The Health Industry’s Achilles Heel

“You never want a serious crisis to go to waste.
– Rahm Emanuel, White House Chief of Staff

Timing matters. The health industry has demonstrated steadfast resistance to reforms, but its recently diminished fortunes offer the Obama Administration an unprecedented opportunity to achieve meaningful change. The stakes are high, though. The Administration’s health team must not miscalculate the industry’s goals, or waver from goals that are in the nation’s interest. The two are very different.

Aligning the forces of reform will be the first challenge. The White House and Congressional Democrats appear to be collaborating to develop a unified reform design. Even so, the effort is hardly pure. Lawmakers have been receptive to industry influence. The non-partisan Center for Responsive Politics reports that, in 2009, health care interests have already spent $128 million on Congressional lobbying contributions, more than any other sector. The tide now turned, most of that largess has gone to Democrats.

All reform discussions acknowledge the twin goals of universal (or expanded) coverage and controlling cost. But as the state initiatives in Massachusetts and California have shown, expanded coverage is easier. Coverage pays for care, so the industry is delighted to oblige. Cost reductions, though, are harder. The mechanisms that undergird health care’s excesses are embedded in its operations, and waste is responsible for much of its profitability.

The Obama health team already has firsthand experience with the industry’s maneuvering. First it saw the health IT vendors’ association, HIMSS, hijack the well-intentioned $19 billion HITECH allocations for electronic health records by capturing control of the agency that specifies the certification criteria for product subsidies. Now those funds will probably favor outdated, non-interoperable, client-server technologies from a small number of legacy IT companies. Newer, more effective, less costly web-based tools from hundreds of innovative firms will likely have to base their success on market appeal, without the government’s help.

And then there was the May 14 cost backpedaling by six major health industry associations. After apparently agreeing to voluntary cost reductions with President Obama, they reversed, insisting they had offered to only “ramp up savings” over an unspecified time frame. At least one health plan is already preparing an anti-reform campaign, similar to the Harry and Louise ads that helped turn public sentiment against the Clinton health reform effort.

These developments confirm the industry’s focus on the status quo, backed by cash and lobbying strength. The question is whether it can again stave off reform, sealing another win at the American people’s expense.

But the industry has an Achilles heel. Its fundamentals have eroded, potentially easing the way for operational restructuring. Consider the evidence that commercial health plan enrollment is in free-fall, as mainstream purchasers – employers and individuals – are priced out of the coverage market.

  • AIS and Kaiser Family Foundation data show that, after reaching 180 million enrollees in 2005, commercial health plan enrollment has plummeted by more than 20 million lives (11.3%). 
  • In recent discussions, health plan executives have acknowledged that the multiplier to estimate total covered lives from employee lives has fallen from 2.2 to 1.8. This 18 percent change mostly reflects kids whose parents’ employers have stopped subsidizing dependent coverage. It could represent twelve million new uninsureds, previously unaccounted for, and another nine million new Medicaid lives.
  • Last month the Wall Street Journal cited Wellpoint’s loss of 500,000 lives since December 2008, and United’s loss of 900,000 in the last year. Similar enrollment declines have been reported at health plans throughout the country, the result of a decade of premium growth at four times general inflation, exacerbated by a severely downturned economy.
  • The Congressional Budget Office estimates that, in 2009, seven million Americans currently enrolled in commercial health plans will avail themselves of the COBRA subsidy that was part of the American Recovery and Reinvestment Act. Unless the economy rebounds or Congress extends the program, many of those enrollees will lose coverage as well.

Premium pays for nearly all health care products and services – from office visits to stents – so decreasing enrollments have stressed the industry more than at any time in memory. Ancillary issues, like drops in investment income and anticipated payment reductions to Medicare Advantage health plans, are also reverberating throughout the industry, compounding its financial troubles.

But even in the face of hemorrhaging enrollments, the health plan sector has not visibly changed its medical management approaches. Instead, most organizations seem to be waiting, presumably for the new revenues associated with universal coverage. It seems likely that the health industry will campaign for Massachusetts-type reform that forces concessions from purchasers rather than in the ways health care is financed, delivered and supplied.

To be meaningful, though, reform must fix the three deep structural flaws that enable the excesses that have benefited the health industry and created the cost crisis. A specialty- rather than primary care-dominated system promotes more expensive downstream care at the expense of less costly upstream care. The lack of an interoperable information technology infrastructure has created barriers to quality/cost transparency, transactional streamlining, and science-driven decision support. And a fee-for-service reimbursement system has encouraged more care, independent of appropriateness, rather than the right care. Industry groups fight hard to preserve these approaches and the excesses they produce, and to block the most obvious remedies to overspending.

Health care could be far more affordable. Experts agree that at least one-third of all health care cost is inappropriate care or administrative waste. As a recent White House meeting showcased, many health care managers have attained consistent, significant savings through innovations ranging from primary care clinics, data analytics, and Web-based management tools to health literacy and incentive programs.

As health care financing pressures intensify, the Administration must leverage the industry’s discomfort by making the achievement of expanded coverage contingent on key operational reforms: re-empowered primary care, a national technology framework for outcomes management and payment tied to results. These are pragmatic goals that, when implemented elsewhere, have been shown to improve quality and drive down cost. Carefully explained, they will make sense to most Americans.

Finally, being effective with this immensely important issue will demand that the Obama team reach out and recruit the active leadership and support of the nation’s non-health care business leaders, the one group csollectively more powerful than the health care lobby.

If the Administration can get the backing of influential leaders outside health care, and if it is willing to hold out on expanded coverage until the industry accepts changes that can rightsize cost, then we’ll have a chance to establish affordability and sustainability in American health care.

About Brian Klepper

Brian Klepper is a health care analyst, commentator and a Principal in Worksite Health Advisors.
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