Sinking Health Care Ship Could Bring Down the Economy

November 1, 2006

Our nation's health care systemis facings an economicmeltdown of unprecedentedproportions. Overthe past 20 years, medicalinflation has averaged double the generalinflation rate.

Our nation's health care systemis facing an economicmeltdown of unprecedentedproportions. Overthe past 20 years, medicalinflation has averaged double the generalinflation rate. In the 5 years between 1999and 2004, premiums-where costs convergefrom throughout the continuum-rose 5.5 times the general inflation rate, 4.0 times workers'earnings, and 2.3 timesthe growth of business income.

The private sector is increasingly unwillingto pay for rising health care costs.A recent Kaiser Family Foundation reporton employer health benefits showedthat between 2001 and 2006, the percentageof employers offering coverageplummeted from 68% to 61%, a 10.3%drop over 5 years or a 2.1% annual erosionrate. During the same period, thepercentage of employees with coveragedropped from 65% to 59%. And thosecompanies that continue to providehealth insurance have steadily reducedbenefits and required employees to contributemore to their costs.

The public sector is also responding toincreased health care cost, with reducedfederal reimbursements for Medicare andcutbacks by state legislatures.

At some point in the near future, asfewer dollars are available for more care,the system could fail: Public hospitalscould be forced to close, staffs dismissed,and suppliers not paid. Keep in mind that,at one-seventh of the dollars and oneeleventhof the jobs, health care is thelargest sector in the US economy. If healthcare goes down, the turmoil would likelycascade to all sectors of the economy.

FRAGMENTATION
One of health care's core problems isthe extraordinary disconnectedness of itsplayers. Literally millions of health careprofessionals and thousands of organizationsare routinely rewarded for acting intheir own interest, independent of how their decisions and actions impact healthcare as a whole.

Health care's systemic fragmentationand generous reimbursements have createdvery wealthy sectors. That, in turn,has led to a broad distribution of poweramong special interests who have stronginfluence over health care policy. As aresult, proposals for substantive changetypically threaten the interests of groupsthat have the power to kill them.

AN OPAQUE SYSTEM
This economic gridlock has been significantlyexacerbated by a distinctly differentbut related problem: Over time,we have failed to create a transparentmanagement infrastructure that allowsus to identify problems so we can attackthem. Health care's lack of transparency(its opacity) has cultivated an opportunisticbusiness environment that pervadesthe industry. In other words, each groupis free-and has the incentive- to pursueits own interests at the expense of thesystem as a whole.

One example: In the past 5 years, imagingcosts have grown 100%, from approximately$40 billion to $80 billion!Without protocols on the distribution orapplication of these devices in the marketplace,imaging manufacturers sell theirmachines to doctors and institutions who,in turn, often prescribe imaging independentof evidence-based protocols.Until recently, many private health plans and Medicare have been asleep at theswitch. Without accountability, expensiveimaging utilization has dramaticallydriven up costs, but with no demonstrableimprovement in quality.

Self-interested behavior is, of course,an issue in oncology as well. Recent datahave clearly demonstrated that cancerdrugs delivered in physicians' offices createfinancial conflicts with quality andcost-effective practice.

One difficulty in dealing with healthcare's problems is looking honorablehard-working doctors squarely in the faceand pointing out that the approaches intheir practices are counterproductive.Individual behaviors may not seem critical,but a national orgy of self-interestends up crushing the system.

LEADERS NEEDED
Over time, my colleagues and I havereluctantly concluded that, despite a lotof ominous handwriting on the wall, thehealth industry is simply still too profitableand conflicted to collaborate on thechanges key to reestablishing health systemstability and sustainability. Thosechanges would mean compromises toshort-term profitability. Since the healthcare sector is accustomed to unrelentinggrowth, this remains an unacceptableoption to the industry, at least until calamityis more obvious. (A hospital CEOrecently told me, "Oh, we see the handwritingon the wall. We just think it'sintended for somebody else.")

Reform of the system is not possiblewithout leadership-a coalition of leaderswilling to rise above special intereston behalf of the common interest, awarethat unless the common interest holds,the special interest cannot be pursued,and willing to make the compromisesrequired to save the system. That is whywe at the Center for Practical Health Reformhave turned to business leaders whoare not associated with the health careindustry and who understand that thefailure of the health care system will havenegative effects on us all.

We believe these leaders must possessfour key qualities: (1) credibility, eg, theprojection of integrity into the marketplace;(2) a platform of power, eg, wealth,corporate backing, or political position;(3) vision-a euphemism for brains-toreally understand the problem, its dynamics,and its solutions; and (4) courage,the rarest quality, a willingness torise above personal interest on behalf ofall Americans.

Another part of the solution is theimplementation of fully integrated healthinformation technologies (HIT). Unlesseveryone is on a compatible HIT platform,we cannot identify problems andopportunities. This system will be costly-$200 to $250 billion--but this is a longrangeinvestment and represents onlyabout 10% of the total annual US healthcare expenditure. This would be a sensibleinvestment. We had a similar largefunding program in the first half of the20th century, the Hill–Burton act, andused that funding to build most ofAmerica's hospitals.

FIX EXISTING SYSTEM
We should focus on fixing the currentsystem rather than trying to create the"ideal" system. In the current politicalenvironment, idealistic reforms, no matterhow well reasoned and well intentioned,will almost certainly meet tremendousresistance from the powerfulgroups that control Congress. As a result,we've focused our effort on savingand improving the elements of the existingmechanisms that can be impactedwithout much trauma. At its core, theUS approach to health care is approximatelyright and worth saving. Butsaving it will require the courage to makefundamental change.

The Center for Practical Health Reformis a nonpartisan, not-for-profitplatform for change. The original ideawas that the range of health care stakeholderscould find consensus on a minimalset of structural change principles, ifthey understood that the alternative tochange is disaster. In short, health carewill simply price itself out of the marketfor a large percentage of Americans.

When we realized that health care interestswere not yet prepared to committo meaningful change, we adjusted ourstrategy. The Center is now focused onworking with regional and national nonhealth-care business leaders. We believethis group can galvanize the larger businesscommunity and bring pressure onthe industry and Congress for the changesthat are essential to re-stabilize America'shealth care system.