Tag Archives: healthcare

Health Care Solutions: Insurance Companies

The biggest issue in the health care debate is the effect of the insurance companies on delivering health care to the American public. The challenge is that the insurance companies are not interested in facilitating the delivery of quality health care.  They are interested in delivering profits to their stockholders and high compensation to their leaders.

I am a capitalist.  I believe that companies should make profits and distribute the earnings to their shareholders.  However, most companies have the requirement of competing in the marketplace.  If customers don’t like their product, sales will decline and so will profits.  There will always be a small upstart to provide the nudge to make products better, cost efficient or more universal.  Even in the supposedly “too difficult to break into” automobile manufacturing industry, we see upstarts like Hyundai and Tesla pushing the big guys to do better. Currently the insurance companies average around 30% of their sales in administrative, marketing and lobbying, commissions and profit.  With a clear competitor in this space we would see that 30% decrease pretty quickly.

Now, when is the last time you heard of a new insurance company?  The insurance business is all about aggregating the risks of many people to lower the overall risk to an individual.  It is impossible to start a new insurance company, because you need a sufficient base to spread the risk. So, we have a situation where there is no real competition in the insurance marketplace. This has led to insurance companies taking advantage of their customers. In fact, in some ways, it would be irresponsible for them to do otherwise.  By not allowing customers with pre-existing conditions, they are increasing profitability for their shareholders.

So what is high-risk? I’m sure that you would consider cancer, insulin dependent diabetes and severe heart disease high-risk and subject to increased premiums or denial under our current system.  But what about bunions or being an expectant father or a firefighter? These are all reasons taken from underwriting standards to deny coverage. Doesn’t make a whole lot of sense to me.

How about this situation? Person signs up for health insurance.  Insurance company accepts insured.  Insurance company takes premiums. Person gets diagnosed with aggressive breast cancer in June.  Insurance company is called and authorizes double mastectomy and hospital stay.  Then the insurance company starts to review her original application.  Oops.  She has a notation on an old medical record that talks about an acne issue that wasn’t mentioned on her insurance application.  Three days before surgery insurance company calls back and rescinds authorization. Hospital needs $30,000 deposit to do surgery. Person doesn’t have $30,000.  She requests review by insurance company. Denied.  She then went to her congressman who intervened with the president of the insurance company (talk about government intervention into health care) and in October, finally the company relented and approved the surgery.  The tumor had grown from 2-3 centimeters to 7 centimeters and moved into the lymph nodes. Yikes.

It doesn’t matter if you are penniless or a venture capitalist or a doctor. You can still get slammed by the insurance companies.

The real question is “Is this the type of policy that we want our country to support?” There are those on the right who believe that what we have right now is the best that we can do.  (Sarcastic Videos) There are those on the left who are looking for a solution that will help cover the uninsurable. I am with those that believe that health care (not health insurance) is a basic human right.  But I also believe that we as a nation have to stand up and take control of our health care needs.  Health insurance needs to be used as as insurance against large claims, just as we look at car insurance.  It should not be used for small things like checkups or doctor visits.  I favor a high deductible plan that is incorporated with a health care savings program that is tax advantaged.  These products are out there today. I favor the abolishment of pre-existing conditions clauses and recission (the cancelling of policies after a serious illness). I favor the moving of health insurance from the employer to the citizen to make it entirely portable. I favor the creation of a list of conditions, drugs and procedures that will be covered as a mandatory part of the contract, so that the consumer is clear as to their coverage. And I favor the creation of an entity that will provide competition to the existing health insurance industry to lower costs and to provide accountability.  It would have to be non-profit as to not be caught under the same standards as the for-profit companies, but it doesn’t have to be government run.

Look, we don’t have to reinvent the wheel here.  Most other industrialized nations have faced this problem and developed systems that work.  They provide universal coverage and have better medical outcomes than we in the US do.  It is time to solve this mess.

Health Care Solutions: Hospitals

Hospitals are in the toughest position of all in the health care debate.  Anyone showing up in their emergency rooms are required to get health care, whether they have insurance or not.  Many people without insurance coverage use the emergency room for all of their health care needs, which strains the ability of the hospitals to provide a high level of service to their paying customers.

In addition, hospitals are at sharp end of the stick when it comes to dealing with insurance companies.  Even if a patient has insurance, if the insurance company denies authorization for a treatment or procedure, the hospital must jump through hoops to try to reverse the denial. A friend of mine manages a group of 6 people who work for a company that is contracted by a single hospital chain just to reverse these denials.  They make a very good living just adjudicating the differences of opinion between the insurance companies and the hospitals.

Hospitals do not do themselves any favors, however, when it comes to managing their own businesses.  Because most of their funding comes from insurance companies and Medicare/Medicaid, they negotiate with these companies for standard reimbursment rates, which in many cases have no basis in the actual costs to provide the service or procedure.  They do not post the prices of their services, so that the average consumer can make informed decisions.  And of course, if you are uninsured, you will pay the highest price.

Hospitals are always looking to grow, to take market share away from the other guy.  There is a strong sense that they need to buy the flashiest newest technology, the multi-slice MRI or the gamma knife.  And I think that we need to have access to these technologies as they can significantly improve the quality of diagnosis and treatment provided.  But I don’t think that every hospital in the county or state needs to have the same technology.  Heck, run the MRI 24/7.  If my doctor requires that I need to get an MRI to diagnose a serious condition, I would go in at 2am to get it done.

The technology that will make the hospital work better and provide significant patient care overall is EMR – Electronic Medical Records.  It is not flashy, but it provides the framework to allow doctors to work together and have a unified view of the patient’s status from anywhere.  This is not being implemented at anywhere near the pace that it needs to be.  President Obama is wise to have included significant incentives to its implementation.

Hospitals are in the crosshairs.  They need to maintain good relationships with physicians, insurance companies and big pharma.  They are mandated to serve the public, whether they can pay or not.  They have significant unfunded mandates from the government, accreditation organizations and insurance companies. Now is the time for hospitals to take the initiative to step out from the “Woe is me” persona and propose needed reforms to the entire health care  debate.

Health Care Solutions: Lawyers

OK, folks.  Let’s tackle an easy one with only one topic.

In this country, the saying goes, anyone can sue anyone else for any reason (and sometimes for no reason at all).  But medical malpractice is a specific type of tort, a civil lawsuit that has had intended consequences and unintended consequences for all of us.  So let us look at tort reform.

First, the intended consequences.  Attorneys who specialize in medical malpractice present their cases to a jury made up of regular citizens who are tasked with the job of determining the dollar value of the particular injury (and pain, suffering, loss of consortium, future salary, etc.).  Because these lay juries do not have any particular medical training (and they are dealing with OPM – Other People’s Money, i.e. the insurance company’s), they tend to deliver awards that are lottery like.  Their thinking is that if I were in that position (and it didn’t cost me extra), I would want to be as generous as possible.  The lawyers, as in most personal injury cases, collect a third of the award.  It can be pretty lucrative.

Now the unintended.  Because of the increase in medical malpractice lawsuits, doctors have been practicing defensive medicine.  According to this Massachusetts Medical Society report, 12% of all health care expenditures are for defensive medicine and costs involved are well over $100 billion annually. The costs for those x-rays, ekgs, stress tests, MRIs and blood work add up quickly.  But the doctors think, “I sure don’t want to be that guy who gets asked ‘Why didn’t you order an MRI to determine for sure the extent of the problem?’ on the witness stand.”.

So, how do we change the system?  First, we must look to tort reform, specifically for the medical malpractice arena.  Instead of using a regular civil trial with judge and jury, change all medical claims to an arbitration model with medical experts as the arbitrators.  Under this type of a program, there would be limits on non-medical claim reimbursement.

Second, we change the method of reimbursement from a medical malpractice insurance model to a model that has worked well for the banking industry, the FDIC.  In this case, each health care provider pays a fee into a pool that the arbitration panel can use to pay claims.

Doctors and hospitals don’t get off scott free here, though.  I would expect that as a part of this program, reporting on the number of successful claims will be made available for quality checking by interested patients.  This will be another area where transparency will allow health care consumers to have more information on which to make provider decisions. In addition, if physicians were incompetent, the arbitrators could (and should) take away medical licenses.

Health Care Solutions: Pharmaceuticals

Lately, I have been hearing this awful commercial on the radio:  “Have you been prescribed Lipitor for your high cholesterol?  Know that there is no alternative and that your doctor prescribed it for a reason.”  More FUD on the Health Care front.  Really, if there was no alternative, why would Pfizer spend money scaring you about changing?  What Pfizer is really worried about is that they maintain the high profit levels of Lipitor based on the high price of this drug (over $100 per month per patient in the US). The fact is that people are looking for other statins (yes, there are generics out there that do much the same as Lipitor for significantly lower prices). My bigger point is that Lipitor provides an astonishing amount of profit to Pfizer — by this account $2.86 billion dollars in 2008 that would not be generated if Lipitor lost patent protection.  Good news for the Pfizer investors, but bad news for all of the patients who are taking the drug and the health care system as a whole.

My vision is that we reduce the amount of time a drug can remain proprietary, in order to allow cheaper alternatives to come into the marketplace.  Drug companies can develop “plus” products if they want (and get proprietary timing on those), but each version of the drug should move into the generic phase faster to allow more patients to be served in a cost effective manner. Certainly some patients will benefit from the newest iteration of the drug, but a considerable number of patients would have some value from the older stuff.  I liken it to the PC marketplace.  There are some of us who need to the get the latest, greatest, hottest new products the day they come out.  Others are well served by utilizing the previous version.

Pfizer’s contention is that they work on a number of research projects that don’t work out and the profits from the big win cover some of these, but we can do better to hold down the cost of drugs.

According to this filing, Pfizer (as an example) spent 15.4% of revenue on R&D and 30.5% on selling, informational and administrative expenses.  Doesn’t sound like an R&D company as much as a marketing company to me. Lest you think I am out to get Pfizer, we can look at their competitor, Novartis.  According to this filing Novartis spent 16.9% of revenue on R&D and 35.1% on selling, general and administrative.  Again, about a 2 to 1 ratio.

So, I have another problem with the consumer advertising that Big Pharma utilizes.  These drugs are all prescription drugs that cannot be utilized without a physician’s authorization.  Why should Big Pharma advertise to consumers?  All it does is provides a way for consumers to demand that their physicians prescribe the name brand, whether or not it is the best solution for their condition.  In order to provide more profit to the pharmaceuticals, they should stop all consumer marketing and use those profits to devote to more R&D.  Think of it, no more goofy commercials with folks in bathtubs talking about ED or the advantages of Advair or birth control via patch, ring, pill or injection.  The result would be something like $10 million a day back to Big Pharma for R&D. Sounds like a winner to me.

Please start the discussion in the comments if you agree or disagree.  I’m sure there are other approaches that I have yet to think about.

Note that I am not a physician and certainly don’t take any medical advice from me.

Health Care Solutions: Physicians

It’s good to be back.  Too many distractions in the summer that just make it difficult to generate great ideas.

Today, I want to start to think about some ways that we can view the health care crisis in this country.  One problem that I have mentioned before is that the consumer is the only constituency in this fight without a lobbyist.  The hospitals, insurers, doctors, pharmaceuticals, lawyers and software companies all are paying huge sums to the legislators to push a bill one way or another.  The only way to get to a solution on health care will be to compromise. What I thought might be helpful (and sometimes controversial) would be to look at each of these constituencies and see what changes might be beneficial to the health care consumer. I would love to hear your opinions on these rantings in the comments.

Today’s topic is doctors.

We all know that they are the personal face of the health care crisis.  As the main deliverers of our health care, they are there to see the failures in our current system as we see them.  But there are lots of issues relative to this last link in our health care delivery system that can be fixed.

Today’s doctor is overworked and underpaid, at least according to her.  They spend a lot of time working to convince insurance companies to pay them for services.  They are forced to rush patients in and out in order to see as many patients as possible.  In many cases, there is not the time to get to know the patient other than as a combination of diagnoses and test results.  Is this what we really want? It obviously is not what the doctors want.

On the other hand, doctors in all specialties spend at least 4 years in post graduate study and 3 years in residency, racking up hundreds of thousands of dollars in loans.  Is this a bit of overkill for the majority of the health related needs we have?  Yes, we will still need neurosurgeons, but do we really need this level of medical experience to diagnose ear infections and perform sports physicals? We have started to see a retail physician service, brought to us by Walgreen’s and CVS, who can perform these types of low impact evaluations on a much lower cost per procedure.  I would vote to see more of these as part of our continuing care.  Even better would be if they were coordinated by the same family physician we are comfortable seeing to insure continuity of care. I understand that people are loathe to change their vision of health care provided by physicians, but this is one compromise that we as consumers need to make.

The primary care physicians are hit the hardest.  They are the ones who have to fight with the insurance companies over every decision.  In many cases, they are fighting for the authorization for procedures that they get no financial benefit from, e.g. colonoscopies, stress tests, MRIs, specific drug regimens.  Instead of being the doctor with all of the responsibility for coordinating our care and little of the revenue potential, I would vote to change the role of primary care physician to that of a project manager for each patient.  They would call in the troops necessary to fulfill the patient’s requirements, whether that was a Physician’s Assistant for that ear infection or a Cardiac Surgeon to insert stents.  The primary care physicians would get paid for the coordination and project management of each patient and the doctors that were called in for ancillary services would get paid by the procedure.

Rather than a residency program where the new doctor works in a hospital for little money and no sleep, I would propose that the residency program actually become more like an apprentice role.  Newly minted doctors could work with established physicians in their specialty and learn the business from the ground up.  One initial benefit would be that the new folks would be given the opportunity to see how a practice works, the ins and outs of insurance, billing, scheduling and all of the other myriad details of a modern physician’s world.  Sure, the aspiring cardiac surgeon would scrub in on surgeries, like they do now, but they will do it under the tutelage of a teaching physician with whom they will have the opportunity to grow.  The doctor, rather than the hospital, takes on the role of teaching the physician.

Lastly, we tend to venerate doctors in our culture, from Marcus Welby to Dr. Kildare to Dr. McDreamy.  And doctors have done a ton of good, no question. But, the doctors have read their press clippings. Especially the specialists. My friend Sandra reminds me that one of the big issues with physicians is that they are simply greedy.  Fast Company had an article that claimed new primary care physicians make an average of $186,000 per year and orthopedic surgeons make triple that.  Yes, they have college loans, but these are not minimum wage jobs.  This is not practice income; this is salary, after insurance and office help and tongue depressors are paid for. Unfortunately, this problem will take time to fix, if we are strong enough to try, as a whole new generation of physicians will need to be introduced to these changes.  But it is critical that we as consumers understand the economics behind our health care and this is an area of concern.

They just don’t get it

How many times have you made the statement to yourself (or to your significant other) “Man, they just don’t get it.”? Maybe it’s because I am getting older, but it seems like those “Get off my lawn!”  moments are happening more and more frequently to me.  Let me give you a couple of examples from this week.

I read an article from Slate today about the plight of airline pilots, written from the point of view of a airline pilot.  In this rant, he blames the consumer for looking for $99 fares causing airline executives to: look for less experienced (cheaper) pilots, for diverting flights from big planes to commuter jets, for the decrease in pilot pay and even for the company not providing the pilots with free food.

We all know that the airline business is a tough one to be in.  It has been estimated that the US airline industry in all of its years of operation has not posted a cumulative profit.  Be that as it may, the pilots for a long time ruled the roost.  Their unions have provided the most senior of these pilots with salaries well into the 6 digits.  The author of the article talks about new pilots making “welfare wages”.  In fact, first year pilots make in the low $30K range across many of the major carriers.  Not big bucks, but it is based on a half time flying schedule. They are limited by Federal Law (FAR 121.481) to a maximum of 1000 hours flying time per year, which is considered half time in my book. Yes, they have to get to the job, but so do a lot of commuters. I don’t know about you, but $32K is not welfare wages. In fact, it is right at the median for wages across the whole US. The picture changes as the pilot gets more experience.  With the larger carriers, within 3 years, the salary will double or almost triple.  With the regional airlines, the initial salaries are lower and the rate of increase is also lower.  The pilots’ union for these carriers have had less success in negotiating the higher salaries than their brethren at the majors.

The author claims that safety is compromised by hiring younger, less experienced pilots at the regional airlines.  These pilots must meet the same qualifications, mandated by the FAA, as at the bigger carriers. His conclusion that the safety of passengers is threatened has not been verified by the actual events.  Flying in a commercial jet (of any size) is safer than most other modes of transportation.

But the most laughable point was that despite flying a full day, the pilots were not given free food.  Now, other than Google (and a few other non-traditional companies), where else do you, as an employee, expect to be fed while on the job?  Heck, even at Burger King, employees are not given free food, only discounted meals. Get off my lawn!

Well, let’s see… I haven’t talked about health care in about 12 hours, so let’s hit that one as well…

The AMA, Big Insurance and Big Pharma are against any major reformation of health care in our country.  And why not.  They are all making a ton of money at our expense.  I read an article by Abraham Verghese in the Wall Street Journal about the health care debacle from a doctor’s perspective.  In his article, he decries preventive medicine and electronic medical records (EMR) as not helping to solve the problems of our age.  In my opinion, both preventive medicine and EMR provide critical advantages to our populace.  Preventive medicine will allow doctors to get more information on the tracking of conditions.  This will provide the benefit to aggressively treat a risk factor and hopefully shortcut the critical issues that cost the most amount of money.  If the doctor was tracking the coronary heart disease over a period of time, the doctor and the patient together could plan for a treatment that was gradual and effective, rather than waiting for the heart attack and then starting treatment.  From both the cost standpoint and the quality of life standpoint, the patient would be in a better position.  EMR, if implemented correctly, will allow doctors to have the wisdom of the crowds to gather information on conditions and how others have successfully treated them, in much closer to real time.  Today we wait for articles to appear in medical journals to get our information.  We can and must do a better job here. Dr. Varghese, you just don’t get it.  The world has changed and the medical community needs to change as well.

So, the former Labor Secretary, Robert Reich writes regarding the health care crisis that the only way that we will get out of this mess is to look to cost containment, or even cost reduction.  Those doctors, hospitals, insurance companies, drug companies and their friends will need to reduce the costs of providing their products and services.  The best way to do that is through the free market system and a mandate from the government to implement changes in our medical systems.  President Obama needs to have a strong hand and force the issue.

Health Care Musings

I read an interesting article on health care that debunks many of the commonly stated reasons for our health care crisis in this country.  It seems that we don’t have more hospital beds, doctors or CT Scanners than the rest of the world.  Malpractice insurance and tort reform are a problem, but not a huge problem. Why in the world are we spending 2.4 times the amount of  money per capita and 70% more as a percent of GDP than the rest of the world on our health care system?

My quick answer is OPM – Other People’s Money. Just like its homonym, OPM (opium) is a narcotic that can induce people to misuse it.

Lets take a few examples and see where this leads. Insurance companies pay the bulk of the medical bills in this country.  In most cases, they negotiate with providers (hospitals, physicians, etc.) to pay from a price list.  That is, even though a hospital may charge $1000 for a procedure, the insurance company has negotiated a rate of $600 and will pay that $600 to the hospital.  The hospital writes off the $400 negotiated credit.  But what happens if you don’t have insurance… You will be billed $1000 and be expected to pay that. The hospital is not taking a loss at $600, but there is no incentive for them to accurately price their services. In fact, they may not even know their true costs to offer services.  That to me, as a business and numbers guy, is truly scary.

The patient, in most cases, has insurance.  Do most patients shop around for services based on cost?  Actually, most people pay more attention to the pricing of their cell phone plan or auto body repair than they do for health care.  Why is this?  OPM.  They know that their insurance company will pay according to the terms of their policy and this gives them the freedom to be blind and dumb when it comes to their healthcare.  Do whatever the doctor recommends, no matter the cost.  This has the additional unfortunate side effect of people not having the data to accurately determine the competence of their health care provider.  If you are not going to check on price, you probably aren’t going to see if the doctor or hospital has significant experience and positive results with your type of condition.

Ah, then, the answer is to get the insurance companies involved.  Well, not so fast.  The insurance companies by definition, assess and reduce risk.  The usual answer is that they do this by combining risk for many people to reduce the harm that an individual’s loss could cause.  In auto insurance and home insurance, they do this pretty well.  In health insurance, unless you are part of a huge group, say a Fortune 1000 company, insurance companies will weed out anyone who shows even a glimmer of a future problem, either through direct denial or increased rates.  Rather than look at their entire portfolio of insureds and combine risks, they focus on the micro level of each individual subscriber.  But the only data that they have is based upon doctor records.  So, if you know you are sick but haven’t been to a doctor, you are more likely to get insurance coverage than if you have been doing the preventive medicine routine with regular checkups and preemptive care. Totally backwards, but somehow it makes sense to the insurance companies.

Well, then the problem must be solved by the doctors.  Again, OPM raises its ugly head.  Doctors also buy insurance — in their case it is malpractice insurance.  They are scared senseless by the threat of huge lawsuits, so they overtest. Sure don’t want to be that guy who gets asked “Why didn’t you order an MRI to determine for sure the extent of the problem?” on the witness stand.  All of this testing costs money and the patients, in general, don’t make a fuss — if the doctor requests it, it must be the right thing. This leads into a long discussion about tort reform, another OPM — insurance companies paying off litigants and their attorneys, but I am not going to go there.  The thing about overtesting is that the doctors have wised up.  They have seen the amounts of money going to testing, imaging and minor surgical procedures.  They too are taking advantage of the OPM gravy train by starting up centers to do imaging, diagnostic testing and minor surgery.  They can then take a piece out of the insurance dollars on both sides of the transaction.  There is nothing in the AMA charter that disallows this practice.  Does it equal more unnecessary tests?  You would have to think so.

Solving the health care crisis is not solving a simple problem.  It will require many small steps to help to corral the runaway train that is OPM. But nothing is more important to the future of our country than the process of reining in health care costs and improving medical outcomes.  We as a country need to step back and say that we didn’t have the optimal solution and look at how other countries have attacked the problem to help us find our right path.

Innovation, Leadership, Healthcare, Entrepreneurship and Economy

Innovation: When entrepreneurs get together in Chicago, a common topic of conversation is how the city fares in terms of new business.  A lot of entrepreneurs look longingly to either coast and the greener fields (in many respects 🙂 ) that beckon. McKinsey talks about innovation (not venture financing, alas), but Chicago fares pretty well in the diversity of companies that have been granted patents.  We are third in the world, behind only Silicon Valley and Toyko in one measure of developing a diversified business base.  I have always felt that this was a hidden gem in the Chicago economy, compared to the boom and bust cycles of mono-industry cities like Detroit, Houston, Denver or Hartford.

Leadership: A friend pointed me to this article on entrepreneurial leadership in this economy.  (Hat Tip: BF)

Healthcare: Should America have universal healthcare?  According to the experts, 50 million of us are not covered by health insurance.  We pay significantly more for healthcare on a per capita basis, have less access to advanced technologies and actually have worse outcomes than most other countries. Joe Conason, writes about the issue in Salon today.

Entrepreneurship: Paul Graham‘s new rallying cry is “Be Relentlessly Resourceful“.

Economy: Wonder why the prices of groceries haven’t been going down, as raw materials prices have?  So have the big grocery chains.