In the span of my grandfather's life, health care has gone from being an invisible force in the background of most people's lives to an essential part of daily life. Starting with the American revolution, we leap-frogged from the medieval "barber-surgeon" to the Civil War "sawbones" to the "snake-oil" patent drug-compounder and then bounded up the steps to the modern hospital.
The reasons for this are complex, but it is also clear that, sometime in the 1970s, we crossed a great divide where dramatic breakthroughs in drugs, diagnostics, surgery and treatments began to occur with increasing frequency. The ascendancy of the most relevant aspects of health care has literally occurred in our lifetime. Socially, health care has become a right by all but the most curmudgeon amongst us. Beginning in the mid-1960s, a host of legislative enactments gave entitlements first to the elderly and then the poor; followed with tax breaks for labor unions and big corporations.
These subsidies were also tantamount to putting the health care system on steroids; an unintended consequence is the hyper-inflation we are seeing today. As the population ages trillions of dollars of unfunded liabilities for upcoming retirees will soon arrive like a tsunami. Furthermore, as the cost of technology from genetically engineered treatments combine with societal expectations of cradle-to-grave care, there are legitimate concerns that the health care industry will exceed sustainable limits to growth. My estimate is that health care is destined to overshoot the ability of the domestic economy to sustain it as an overhead burden somewhere in the 2015 to 2020 timeframe.
Hyper-infation; Overhead burden to economy
Government and business policies and regulations have neutralized disciplining forces in the market.
System has morphed into a medical-industrial complex that is rigid and defies reform
WHERE ARE WE?WHERE ARE WE GOING?
Overshooting the upper limits to inflationary growth will eventually lead to collapse and disintegration of the American economy
Socially ++ Society has negotiated an implied social contract with health care-as-a-right, without an equivalent set of personal responsibilities. ++ An unlevel playing field is allowing some players to turn health care into an extractives industry. Politically ++ Politicians and corporations have cultivated health care as a form of personal currency. ++ Paternalism has led to a hostile, co-dependent, and learned-helplessness citizenry. Economically ++Public and corporate policies have precipitated hyper-inflation and destroyed normal market functioning. ++
Costs are a burden to an economy that is losing its comparative advantage in the global marketplace. ++ System is a multi-layered hierarchy that requires vast numbers of financial intermediaries to function. Technologically ++ Fueled by disruptive technology gains; future advances in nano-genetics creating a race toward singularity.
BALANCE OF PAYMENTS DEFICIT: Loss of comparative global advantage reflected by declining industrial sector fueled by health care overhead costs.
SCENARIOS THAT MIGHT PLAY OUT
Yes, and the band played on while the Titantic sunk, also.
<== #1-DO NOTHING; BUSINESS AS USUAL
Assumes political gridlock and continuation of the current paradigm. Costs and insurance premiums continue to rise by 8-12% a year and double every five years. Corporations discontinue benefits or they shift costs to employees. Health providers abandon serving entitlement programs which negotiate fixed fee schedules. Rising costs and unfunded liabilities combine to cause the system to hit 20% of GNP by 2015.
#2-SOCIALIZE THE SYSTEM: SINGLE PAYOR==>
Health care becomes a white-hot political issue in 2008 and those elected feel they have a mandate to implement a single payor system that deals with the uninsured issue. The system ends up looking like the Canadian system-in-drag. Costs temporarily plateau as fee schedules are imposed, but then begin to rise again as providers rebel and learn to game the system. Corporations are seduced to support socialization because health care costs can be removed from their product costs and temporarily improve their competitve position; but health care goes nowhere as an export industry and continues to be domestic overhead. Eventually, trillions of $$$ of unfunded liabilities wash over the system like a tsunami.
Michael Moore: the poster child for socialized, single payor medicine.
Medicare and ERISA were defining moments in the history of health care financing
WHAT Scenarios #1 & #2 HAVE IN COMMON:
scenarios 1 & 2 buy time; under both costs continue to increase,
although a socialized system would cause a change in the slope of the
inflationary cost experience curve. Neither scenario positions health
care to make a positive contribution to wealth creation in the economy
and both are on a trajectory of overshooting limits, which is certain
to occur when unfunded retiree liabilities hit the system.
Trillions of $$$$ of unfunded liabilities will soon wash over the private and public sector as baby boomers retire.
Major pertubation hits health care or economy in general precipitating collapse.
<== #3-WORST CASE; SYSTEM COLLAPSE
A major pertubating event, such as pandemic, terrorism, or trouble in the broader economy could precipitate a crisis, which would lead to system meltdown and chaos. The system would eventually recover, but not resemble its current form and millions on both the supply and demand side would be irreparably harmed. Government and business likely forced to renegotiate the social contract because of unfunded retiree liabilities, causing social unrest.
#4-BEST CASE; H/C AS EXPORT ENGINE==>
The ideal, scenario is that steps are taken to radically restructure and reform the system before H/C overshoots its sustainability and hits the upper limits to growth. If this is done, the wealth created by health care exports can fund retiree liabilities and replace the aging and declining industrial sector.
H/C is radically restructured through intelligent design and becomes major export industry.
FINALLY--DISTINCTIONS WITH A DIFFERENCE!!
3 & 4 are bi-polar extremes. The collapse of either the health care
system or the economy at large is merely the endgame of a failure by
leadership to take remedial action. Scenario 4 is the only scenario
which improves health care productivity to reduce it as a domestic
overhead component, yet repositions the industry as an export industry.
A VISION AND STRATEGIES FOR THE FUTURE
A VISION FOR THE 21ST CENTURY
HEALTH CARE'S ROLE IN THE ECONOMY
Current: Health care is domestic overhead & threatens U.S. global competitiveness.
Future: Health care will become a cornerstone in a global service economy and will be exported.
care is presently a 16% overhead burden in the economy and impairing
the U.S. comparative advantage. In the future it must become
efficient enough to become an export industry
and contribute positively to the U.S. balance of payments. When
successful, the U.S. will also be able to assist the 6 billion people
in the World who need better
25% or more of the GNP and an assist to the World's 6 billion people
STRATEGIES FOR TRANSFORMATION
IN A NUTSHELL......
#1-Achieve a positive cost experience trend=>Declining average unit costs.
The micro-economics of health care suggest that it is possible to achieve a positive cost experience in which average unit costs are declining, not increasing. Dramatic improvements in health care productivity are necessary if it is to ever become an export industry. Attainment of this strategy will involve better management of labor costs and more competitive medical technology on the supply side. It will also involve rationalizing the system to alter the behavior of the consumer and the demand function.
#2-Replace insurance with Futures-Contracts to hedge risk.
The present level of financial intermediation using traditional insurance and public payment mechanisms has neutralized market forces and led to hyper-inflation. The introduction of futures contracts, traded on an exchange would create an invigorating effect. It would empower risk pools which perform well to benefit from healthy behavior and outcomes.
#3-Introduce "Disciplining-Forces" into the market to achieve efficiency and quality.
No market can achieve optimum efficiency unless there are disciplining forces on both the supply and demand side. The current "force-field" consists of large third party payors (government, insuror, labor union, employer) acting as supposed loyal purchasing agents. In actuality, this has had a smothering effect on market behavior. Increasing copays and deductibles, using health savings accounts and member owned co-ops are some of the ways disciplining force can be reintroduced.
#4-Government must assume role of an Empowerer rather than regulator.
Government prospective payments represent a monopoly force in the market and the combination of subsidy and price control is highly destructive to market function. Subsidies need to be based on ability to pay and payments need to be marginal cost payments, but non-discriminatory in terms of causing cost shifting.
#5-Plan sponsors need to move from defined-benefits to Defined-Contribution.
Defined benefit plans are a poor mechanism to finance much of the health care. There is a perverse incentive for providers to lobby to have all manner of palliative, cosmetic, preventive care paid. The consumer treats the health plan as a honey-pot from which to extract all manner of cradle-to-grave services. A defined contribution, based on ability to pay will resensitive both consumer and provider to market forces.
#6-Government sponsored research must be used to create a "Technology-Commons" in the public domain.
Current patent laws and intellectual property protections have resulted in monopoly over medical devices and drugs that disproportionately benefit the supplier. This is particulary true when it is recognized that public funding of basic research and academic affairs provides the mechanism for much of the breakthroughs to occur. In the future, any technology that has received public funding, be it large or small, should be in the public domain and part of a technology commons.
#7-Shift from a corrective health care model to one of "Prevention" and a model that is integrated in terms of the "Body/Mind/Spirit."
The fundamental paradigm of health care must be transformed from a narrow focus on the biology of the body to a broader recognition of the role of mind and spirit. As important, the excessive focus on treatment after disease manifests must be altered through prevention and incentives to stay healthy.
#8-Eliminate information asymmetries and move to Transparency regarding price/quality.
A system dominated by third party payors and hiearchal information flows puts the consumer at a disadvantage in terms of the information necessary to make rational decision. Information on price and quality needs to become transparent. The measurement and reporting of quality provides a variable in the equation that allows price variation to be rationally compared. Institutional performance, both for hospitals, physician groups, insurors and risk pools needs to be transparent.
#9-Migrate from local hospital/proprietary computers to an "Internet-based" system with an Electronic Health Record(EHR).
The present use of proprietary technology, some of which is two generations behind, impedes the flow and exchange of information. Government's role can be to harness the power of the internet and provide an information highway for the health care system. This should include an electronic health record.
#10-Eliminate the ability of large payors to engage in "Discriminatory Pricing and Cost Shifting".
The current playing field is not level and large payors are able to cost shift. This represents a regressive tax on paying patients and has created too large a differential between payors. Pricing should be non-discriminatory. Marginal cost pricing should be allowed in certain circumstances but tightly controlled.
#11-Nurture a "Moral-Ecology" of health care as both a right and a personal responsibility.
A system cannot have entitlement without responsibility. Consumers have a right to health care but they also have the responsibility to be insured, do prevention and be informed and rational.
#12-Encourage the formation of consumer-governed and member-owned "CooperativeHealth Plans".
The current aggregation of demand is done by third party intermediaries. They are not governed by their customers and therefore fail to act as loyal agents. Consumers need to be able to form cooperatives.
ACHIEVING TRANSFORMATION FROM THE "OUTSIDE-IN" AND "INSIDE-OUT"
The evolutionary development (evo devo) of health care into a medical-industrial complex has created a structure that is in equilibrium and extremely difficult to reform. It is my assertion that the hierarchal structure of the industry creates the inertia and that nothing less than transformation must occur if the health care system is to become an export industry.
In the pages to follow, a theory-of-process, entitled "Positive Disintegration", is outlined that enunciates the stages that the health care system will have to be forced to go through in its transformation. The forces that will precipitate this transformation are the strategies being imposed on the structure of the system. They comprise two types: first, external policies( the disciplining forces) which include things such as defined contribution benefit plans, member-owned health cooperatives and non-discriminatory pricing policies(inability to cost shift).
The second set consists of technologies that can be implemented internally and will transform the system from the inside-out. This includes, internet and electronic health record systems, futures contracts and the public domain technology commons.
The forces, aka, strategies outlined above are fundamentally "disruptive" and precipitate and accelerate the process of transformation on the current hierarchal system.
FROM ALICE IN WONDERLAND!!!
Alice: "....I just wanted to ask you which way I ought to go."
Cheshire Cat: "Well, that depends on where you want to get to".
Alice: "Oh, it really doesn’t matter."
Cheshire Cat: "Then it really doesn’t matter which way you go!"
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