles like cost containment and quality improvement and the movement for better health information technology will make their presence felt, regardless of what happens in the courts and on Election Day.

Unlike TEDMED, which brought together official Washington, the tech industry, entertainment and medicine — at the Kennedy Center last week, the World Health Care Congress is a meeting pretty much limited to health care industry insiders at larger firms.

As is generally the case, the speakers list read like a who’s who of very important healthcare names. Kaiser Permanente CEO George Halvorson, Intermountain CEO Charles Sorensen, Aetna CEO Mark Bertolini, Economists Ezekiel Emanuel and Jonathan Gruber, former OMB Director Peter Orzag, TEDMED curator (Priceline.com) Jay Walker talked about the power of the Internet to fundamentally rewire the way people think. Verizon CEO and NantWorks Founder Patrick Soon-Shiong were on hand to talk up a new collaboration. Xerox CEO Ursula Barnes introed the tech giant’s push into healthcare. Journos like Health Affairs Editor Susan Dentzer and NBC correspondent Nancy Snyderman provided media star power.

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Health Care Law Supporters Ought to Be Sentenced to Serve as Governors

During the debate two years ago over the health care law—which I called an historic mistake because it expanded a health care delivery system we already knew was too expensive, instead of taking steps to reduce its cost two years ago—I suggested to our colleagues on the other side of the aisle who were supporting it that, if they voted for it, they ought to be sentenced to go home and run for governor and see whether they could implement it over an eight-year period.

Governors have long wrestled with the rising costs of Medicaid, paid for partly by the states according to rules set in Washington, and the question of how to deal with public education, especially higher education. Some 30 years ago, when I was a young governor, I was still struggling with the fact that at the end of the budget process, we had money either to put into higher education or into Medicaid – but the rules from Washington said it had to go to Medicaid.

I remember going to see President Reagan and asking: ‘Why don’t we just swap it, Mr. President? Let the federal government take all of Medicaid. Let the states take elementary and secondary education.’ That didn’t happen, and gradually, the increasing Washington-directed costs have distorted state budgets so much that now 24 percent of the state budgets go to the Medicaid program.

Because of the health care law, we are going to add 25.9 million more Americans to Medicaid, according to the Medicaid Chief Actuary.

Our former governor, Governor Bredesen, a Democratic governor, estimated that between 2014 and 2019 the expansion of Medicaid would add $1.1 billion in new costs to the state of Tennessee.

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