MBA - Health Care

Find Your Inner Leader


Tom's Take on Health News of Note
This issue of the Health Care Report takes on themes of accountability, leadership and consumer empowerment. Together, the integration of these themes could dramatically improve healthcare costs and quality in the U.S.

Specifically, can Congress show true leadership, by taking on real Medicare reform? The essence of that reform evolves around the immediate transformation of Medicare�s payment methodologies to one that fosters provider financial accountability for delivering cost effective quality healthcare services.
Can we as a society attack unhealthy lifestyles by holding individuals financially accountable for their lifestyle choices? Are we ready to advance the role of the empowered consumer, in order foster true competition between providers and innovation both from a cost and quality perspective?
Dealing with these issues will be socially and politically tricky, but the results will be worth the effort.

Quarterly Rave
Some Managed Care Organizations are publishing
real provider cost information for their members:
"One giant step for the consumer!"

Some managed care organizations have started providing user-friendly cost and quality hospital and physician data to their customers (individual members and employers). Historically, hospitals, physicians and some MCOs have resisted the distribution of such data to MCO customers (members and employers). If fact, in many hospital contracts the distribution of such information was prohibited. Given the healthcare cost pressures that both members and employers are facing, the tide is now turning.
In many ways the nail in the coffin of such prohibitions is coming from the federal government which is now viewing such prohibitions of distribution of cost and quality information as anti-competitive. The new ACO rules, in fact, expressly prohibit ACOs from contractually limiting such distribution.
This data would include actual total costs (not charges) for the healthcare services being provided.For example,consumers and employers should be able to compare the cost of a medial meniscus tear (torn knee cartilage) between providers. This cost would include all services provided (e.g. facility and physician, etc.). While the numbers of procedures that can be compared are limited at this time, it is a start.

As noted by economist, James W. Henderson, PhD, decisions must be made by well-informed, cost-conscious consumers. Motivated by self-interest, and adequately informed about treatment alternatives, cost-conscience consumers will economize because they will personally benefit from such behavior. The patient/buyer must be an active participate in the decision-making process if cost-containment is to be achieved.  (Health Economics and Policy, Fifth Edition, James W. Henderson, South-Western Cengage Learning, Page 90) 

This information will foster true competition between providers and innovation both from a cost and quality perspective. That competition will result in both winners and losers from a provider perspective. Those providers that can meet the value demands of the marketplace in the form of better quality and cost will survive and prosper. Those providers that cannot meet the needs of the marketplace will either rise to the challenge, find a market niche in which they can compete, or not survive. Ultimately, though, this is a victory to consumers, payers (employers/government) and value driven providers.

Quarterly Rant
Unhealthy lifestyles that cause either directly or indirectly chronic diseases
"We can no longer afford to enable poor lifestyles�

As we all know, growth in healthcare spending outpaces growth in the rest of the economy.

�In the past 20 years health care spending has grown at an annual compound rate of 6.6% compared to the GDP (less health care) that grew at only 4.5% per year. Every year health care spending growth on average exceeds GDP growth by 2.1 percentage points. If the trend continues for the next two decades, the health care sector will absorb almost 25% of GDP by 2030.�  (Health Economics and Policy, Fifth Edition, James W. Henderson, South-Western Cengage Learning, Page 5)


 On the surface this growth in healthcare spending (including the percentage of the GDP) may not seem to be a real problem, until one focuses on the negative impact health care costs have on our national debt (Medicare), state budgetary priorities (Medicaid) and overall job creation outside of the healthcare sector. 

What can be done? As we have discussed in prior issues of the Health Care Report, escalating health care cost is a function of a number of factors. One particular cost driver is the subject of this �Rant,� that is, unhealthy lifestyles that cause, directly or indirectly, chronic diseases. The following excerpt from the McKinsey Quarterly highlights the problem.

 In recent decades, the nature of medical risk in the United States has shifted dramatically. About two-thirds of all deaths in the United States now result from chronic diseases most often induced by behavior and lifestyle, for instance, obesity and related chronic conditions, type 2 diabetes and related conditions, smoking-related cancers, and alcohol-related liver disease. By contrast, before the 1940s or thereabouts, medical risk had largely been concentrated in random, infrequent, and catastrophic events such as injuries, congenital conditions, or contagious diseases. Health insurance was designed, at its inception, to address these kinds of events.

The increasing prevalence of chronic disease has significant implications for managing health care costs. For one thing, advances in medical technology and treatments mean that people with such conditions can now live much longer, though at a substantially higher financial cost.

Obesity, a widespread chronic condition linked to others, such as diabetes, heart and circulatory maladies, orthopedic problems, and certain cancers�provides a telling example. The incidence of clinically defined obesity in the US adult population has more than doubled, to 34 percent, since 1980. The average annual cost of health care claims associated with morbidly obese patients (the fastest-growing category of obesity) is more than $7,500 a year, nearly twice the average for adults who are not obese. To put these figures in perspective, we estimate that the medical costs associated with clinically obese patients represent about 10 percent of the sum spent on health care premiums and that reducing obesity to the 1980 level would generate $60 billion a year in net savings.� (�Three imperatives for improving US health care,� Paul D. Mango and Vivian E.Riefberg, McKinsey Quarterly, December 2008)

As noted above, given the impact of escalating healthcare costs on jobs and the debt burden of future generations of Americans it is imperative that we proactively address escalating health care costs. Per the Center for Disease Control, lifestyle disease directly or indirectly impacts 50  -70% of our health care costs.   Now more than ever we need to develop a health care system that does not enable poor lifestyle choices.

Fortunately, the tide appears to be turning, and more attention is being focused on lifestyle issues and personal accountability. 

As Aon Hewitt notes, workers who choose not to participate in employee wellness programs or make unhealthy choices are being hit with higher health insurance premiums, deductibles and out-of-pocket expenses, said Dr. Paul Berger, chief medical officer at Aon Hewitt, a human resources and benefits consulting company.

Meanwhile workers who participate in wellness programs are being rewarded with incentives, such as gift cards and contributions to health reimbursement accounts.

Such initiatives and penalties are expected to expand because of continuing increases in healthcare costs and changes under the federal health-care reform law. Employers can provide discounts or penalties of up to 20 percent on employees' health insurance premiums for participation in wellness programs, including programs requiring them to quit smoking and lower their blood pressure and body fat, or face higher premiums. Under the health-care law, that maximum will rise to 30 percent in 2014, according to Aon Hewitt.

Such penalties are legal and governed by federal and state laws, including genetic anti-discrimination laws, the Americans with Disabilities Act and the Health Insurance Portability and Accountability Act, according to J.D. Piro, national practice leader for Aon Hewitt�s health-care legal consulting group.

But he noted that workers have to be offered alternatives when there are penalties. If a worker's cholesterol level is too high and there's a requirement to lower it or face a higher premium, and that�s unreasonably difficult for a worker, that worker must be offered an alternative such as taking cholesterol medication, he said. ("Bosses to employees: Shape up or pay up" Francine Knowles, Business Reporter,, August 14, 2011)


Share |