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 respect Don Berwick and Zeke Emanuel as smart, thoughtful and well intentioned policy folks. Yesterday in an Op-Ed in the WSJ they tried to position Obamacare as ‘market-friendly’. The audacity of positioning Obamacare as ‘market-friendly’ vs. the proposals of Romney/Ryan is just so outrageous that it can’t be allowed to stand without comment. They must be subscribing to the theory the bigger the lie they tell — the more likely it is for the public to believe it. From a quick scan of the online comments — at least they aren’t fooling the WSJ online readers.
One should really worry about the diagnosis and treatment plan from their physician when they either don’t see/acknowledge relevant facts or miscontrue the evidence to fit their preconceived notions, as is the case here. Let’s go through some missing facts/evidence:
- Medicare Part D — prescription drug benefits: the market based approach of multiple plans, with different prices/formularies competing — with the consumer able to choose the right fit for them — has been a huge success and been substantially more cost-effective than any CBO or CMS projection at the time.
- Medicare Advantage Plans: super popular with Medicare beneficiaries — over 12M+ enrollees. Again a program where the consumer chooses and the market is competing for their business. Oh wait — maybe they didn’t mention this because Obamacare takes a lot of money from this program. Furthermore — the whole point of MA plans is to encourage a focus on value (not volume) as they say they want (and I agree is critical — see prior post) — but just not in this ‘market-friendly’ approach.
- Their approach is totally top down (ever see a top down, centrally controlled market work?):
- support point 1 — administrative costs lower in CMS vs. private insurance — this is a total red-herring of comparing apples and oranges — but demonstrates clear bias to government centered
- support point 2 — experts have determined that ‘bundles of care’ is critical to payment reform and CMS will help determine what payment models will work. The rate of innovation will be determined by CMS and is again ‘expert-centered’ or government controlled. This isn’t the way most markets work well. Now — I accept that somehow CMS payments have to be reformed. Seems like ‘vouchers’ with consumers choosing and suppliers competing might be a lot more likely to succeed here — even if it is messier.
- support point 3 — IPAB. This is the epitome of government centered without accountability. I accept IPAB might be better than Congress in making recommendations on how to control costs — but to position it as ‘market-friendly’ and innovative — really?
- Ryan Voucher plan: the authors simply assert the Ryan voucher plan is “inadequate” and imply that throwing Medicare members on the ‘private market’ is inhumane….but provide no evidence (see first two facts above). They prefer one size fits all vs. consumers/suppliers interacting in a marketplace to figure it out and drive continuous improvement. The IOM recently released a report that estimated 33% of today’s health spend is waste and does not add to “value” in the form of better health outcomes — that is $750B in annual spend. Here is some evidence to suggest there is no credible reason today to say the ‘vouchers’ are inadequate. It is more like the Chicago Teachers Union saying vouchers and charter schools can’t work — despite all the evidence that they do in the communities that have tried them.
After 60 years of a largely single payer, government run system in England the Cameron government has proposed real reforms that would move their system to be way more ‘market-friendly’, innovative in health delivery and empowering of consumer choice than Obamacare. I prefer their treatment plan tothe authors.
We need a real political dialog in this country about the best framework to get more “value” from our health care expenditures — public and private. The framers and spin handlers of Obamacare did not stimulate that objective debate….which was a huge disappointment and a lost opportunity.
One can’t have a serious health blog and not discuss the Supreme Court decision to uphold most of Obamacare. My initial reaction was real disappointment — because I truly believe the law is a bad law and bad for the future of our country. I am not a lawyer and Roberts’ logic seems somewhat tortured, but after reading several legal blogs on the topic — I believe Roberts was sincere and apolitical in his reasoning and I support the outcome and the process.
As I have written previoulsy, the real problem is Obamacare does little to solve the true health care crisis in our country. Worse, the political dialog regarding Obamacare has done nothing to educate the citizenry about the dysfunctional health system which could have enabled a more sustainable set of solutions.
There are three pillars — Access, Cost and Quality — that are part of any discussion for improving our health care system. They are all important and intertwined. Obamacare primarily deals with Access (individual mandate, pre-existing conditions, insurance exchanges etc.) but it does nothing meaningfuj and systematic to improve either Cost or Quality. The biggest issue in our healthcare system is economic — we are not getting sufficient Value out of our huge healthcare spend (Value = quality of health outcomes – cost over time). For example, the IOM and other experts believe that 30+% of our $2.2 trillion of spend is wasted — that is $750B annually!!! The only sustainable solution to increasing Access is to make health care more economically affordable, which requires an improvement in Value, which requires changing the way the system is organized and incentivized. Obamacare does not do this and in fact, probably makes things worse re: affordability and sustainability. Increased Access to insurance within the current framework obviously does not drive or improve affordability — or we would not have the unsustainable health care cost trend we do.
I will develop further the themes of Value and affordability in future blogs. This WSJ op-ed is a good start. My strongly held personal belief is that free enterprise, marketplaces and competition amongst providers and payers is much more likely to improve Value and affordability than more government rules and bureaucracy.
Which leads me to my biggest concern resulting from the Obamacare political debate…which is; is our country headed more toward socialism vs. our traditional strength of ‘free markets and free peoples’. As Chief Justice Roberts noted in his opinion — it is not the job of the Supreme Court to “protect the people from the consequences of their political choices.”
Last week ‘health reform’ was in the news because of the three days of hearings in the Supreme Court. I believe the Obamacare law raises some very fundamental questions about the scope and role of the Federal government. I was delighted that the country is finally having a conversation about the core issues raised by the law – a debate that should have happened during the legislative process.
Here are some of my favorite posts:
- George Will on why it violates centuries of contract law.
- Glenn Reynolds on division of powers necessary to protect liberty.
- Grace Marie-Turner cautioning about reading too much into Justice Kennedy’s questions.
- WSJ — on why today’s ‘health marketplace’ is perverse and the need for change
However, I found this WSJ article detailing the nasty battle between UPMC and Highmark to be way more telling about the future of the health delivery system. There are many dimensions to the battle over customers, physicians and dollars that are interesting. One paragraph in the article I found particularly fascinating: “Early talks between the companies hadn’t gotten far. Highmark has said UPMC initially sought a 40% increase in its hospital rates. Mr. Romoff doesn’t dispute that but says it was a fair boost to make up for inadequate payments under the old pact with Highmark.” Pricing power matters a lot in the health economy and having a good brand and substantial market share dramatically increases pricing power – which has been UPMC’s strategy. What is unique about the health marketplace is that there are limited checks and balances to this market power – at either the payer or provider level, because the consumer of the service is not engaged and empowered to ‘shop around’ for value.
My view is – without pervasive price transparency, ubiquitous quality reporting and material economic incentives for consumers to be smart shoppers (where applicable) – ‘health reform’ will unfortunately lead to neither increased ‘value’ in the health economy nor bend the cost curve.
p.s. update — Highmark CEO fired. Not germane to the discussion — but felt the update necessary.