Archive for the ‘Hospitals and Health Systems Online’ Category

Pimp My Ride

Monday, June 6th, 2005

If you have teenage kids, you end up watching a lot of MTV or you have nothing to talk to your children about. My kids are both in college now, but I have watched a lot of MTV in my time. My favorite show of the moment is “Pimp My Ride”. The show is in the genre of all makeover reality shows. In this case a rapper host introduces a poor kid and their beaten up old car (the ride). The car is taken from the young adult and transformed by a team from West Coast Custom (a body shop and customization company in LA).

Each episode shows a different kid and a different car: clapped out Pintos, beaten up Suburbans, and a plethora of ugly, weird, old and dilapidated camper/truck hybrids. The process is always the same: they strip the car’s interior and install an unbelievable array of stereo equipment (woofers and sub-woofers included), video displays (even laptops) and the whole thing is topped off with an amazing paint job in vibrant blue or dazzling yellow, topped up with custom painted flames on the side. They never seem to do anything to the engine, drive train, or chassis of any of these vehicles. At the close of each episode the youngster is shown the transformed vehicle that has been “pimped” and they can never contain their excitement. They are deeply grateful.

The prevailing vision of quality in American healthcare is “Pimp My Ride”. We take a really bad chassis and engine and bolt on unbelievable amounts of high technology on a frame that is tired, old and ineffective. We spend extravagantly on buildings, machines, drugs, devices, and people at West Coast Custom Healthcare. The people who own the rides are very grateful because they don’t have to pay for it in a high deductible catastrophic coverage world, once you are over your deductible and ensconced in an American hospital the sky’s the limit. It all looks great, has a fantastic sound system, and nice seats but it will break down if you try and drive it anywhere.

Pimp my Ride is a perfect metaphor for the healthcare system as a whole, but it also applies to the individual patient. We take the morbidly obese, the terminally ill, and the very old and throw fabulous technology and unbelievable paint jobs at the human subjects. (Apparently, a young resident at Harvard made the observation on NPR about treating the terminally ill that it was like “Pimp My Ride”. I am not above stealing ideas from my friends at Harvard, but in this case it was great minds think alike).

From the system as a whole to the treatment of individual patients, we need to break the “Pimp My Ride” mentality. First, we need to transform the basic engine and drive train. We need a new system of medical care delivery and the reimbursement system to support it.

Second, we need to examine what level of technology, facilities, services and intensity of care yields the optimal outcome. We keep throwing money and technology at problems without asking basic questions: what should be done, how much, for whom, when?

Third, we need some intelligent consumer engagement. The kid who gets his beater fixed by MTV could care less how much it costs. Just as we patients could care less about the cost of excessive esoterica we receive in hospital. While I have been a critic of dumb-cost shifting and simplistic high deductible health plans, I do believe we have to engage the consumer intelligently in understanding and participating in the financial consequences of high technology interventions that are marginally effective.

Finally, we have to break the public perception that the medical equivalent of a good paint job and a fancy sound system makes for good quality. The Institute of Medicine and their followers have a long way to go because the prevailing vision of quality healthcare among most doctors and most patients is closer to “Pimp My Ride” than to the IOM’s vision.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California.

60 Minutes

Wednesday, April 6th, 2005

You don’t want to be on 60 Minutes. Bottom line, unless you are the hot new celebrity, technology, or world leader, generally speaking being on 60 Minutes is a pretty good signal that you are in trouble as an institution, industry, or individual. In the 1990s, managed care was the prime target. I used to joke back then if it wasn’t for managed care, 60 Minutes would be called 30 Minutes. Now it is the drug companies taking the heat, whether because of excess profits or concerns over safety of drugs like Vioxx and Celebrex. Being exposed on 60 Minutes is the epitome of demonization.

But demonization is a complex process, in the words of my colleague Humphrey Taylor, Chairman of the Harris Poll, “the media is a mirror, a magnifying glass and a prism: it reflects, amplifies and distorts public opinion”. The Harris Poll has documented the plummeting fortunes of many industries that become demons in the eyes of the media and the public, particularly in health care. But demonization really matters, as I pointed out in my book “Healthcare in the New Millennium: Vision, Values, and Leadership”, because it has a profound effect on both public policy and private strategy. In the 1990s, the managed care industry faced the threat of regulation and a potential enactment of a Patient’s Bill of Rights, in the public policy arena. Similarly, the public’s reaction to restrictions on choice of specialists and second-guessing of medical decisions by managed care “bureaucrats” led directly to the open network, consumer-directed, world we now enjoy where we can have any healthcare we want, as long as we pay for it out of pocket. I’m beginning to miss the bad old days of managed care.

It is quite possible we will live to regret the current demonization of pharmaceuticals, (brought about by their own pricing, safety performance, and marketing track records), if we end up whacking the industry through price controls. The industry’s naïve defense to date: “pay me or I will stop developing new medicines” has worn-thin and has developed an almost Tony Soprano like tone with the media and the public. Obviously, we could regulate the industry to be like a utility, as some like Marcia Angell have argued, and we would still have drug companies doing research. But just how innovative is your local electric utility? My neighborhood still has poles and wires put up shortly after the Ohlone Indians and the Mexican ranchers left Menlo Park.

Better for the pharmaceutical industry to heal itself, lower its prices, change its business model to be better, faster, cheaper, and safer not more expensive and worse. We need innovation and we should be willing to pay for it, but it has to be real improvement, not just statistically significant but not very important steps forward.

Oh, before the hospitals and doctors out there start gloating, let me suggest that you all are next. One of the reasons industries get demonized is that when consumers have to pay more they get very, very cranky. In the new world of consumer payment and retail care, how will we feel about our doctors and hospitals when we are writing big checks with our own money? Doctors are still trusted and revered so they have a lot of falling to do if the patients and the public turn on them. For hospitals, the demonization has already started. Class action lawsuits about price gouging of uninsured patients are just the beginning of greater public scrutiny and political pressure on the economics of well to do, non-profit hospitals. Medical errors, fraud and abuse and patient safety concerns, have made 60 Minutes already. All of this negative attention may lead to public policy aimed at whacking hospital reimbursement or redefining tax-exempt status, if the hospital sector does not try to manage the emerging public mood.

What do you do about it?

First, prepare to be demonized when you make consumers pay more. You have to articulate value to the customer, before during, and after the service is being performed and you have to be very smooth, efficient, warm, and fuzzy on the collections process. Does this sound like your collections process? Healthcare organizations of all types are absolutely horrible at bill presentment and payment systems. We have Explanation of Benefits (EOBs) but they don’t explain anything. Maybe the Consumer Directed Healthcare pioneers can actually teach us how to do this stuff properly.

Second, you have to build, constantly reinforce, and continuously measure reputation and trust. I have said it before in this column, hospitals that lose the trust of their local community are toast.

Finally, think about your behavior before you act, whether it is a big strategic decision or a small step in a business process, and ask the question: How will this look on 60 Minutes?

Ian Morrison is an author, consultant and futurist based in Menlo Park, California.

Daughter of Capitation

Sunday, March 6th, 2005

If you listen to the experts, you’ll hear that chronic conditions account for the vast majority of health care costs and that the number of people with chronic conditions and the attendant cost of treating them is going to explode as baby boomers age. So what’s our plan? It’s consumer-directed health care and catastrophic coverage, all delivered through discounted fee-for-service reimbursement systems paid to siloed, disconnected providers frantically trying to optimize their incomes while the patients wander back and forth in search of continuity of care. That should all work really well, eh?

Consumer responsibility for payment hurts the poor and the chronically ill the most, causing huge non-compliance problems with the resultant impact on health status. People forgo the Lipitor and end up with heart disease. Catastrophic coverage is a green light for providing the nearly dead with excessive acute care, but it is not particularly helpful for chronically ill patients who have to spend through the deductible corridors and doughnut holes to get to the promised land of acute care catastrophic coverage. And Medicare, bless its heart, is emulating the private sector PPO market (with a little faith-based and for-profit disease state management thrown in) rather than re-energizing the capitated Medicare HMO market. This is all goofy.

I was a fan of Medicare HMOs in the late 1980s and early 1990s because I observed the transformative effects of capitation on the organized medical groups of California. The best of those doctor groups, especially the pioneers who took full capitation risk, looked at the capitated seniors as whole patients, examined all the medications their elderly patients were taking, even fixed their patients’ loose carpets so wobbly seniors wouldn’t go boom-fall-down and end up needing hip replacement. Why did the doctors care? Because they were at financial risk for the acute care consequences of bad chronic care management.

Capitation failed because it was under-funded in the mid- to late 1990s as Medicare HMO penetration grew and these groups started to attract more, and much sicker, patients–and as reimbursement failed to keep pace with the rising cost of technology. Journalists demonized capitation as bribing doctors to under-treat patients. Medical groups exhausted the strategy of reducing hospital bed days per thousand members as PPOs with preadmission certification quickly emulated the hospital utilization profile of the medical groups. And to be fair, a lot of capitated medical groups abused the system or were incapable of managing the risk. But the real reason capitation stalled and failed was that there were not enough willing and able medical groups that were sophisticated enough to transform care delivery, reduce hospital use and manage within a capitated budget. Nevertheless, as an incentive, capitation caused delivery system transformation, experimentation and organizational innovation. In contrast, fee for service is a reward for doing more regardless of the outcome, and is a particularly toxic incentive for the management of chronic care patients. We can do better.

I don’t predict a return to capitation, but I do believe we need to design Daughter of Capitation, a reimbursement system aimed at paying providers to maximize the efficiency and effectiveness of care for the chronically ill population. It should be designed and promulgated by CMS (the artist formerly known as HCFA), and should be copied by the private sector as the way that chronic care is reimbursed. It should encourage providers to coordinate their care all the way from primary prevention to hospice. It should be evidence- and outcome-based. It should allow innovators to experiment and design new delivery systems that improve performance, and the innovators should enjoy the surplus or profit of their innovation—provided it is based on true innovation, not because they are cream-skimming healthy patients. It should all be enabled by 21st-century IT and bioscience, and it should reward constructive redesign of the entire health care delivery system. Not much to ask.

Early signs of this can be seen in the pay-for-performance experiments around the country. Large medical groups and integrated delivery systems from HealthCare Partners in Los Angeles to Kaiser to Sentara Health Systems are structuring themselves to be willing receptors of such payment mechanisms. Let’s get a new set of incentives out there so that these folk and other innovators can come up with a 21st-century health care delivery system for the effective management of chronic care. Before it’s too late.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California.

Tax Policy as Health Policy

Saturday, November 6th, 2004

Policy wonks love to talk about alternative ways to cover the uninsured, exciting new quality and patient safety initiatives, meaningful pay for performance systems and so forth. All of this is completely irrelevant. The single biggest issue that affects health care in the short term and the long term is tax policy. When the rich among us received a big tax cut, it virtually dictated massive state budget crises and a rise in the uninsured. The massive federal deficit the tax cuts created constrains meaningful expansion of health care to the uninsured and will require Medicare beneficiaries to dig deep into their own pockets to pay the premiums for the old Medicare Part B and for the new drug benefit. If we make the tax cuts permanent, we are sealing the fate of many of the vulnerable elderly and the uninsured.

Why is tax policy so important, and how do we differ from other countries and health systems? Here are some thoughts:

American health care financing is increasingly regressive. Health care premiums are a regressive form of taxation for a social good: Everyone pays the same regardless of income. Indeed, when you factor in the corporate tax deductibility of health insurance premiums, well-compensated executives getting health insurance from their company are receiving a nice tax-free benefit; the higher paid they are, the more the benefit is worth in net terms.

Admittedly, while Social Security tax maxes out at $87,000 of income (2003 ceiling), the Medicare tax of 2.9 percent (half paid by employee, half by employer, all by the self-employed) is a flat tax with no ceiling. It’s still not a progressive tax. Million-dollar earners are paying $29,000 toward Medicare–a big number to be sure. But consider this: According to distinguished Canadian health economist Robert Evans, the top decile of income earners in Canada are spending on average 10 percent of their total income to support the health system in Canada through progressive general taxation. There are actually a few million-dollar earners in Canada such as Wayne Gretzky, Jim Carrey, William Shatner and Michael J. Fox (most of whom actually pay taxes in the United States–but play along with me for purposes of exposition). Those same million-dollar Canadian earners would pay about $100,000 toward the Canadian Medicare system. Admittedly, they don’t have to pay any health premiums, just taxes. So for the sake of fairness, you have to add to the American executive’s bill about $10,000 in premiums for a family (nice coverage too). Bearing in mind it’s a tax-free benefit, and while it really is part of total compensation, many folks think health care provided by their employer is free. Suppose also that there is some portion of general taxation earmarked for health care purposes like Medicaid–let’s say 2 percent of earnings (or $20,000). We’re still only at $59,000.

Remember that Canadians spend 10 percent of the GDP on health care, a number that has been flat throughout Chretien’s terms as prime minister (ironically because rich Canadians wanted a tax cut, which meant constraining the total health budget). We in the United States spend close to 15 percent of the GDP. So it is logical to assume that Canadian-style progressive tax financing (even using American top rates of tax, which are not that much different) would create a tax burden for the hypothetical rich American in a single payer system of about $150,000 as opposed to the $59,000 they currently pay. This is crude analysis; I’d love to see a real policy wonk do it properly. It’s hard to figure out. But do you know who has figured it out? Rich people. That’s why the rich are more likely to vote Republican, and more likely to be against single-payer policies (unless they are rich people from Boston, New York, Seattle or San Francisco–the civilized world as we now know it).

The values are shifting away from social solidarity. Health care systems can survive only if there is a massive transfer of income from rich people to poor people and from well people to sick people. Even the American system does this, because allocating health care solely on the ability to pay is barbaric. But as the medical concierge and VIP medicine crowd are finding out, there is a very good reason for providers to want a cross-subsidy to the poor sick from the rich well. Why? There aren’t enough rich people to go around. A lot of doctors think consumers should pay for all care out of their pockets. These doctors believe their waiting rooms are full of malingering riffraff with minor boring conditions, and that if ability to pay was factored in, their waiting rooms would be full of rich people with interesting diseases. Wrong. Cross-subsidy matters, not just for social solidarity purposes, but because it is good for providers.

My colleagues at Harris Interactive have asked the public about their values and beliefs. A classic question sums it up: Do you agree or disagree with the following statement? “The higher someone’s income is, the more that he or she should expect to pay in taxes to cover the cost of people who are less well off and are heavy users of medical services.” In 1991, on the eve of a Clinton presidency, 66 percent of Americans agreed with the statement. By 2003, in the midst of the Bush administration, only 51 percent agreed with the statement. It says a lot about the erosion of social solidarity that has occurred in 12 years.

Tax credits for the rich and poor. A centerpiece of Bush administration policy has been tax credits and tax advantaged medical savings accounts for rich and poor alike. But if you have mastered first-grade arithmetic, you will know that a tax credit or a tax advantaged plan is worth more to rich people who pay high taxes than to poor people who pay little or no taxes.

The undeserving rich. America rightfully honors its million-dollar earners; you come here with nothing and you make a lot. America has been very, very good to Arnold, and Ariana, and Wayne Gretzky, and me. But what made America the greatest country in the world is not that it had the lowest taxes, but that it was a country that offered freedom and opportunity in a place that was safe, fair and compassionate. Giving massive tax breaks to Paris Hilton so she can buy more Prada handbags doesn’t strike me as consistent with American values. Better she has fewer handbags and we have less uninsured.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California.

The Myth of the Electronic Medical Record

Monday, September 6th, 2004

Don’t get me wrong; I believe in the electronic medical record (EMR). I wrote a column some time back arguing that the time had come when the environment, technology and strategic commitment of key actors had reached a point where health care needed to start investing in information technology and making a difference in the way care is delivered. I still believe that, and reading fellow futurist Jeff Goldsmith’s latest book Digital Medicine (a must-read, by the way) reinforced the potential for IT implementation generally, and the EMR in particular.

So why the negative title for this column? Here are three things that concern me.

Unrealistic Expectations
I have long argued that the EMR is a permanently emerging technology. It has been the future for the last 30 years and will be the future for the next 30 years. Recently the EMR has received serious attention, but I fear that the expectations for it have risen alarmingly high at the policy, strategy and practical level.

The EMR mavens of the left and right in Washington violently agree that a digital future will save lives, save money and make us all happy. I hope this is true, but I suspect they are betting too much on what the technology can deliver, at least in the short run. More experienced hands are questioning the true pay-off of an EMR even though they are making the investments. As one seasoned hospital CEO put it to me recently, “I am spending $60 million on the EMR. When all is said and done, I will improve quality but I won’t save money. It will cost more.”

The EMR needs to be implemented to improve safety, provide a better operating platform for the future, and help create a digital culture for the organization, but it is not the panacea that some in Washington might think.

The Power of Registries
In a whole series of meetings I have had over the last few months, from Canada to the Carolinas, I have become acutely aware of the power of simple disease registries, particularly for diabetic patients. Since by most estimates 70 percent of health care costs are for chronic diseases, one would think that we would all be focused on managing these patients. Unfortunately, the structure of the delivery system, nor the reimbursement system, nor the all-singing, all-dancing hospital-based EMR does much to support the management of chronically ill patients.

What seems to work well is a simple registry of patients, with a system of clinical follow-up. I have heard people talk about how they have accomplished this effectively with sophisticated digital registries, but I also have heard people who did it on an Excel spreadsheet, or 3-by-5 cards, or even graph paper (seriously), and realize almost the same results. The key is to follow up on patients and engage them in their care. We need to learn this lesson: You don’t need to spend $60 million to make a positive difference in health care delivery using information technology.

Stick to It
The hardest challenge of all is to stick to the task of implementation. As Kaiser has so ably demonstrated, vision and financial commitment are not enough to overcome the profound barriers of implementation in a large organization. While I am confident that Kaiser will succeed in its multibillion-dollar investment in a standardized EMR, I was similarly confident when it committed to a different solution five years ago. We need organizations like Kaiser to stick to the task, implement successfully and show the rest of us that it can and should be done.

Ian Morrison is an author, consultant and futurist. He is also a regular contributor to H&HN OnLine.

The 2008 Election

Tuesday, July 6th, 2004

The presidential election of 2008 will be the most important event in the history of American health care. While health care is always a hot political topic in any election year (including this one), it is going to be absolutely critical in 2008, no matter what the outcome is this November. Why? Here are a few reasons.

Consumer-deflected health care. There is considerable momentum behind the move to shift costs to consumers, and despite consumers’ bitching, there is little to stop the trend. Health costs for employers have been rising at double-digit rates for almost five years, and employers have finally developed the backbone necessary to stick it to their employees. Because everyone is worried about having his or her job outsourced to India, the employee is eating the cost shift, albeit reluctantly. There is no reason this trend cannot continue for three or four more years, but it is not a long-run solution. Just imagine how cranky we will all be in 2008 when we are paying, out of our own pockets, thousands of dollars a year for health care.

The baby boomers confront retirement security. The oldest baby boomers will turn 60 in 2007, and it is quite likely that this will be exactly the time when the penny finally drops for them: They have not saved enough money for retirement. Most importantly, they will realize that they don’t have the close to $200,000 actuaries tell us they will need for out-of-pocket health care costs. Most of us will have to work forever; we will all become limo drivers in Boca Raton hauling other baby boomers around.

From a soccer-mom agenda to a retirement security agenda. The baby boom has transformed every institution it has touched, from the elementary schools of the 50s to the colleges of the 60s and 70s and the workplace of the 80s and 90s. We boomers are used to being accommodated and being in charge. While Clinton rode to political power partly on the strength of the soccer moms’ support, the 60-somethings of the future will be a powerful political force. Will they anticipate their looming retirement politically in 2008, or will they wait until it is almost too late (2012)? Medicare won’t go bust, they say, until 2017–and maybe further out if you believe some of the optimists. But there is no question that a massive cohort of selfish, insecure, worried, narcissistic baby boomers will expect to be catered to, and I will be at the head of the line.

The fallout from Medicare reform. As I wrote in a previous column, “Medicare Reform as Three Movies,” the new Medicare benefit will be the status quo in 2008. Unless overturned or substantially modified in the interim, the elderly will have real experience with discount cards and doughnut holes, and the pharmaceutical industry will have many of its blockbusters off patent (either generic or over the counter). The 2008 election will be a referendum on the effectiveness of Medicare reform.

What will be the outcome? I don’t know. But I hope we have a real debate about American values of fairness; innovation; and economic, personal and fiscal responsibility. Most importantly, by 2008 we will need to have the national debate about the fundamental and total redesign of health care delivery and the system to finance it. Because one thing we can’t ignore is the reality of 2022, when the peak of the baby boom hits 65 and all of us will be sitting around in nursing homes singing “I got you, Babe.” We can’t extrapolate that demographic onto the current health care system.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California. He is also a regular contributor to H&HN OnLine.

Dogs and Doctors

Thursday, May 6th, 2004

I’ve often joked that there is a unique field of health economics because of the special nature of health care, while there is no field of dog food economics. I suddenly realized that I am wrong. There is a remarkable similarity between health care economics and dog food economics. I had this epiphany while listening to a panel of health care experts debate the consumer’s role in health care versus the role of managed care.

To economists, health care is seen as different from other markets. The reason, they argue, is that there is asymmetry of information: Providers know what they are selling, while consumers largely do not know what they are buying. The asymmetry of information is the cause of market failure in health care and the reason the doctor plays such a special role as agent for the patient in the health care transaction. Third-party payment makes the issues even more complex, yet we buy other forms of insurance in a marketplace without the need for special agents.

Then it struck me. Dogs don’t buy dog food. They may eat it, but they don’t buy it. Dogs have preferences and may refuse to eat something (voting with their paws, so to speak) but they don’t generally select the food they eat. Sometimes they have choice. My large and aged golden retriever has demonstrated that he prefers pepperoni pizza, prawns and whole sticks of butter (given the opportunity to steal food) over the dry, boring pellets for overweight old dogs we feed him. Dogs rely on an agent (the owner) to help them make decisions and pay the tab.

In the past, we patients were just like the dogs. We knew what we didn’t like but all we could do was bitch about it (pardon the pun) and change doctors. Armed with information, we patients now are supposed to be intelligent consumers. Yet, I think to a large extent we do need to have some help. Harris Interactive surveys show that the square root of zero humans (actually less than 1 percent) have ever made a decision on selecting a plan or doctor based on a report card they saw or read. Don’t get me wrong–I am a big fan of report cards, and dog shows for that matter. But dog shows and report cards are more important to dog owners and providers than they are to dogs and patients.

Dogs need help, and patients do, too. There is still an important role for agency in health care. Clearly, we are moving away from the paternalistic notion that only the dog owner, or doctor, or health plan knows best. Managed competition put the consumer more in the decision-making role, but the plan sponsor helped orchestrate the choice of health plans and set the consequences for lack of cost-conscious choice. We do this with our dog, too: If he is foolish enough to steal pizza, he sleeps outside.

But the current trend toward consumer-directed health care doesn’t give us much in the way of help. Health plans and purchasing coalitions are arming us with Web sites. Some sophisticated providers offer medical concierge services to help us navigate through the complexity of health care. Yet, surveys show that we still rely heavily on our doctors and our friends and family to navigate through the health care system. We trust them to do what’s right, just like my dog trusts me.

Before we all get too carried away with consumerizing health care, we need to think through this issue of agency. As more responsibility for cost and choice is forced on the patient, it becomes both difficult and dangerous to ask the doctor to be both retailer to and trusted confidante of the patient. That’s like asking her to be a cross between St. Thomas Aquinas and H&R Block: She has to do your tax return before she can prescribe anything. We need to develop a new cadre of trusted agents; otherwise health care will go to the dogs.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California

Medicare Reform As Three Movies

Saturday, March 6th, 2004

With the passage of the Wholly Inadequate Prescription Drug Benefit for Seniors (WIPDBS) and the capture of Saddam Hussein, George Bush should be a shoo in for re-election unless the economy reverses its apparent recovery. Bush and his advisors have taken the healthcare issue away from the Democrats while apparently rewarding their supporters in the private sector of health care: most notably health plans and pharmaceuticals. But in the long run the combination of the passage of Medicare reform may come back to bite the republicans and the drug industry. The best way to think about the long term effects of the legislation is by using three movies as metaphor.

Movie 1: As Good as it Gets…for the Private Sector and Some Seniors

Much of the mainstream media has portrayed WIPDBS as a major victory for the pharmaceutical and managed care industries. And from a myopic point of view that is right, after all the drug companies got: prohibition on price controls on drugs, (Medicare cannot use its raw naked purchasing power), and there is prohibition on reimportation of pharmaceuticals from Canada. In addition, many actors got short and long term handouts: corporations to subsidize retiree health plans, health plans to provide Medicare PPOs, PBMs to deliver pluralistic administration, and doctors and hospitals to deliver services and support the bill. Rich people got MSAs and HSAs (The Warren Buffet PPO) and no new taxes. And to be fair, there was some fresh new coverage for the poor uncovered elderly who are not in states with rich PACE or Medicaid programs. To many analysts this was as good as it gets for the private sector and for some low-income seniors.

While it is undeniable that some low-income seniors will see a benefit from the new plan (when it becomes fully operational in 2006) most seniors will face a high degree of cost sharing for their prescription drugs. The key cost sharing feature is the famed “donut hole” in the middle where seniors would be exposed to the full cost of their drugs between $2,250 and $5,100 of annual expenditure on medications. Practically speaking, most seniors taking two or three prescription drugs would end up stuck in the middle of the donut and on the hook for 30-50% of the total cost of medications (according to actuarial estimates in the bill). Many critics of the donut hole cite this as a necessary evil because of the lack of money to pay for the bill. I disagree. As we say here in Silicon Valley “it’s not a bug, it’s a feature”. The donut hole mirrors exactly the initiatives in the private sector (tiered formularies and escalating co-payments) that have successfully forced employees to switch to generics and forego medications. It is part of a broader trend in healthcare to make the consumer more responsible for payment, thereby reversing a forty year trend since the passage of Medicare in which the consumers has paid a smaller and smaller share of the total health care bill. This is an effort by corporations and politicians to “break the culture of entitlement” by making consumers more responsible. The early evidence shows that the poor and the chronically ill are most affected, but even the middle class trade down to generics twice as often as they trade up to the brand when faced with steep co-payments.

Movie 2: The World is Not Enough…

Despite the fact that the private sector seems to have gotten the world, the world is not enough. Why?

  • When the wholly inadequate coverage arrives in 2006 most people will be paying for more than half their medications.
  • There will be tremendous price transparency of drugs, now and in the future (discount cards in the short run and donut holes in the long run).
  • The drug industry will experience the coverage kicking in when many of their big blockbusters are off patent and when huge classes of drugs like statins will be both generic and OTC.
  • Despite the subsidies to corporations there is still a huge incentive for corporate America to phase out retiree health benefits and now a morally acceptable alternative exists (i.e. have their retirees look after themselves through Medicare).
  • HMOs and HSAs will have to find a way to make money on anybody but the rich well elderly (all four of them).

When it comes to healthcare for the elderly we are all poor. Most people cannot afford the enormous burden of paying for retirement and healthcare costs. It is likely this bill will be a platform for future Democrats to go after the drug industry when it is at a low ebb, lacking innovation and subject to five years of public outrage about prices. What would Hillary do with Medicare in 2008?

Movie 3: The Ten Commandments

While the bill may backfire it really is an attempt to set in stone a set of ideological principles kinda like the Ten Commandments:

  • There shall be competition (Even if it is unpopular, doesn’t work, and there are no HMOs or congressional districts willing to participate in it).
  • There shall be liberty for seniors to be confused by a myriad of private health plan and drug coverage offerings.
  • There shall be skin in the game (consumer responsibility for payment through co-payments, deductibles and premium sharing) because it is good for consumers to pay at the point of care (it will stop them overusing the Medicare system for recreational purposes and it teaches seniors that they should look after themselves in their forties and fifties).
  • There shall be no supplementary coverage because supplementary coverage nullifies skin in the game.
  • There shall be no new taxes for rich people, only raised premiums for all.
  • There shall be privatization because private is better than public (don’t argue, this is a commandment).
  • There shall be unrestricted free choice of plans each of which has a restricted choice of doctors because choice is good.
  • There shall be big differences in coverage among seniors but thou shall not covet thy neighbor’s coverage.
  • There shall be no Canadian drugs in the veins of Americans even if the drugs are made in America and purchased by Americans.
  • There shall be no senior left behind…in traditional Medicare.

Actually, I believe that while the intent may be to undo traditional Medicare the new plan offerings will be so confusing and lame that good old traditional Medicare program will be the choice of most seniors. The question is now what do we do?

Ian Morrison is an author, consultant and futurist based in Menlo Park, California. This column was published in Hospitals and Healthcare Systems Online, March 2004.

Of Chicken and Lobster Soup: Price Transparency and the American Hospital

Tuesday, January 6th, 2004

Hospital prices are seen as a bad deal already, even though consumers don’t even pay for them directly. More than ten years ago in a presentation to Tommy Frist (of HCA fame) a colleague and I showed a Conference Board survey in which hospitals ranked 49th out of 50 items ranked on being a good value. Chicken was seen as the best value in America, lawyers fees was ranked 48th of items surveyed. Mr.Frist the elder became upset, not because hospitals were near last, but because they were behind lawyers. We pointed out that the reason that hospitals are seen as such a bad value is that hospitals persist in sending the patient a bill. Who could justify $58 Tylenol or outrageous prices for simple lab tests? Some wag in Mr. Frist’s executive team said “Yeah, in the future we shouldn’t send the patient a bill, we should send them a chicken”.

Fast forward to 2004. The hospital reimbursement trends of the moment lead us towards consumer responsibility for payment, tiered networks and transparency in pricing. We are moving back to a health system where consumers are exposed to a larger share of the cost of each of the healthcare silos. While subtly disguised as “consumer directed healthcare” or “tiered networks” consumers will see how much the cost of a stay in hospital will affect them in the pocketbook. Well, that’s the theory.

On a wonderful, special trip to France last September, my wife and I splurged on an extravagant gourmet dinner in a fancy French hostellerie in St. Emilion. As we were seated at the table, the maitre d’ furnished me with a menu with prices on it, and my wife (presumed the economic ally discriminating inferior), with a menu with no prices. My wife offered that she might start with the lobster soup, I casually flashed the menu with the prices (“Not, for $43 a bowl” I suggested). After she enjoyed the green salad instead, we reflected on what this means for healthcare.

There is no price list in the American hospital. We patients are like the guest at an expensive banquet, with no clue of what the lobster soup really costs. We select things (on those rare occasions in a hospital when we have such choices) completely oblivious to the cost to the patient or the third party paying the majority of the bill.

Thus, it is argued, consumers need to pay at the point of care and be more frugal. OK, then, show me the prices in advance, when I am conscious, upright, rational, and informed. Hospital accounting is arcane and glacial at best, few hospitals know the true cost of clinical interventions, fewer yet have the information systems to communicate such data in real time to a fully informed patient on the edge of clinical expenditure.

How hard could this be? Car repair is as complicated as hernia repair and yet most Shell stations can give you a pretty decent estimate in advance and they call you before spending more if they find something else wrong. (Is it just me, or do you always need two new tires when you take your car in?)

A lot of this patient responsibility for payment is silly. But, if we are going down this road, please give us all a menu with prices on it. And live with the consequences: more green salad and chicken and less lobster soup.

Ian Morrison is an author, consultant and futurist based in Menlo Park, California. This column was published in Hospitals and Healthcare Online January 2004.