I haven’t posted for a long time, because most of the recent news, trends or policy debates just don’t seem interesting or to move the ball forward. This op-ed in the Wall Street Journal captured my attention enough to warrant a post. The title is Health Care and the $20,000 Bruise. (paywall). It is a (yet another) vivid description of how screwed up the health care financial/payment system is. The physician op-ed author describes how the hospital billing department added an unnecessary $10k item to his son’s bill and the many efforts he had to go (reading CMS manual!) to get them to remove it. Their insurance carrier did not catch it. My strong belief is that in order to drive value (better health outcomes for the same/lower cost) in health care, there must be the feedback mechanisms of a real and scale marketplace. That means buyers (in this case consumers) and sellers (providers) need to engage meaningfully in the dialog around value — price, quality, outcome, convenience and more. The current framework of third party payers — either commercial or govt. — just doesn’t work. Despite all of the excitement around the movement from fee for service to ‘value-based’ contracts, I suspect it is going to take consumers getting involved to make a real difference. It is not going to be easy — for either the consumer or the system. I know I have been personally spending a lot more time on my medical bills, EOBs, HSA payments and the limited value I receive from my health plan — but I will save that topic for a later post
With all of the headlines, stories and political spin about Obamacare, you might have missed some of the key insights from my point of view. There is a consensus among healthcare experts, industry stakeholders, politicians and consumers that the U.S. has a flawed, sub-optimal health care system. There is an access problem (folks that don’t have either insurance or access to programs of care), a cost/value problem (we spend too much for the health outcomes we get for a bunch of reasons — to the tune of nearly a $800B/year), a funding problem (current trends of health spending by public entities is not sustainable and is crowding out other necessary investments) and what I will call a data problem (we don’t really understand what works and for whom, what things cost or how the various perverse incentives impact outcomes). We lack consensus however on how to address these intertwined problems, on whether ‘competitive markets’ are appropriate and viable in the health delivery sector and on what kind of compassionate, modern and innovative society in which we want to live.
In previous posts, I have argued that the existing framework of government intervention (e.g. employer tax break for health insurance, Medicare pricing formulas/rigidity, HIPAA, etc.) is the root cause of many of the current problems above. So the key question surrounding Obamacare and its implementation readers should consider — is more centralized government involvement (direct execution like healthcare.gov, or laws/regulation/mandates) likely to lead to a better healthcare system? Let’s look at some recent evidence:
- Execution of the healthcare.gov implementation: this project has failed on every imaginable front, which has been well documented. However, the least reported but most important lesson here is the systemic failure of large, mission critical government IT projects — despite years of efforts by administrations of both parties to address the fact. Last year, I volunteered with the Romney Readiness Project and my role was to evaluate prior OMB efforts to improve the results of government IT projects and to identify potential solutions. The record for both projects and improvement programs over the last 20 years is dismal and depressing. The examples are too numerous to detail — the FAA infrastructure revamp, the IRS systems, health IT within VA and DoD — and more. The GAO, OMB and each agency’s office of Inspector General provide ‘oversight’ and generate separate reports about failing projects — over budget (by billions), beyond deadlines (sometimes by decades) and suggest corrective actions — latest one here. We have a new roles for “CIO” and “CTO” in OSTP in the White House. Substantively — despite the oversight, good intentions and new roles — the results don’t change. Government projects currently lack the appropriate framework for successful, large scale, mission critical IT projects — leadership/vision/clarity embodied in people, process, real-time adaptability, customer focus and a competitive environment driving real outcomes. My chief hoped for lesson is that, as a result of the public failures of healthcare.gov, politicians and citizens acknowledge we need to radically re-think what IT projects are appropriate for government and how to do them.
- Tools available to the government for intervening or managing ‘markets': there have been a number of op-eds by experts recently touting the success of Obamacare. IMHO, they are mostly misleading, wishful thinking or fail to examine the root causes noted above. David Cutler in the Washington Post tries to give Obamacare credit for slowing healthcare costs in the past few years…which seems somewhat improbable given its core features haven’t been implemented yet. The types of examples he gives are – CMS across the board rate cuts (blunt instrument account for 5%), change in hospital readmissions or hospital acquired infection payments (certainly don’t need Obamacare insurance mandates for this) and then the hopes for accountable care organizations or more focus on ‘value based’ reimbursement vs. fee for service. His core claim that Obamacare had twin goals — more access/coverage and making care more affordable — I don’t accept when you observe where nearly all the energy is going (coverage). Much of the ACO activity is in the private markets not in the Medicare market. The primary tool for government to control costs (as currently structured) is to reduce rates arbitrarily or to constrain access — these aren’t the way markets work to deliver long term value. Alan Blinder in a WSJ op-ed says in order for America to be a humane society we have to solve the coverage issue (uninsured) and to be an efficient society we have to improve health outcomes for the amount we spend. I agree with these goals. However, he uses this as an argument to say Obamacare is worth it, without considering any alternative paths to accomplish said goals. In my private equity role, I get to look at the landscape of emerging health companies. Many of them are focused on optimizing around the rules set by Congress or CMS; one egregious example is the 340b pharmacy program which takes money from one pocket and puts it in another or another example has been the EMR market which was largely driven by helping physicians ‘code’ better — namely increase revenue per visit. This doesn’t lead to better health outcomes for the same or less cost. There are market segments in health; cosmetic surgery, Lasik eye surgery, dental, — where market dynamics work. In these segments, you have seen increased price transparency, bundling of services to deliver more value, flexibility and continuous adaptation/innovation which over time has delivered more value to society – as measured by more and better services for less resources. Government controlled or centrally managed systems can’t deliver this type of outcome. Good intentions and experts aren’t as effective markets with millions of incremental decisions made by providers and consumers/payers.
Update 12/4: the question of Obamacare and credit for slowing costs continues — here is a great takedown of Krugman’s NYT attempt by Goodman in Forbes.
My hope is that as a result of the Obamacare implementation failures, we start to explore and debate alternative solutions and not just try to incrementally tweak Obamacare with more and more government power and decision making…which simply won’t work.
I had the honor to listen to Dr. Lustig at the Health Evolution Partners Leadership Summit. While he didn’t persuade me at the time — I did decide to read his book — Fat Chance: Beating the Odds Against Sugar, Processed Foods, Obesity, and Disease and it did change my understanding and thinking on obesity and nutrition.
I work hard to eat smart and stay fit. I get easily frustrated by the impact of obese people in our ever day lives — in airplanes, amusement parks, and especially in our health delivery system (costs, equipment, injuries and more). I was always taught that weight management was simple — calories consumed minus calories expended — determine weight outcome. Lustig and the details in his book have convinced me that for many folks, the above is just not true (his claim is roughly 55% of US population).
Obesity is a major health problem and the issue has many public policy considerations (Bloomberg and Big Gulp anyone?) — so I figure we all need to be educated on how nutrition really works. For details, examples and the science — read the book or watch the video — below are the key insights for me that he supports with science and/or things I have changed in my own routine:
- sugar (all forms) is a much bigger culprit in weight gain than fat in our food.
- how one’s body responds to sugar is multi-factorial (hormones, insulin resistant or not, and more). Behavior and hormones interact with each other — often in pro-cyclical ways that are bad.
- form matters (in addition to volume) — specifically fiber + natural sugar has a different/better impact than refined sugar alone
- reducing caloric intake signals to your body to increase fat storage — so eating less by itself exacerbates the dieters situation
- one’s weight by itself — is a very crude measure and can give false indicators for any diet regimen. Improved muscle mass increases calories burned at rest. The desired outcome and focus should be on the ratio of muscle/bone to fat. if you start a weight loss program and reduce caloric intake without exercise — you lose muscle first (not fat) and make the problem worse.
- breakfast matters (to the hormones) and breakfast should include proteins (more eggs in my future)
- I stopped drinking OJ (even organic, fresh squeezed) in the a.m. — high in sugar and separated from the fiber, an easy change.
- I switched my bread choices to be ones with a lot more natural and whole kernels in them (fiber again)
- I switched from leanest fat possible meat choices (less than 10%) to feeling like 15% was ok
- I am reading labels even more carefully.
- I am more open to ‘public health’ options that impact the food environment
I don’t agree with Lustig’s polemic against the food industry nor with all of his solutions, which is why he didn’t persuade me at the HEP summit event. However I do agree we need better public health solutions for this growing epidemic. Now it is time for me to get out for my run!
The news recently has been inundated with stories and speculation about the upcoming health insurance exchanges mandated by Obamacare. In the meantime, the WSJ published this op-ed from a physician, who saved his patient $17k on a routine procedure by performing the procedure for cash and bypassing his insurance company completely.
I bring this op-ed to folks attention for the following reasons:
- what the U.S. healthcare system needs is more “value” from its healthcare spending. More people on ‘insurance’ alone does not drive value.
- if we learn how to deliver more affordable healthcare (value) — then as a society we can also figure out how to provide access to everyone.
- Our current third party payment system (public and private) creates not only an unconscionable number of mis-aligned incentives and it inhibits innovation around delivering ‘value.’ Single payer would be worse.
- While most folks accept that market based systems deliver better products at lower prices (value) they then go on to say – but healthcare is different. I accept that healthcare has unique attributes (e.g. I can’t shop between an accident and the ER), but I firmly believe that a market based healthcare system where the consumer/patient managed the purchasing of health services directly would be vastly superior to what we have. This op-ed demonstrated in one small way how that could be true.
I am interested in the progress of “personalized medicine,” so I participated in TCGC – The Clinical Genome Conference in San Francisco this week. It is a small conference, mostly academics and scientists. The biology and statistics were over my head, nonetheless, I’m glad I went.
The core question is — is NGS (next generation sequencing or whole genome sequencing) ready to be used (and how) in clinical medicine? We all hear about the $1000 genome is around the corner (that is your whole genome sequenced for ~$1000) — but having this test done, will it enable a physician to a) better diagnose what is wrong with the patient and b) will it enable the physician to better treat the patient?
My quick observations are:
- I was surprised by the number of teams working on various elements of the problem around the world. Prior to the conference I was familiar with several efforts, but there must be literally hundreds of teams working on tools, pipelines, proprietary data sets etc. Clearly many see the science and market opportunities and they are pursuing them.
- Many of the presenters talked about the same problems — lack of clear interfaces across the pipeline, lack of a complete or gold reference standard, need different tools for different parts of the genome/exome, still lots of manual curation required etc. Then there were some new problems raised like patient consent, patient/physician reporting and education, clarity around things like sensitivity and specificity of the results and recommendation. Many of these issues were raised in the CLARITY challenge I posted about earlier.
- Lots of teams/companies are going after building an end-to-end pipeline of tools, dbs and knowledge. Most of the existing tools are open source, as are many of the knowledge sources. Given the immaturity of the industry — perhaps a vertically integrated solution is the right business approach. There seems to be a some “build it and they will come” thinking around business models.
- Few talked about what I think a central problem re: faster adoption of NGS in clinical medicine is — namely the lack of new, targeted, identified or approved treatment options. The “test” potentially improves the physician’s ability to diagnose the problem or understand the root cause of the disease — but for many conditions there are no treatment options. The science is learning faster around the diagnosis side of the equation, which is good — but the lag time around finding, building and approving treatments may be the rate limiter for growth of the sector.
- There are some interesting ideas around sharing knowledge and “crowdsourcing” solutions to the tough problems that should accelerate growth and adoption. I found this one intriguing www.bioplanet.com/gcat — trying to build truth sets.
The sector is super exciting for its potential and filled with really smart, interesting and passionate people. I will continue to monitor and stay involved.
Medicare is projected to become nearly 6% of GDP by 2040 and less than 1/3 of that is financed by existing sources of income (payroll taxes and premiums) — the rest is going to come from deficits and transfers from general tax revenues. This good news was recently released this month by the Medicare Trustees and is based on some rosy assumptions — namely the SGR actually happens (25% cut in doctor fees) — which has been postponed by Congress for the last 10 years. For those of you who want to be educated about the finances of this critical entitlement and why/how it is driving our Federal and State budgets into further deficits, I encourage you to read this quick analysis by one of the public trustees.
My take is we need to reform Medicare — how it is financed and how it operates — if we hope to have any chance of getting government spending under control. Yes, we need to provide health coverage to our citizens. But it makes no sense to do so in a way that clearly does not work and is unsustainable. As I have written in the past — we need to focus on ‘value’ in our health delivery system (better outcomes for less inputs) and not just access (insurance coverage and benefits). IMHO, this means the consumer/citizen needs to be more accountable and have more choices. The political dialog needs to start with citizens having a better understanding of our programs and what they cost. You are not going to get that from the mainstream media — I hope you all read the analysis.
Most readers probably don’t follow Medicare Advantage pricing — I know I didn’t until getting educated by one of the HEP portfolio companies (Censeo), which provides services to Medicare Advantage plans. I also occasionally have CNBC on while I’m working in my office in the morning (a habit from my days in the MSNBC business). When I saw the graphic of many health plans up over 6% in early trading, I decided to write this post.
Background: in Feb. CMS announced in a preliminary ruling, that the amount they would reimburse plans for Medicare Advantage (MA) members would go DOWN 2.3%. Yesterday CMS announced their final ruling — and that is MA pricing would actually INCREASE by 3.3%, hence the big gains in stock prices. You can get more detail from CNBC here and the WSJ editorial take on the politics here.
What economic factors have changed in the last 60 days to support a swing of 5.5% on pricing of health costs for nearly 14M Medicare Advantage members? This situation is a clear example of why the country needs to steadily move to more ‘market’ based pricing of health services instead of having them set by government central planners. Let me identify a few of the negatives I see:
- when ‘price’ setting is arbitrary — all the power/energy migrates to Washington DC. Stakeholders all lobby and pressure both the agency (CMS) and Congress for protection. Who pays — we all do! I understand there are many examples of this negative (subsidies for sugar cane, milk, ethanol — you name favorite program) but the fact that Medicare pricing (not just for MA plans) is set by a govt. agency subject to political pressure on all sides and disconnected from the value creation/discovery of the marketplace has pervasive, unintended and negative consequences for the health sector.
- where is the discussion/data of whether Medicare Advantage plans are actually better in terms of quality of care, cost and outcomes than traditional fee for service Medicare? The MA plans are popular with folks eligible for Medicare, which is why enrollment has doubled since 2006 and exceeds 25% of the eligible Medicare population. Apparently, CMS subsidizes MA members (e.g. pays plans more than fee for service Medicare) and this is supposed to decline over time (cuts anywhere?). There is an old policy brief here, which I don’t think tells the real story. Where is the data comparing both cost and quality trends of like populations in MA vs. FFS? Has there been innovation by MA plans to provide better coordinated/managed care for categories of ill people? What have we learned?
- investors in Humana (and others) should be upset — how are investors (and management) supposed to make capital allocation decisions when decisions are set by central planners and subject to political pressure?
- how are physicians and health systems supposed to make investment and capital allocation decisions around providing better ‘coordinated care’ — when it is not the economics driving decision making but some other, unpredictable set of forces?
John Goodman at NCPA has written consistently on the need for innovation on the “supply side” of health — namely how services get packaged, how entrepreneurial physicians would be incented to innovate and how consumers could discover what works for them — but all this can’t happen because “price” and “package” is set by a combo of CMS or health plans.
I want to see more innovation and better quality of care with better outcomes for the same or less cost. I think it is possible. We would get more innovation faster if Washington DC wasn’t the center of all decision making and planning. Health is too important.