Thursday, March 12, 2009

Is the Health Care Economy Rightsizing?


More than at any time in recent memory, powerful forces are buffeting the health care sector. We are in the midst of profound upheaval, driven by market and policy responses to the industry’s long-term excesses. We can already see evidence that the dysfunction of our traditional health system is accelerating. It also seems clear that the center cannot hold indefinitely.

Dog Eat Dog
It is useful to remember that the health care industry’s different stakeholders are adversaries. While they clearly share a common understanding that a wholesale meltdown is possible, there is little real motivation for collaboration and no unity. Independent of role, the industry as a whole has been focused on, and extremely effective at, securing dollars from purchasers: government, employers and individuals.

But each silo within the industry has been separately focused on growing its own slice of the health care pie. In every niche, there are courteous conceits - access, appropriateness, efficiency and value - reserved for the good manners of public relations. But these are meaningful in practice only if they do not conflict with the professional’s or the firm’s economic performance.

Back in December when the bloom of the Obama election was still on the rose, the rhetoric of health industry representatives reflected widespread, earnest agreement that we must finally move toward meaningful reforms. But as the details of reform have taken shape, their impending realities have started to chill the industry’s public stance on change. And so the gloves are coming off to protect self-interest as the system seeks solutions.

Steven Pearlstein of the Washington Post detailed the campaign by conservative commentators led by Rush Limbaugh to discredit the stimulus bill’s allocation for comparative effectiveness research. The mantra was that this effort was really cost-benefit analysis intended to deny people care. But the funding for the disinformation effort came from the drug and device industries. The funders worried that credible data showing which drugs and devices actually worked best would wreck their sales, margins and, most importantly, their business paradigm of the last twenty years.

Short of an enterprise-wide catastrophe that sinks all ships, fundamental differences in goals will also make any real collaboration and compromise among the power players difficult. A New York Times story last week focused on two important unions, the Service Employees International Union (SEIU) and the American Federation of State, County and Municipal Employees (AFSCM), that suddenly and without comment, quit the multi-constituency Healthcare Reform Dialogue (HRD). HRD, a health care reform coalition, has tried to bring together employers, unions, and health industry players to find consensus on reform approaches. It is hard to not interpret this seemingly insignificant event, the shattering of unity by apparent intense disagreement, as a foreshadowing of the ferociousness yet to come on health care reform.

Then there’s the simmering rage that lower- and middle-class Americans harbor for the industry. Most lawmakers are finally realizing that this is a sleeping dragon. True, nurses, pharmacists and doctors, in that order, continue to engender the greatest consumer trust of professionals. But many health care corporate segments - certainly the health plans and the drug companies - are widely seen as taking advantage whenever they can. Remember audiences’ overwhelmingly supportive reactions to Helen Hunt’s frustration with her HMO in the 1997 movie, As Good As It Gets?

So we have the industry’s fragmentation and fear of reduced margin, and the consumers’ seething. Now add an unexpected national economic downturn, and the industry is finding that tolerance of its exorbitant costs is evaporating and that its very structure is in question. Health care has out-priced the mainstream of its purchasers, a sin that is finally being revisited on every sector of the industry.

A Deteriorating Marketplace

We see circumstantial evidence that the health care industry is under unprecedented siege in the marketplace, the fruit of longstanding business practices that, as John Sinibaldi so eloquently pointed out last week, have consistently favored health care vendors over patients and purchasers.

Health plan enrollment is now like a sieve. At a recent conference of senior health plan executives, all admitted that enrollment had recently dropped precipitously. Some members are switching to other plans. But many more are dropping out because their premiums became unaffordable, or because they’ve lost their jobs. The execs also agreed that the multiplier used by industry professionals to estimate the number of total lives from employee lives, stable at 2.2 for many years, has plummeted over the last few years to 1.8. If true, that would signal that increased costs have driven fewer businesses to subsidize dependent coverage, resulting in a 20% drop in total enrollment - the casualties would be mostly children here - that is NOT being reflected in the uninsurance surveys. In a related vein, HHS data from before the economic downturn show that only 39% of Florida’s small businesses - they comprise 95% of all Florida businesses - still offer health coverage to their employees. This is significantly below the coverage values reported by the Kaiser Family Foundation, which makes it difficult to believe that these dynamics are accurately reflected in the surveys of those populations.

As coverage erodes, we are most concerned about the hospitals and health systems that are the anchor health care resources in most communities. With the economy and stocks tanking, the investment income that was keeping many health systems afloat has disappeared. The ranks of the uninsured and underinsured have exploded, so uncompensated care costs and bad debt are skyrocketing. Few health systems have gotten serious about huge supply chain margins, often north of 50 percent, so there’s nowhere to turn in the short term. While safety net short term acute care facilities have been under duress for many years, now these trends are conspiring to also threaten the community facilities that cater to those with more resources. One recent survey of 4,500 health systems, published before the economy really began to plummet, found that more than half were “technically insolvent or at risk of insolvency.”

As the economy has worsened, and jobs and money evaporate, many patients are breaking physician appointments or are unable to pay for services received. Bad debt has become much more of a problem for physician practices, so many have become more aggressive in collections. We have received anecdotal reports that some physician practices are demanding payment in full prior to procedures, and are balance-billing their health plan patients in direct violation of their contractual agreements. The health plans aren’t positioned to police every practice’s policies. But if this trend is widespread in the system, it suggests that the niceties of business practice are going by the wayside as practices struggle to maintain.

Finally, the combination of health coverage erosion and high care costs is fueling an arms race that, until fixes are in place, patients will lose. The two fastest growing segments of the health care financial sector are individual credit scoring and collections, specifically aimed at capturing available dollars for the system. In this economy, aggressive collections practices will drive many more patients into bankruptcy, intensifying consumer dissatisfaction and further fueling the engines of change.

Is Health Care A Bursting Bubble?

One of us recently had a 3.5 hour diagnostic procedure at a local hospital outpatient surgery center. The EOB (Explanation of Benefits) from the health plan showed the hospital had submitted a facility charge of just over $13,000 - more than four months of total income for one-third of American households - and the health plan paid approximately $1,300, which means that willing vendors and purchasers agreed that the procedure’s market value was 10% of the charge.

But without insurance, we would have been legally responsible for that bill, with the willingness to negotiate utterly at the discretion of the health system. Setting aside the fact that charges are crazily tied to the evolution of Medicare cost reports and grow out of stuffing every bit of possible cost into each charge, the EOB begs three questions.
  1. Is it appropriate to add a 1,000% surcharge for the sin of uninsurance. For not-for-profit health systems especially, is it appropriate to do so while receiving a tax break for providing community service?
  2. When a provider chooses to pursue a receivable figure that is more than the established market value (as determined through the contractual figure with the health plan), can that effort properly be understood as inflating the market?
  3. Can a system maintain stability when it inflates value beyond the means of most of its purchasers ?
The definition of a market bubble is a high variance between the intrinsic value of a product and its market valuation. Bubbles always burst eventually, as inflated market values tumble back towards intrinsic value. We’re seeing this with homes and banking stocks. Are we there yet with health care services? Could America’s health system collapse?

The Threat
It’s hard to imagine the health care system in free fall. The federal government pays for approximately half of health care already, through allocations for Medicare, Medicaid, SCHIP, the VA, and the Federal Employees’ Benefit Program. The stimulus bill allocates a “down payment” of $634 billion for health care reform over the next ten years, assuming that somehow this money will go to save health care dollars. But it could just as easily become a bail out for the failing health care sector, massively larger than the bailouts for the banks or the autos, and “too large to fail.” Keep in mind that health care is now 16 percent of the US economy, one dollar in seven and one job in eleven, so large that any significant disruption in the sector would inevitably cascade to all other parts of the economy.

And the threat goes both ways. Health care could push the larger economy over the cliff, or the reduced resources associated with the downturned economy could precipitate the collapse of a health care sector that has become accustomed to inflated reimbursements. Either way, American society is vulnerable and in very big trouble.
It goes without saying that, as the funding dries up, the safety net provider organizations that deliver the lion’s share of care to the medically indigent will fail first, as did Martin Luther King in Los Angeles, and as Grady in Atlanta almost did. A year ago, the safety nets’ distress at the edges of the system were already the most tangible signs of the unfolding crisis. Now, the problems we’ve described above are with mainstream providers who cater to the middle class. What we have not seen yet is the impact on the health care supply chain, which accounts for 40 percent of health care dollars and which are also tremendously over-valued.

The Opportunity
Instability in systems that are directly connected with important societal benefit is never good, because powerless people suffer disproportionately according to caprices of fortune and the system’s rules. American health care certainly fits that bill at the moment. A majority of the American people are very unhappy with the system, and nearly every sector of the health care industry is under increasing and unsustainable stress. American health care’s storm clouds are gathering. It’s very ugly right now, and getting worse.

The good news is that, as the system becomes becomes increasingly unstable, the opportunity also increases for a full scale overhaul of health care that rightsizes the longstanding waste and pricing of American health care to more sensible proportions, and develops both policy- and market-based solutions that build on experience and that can have lasting utility. If our leaders are unwise and susceptible to special interest influence, it could also go the other way. But times like this are our best shot, because the problems are so glaring and the solutions that are in the common interest so straightforward.

Whatever path we go down, health care is certainly poised for significant change. Part of our national effort for that change must include a transition plan that consciously seeks to reduce to a minimum the turmoil involved.

Friday, March 6, 2009

Five Recommendations for an ONC Head Who Understands Health IT Innovation


Now that the legislative language of the HITECH Act — the $20 billion health IT allocation within the economic stimulus package — has been set, it’s time to identify a National Coordinator (NC) for Health IT who can capably lead that office. As many now realize, the language of the Bill can be ambiguous, requiring wise regulatory interpretation and execution to ensure that the money is spent well and that desired outcomes are achieved. Among other tasks, the NC will influence appointments to the new Health Information Technology (HIT) Policy and Standards Committees, refine the Electronic Health Record (EHR) technology certification process, and oversee how information exchange grants and provider incentive payments will be handled.

Previously we have described our concerns with US health information technology and the policy agenda that has grown up around it. In the case of EHRs specifically, the tools that have been developed to date are often non-ergonomic, excessively costly, non-interoperable, and interruptive of practice work flows. They continue, in many cases, to use client-server rather than Web-based technologies, creating barriers to lower cost and easy data exchange. Most important, these issues are obstacles to the organic, market-driven development of a nationally compatible health IT platform. In large measure, they have resulted from the protectionist influence of powerful health IT firms whose interests would be best served by approaches that build on proprietary and pre-Internet health IT designs rather than upon innovation that would move health care closer to e-health.

We believe the key question for the Office of the National Coordinator (ONC), as the Secretary of HHS’ principal Health IT adviser, is centered on whether and how health policy encourages innovation. Will the NC promote desperately-needed progress in the development, implementation and use of health IT, or constrain it under well-meaning but often over-zealous certification and standard setting? Will we buy innovative tools that let both providers and patients achieve better quality and lower cost, or buy yesterday’s expert systems that resulted in our current problems? Will we facilitate and build on incremental solutions, or continue to delay action through endless expert panels, meetings, and rules-setting exercises?

The aperture of innovation can be opened much wider than it has been. Here are five individuals, each of whom, we believe, as National Coordinator, would encourage innovation and change from the status quo. All of these people have demonstrated a vision of health care connectedness, quality, and efficiency that are in the common, rather than the special, interest, and each has the administrative skills and savvy to bring that vision to fruition.

Farzad Mostashari, MD MPH
Assistant Commissioner
Primary Care Information Project
New York City Department of Health
and Mental Hygiene

Dr. Mostashari chairs the Primary Care Information Taskforce, whose goal is to bring about the adoption of public health-oriented health information technology in underserved communities. He is a primary care physician with the unprecedented experience of having rolled out EHR technology to physicians and medical practices serving over 30 percent of New York City’s Medicaid and underserved population. Among the largest and most successful EHR implementations in the country, this effort has included 1,500 public and private sector medical practices, rather than simply one large enterprise. An epidemiologist, Dr. Mostashari understands data and has the statistical expertise necessary for decision making at the individual, community, and population levels.

Dr. Mostashari has hard-won hands-on experience with implementing EHR technologies in the small and medium-sized medical practices that make up 75 percent of America’s medical community, as well as knowledge that extends to public health and preventive services. He would bring a pragmatic vision of connected health for all Americans.

Carol Diamond, MD, MPH
Managing Director, Health Program
Markle Foundation

Dr. Diamond chairs Markle’s Connecting for Health program, a public-private collaborative working to realize the full potential of information technology in health and health care. Among other significant achievements, she led the multi-year collaborative that produced the Common Framework for Networked Personal Health Information, the widely-endorsed (and current default) set of principles and practices that govern the exchange of personally identified health data among health care institutions, and between health care institutions and lay people. Dr. Diamond works with many private sector groups, government agencies, and health information technology bodies. She played a role with federal agencies and the health IT community in the development of, a secure web site that made prescription medication histories available to doctors and pharmacists caring for evacuees whose medical records were destroyed in the hurricane.

If the new NC must possess particular skills, it will be those of mediator and coalition builder. With a deep understanding of the challenges and opportunities ahead, Dr. Diamond has led national health IT collaboratives that actually produce results people, provider organizations, and health IT companies, can use.

Peter Basch, MD
Medical Director for Clinical Ambulatory Systems
Medstar Health System

Dr. Basch, DC area MedStar Health’s medical director for e-Health, has been a leader in applying IT to the needs of physicians. An early EHR adopter in his own practice at MedStar Health, Dr. Basch now is directing EHR implemention throughout all of MedStar’s ambulatory practices. He is a frequent writer, speaker and expert panelist on EHRs, interconnectivity, health care’s transformation through IT, and the sustainable business case for information management and quality. Dr. Basch served as the chairman of the Maryland Task Force on EHRs that recently issued its final report. He has co-chaired the Physicians’ EHR Coalition, is a board member of the eHealth Initiative, and a member of the American College of Physicians’ Medical Informatics Subcommittee and Medical Services Committee.

With Dr. Basch, we’d get deep technical expertise, direct experience with implementation, credibility among practicing physicians and their membership organizations, an a voice that can represent primary care within large enterprises.

Carolyn M Clancy, MD

Director, Agency for Healthcare Research and Quality
Washington, DC

Prior to Dr. Clancy’s appointment on February 5, 2003, Dr. Clancy was Director of the Agency’s Center for Outcomes and Effectiveness Research (COER), then AHRQ’s Acting Director. A general internist and health services researcher, she was a Henry J. Kaiser Family Foundation Fellow at the University of Pennsylvania. Before joining AHRQ in 1990, she also was an assistant professor in the Department of Internal Medicine at the Medical College of Virginia in Richmond. Dr. Clancy holds an academic appointment at George Washington University School of Medicine (Clinical Associate Professor, Department of Medicine) and serves as Senior Associate Editor, Health Services Research. She has served on multiple editorial boards (currently Annals of Family Medicine, American Journal of Medical Quality, and Medical Care Research and Review). Dr. Clancy has published widely in peer reviewed journals and has edited or contributed to seven books. She is a member of the Institute of Medicine and was elected a Master of the American College of Physicians in 2004. Few people in DC have the credibility and respect that Dr. Clancy deservedly enjoys.

Carolyn Clancy has grace, patience, vision, and deep knowledge of health care processes. She hung on at AHRQ throughout the Bush years, clear demonstration that she understands and can skillfully negotiate DC’s landmines. And perhaps as well as anyone, she understands the opportunities that lie ahead for evidence-based medical care in the United States. That background would allow her to foster effective leadership and innovation throughout health care.

Adam Bosworth
CEO, Keas, Inc.
San Francisco, CA

Mr. Bosworth joined Google in July 2004, having left BEA Systems, and earlier, Microsoft. In early 2006, he gained widespread attention as being “architect, Google Health.” Bosworth is widely recognized as a pioneer and key figure in the evolution of extensible markup language, or XML, the standard upon which e-commerce most depends. Bosworth was a senior manager at Microsoft, where he drove the company’s XML program from 1997 through 1999. He was then named General Manager of Microsoft’s WebData organization, a team focused on refining the company’s long-term XML strategy. While at Microsoft, he was also responsible for designing and delivering the Microsoft Access PC Database product, and he managed the development of the HTML engine used in Internet Explorer 4 and Internet Explorer 5. He is one of the most successful software engineers of the past 25 years, chief product manager for numerous well-known products that have changed our every day world, including Internet Explorer, Microsoft Access, extensible markup language XML, and Google Health’s Personal Health Record.

Over the last couple years, Mr. Bosworth has impressed health care audiences with the scope of his knowledge and vision for how more broadly conceived health IT could positively shape the supply, delivery and financing of health care. An outside-the-box candidate par excellence, he has complete fluency in how software and standards for data exchange work. Although relatively new to the health care sector (compared with our other recommended candidates), Mr. Bosworth’s unparalleled technical expertise, history of consistent innovation, and his fresh approach to health care’s structural problems might be just the infusion the industry needs.