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By Joe Flower
Healthcare CFOs must look at the environment in which their system lives: Since 2007 the actual costs for the average middle-class family for many of the basics of life have decreased in real terms, while their actual costs for healthcare have risen 25%, or even more counting co-pays, deductibles, and out-of-pocket expenses. This long, continuing rise in the costs along with the continuing and increasing unreliability of the healthcare system (“Will it actually be there for me when I need it? Will it bankrupt me?”) create unyielding disruption. Instability: Omens I am no fortune-teller, but here are some things we can see right now that give us a sense of what’s coming...
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By Joe Flower
Chief financial officer: tough gig. Seriously. Whether for a payer or a healthcare provider, the CFO’s job is the exact point where the smiling faces on the billboards meet the double entry, the financing, the payer mix, the debt structure. And it all has to work out in the black. It has to do that sustainably, not only this year but next year and five years from now. Best guess? It’s going to get a lot tougher, with shifting revenue streams, market boundaries, new technologies, growing consumer expectations and uncertain politics. Raise your hand if you can tell me the significance of these names: Univac, Control Data, Burroughs, Digital, Honeywell, IBM, NCR. These companies dominated the computer world in 1980. As of 1990, all but IBM were gone, bankrupt, subsumed into some other company, or just out of the computer business. The one that survived, IBM, is the one that said, “Maybe we should at least get a toehold in this new personal computer game, even though it is risky for our main revenue streams.” All the others went “poof.” A number of factors—radical new technologies with vast potential, ramifying customer frustration, shifting user base—are coming together to put healthcare today at exactly the place the computing world was in 1980. A Beautiful System In Danger The U.S. healthcare system is in many ways a beautiful system. We can be proud of our world-leading technology, gorgeous physical plants, and a vigorous sector fairly fountaining the best jobs. In many ways, the system is doing really well at what it is designed to do. But we have to ask: What is it designed to do? The medical care system and the clinicians who work in it are focused on curing people, keeping people healthy, fixing them where they are broken. The healthcare system that now envelops, manages, and pays for all that wonderful work is designed for a different aim. No one person or group designed it this way. It is a complex adaptive system with many interacting parts that developed over the last half century or so. It is, in a sense, self-designed. An economic market that works brings together healthcare consumers with providers who can give them what they need at a price they can afford. The fee-for-service system is working at cross-purposes to the needs of consumers, employers and other buyers. Healthcare costs far too much, is far too wasteful, and still can’t seem to take care of everyone. No system can long survive working so vividly at cross-purposes to the needs of its real customers and buyers. Eventually that mismatch generates unrecoverable instability in the system. The U.S. system has almost exclusively a single financial input: code-driven, incident-focused, insurance-supported, fee-for-service payments. Its other key inputs are not financial but human: the needs of patients, and the commitment and passion of the clinicians and caregivers. The problem expressed in the iron tongue of financials is: How do we close the gap between our customers’ and clinicians’ real needs and the financial engineering of our systems? How do we shift from the current single-input model to new models that will bring us closer to our customers and help us do the job we are here to do? What are the new dynamics? Who are our new partners and allies? No one does this alone. Looking for your next virtual healthcare speaker? Get in touch with us today to make your healthcare event a success! By Joe Flower
Leading lights of the health insurance industry are crying that Medicare For All or any kind of universal health reform would “crash the system” and “destroy healthcare as we know it.” They say that like it’s a bad thing. They say we should trust them and their cost-cutting efforts to bring all Americans more affordable health care. We should not trust them, because the system as it is currently structured economically is incapable of reducing costs. Why? Let’s do a quick structural analysis. This is how health care actually works. Health care, in the neatly packaged phrase of Nick Soman, CEO of Decent.com, is a “system designed to create reimbursable events.” For all that we talk of being “patient-centered” and “accountable,” the fee-for-service, incident-oriented system is simply not designed to march toward those lofty goals. A machine for creating reimbursable events The health care system is a machine for creating reimbursable events. This means that its systemic business aim is to maximize reimbursable events and to increase their price, that is, to maximize the energy the system can draw in from its customers. There’s Point 1: health care provider organizations are designed and energized to increase reimbursable events and drive up their costs. This system is self-limiting, as drawing ever-increasing energy from its customers actually debilitates those customers (individuals, employers, governments) and causes them to find ways to reduce payments or opt out of the system altogether. Health insurers, on the other hand, have a somewhat more complex situation. Insurers are paid by their ability to finance these reimbursable events, spreading the risks, and keeping a percentage of the flow for administration, marketing, and profit, limited by the Affordable Care Act to 15% or 20% of the total. So the systemic business aim of a health insurance business is to get the risk right, so that the actual payout for reimbursable events comes as close as possible to the lower bound of the medical loss ratio. There’s Point 2: Health insurers get paid a percentage of the total cost. They have no incentive to reduce the total cost, and every incentive to increase it. Let’s be honest: In this picture, neither the health care providers nor the insurers find any institutional advantage in providing actual lower costs per life, per case, or per procedure. Incentives are not aligned with outcomes. The “affordable” part of the Affordable Care Act was about forcing modified community rating on insurance companies (so that at least for older and more compromised people, health insurance would be more affordable) and about getting insurers to compete for the low end of the market. But the many health plan executives I have worked with over the years tell me that they do not want the low end of the market. The ideal customer is the middle of the market, the stable customers, the not-so-sick-or-expensive customers. If you design your premium structure to catch a lot of people who are purely price-shopping, your medical loss ratio will climb above 100%, you will have to raise your premiums next year to recoup, and all those price shoppers will go away. There’s Point 3: Because of this structure, no one wants to compete for the bottom in healthcare markets. At the same time, health care providers have by and large avoided opportunities to take on some risk, to be transparent about their costs, or to guarantee their patients anything at all. Instead they have mostly stuck with the fee-for-service model, largely because of institutional inertia. Change can be expensive, difficult, and requires strong leadership. Adjusting internal information silos to provide the complete picture of a patient, to track quality metrics, to transparently measure physician outcomes, and so forth is disruptive—but it is what’s required to win. Rather than radically move off of the fee-for-service model, health care providers have consolidated enough that in many markets they now hold monopoly-like power. In those markets a health insurer or major employer aiming to build a lower-cost alternative system within the region simply cannot provide its members a full array of health services without paying the high prices of these consolidated health care systems. And the insurer cannot pick apart the provider, which insists on whole-system contracts. This combination of consolidation and lack of transparency means that there is no real competition on price and quality among health care providers—and therefore no possibility of real competition among insurance companies. There is no competitive market in health care. There’s Point 4: The lock-in between large monopoly-like health systems and the few dominant health insurers makes a true competitive market in healthcare impossible. All this will remain true as long as the market is dominated by the opaque, fee-for-service, treat-to-code payment system that accounts for the vast majority of healthcare payments today. When that changes, when other payment systems such as competitive bundles, subscriptions, direct pay primary and others gain serious market share, the system will shift, the walls will come tumbling down. The very structure of health care, as it exists today, means that no major player across the entire market is truly competing to provide the best medical care at the lowest cost. The only serious way to evaluate any “reform” that lays claim to lowering prices is to ask: How does this reform plan change that? Looking for your next healthcare speaker? Get in touch with us today to make your healthcare event a success! By Joe Flower
A hot take on healthcare in the Democratic debate: They’re doing it wrong. Healthcare is not a reason to choose between the Democratic candidates. They are all for greater access and in some way to cover everyone, which is great. None of their plans will become law, but if they are elected those plans will become the starting point of a long discussion and legislative fight. The difference in their plans (between, say, Buttigieg or Biden and Warren or Sanders) is more of an indication of their general attitude toward governance rather than an outline of where we will end up. Democrats are focused on coverage; Trump is on cost. Around 90% of Americans already have coverage of some sort. Polls show that healthcare is voters’ #1 priority. Read the polls more closely, and you’ll see that it’s healthcare cost specifically that they are worried about. Democrats seem to assume that extending more government control will result in lower costs. This is highly debatable, the devil’s in the details, and our past history on this is good but not great. The President, on the other hand, can make flashy pronouncements and issue Executive Orders that seem intended to bring down costs and might actually. It’s highly questionable whether they will be effective, or effective any time soon. Still, they make good headlines and they especially make for good applause lines at a rally and good talking points on Fox. But, Ms. and Mr. Average Voter will hear that Trump is very concerned about bringing down their actual costs. The Democratic plans all sound to the untutored ear (which is pretty much everyone but policy wonks like you and me) like they will actually increase costs while taking away the insurance that 90% already have in one way or another. It is important to take care of everyone. But it is a mistake for the Democrats to allow this to become a battle of perception between cost and coverage. Voters’ real #1 concern is about cost, not coverage. Looking for your next healthcare speaker? Get in touch with us today to make your healthcare event a success! By Joe Flower
Will this great red, white and blue country of ours ever find a way to do what every other advanced economy in the world manages to do, that is, make sure that everyone’s medical needs are taken care of? Since the midterm elections in November 2018, everyone is talking about it again, for three reasons:
Myth #1: Universal healthcare, “Medicare For All,” “single payer,” they’re all the same. Not! Let’s start with “universal.” It means only that: Everybody’s healthcare needs are taken care of, one way or another. But there are lots of ways to do that. It isn’t just one thing. Medicare for All is just one way to do universal coverage. Medicare is a “single payer,” the government, paying private providers for our medical care. And even “Medicare For All?” isn’t just one thing. The new Democratic House has before it eight different plans for expanding coverage, including 3 different Medicare-For-All plans. Then we come to “single payer.” Again, it means only that: One payer for any of these plans that we, as a country, might choose. When we hear that someone picked up the tab at dinner, that doesn’t tell us anything about where the folks ate, what they ate, and how the meals were prepared. Single payer doesn’t indicate anything about the type of healthcare we’ll get, and it certainly doesn’t, by itself, tackle the cost problem. Myth #2: Universal healthcare has to cost way more. People assume that the amount paid in taxes for healthcare will inevitably be greater than the amount people and their employers pay in healthcare premiums now. It could cost more, but it doesn’t have to. Every other advanced country has universal healthcare, and they all cost about half what we do. Now, it’s true that if we simply covered everyone for everything all the time, without changing anything else about our system now, then yes, it would cost way more. But there are huge opportunities to drive the costs of healthcare down. If the same universal health plan also took those opportunities, then no, universal healthcare does not have to cost more. Myth #3: Controlling costs of a universal system will have to mean rationing. No. That would seem to make sense—if you’re spreading some commodity around to more people, you’re going to have to limit how much they all get, or it will cost way more, right? But not in healthcare, simply because there is already so much waste, and so much being done that does not need to be done, so much done in the most inefficient, expensive way possible, that the way we do it now costs at least twice as much as it needs to. We can mine that waste and redirect those resources to help people who are not getting help now without rationing anything. Myth #4: Universal healthcare will cost way less. Bless our little American hearts, but: A lot of the people against universal healthcare just think the government screws everything up, everything is a $3000 coffee cup, everything is a billion-dollar overrun, so of course it’s going to cost more, way more. And a lot of the people for universal healthcare believe the exact opposite: Put the government in charge, and we won’t have to put up with all this stupid over-pricing and ridiculous costs, the government can just dictate all that, so of course it will cost way less. Every plan being considered by the new Democratic House claims that the government will control costs, but it’s not clear how they propose to do that: What’s the mechanism? How’s that going to work? If it doesn’t have some radically new way of paying for healthcare, we don’t have to speculate what Medicare-For-All would look like, because we already have Medicare-For-Some, it’s just limited to people over 65 and people with certain medical disabilities. It does attempt to control costs. Does it actually cost less? Only somewhat less, per person. It’s only somewhat more efficient, not massively so. The folks at Medicare do good work most of the time. But Medicare is still massively prone to funding overuse, waste, and higher than necessary prices. Why? Here is the core truth, the most important thing to know that is usually missing from analyses and reports to the general public but which is common knowledge inside US healthcare. So pay attention: What makes us way more expensive than everyone else on the planet really doesn’t have to do with whether we are covering everyone. I know that’s surprising, but it’s true. What makes us way more expensive than everyone else is how we pay for healthcare. We don’t pay for results. Instead, we just pay for the healthcare system to do stuff to us. We pay fees for services. Think about it. We pay for a lab test, a doctor’s visit, a drug, surgery, not to fix us, or to keep us healthy. When you pay people do stuff to you instead of paying them to make you healthy, what do you think happens? The system tends do as much stuff as possible, to do it the most expensive way possible, and to charge as much as it can get away with. It’s normal. It’s how systems work. Now, in this system there are plenty of folks in the healthcare system who are trying to do good work and make people healthy. But they are trapped in a fee-for-service system that only pays them for doing more stuff faster, and penalizes them financially and career-wise for doing what would truly be best for you, the patient, often at much lower cost. So this situation creates a lot of waste, overtreatment, and insanely high prices in every single part of healthcare. Obvious when you think about it, right? If we changed all that, if in a number of different ways we paid for results instead of stuff, we could easily take care of everyone for half or less of what healthcare costs us now. We could all get what we really need and want at a cost we can all live with. If we don’t change what we pay for, it won’t be cheaper than what we have now. If we changed how we pay for things in the same universal healthcare plan, if we stopped paying for waste and overtreatment, stopped paying high prices that have no real basis, and stopped dealing with chronic disease in the most expensive way possible, then universal healthcare would not have to cost more, it could cost way less. Myth #5: Universal healthcare means “government-run healthcare,” it means “socialism”. Nope. Medicare, for instance, doesn’t own any hospitals or clinics. It doesn’t employ any doctors or nurses. That’s what “socialism” would mean: Nationalized, state-run bureaucracies. Medicaid, our sort-of universal system for the poor, doesn’t employ docs and nurses either. The services are almost all delivered by private systems. Around the world we see a wide variety of ways to provide healthcare to everyone. For instance, Canada, Denmark, Norway, and Sweden have “single payer” systems, like our Medicare. Their governments pay for care that’s delivered privately. Great Britain and Spain, on the other hand, have national health services. The government pays the doctors and owns the hospitals. Germany and France have multiple payers. They have private insurance companies, and public ones for the poor and disabled, all tightly regulated and paid out of various funds. But one way or another everyone is covered. There are lots of ways to do it. Myth #6: Universal healthcare means turning over our lives to a massive bureaucracy. Wait, what? As opposed to now? Have you ever tried to get a health plan to pay a bill that they have rejected? It’s worse than one massive bureaucracy, it’s multiple massive competing bureaucracies. The hospitals have huge staffs to try to get paid by the health plans, the health plans have massive bureaucracies that try to not pay a dime more than can be ripped out of their clutches, states have bureaucracies regulating hospitals and insurance plans, the feds have multiple bureaucracies. Here’s a key point in this debate: Medicare, the largest government healthcare program, spends far less per person on bureaucracy than the private health plans—and the amount Medicare spends per person has been going down since 2005. There are all kinds of ways of providing universal healthcare. Done right, it could actually mean less bureaucracy, not more. Myth #7: Universal healthcare would mean abandoning today’s “free market” healthcare. Um, no. Today’s market is not free, it’s highly regulated. It’s a constricted market in which the ultimate customer, you, have no power. It’s not really a private system or a government system. It’s a private system that is constrained by government under all kinds of legal and licensing requirements which have been haphazardly built up by the healthcare industry itself over the last century, not only to protect the patient, but also to protect its own rights and privileges. And now they are in such a tangle that hospitals have whole huge compliance departments dedicated to making sure that they follow all the regulations The people who run those departments will tell you that it’s ultimately impossible, since the regulations and the definitions from all these different directions contradict one another. No, we don’t have a “free market” in healthcare today. Myth #8: A universal system cannot work, it cannot sustain itself if people who are not working (and therefore not paying taxes) are able to use it. Of course it can. That’s what a universal system is for, to make sure people can get help whether they are in a position right now to pay into it or not. It spreads the cost across generations, across rich and poor parts of the country. This is what Medicare, Medicaid, Federally Qualified Community Clinics, CHIP funds for children’s healthcare, and other such programs are for, to help people who are not working, retired, or otherwise too low-income to be paying into the system. Myth #9: Immigrants inevitably draw more out of a universal healthcare system than they pay into it. This is provably false. There have been multiple studies, looking at the question in different ways. Even recent immigrants are desperate to make a living, build a business, provide for their families. They want to be taxpayers as soon as possible, and most of them succeed. It’s a very American story. And the studies show that not only do they pay into the tax system and Social Security system, they pay more than their share because they actually tend to use Medicaid and Medicare less than other Americans. Myth #10: Research and innovation are what make U.S. healthcare expensive. If we reduce the amount we pay for healthcare, we will get less research and innovation. No, research and innovation are not what make U.S. healthcare expensive. There are no data supporting this notion. The claim of pharmaceutical companies that it costs them all these billions to develop new drugs is a simple assertion that they have not backed up with facts. Moreover, research and innovation does not need to be funded only by higher and higher costs for patient care. There are many other ways, such as direct government grants, private funding for startup companies, pharmaceutical companies and device manufacturers funding their own research. And if you think about it, you’ll see that much research and innovation could actually be used to lower the cost of healthcare rather than raise it, the way CT scans and MRIs have taken the place of a great deal of exploratory surgery, and laparoscopic surgery gets you out of the hospital faster. Research into emerging areas of medicine such a functional medicine can treat chronic diseases at a much earlier and more manageable stage. The right kinds of research and innovation can actually lower costs. So what does cause high prices? A fee-for-service payment system that encourages and even demands
Will this Congress bring us universal healthcare? No, not this Congress, since it’s still a partisan issue (though there is no need for it to be) and we still have a Republican Senate. What can happen, and will happen, is that by considering and debating the possibilities, and possibly actually passing a bill, the Democrats in the House will manage to re-open the discussion, and re-focus the political discussion to, “How can we do this? What would actually provide healthcare to more Americans, maybe all Americans? What would actually lower costs? What would actually widen the definition of what is covered to emerging new modes of medicine that are lower cost and more helpful at the same time? Can we do this?” That’s the good news of the present moment: We can actually have the discussion that has been denied us for most of the last decade: What would work? Looking for your next healthcare speaker? Get in touch with us today to make your healthcare event a success! |
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