Healthcare's Original Sin And Source Of Redemption

"The first wealth is health." Ralph Waldo Emerson, The Conduct of Life, 1860

I know of no well-functioning market when there is a 4th party payment system. Yet, the reality is employers are the single biggest purchaser of healthcare services. Money that would otherwise go in an employee’s wallet is paid by employers to insurance companies (or 3rd party intermediaries) who finally pay the healthcare product or service they receive. [If you’d like to know how this happened, click here.] It's clear to me that this 4th party payment system is the biggest single driver of out of control healthcare costs. In essence, no one inside most corporations is minding the healthcare “store” as outlined in the bestselling book, Cracking Health Costs. In fact, one could argue that CFOs and CEOs  of corporations are failing in their fiduciary responsibility recognizing their second or third largest cost (health benefits) in their supply chain is essentially uncontrolled. Imagine if one out of every two or three items a company purchased was a complete waste of money. Unfortunately, too many employers think there is nothing they can do beyond pushing costs onto employees. This simply isn't the case.

Corporations Squandering Trillions on Waste

Well-respected organizations such as the Institute of Medicine and PwC have analyzed the waste to be between one-third and one-half of the $3 Trillion the U.S. spends on healthcare. It’s hard to measure the impact of that waste but none other than Warren Buffett has called healthcare the tapeworm on the U.S. economy. In virtually every facet of a corporation’s supply chain, the value proposition of what they purchase improves every year. Either, they pay the same amount and get more value or they pay less for the same set of goods. Healthcare is the exception — you get less for more every year.

If there had been dramatic gains in life spans and the quality of life, spending twice as much (or more) on healthcare might be acceptable but that isn’t the case. In fact, the New England Journal of Medicine reported on how the last 20 years have brought tremendous labor productivity gains in virtually every industry but healthcare. Further, healthcare labor productivity actually declined 0.6% annually over the last 20 years. It’s not unusual to see five administrative/billing FTEs for every doctor in many practices. The 4th party payment system has created a Gordian Knot designed by Rube Goldberg. If there have been productivity gains, it's likely to be the ability to get a big bill out faster. In fact, that's the primary sales pitch of Electronic Health Record (EHR) vendors. How else could they justify their pricing model from the mainframe era?

The complexity of healthcare payments parallels the financial instruments that destroyed the world economy in 2008 (e.g., collateralized debt obligations). Even institutions who designed them didn’t fully understand them — not unlike health benefits where few people understand the full scope of our convoluted payment system. Likewise, the primary purchasers of health benefits and insurance (head of HR/benefits inside organizations) don’t fully understand the convoluted mix of health benefits.

In Dr. Eric Topol’s recent book, he lays out a call to action for employers:

The biggest companies have hundreds of thousand employees and are paying billions of dollars a year on health care. Rather than having these companies leave the United States to reduce their tax burden to be able to pay employee healthcare costs (through corporate restructuring), or go bankrupt (like General Motors), this book provides a far more attractive option. Lead the charge; buck the system. If they promote democratized medicine for all their employees, it would strip down the costs of care for office visits, hospitalizations, lab tests, imaging, and other diagnostic procedures. Why should these companies pay for an elaborate ultrasound study, with charges averaging $800-$1,000, when, in most cases the necessary imaging can be done part of the mobile-technology driven physical exam, and essentially for free? Why are patients kept in the hospital or even admitted, at the $4,500 per day average fee, when they could have remote monitoring? Why pay for sleep studies in a hospital laboratory that cost at least $3,500 when they could be performed for free, at least a screening exam, in the patient’s home? Why haven’t such employers enforced all of the hundreds of the Choosing Wisely modest but clear-cut recommendations of unnecessary tests and procedures? These are but some of the ways large employers can exercise their massive muscle to reduce costs and catalyze bottoms up medicine. They also can have marked influence over the big health insurance companies they hire, like United Health, Wellpoint and Aetna, but no big company has moved to use it yet. If just one becomes a first mover, and challenges the status quo along with the baseless charges of “rationing,” this could take off.

Choosing Wisely has clear recommendations on unnecessary tests/procedures. Why aren't employers codifying this in their health benefits?

Overcoming Rube Goldbergian Status Quo and FUD

Valiant efforts are being made by many organizations to try to improve well-established healthcare organizations. However, given that most are operating under the Rube Goldbergian payment system, driving internal change is a Sisyphean task. Decoding something as complex as healthcare can be accomplished with two simple precepts — simplicity and transparency. Naturally, that is easier said than done when healthcare has been defined by complexity and opacity. The “preservatives” I defined earlier are hellbent on preserving the status quo. After all, one person’s “waste” is another’s revenue. This is why those profiting from waste will put up every roadblock imaginable to eliminating that waste. It’s entirely predictable they’ll use the classic approach used by incumbent businesses – FUD (Fear, Uncertainty & Doubt).

FUD is a frequent tactic utilized in the technology industry to try to thwart a new, superior model. The best antidote to FUD has been transparency. For example, open source software such as Linux was disparaged as “unsafe” but the fact that any expert could review the source code and benefit from millions of eyes upon it, this myth was debunked. It’s also in the interests of the preservatives to create the perception of as much complexity as possible. The goal is to create as much fear as possible so that the status quo gets frozen for as long as possible.

Health’s Rosetta Stone Could Decode Healthcare Purchasing Complexity

The organizations achieving far superior Triple Aim performance have rethought the care and payment model from the ground up. The inspiring facet of transformative leaders such as Dr. Rushika Fernandopulle is they aren’t satisfied with simply having a successful business. They recognize that change is needed at a broad scale and have been very open about sharing their “secret sauce”. Enlightened leaders recognize that their biggest competition isn’t from other innovators. Rather, the Triple Aim high achievers’ biggest obstacle is inertia around the status quo so sharing their insights will help grow the pie for high performing organizations. The smart provider organizations also pursue the "Quadruple Aim". Not only do they pursue better outcomes, lower costs and better patient experience but they also recognize that all of those are supported when the health professionals are professionally satisfied. When excellence is rewarded, it’s only those producing mediocre and sub-par outcomes that are penalized. Unfortunately, medical errors, duplicative care and other wasteful practices have been rewarded.

During Open Enrollment, I have found myself in the role of a personal benefits consultant. On a positive note, I’ve been able to direct my folks out of a fee-for-service Medicare program and into a fee-for-value Medicare Advantage program and some friends to a Direct Primary Care based plan in the state of Washington’s health insurance exchange. However, to really change things on a broad scale, employers must be on board since they are the single largest purchaser of healthcare. Unfortunately, most heads of HR/benefits at organizations are outgunned by the sellers of health benefits and typically aren’t empowered to fundamentally rethink their organization’s approach. The organizations driving fundamental change have CFOs or CEOs who have catalyzed the change.

To empower healthcare purchasers, I’m proposing an open source approach to developing the optimal health benefits plan. Just as open source software gets increasingly better the more eyes on it, the objective is to tap the minds of those who are seeing the best. Let the best plan components win. With an open model that invites scrutiny, the cream will rise to the top. This isn’t the first time an open source approach has been applied to a non-technical realm. The framework invites all comers so if an established benefit offering is the best at achieving the Triple Aim, it should bubble to the top. On the other hand, just because something has been in place for years, it doesn’t mean that it is the top performer.

Without Employees on Board, Success Will be Elusive

Employers stepping up is a necessary first step but insufficient to drive through change. It will require changing the traditional adversarial model outlined in Patient Engagement, Negaclaims Can Reposition Health Plans to one where there are shared objectives. Fortunately, the best performing providers believe that fully half of the medical services their patients were receiving before altering their course was duplicative, preventable, unnecessary or even harmful. This presents a tremendous opportunity to redirect resources that are getting squandered.

Some of the waste can be eradicated by wise plan design, however to fully eliminate the waste, previously inert employees need to be activated in common cause. Some organizations will use simple carrot and sticks but others will look at this as an opportunity to gain competitive advantage. There are a range of options to activate employees once a baseline healthcare spending trend line is established. That baseline would set the benchmark to beat. When successful, the savings would be redirected. Ideas of how to use the dollars that didn’t get wasted include the following:

• Redirect cost savings to funding HSAs and/or 401-k's at a greater level
• Take the cost savings to the bottom-line and hope that the indirect impact on the company’s profitability (and thus enterprise value) will benefit the employee
• Redirect cost savings into charitable programs. One option is that it’s managed by the corporation and might go to programs supporting corporate goals such as funding more STEM education. Another option is putting the dollars into an employee-controlled charity account such as those provided by One4All.org.

I’m partial to the last option as people are motivated by different things but it can be left up to the individual organization. Consider how that waste could be redirected. One year’s waste translates into the following:

• Cover all the hospital and medicare care for veterans for the past 51 years
• Fund the DoD for 1 year
• Pay for all the U.S. economic aid to foreign countries from 1974-2010 (and still have $14 billion left over)
• Cover all costs of uninsured Americans in 2008 more than 6 times over
• Pay for the entire federal budget for education for 5 years and still have $45 billion left over - STEM
• More than 3 years of the entire charitable giving in the U.S. (h/t Thompson Aderinkomi)

A groundswell inside of organizations by forward-looking employees who want a better health plan (aligned with their interests) could accelerate change. Healthcare is a topic most people don’t pay attention to until something bad happens. However, persuasion skills have been used to convince people to drink copious amounts of sugar water and junk food. If those persuasion skills can be redirected towards a more positive use of “their” money, the full value of the massive investment in health can be realized. Removing waste would also be what Gallup's Chairman described as the largest economic development tool that would far exceed traditional economic development approaches communities pursue.

Leonard Kish highlighted this point in his recent ebook

Payment reform is a start, but how far can shared savings take the business model of engagement? Healthcare is eating up our GDP like a World War, but we’re having a hard time identifying the enemy. The one the thing all Americans can get behind is fighting the common enemy.

Yuck Mouth was introduced as a public service announcement to create a villain out of tooth decay. Will similar campaigns get the ball rolling before we find the healthcare products that will grab patients’ attention and encourage healthy behavior change? How do we create a villain when the behavior is something we do? How do we make heroes out of good behavior?

Join the Movement

Already, I’ve had benefits consultants, technology professionals, doctors, and other people knowledgeable about healthcare step up to volunteer their ideas and expertise. Comment below or contact me via LinkedIn to share your ideas and expertise.