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!

Your Turn – If you enjoyed this article, I would personally appreciate it if you would consider commenting below and/or subscribing to our Free Updates via email or RSS updates.  Thanks!

Manatory Healthcare Reform – Part 1

 Peeling cross

Healthcare reform is perhaps as complex an issue as we are facing in our society today – and the recent bill passed in Congress promises to further murky the waters.  On one hand, the diversity of the intertwined issues that constitute the fabric of our system may simply be too impossible to unravel.  But on the other hand, solving this dilemma may well hold the key to preserving life as we know it today.

For an introduction, I figure that’s pretty dramatic and intentionally so because I think the shoe fits.  The issues are circular and I honestly can’t imagine a more significant domestic issue both requiring and demanding our attention.

So buckle up as I attempt so share some information, resources and opinions on this dynamic topic.

Typically, I like to simplify complex issues into their component parts.  This does not remove the complexity per se, but it affords me a greater appreciation for the dynamics at play while increasing my grasp on each.

This American Life – one of my favorite podcasts – perfect illustrates this principle in a recent two-part series on the dynamics driving healthcare.  If I’ve established any credibility with some of you guys, then I want to invest it in a strong encouragement for you to grab the free downloads and give listen to these wildly informative and thought provoking stories.

More Is Less

Someone Else’s Money

At least listen to one and then make your call on the second.

In these podcasts, the diverse issues driving the healthcare debate are explored via storylines in which, for example, they colorfully explore an amazing series of events that led to today’s employer based system, which is the answer to the question asking what Texas school teachers, the depression, WWI, and committee income tax rulings have in common – for those unwilling to wait.  The episodes also elaborate on how often those affecting the most good on and within the system are also the most vilified.  Ironically, as is demonstrated in the show, we as consumers are often our own worst enemy – sometimes knowingly but mostly not – when it comes to running the system off the rails.

Here is how these seemingly impossible statements are manifest as fact.

The American health system as it exists today is comprised of 4 primary players – Physicians, Pharmaceuticals, Payers (Insurers), and Patients.  Each publically embraces an egalitarian agenda but each also maintains objectives relative to their personal preservation.  At times, these duel pursuits abide in harmony but frequently they collide, leading to less collaborative and more manipulative behaviors.



Our physicians have a mandate, an oath, to work on our behalf to protect and heal us.  They dedicate huge portions of their lives to the study and training to perform against their objective as well as humanly possible.  But at times the system seems designed perpendicular to this outcome.

A myriad of impossible and ever evolving codes assigned to the granular specifics of our ailments must meticulously and perfectly be registered in order for physicians to be paid for the services they render on our behalf.  The complexity drives increased staffing requirements and mistakes and rework and corruption potential and widget-cranking-like patient care.  Drug manufactures dispatch product reps to promote their latest wares and in this charge they enjoy the unprecedented luxury of not having to disclose their product pricing.  Value is easy to both sell and perceive when no price tag is attached, and this quirk is made possible because the system is designed to pass the bulk of the, not insignificant, cost burden to the insurance companies.  Besides, exact pricing is nearly impossible to know due to the vast array of products, dosage options, indications, and payer-specific pricing contracts and it is often not a consideration for the treatment providing doctor.


Big Pharma is the research industry driving tremendous advances in medicines.  As our life expectancies continue to increase, we have modern medicine to thank.  When we find a cure for cancer, it will be the end result of billions and billions of Big Pharma dollars spent in search of this medicinal Holy Grail.

Having worked for years with pharmaceutical manufactures, I have a keen appreciation for the mantra that the first pill or dosage unit of a publically consumable medication costs roughly $1 billion to produce while the second might cost only a dime.  Accounting principles treat the cost distribution differently, but the truth remains.  Huge investments are made in this boom or bust industry where a company’s stock value is a clear function of the depth and maturity of its product pipeline.  In fact, much of the consolidation this industry group has experienced over the last 10 years has been mostly about pipeline takeover.

In my estimation, the darkest of the gray areas exists in this arena and justifiably so.  Inventing a new and viable medical compound is not as precise as updating a vehicle model year over year.  It is a mystery and profits must be wrung from the process to ensure the ability to conduct future research.  But how much profit is too much and how are research budgets allocated?

Further complicating the question is the harsh reality that rare but medically advance-able ailments are sometimes evaluated against their profit potential rather than the localized good that may be brought.  It is easy to characterize the situation as a classic ‘greater good’ dilemma with research budgets allocated against ailments impacting a larger population.  It is equally valid to question the politics of medicine today if felled by a rare and less researched malady.


Insurance providers are the easiest to paint as villain.  Doctors treat and drugs medicate but insurance companies push paper and too often, so it seems, draw tight the purse strings.  But this is a simple and unfair characterization.  In a mega industry like healthcare, the simplified role of our payers is to manage the flow of data and oversee the exchange of dollars.  And that’s not to mention that insurers are staffed deep with good people that genuinely care for their “covered lives”.  Again, knowledge gained from my years working with several name brand coverage providers.

As the cash flow conduit – they collect our premiums and pay our claims – they are uniquely positioned to help drive down, or at least manage, costs.  They ensure correct medical coding, incent low cost medical and drug alternatives, and staff more MDs and registered nurses than you might imagine in an effort to help manage our care and assess the medical necessity of a prescribed course of treatment.

For example, drug co-pays were for years used to incentivize patients to select a perfectly equivalent generic in place of a name brand product slightly modified to extend its patent protected high prices.  But this tactic designed to benefit the collective, has been subverted by, among others, a pseudo informed patient base trained to clamor for name brands and eschew generics as if comparing Oreo’s and Hydrox.


Enter the most vexing factor in the equation – us.  We have the most vested interest, not in healthcare as a whole, but in our healthcare as a being.  Yet, often our actions (think diets and exercise regiments), do not lend themselves as evidence to our own cause.

We have historically unprecedented access to medical information, which often does us more harm than good.  Consider the illustration offered by The American Life of “Medical Student Syndrome”.  It is a registered, certifiable, defense-able syndrome whereby medical students, after investing countless hours in the study of disease and sickness will begin self diagnosing all sorts of rare ailments and maladies simply as a result of their proximity to the data.  How much more then, do you think the general public will cultivate phantom symptoms and diagnosis when they are doing a medical word search on a phrase like “flu-like symptoms”?  Or, even more precarious, are bombarded with marketing campaigns designed to illicit fear and consumer actions.

That this access to knowledge drives us to the healthcare provider community for either treatment or validation is itself a good thing.  Illnesses are being found earlier which affords a greater array of treatment options, which in turn, drives more positive outcomes.  However, it is the attitudes we now carry with us to the doctors’ office that wrecks the most damage to the global cause.

Having spent an hour, or day, or even week investigating my case, I am prone to question my doctor’s judgment, never mind his years of study and experience.  In this instance, we are talking about MY healthcare, not that of the anonymous collective.

In this moment, in our society, I, as the patient-consumer, hold the ultimate trump card – legal action.  Run this expensive battery of tests I learned of on the internet, I demand, meanwhile, ignoring my doctor’s 99.99% confidence rate that it is unnecessary.  Flush with my own sources of knowledge, I know I am unique, I am an exception, I am me., and me (I) will sue as hard as the day is long.  So this leaves our physician with a decision that is at once impossible and obvious – short sell my experience and knowledge and oath to heal, or order another battery of tests that, rather than simply costing me nothing, will provide me with more complex codes to log, ensuring me a fatter check from your insurance company.


And so our modern day system continues to spiral off its axis.  Factions forced into coexistence fighting against each other and sated only by the flow of money – other people’s money.  But the system is failing us.  The richest economy and most advanced medical capabilities in the world support a healthcare system that has feasted on itself for so long that it is beginning to implode.

The reality is that in America, we spend 50% more on healthcare than anyone else in the world but our results are substandard.  Infant mortality ranks 45th (behind Cuba) and life expectancy ranks 50th (behind Bosnia).  At our current growth rate, within the next decade, it is projected that the average household will spend more than half of its income on healthcare.  It is an untenable outcome desperately within our grasp.

Which circles us back to my now not so over the top introduction; we are faced with an impossible issue which we must solve immediately.

Stay tuned, as next time I’ll share my thoughts on how we might begin addressing the issue.

Photo By: 96dpi

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