Manatory Healthcare Reform – Part 2

 In my last article I elaborated on the four led forces at work in our modern day healthcare system – Physicians, Pharmaceuticals, Payers, and Patients.  I also strongly recommended a two-part podcast series presented by This American Life, which explores and explains the inter-workings of these forces with great color and high entertainment value.  If you have not yet taken the time to give listen, then I encourage you to do so.

More Is Less

Someone Else’s Money

But today we change course, I want to demonstrate a tactic I learned early in my career as a management consultant – do not present a problem unless you are prepared to offer a solution.  And so offer I will, but with the caveat, that the ailments maligning our healthcare system are complex and entrenched.  My ideas are just that, ideas.  But they are not merely band-aid solutions.  They dig deep to the root of a 100 year old model and deploy tactics counter to our equally entrenched bureaucratic system.  That said, I make no claim to have it all figured out, but some of my suggestions are already proven… and others could be.

I hope you’ll engage the discussion in the comment section below.

To get started, let’s lay the ground work.  Admittedly it is impossible to address every nuance likely to evolve during such a restructuring process, a limitation enhanced when confined to a 2400 word article.  Nevertheless, I’ll give it my best effort. 

My approach is designed around a handful of guiding principles:

  • Market Competition trumps a Universal option
  • Sustained, authoritative, and flexible change makers
  • Models that work vs. those that do not
  • Applied Regulation


Market trumps Universal

From the jump let’s address and then set aside perhaps the most polarizing of gatekeepers.  Too often debate rages no further than who will own and deliver the solution – the free market or the government.

To me, the argument is simple.  I am a fan of a vibrant and competitive market place.  I can visit the offices of a locally owned business provider and then offices of the DMV and quickly see efficiencies and inefficiencies at work.  I can tour a new home development and a government housing project and quickly decide where I’d prefer to live.  I can observe those aspiring to the betterment of their household, as well as those, content to suckle at the teat of governmental entitlement programs and I easily discern the path I’d chose for a child.

In this same vein, I believe a properly incented and motivated free and competitive market will drive results.  Industries built on efficiency when loosed to excel will innovate and inspire, while a regiment of self righteous government lifers will become bogged down in so much red tape and common denominators.

But for the purposes of a grander solution, I believe this argument should temporarily be rendered moot.  The free market vs. government debate alone could, and does, fill volumes and pointlessly so.  At the end of the day, good ideas and the delivery of valued solutions are the objectives, regardless of their genesis.  Besides, given the size and scope of the problem, there is enough room for both the private and public to participate in the solution.  So for the sake of advancing the true issue, let us agree to set this ideal aside and explore the remaining tenants of my plan.  Then we can debate who gets to claim ownership of its delivery.


Sustained, Authoritative, and Flexible Change Makers

I believe we need to charter a national healthcare committee comprised of both public and private leaders chaired by a Healthcare Czar – a Czar with Czar-like authority rather than one with little more than a clever sounding title.

I love the spirit and intent of our democratic system.  I love “of the people and for the people”.  However, the efficiency of our modern day legislative system is crushed under its own weight.  Lobbyists and PACs and campaign contributors nestled too closely with our lawmakers have spawned a bastardized system limited mostly to the grinding out of compromised, diluted, ineffective, and overly porked legislation. 

Healthcare reform requires and deserves a reformed model of democracy.  One that is thoughtful and diligent and nimble without being subverted or myopic.

This committee would have the ability to architect intersecting layers of legislation which would then be fast tracked – intact – to Congress for approval.  The committee would be charged to explore the long term implications of their proposals while remaining nimble to respond to unforeseen reactions or fallouts across the populace.

The committee’s charter would span only 10 years with its original chair serving a single 6 year term, at which time he/she is replaced for the remaining duration.  Every two years 10% of the participants would be replaced by committee vote and participant compensation would span well into the future according to the continued success of their outcomes.

Of course this description asks as many questions as it answers, but the spirit is to create a free standing body whose lone accountability is the future of the American Healthcare system.


Models At Work

The Employer Model

Imagine a world in which your employer provided a grocery plan.  This plan could dictate where you could shop for groceries, the availability of preferred menu items, and the prices you would then be required to pay for the right to shop for nearly unlimited quantities of goods.  The catch is that if you lose your job, you may well lose access to food.

Sounds ridiculous, right?  Well, replace grocery plan with health plan and that is what we have in place today.

Much is made today about the fear of the “profit motive” in our healthcare model undermining access and care quality.  I agree that this is a valid fear, but find that it is tragically misplaced.  Rather than lament the greed of drug manufactures, insurance companies, and physicians, we need to question the profit motive, and its impact relative to healthcare, of our employers.

Spirally healthcare costs have caused many employers to question the cost of providing this important benefit.  Cost sharing, co-pay vs. co-insurance, and spending caps are all nuances and price levers of which we need to be intimately aware if our boss holds the key to our coverage.

The reasoning is simple, American businesses compete for share in a global market place.  Business costs unique to a region will impact the ability of those participants to complete.  Consider that prior to GM’s bankruptcy and bailout, nearly $2,500 off the top of each new car purchases went to fund benefits for retirees.  Given this outlandish cost structure, is there any surprise that foreign manufactures were able to offer a much lower price point?

Employers continually seeking to compete are increasingly looking to their benefit costs as an obvious source of potential savings.  And as employee-customers, in this model, we may feel powerless to protest.

Further, this reality says nothing of the millions of Americans currently living without coverage due to unemployment or limited coverage options afforded by small businesses.

The employer based model has long ago served and outgrown its original purpose.  It is time to evolve the leading national source of coverage.

Massachusetts Model

Mandatory coverage is one of the provisions Massachusetts has rolled out as a means of lowering the previously uncontrolled costs of the state funded healthcare safety net.  My plan builds from this basis. 

Many states are starting to require auto insurance as a prerequisite for obtaining and maintaining a driver’s license and registration.  In Georgia, where I live, it is against the law to operate a vehicle without coverage.  It is a classic example of a law intended to protect ourselves from ourselves and each other.

I believe a similar plan should be installed relative to health insurance.  As a part of my recommendation, a minimum level of catastrophic coverage must be held by everyone.  The net result when coupled with a release from the employer as insurer model would be a higher rate of coverage with a lowered per person cost, as insurers are forced to redefine actuarial tables and identify a more competitive price point.

Compliance may be tricky to manage at first, but insurance companies could produce a sort of coverage w-2 which would be a required part of the tax filing process.  Higher taxes could then be assessed to those showing coverage gaps during the year.  As additional incentive, certain medical costs (those most likely to be included as part of a minimum catastrophic care program) would be non-bankrupt-able. 

Medical service and drug costs would be impacted by the higher utilization resulting from required coverage, but that alone is not enough.  A clever component of the Massachusetts model is a “one contracted cost” provision.  In nearly every state outside of Massachusetts each insurance company negotiates pricing with its own provider network.  Just as every passenger on a plane may pay a different price for flight, patients receiving matching service may incur varying costs for their insurers and may recognize unique impacts to their personal bottom line depending upon the quality of coverage provided… by their employer.

A single pricing contract across the nation would only establish the maximum price for a service or procedure which serves the dual purpose of inspiring competition while enabling a logical and available pricing menu, not so novel an idea in the broader scheme of things.

To further drive down costs, the incentives for Health Savings Accounts would be enhanced to encourage more individuals now responsible for their own insurance to select a high deductable plan with an attached savings vehicle.  This would significantly increase the transparency of pricing and contribute to a rarity in today’s medical community, competitive pricing.

Minnesota Model

Simple ideas which are revolutionary to the healthcare debate bring a sort of mid-western sensibility to Minnesota’s successful healthcare programs.  Physicians within the state sponsored Medicare program are compensated primarily on the outcome they are able to achieve with their patients rather than the number of procedures they can perform.  Rather than creating a patient lab rat-cum-cash machine, patients are treated with dignity and with appropriate value-add services.

The outcome of this approach, based on 2006 figures, was a 30% reduction in per patient Medicare spent versus the national average while producing better than average medical results.

Continuing the obvious yet trendsetting pace, Minnesota has recently launched a Health Scores website wherein prices for over 100 common medical procedures are available for comparison across facilities.  Common logic suggests that we would not pay $100 for the same shoes available down the block for $50, why not apply the same logic for planned medical procedures?  Assuming the HSA template which is also a part of my plan, the impact of transparent quality scores and pricing options is easy to envision.


Applied Regulation

Thus far a key player in our healthcare model has largely escaped my reform.  Sorry pharmaceuticals, that is about to change.

But first some quick context setting:  Pharmaceuticals spend millions and millions of dollars in the research and development of new drug compounds.  Once a viable compound is identified, it is subject to rigorous FDA testing and may take years before it is approved for consumer use.  Public products are patent protected for 7 years during which time the manufacturer has a virtual monopoly in the market.  This is an incredibly profitable time and will lead the manufacturer to go to great lengths to extend the life of the patent.  This is commonly achieved in one of two ways – modify the product slightly or identify a new indication for the drug to treats.

In practice, these strategies work like this.  Consider a pill for acid reflux that is highly effective and commands a high price as a patent protected product but must be take 3 times per day to maintain is efficacy.  As the patent expiration is coming due, the manufacturer can introduce a time released version of the pill, requiring only a single daily pill, and restart the 7 year window for this modified product.  Want an even more simplified example?  Consider a fresh 7 year patent for every new flavor of ice cream.

The second method is to introduce a new use for the drug.  A blood agent used to combat cholesterol may later be found to prevent strokes.  As the new indication is approved, the patent window resets for the new ailment.  Go to the doctor for cholesterol and you’ll have the generic option, but go for the stroke prevention and you are subject to the name brand even though a perfectly equivalent generic exists.  Again, imagine a $1 aspirin for your headache, and a $200 aspirin for your sore back.

So armed with this knowledge, allow me to outline my pharmaceutical targeted regulatory reforms:

  • Reduce time to market – the approval process within the US is longer than in nearly every other country.  Efforts must be made to reduce the cost and administrative burden resulting from this process.
  • Extend the 7 year patent window to 10 years but install a profitability ratio designed to minimize price gouging.  Allow Pharma to profit from their good work, but ensure the pricing does not limit access.
  • Reduce to 2-3 years the patent protection afforded to “spin-off” products such as the time release modification outlined above.  Enhancements should not be treated as patent gaming opportunities.
  • Enforce patent protections – success within the pharmaceutical industry is often a ‘first to market’ game, and this is true even within the generic market where these manufactures will sometimes subvert the last 6-12 months (or more) of a product patent solely for the sake of being the first generic on the market – the benefits of this tactic far outweigh the punishments.  This practice should be eradicated via stiff fines and withheld approvals.
  • Limit (if not eliminate) pharmaceutical advertising.  In many respects pharma companies have become marketing companies.  Ads instill a name brand product so that we’ll ask for it by name and continue to ask for it as it loses its patent or is slightly modified.
  • Clearly communicate all product prices 

And so the Dave Plan takes shape.  Though little more than an outline at this stage, it represents multi-faceted approach for addressing this most pressing of issues confronting our economy and future way of life.  The idea is that change is not simply a band aid but rather a complicated and layered set of reforms each engineered in concert to rework the haphazard and evolved model we currently suffer.

I appreciate you indulging me this lengthy offering and trust that you’ll take a moment now to let me know your thoughts in the comment field below.  Thanks!

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