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.