Tuesday, March 19, 2013

Rally For A (Price) Cure

Democratic Presidential and Senate election victories have saved ACA (Obamacare) from repeal. It has also survived threats from the fiscal cliff and - for now - the sequester.  If Republicans have their way this reprieve to Obamacare and some other elements of the social safety net may be short-lived. Starting with truth about the need to control public spending, Republicans push the fallacy that this is only possible by cutting benefits and raising the age of eligibility for Social Security and Medicare.

They're wrong because costs can be controlled without reducing benefits and diluting the social safety net.  And as I said on Nov. 14, 2011 we could've had effective solutions in place decades ago if it weren't for silence and inaction by the media and key decision makers.  CBO 2012 projections (Fig. 1.1 on p.10) clearly show that our main problem is high and ever-rising health care expenses.  CBO predicts (Table 1.2 at p.12) that social security payments rise from 5% of GDP in 2012 to 5.4% in 2022 and 6.2% in 2037.  But federal health expenses leap from 5.4% of GDP in 2012 to 7.2% in 2022 and 9.6% in 2037. 

It's tragic and no accident that most Americans aren't even aware of the dominant cause by far of our uncontrollable health care costs - high prices that are multiples of those in other countries. Only a handful of articles in publications or popular media even mention the role of prices and why they're so high.  And almost none seriously delve into how our prices can be brought down close to those in other advanced economies.  (An exception is Steven Brill's "Bitter Pill: Why Medical Bills Are Killing US" in Time on Feb. 20, 2013 where I agree with many though not all the findings.) Why is this?   

The sea of excess revenue generated by this overpricing has sustained and solidified an ecosystem of beneficiaries.  They include providers, insurers, health experts on industry payroll or grants, pharma, medical device manufacturers, malpractice attorneys, and contribution hungry politicians.  They are sometimes at odds with each other but mindful of not rocking the boat too much.  Many of them contribute to high prices and all of them benefit in some way from the vastly expanded pie.  So they avoid exposing each other and inviting retaliation in kind. 

Amidst this conspiracy of silence and collusion the biggest victims are payers (employers, taxpayers, individuals) with collateral damage to US business, worker earnings and employment.  High US worker health care expenses slash worker pay checks and incentives for employers to hire them, as David Goldhill lays out in the NY Times on Feb. 17.  
I've often said (as in this Mar. 28, 2011 post) that cutting US health care expenses, especially the exorbitant prices is fairly straightforward if we're free of special interest influence.  It can be done by increasing provider supply and competition that curbs their market power, and easing legal exposure and procedural / regulatory burdens that throttle productivity and create waste. 

At the moment though, we still lack general public awareness about prices as the villain behind our high costs, leave alone pressure to take the measures needed to lower these.  Who can bell the powerful health care industry cat that has so far prevented this from happening? 

We've had just such a group since 1974 that can easily do all this, but hasn't.  It's the National Business Group on Health (NBGH) "devoted exclusively to representing large employers' perspectives on national health policy issues" according to their website.  Its 362 members as of Jan. 2013 are primarily Fortune 500 companies and large public sector employers providing health coverage for more than 55 million US workers, retirees and their families.  I estimate (per footnotes) the cost of this coverage in 2013 at $380 billion of which the members pay nearly $270 billion with their workers bearing the rest.  This is a significant chunk out of the health expenditure of $2.92 trillion for all 316 million Americans.

Through NBGH its members collectively can easily neutralize health industry influence that has allowed inefficiencies and price-gouging to flourish.  The resultant reforms will enormously benefit them and the country as a whole.  Instead, this group has been frittering away its energies and potential by completely ignoring the dominant issue of over-pricing.

Again according to its website it focuses on:
"...exchanging ideas for controlling health care costs, improving patient safety and quality of care and sharing best practices in health benefits management with senior benefits, HR professionals, and medical directors from leading corporations." 

Even in "controlling health care costs" above they're just talking about reducing the quantity of health services needed through wellness, comparative effectiveness research or evidence based medicine.  They're essentially duplicating (or if you want to be more charitable, reinforcing) the work and message of public health agencies like NIH and CDC, and some consumer advocacy groups.  In this and "sharing best practices" among themselves NBGH is probably happy saving their members "billions of dollars" annually.  Considering their annual budget in the tens of millions of dollars that sounds like a very impressive return on members' investment.

That is, until you compare it with what's achievable if NBGH concentrated on what they've completely ignored so far - the dominant issue of over-pricing.  They can outbid the health industry in winning over politicians to enact reforms that (finally) rationalize prices.  Unlike public agencies or consumer think tanks, NBGH's giant members almost uniquely have the financial and political clout for such successful counter-lobbying.

Such efforts would enable the systemic yet fairly straightforward changes that lower overall prices from about twice as high as in West Europe at present, to "only" thirty percent higher.

Such a goal may be all too easy.  After all, as travelers to West European countries know that the cost of living there is much higher than in the US.  Why shouldn't it be the same way with US medical services being cheaper in a service to service comparison, instead of being twice as costly?  And remember, Europe itself is no paragon of economical health delivery - its hospitals can be thrice as pricey as leading Asian hospitals of equivalent or better quality that attract Western medical tourists.  Why then take the US price goal to be 30% higher than in West Europe?  It's to be ultra realistic by factoring in "legacy" effects.  That is, assuming Americans have had their pockets picked for so long as to accept paying a 30% premium above justifiable health care prices for the foreseeable future.

If you do the math per footnote below, this price drop of 35% saves NBGH members $96 billion annually, and their employees $38 billion.  The resources needed to get the laws and regulations passed to achieve this are miniscule in comparison.  Illustratively, the NBGH needs an attack budget for lobbying and influence buying of about $3 billion a year for an initial 3 - 5 years to overpower the legislative lock of various health industry special interests.  Once changes are in place a "maintenance lobbying budget" of say, half to a billion dollars a year should be enough to protect the gains from again being undermined by an opposing health lobby.  For NBGH members on average, it'd mean chipping in about $10 million for 4 years and then $2 million thereafter to reap $300 million in yearly savings (and profits) thereafter.  It's hard to think of a better return on investment from even their narrow financial perspective.

So why haven't NBGH and its members made such moves all this while?  One reason I believe is a corporate bystander effect or Kitty Genovese syndrome among their top management. The CEOs and CFOs who should be leading the charge are so fixated on competing with and outperforming their business counterparts that they invest scant reflection and effort to collective benefit.  This is in spite of the enormous benefit that even a little thought by a tiny section of the leadership can achieve.  And in the specific case of health care their blind spot is worsened by views of health experts with dubious allegiance leading away rather than towards the right answers.  For this reason most CEOs and CFOs who are interviewed about the problems of rising health care costs seem almost as clueless about the role of prices as the common man.

In the process large employers have chosen the wrong type of people to lead NBGH and sit on its board, as well as to guide its mission.  The NBGH Board directors are all HR or employee benefits executives (or in the case of Walt Disney, the Chief Medical Officer) appointed by their member companies.  Given their roles in their organization and their limited mindset of working with health providers and insurers they are likely incapable of grasping NBGH's much broader potential for pricing reforms.  I wouldn't be surprised if they (like the CEOs and CFOs) are oblivious of the overpricing problem or at least have placidly accepted it as a given that can't be changed.  They may also lack the standing to get their own companies to drastically increase contributions - in spite of a 1,000% ROI - to NBGH for the new political initiative.

If the appointees to its Board of Directors are not well suited for NBGH to come anywhere near realizing its true potential, the current CEO Helen Darling seems to be even less so.  She's done nothing so far to tackle over-pricing or even raise awareness about it through the media. In her prolific tweets on Twitter there isn't a single mention yet of prices.

NBGH has recently done the unthinkable.  In my April 21, 2011 post I noted that one of NBGH's key strengths was that it didn't include health providers or insurers (unlike the US Chamber of Commerce) that might create internal dissensions.  Since then NBGH admitted as members the very health industry players who benefit from high health costs and prices.  Out of NBGH's 362 members these health service sellers number 74.  They include 23 health care providers like hospitals and doctor groups, 7 pharmacies and the like, 24 health insurers, 7 medical scientific product (device) makers, and 20 pharma and biotech manufacturers.  There are another 38 classified as "health care services" with dubious overlap of interests with the pure payer (buyer) category who are the logical constituents of this Group. 

NBGH may argue they wanted to "work with" their health providers by admitting them as members.  While cooperative consultations with suppliers is one thing, just think about it.  Do Wal-Mart or Dell (both on the NBGH Board) include their Chinese vendors in their own buyer teams focused on reducing the cost of goods purchased from these vendors?  NBGH members now include Sutter Health hospital and doctor system in California that faced many accusations and enquiries for price-gouging.  NBGH's crowning act is admitting HCA, the largest for-profit hospital chain in the US just this month as a member.  Without a trace of irony the NBGH March 5 newsletter trumpets this development and CEO Helen Darling welcomes CHA in her March 8 tweet.  NBGH as the most potent body to alter medical pricing dynamics to help payers has simply emasculated itself.  Health providers admitted into its fold may not believe their good luck. They didn't even need any Trojan Horse to infiltrate the ranks of their hapless customers whose representative body threw its gates wide open to their plunderers.

NBGH should have used common sense criteria like only admitting members who spend more on health services than they make by selling them.   NBGH failure to do this as well as address prices underscores the need for member companies to question the suitability of NBGH's leadership as well as their own representatives on its Board.

I'll assume that NBGH can reverse or at least mitigate most of the damage.  Ideally they can turn the clock back by using the above criteria to drop all members who are net sellers rather than buyers of health services.  If that isn't feasible they may at least restrict constitution of important committees dealing with lobbying and health price issues as well as the NBGH Board to only the "net payer" companies.  In other words the health care players who have managed to become part of NBGH are given observer status or made non-voting members.  They can only participate in "win-win" deliberations where there's little or no conflict of interest - like EHR, automation, wellness and the like.  Then the core "health buying" members can tackle the important issue of pricing without being tripped up from within. 

Though NBGH could and should have acted on prices long ago the timing for its doing so now couldn't be better.  With health prices far outstripping normal inflation rates for decades, soaring health costs are becoming unbearable. They severely burden employers as well as the employees who face rising out of pocket costs, and threaten the international competitiveness of US labor.  Medical bills are behind 60 percent of all US personal bankruptcies.  Escalating health costs are the prime driver of our Congressional budgetary gridlock, pitting Republicans opposed to raising taxes against Democrats committed to preserving health benefits and the social safety net.

NBGH catalyzing that 35% health price drop enormously rewards its members' bottom lines with almost $100 billion annually of course as described above, but there's more.  They become national heroes, as it saves the US $1 trillion annually, of which almost half is taxpayer's money.  It makes laughably trivial all the budgetary battles around the need to raise taxes versus restraining benefits, the sequester, and the past threats of the fiscal cliff.  That's because the disputed amounts in Congress of about a trillion or two in a decade is just a fraction of these savings.  With savings of this magnitude you don't need to cut any benefits or raise taxes, and yet can see our budgetary deficits converted into surpluses.  It should delight Democrats and Republicans alike.

 What is needed now is for no less than CEOs or CFOs of NBGH member companies, especially the 17 that are on its Board to sit up and get involved.  Only on their orders can NBGH be reoriented towards spearheading a political push for reforms that correct prices.  Only they have the heft to substantially increase their companies' contributions to NBGH for this new effort without lengthy justification and delays, and to sway their fellow members to do likewise.

The CFOs should be the directors on NBGH's Board, instead of their aides on the benefits side or HR representatives.  The present directors don't have the mindset and perspective for guiding NBGH in this new role, and they may not even have the appetite to go up against health lobbies due to divided loyalties.  That's because they may identify themselves with health industry players with whom they interact closely as much as with their own employers.  Their recently admitting health industry players as members and the under-utilization of NBGH potential all these years may be explained by this dynamic.  In any case it is unlikely they'll suddenly veer to throw their full energies and commitment to NBGH's new direction that they've overlooked for so long.

Similarly a change in NBGH leadership will also be needed.  The new CEO should have the conviction to address health pricing as well as the knowledge and stature to gain traction.  An excellent fit I can think of is Donald Berwick who was Administrator of CMS under President Obama.  He resigned in December 2011 because Republicans opposed his confirmation at the behest of the health lobby.  And why did the health lobby hate him?  Because in spite of being a medical doctor he looked to cost-savings solutions like the UK medical system that would end a lot of overcharges and hit their pocket book.  I take it as putting his public conscience about industry loyalties. He has the credibility and domain knowledge to hone in on changes in laws and regulations that are most effective in addressing over-pricing.  Will Republican opprobrium not hobble his effectiveness?  I don't think so, as in Mob parlance their opposition to him was "just business" because their financial backers in the health lobby wanted it so.  If through NBGH he becomes their financial contributor and his proposals include many supply side solutions (e.g., more doctors and hospitals) that fit their ideology they should be willing to listen to him.

Another option to lead NBGH could be someone competent and widely respected in business (and political) circles and closely identify with big employer needs, like ex-CEO of Xerox Anne Mulcahy.  I'm just throwing a couple of examples.

Two more questions: First, should NBGH seek alliance or support of other business groups like the US Chamber of Commerce in pushing for reforms targeting health prices?  I see limited gain given the diffuse nature of that body.  Its members include health industry players and presently two pharmaceutical companies (Pfizer and Sanofi USA) sit on its large and unwieldy Board.  But then NBGH itself has thrown away its advantage of being a body consisting purely of health service buyers.  So there's no harm and perhaps some good from NBGH trying to broaden its political base of support.

Second, should NBGH go full sail in this new direction and shelve all or most of its existing activities?  Since they're already set up I see little harm in NBGH continuing with these along with the staff that's currently in place.  There seems little in these that will interfere with the fresh political objective aimed at health prices.  As I remarked in April 2012 it's as if NBGH has been happily mining for silver while ignoring even larger quantities of gold lying about untapped.  As NBGH finally gears for its much more important role it can handle both operations running side by side as they're "profitable", even if the scale is vastly different.

What's vital is for the C-Suite of NBGH members to realize what they've been missing all this while and appreciate that there isn't a better time to act to get health prices more in line with other countries.  They'll reap huge rewards for themselves and incidentally, ten times more for the country.


1. How NBGH members' health expenses are estimated:
- Health care expenditures in 2013 are $2,916B for all 316 million Americans. 273 million of them are non-seniors. (CMS's NHE Table 1.) 
- People covered by NBGH members are assumed to be non-seniors (seniors would cost them more unless they're on Medicare)
- Seniors account for about 35% of all health expenditures (it was 32% in 2010 according to MEPS and 34% in 2004, per CME age tables) leaving $1,895B for the 273 million non-seniors.
- The 55 million covered by NBGH members proportionately incur $382B.
- Since large employers cover about 70% of the expenses, their share is $267B for 2013, with employees bearing the remaining $115B.

2) How NBGH members and overall US health savings are estimated, due to price corrections:
- If overall health services prices fall from a factor of 2 to "only" 30% higher than in West Europe, then the $382B incurred on NBGH members' covered populace declines to 382 X 130 / 200 = $248B, saving $134B. 
- Using a 70:30 split, the NBGH member companies save $96B pretax annually, and their employees $38B.
- Assuming the same price drop for all payers, the US as a whole incurs $2,916 X 130 / 200 = $1,900B, saving about $1,000B annually.  Of this the public funding (government or taxpayer's) share is almost half. 

NBGH members and employees are assumed to cover all or most health expenses for the stated 55 million people.  If some of these people are only covered for secondary benefits (like seniors on Medicare) then the burden and potential savings for NBGH members are proportionately reduced.  

3) The expenses and savings above are in constant 2013 dollars at current size of the economy.  In actual fact they will escalate with inflation, an expanding economy, as well as due to aging Baby Boomers needing more health resources for their remaining lifetimeThe national health expenditure in nominal dollars will not go down but increase in future years, only at a far smaller rate than is projected now by CBO and CMS.  For a realistic projection of health expenses and savings due to reforms see the bottom part of my June 28, 2012 post.

4) A streamlined single payer system can lower prices by reducing plan complexity, speeding payments, and above all using buyer power to counter provider cartels. But it's by no means the only approach, so Democrats frustrated by Republican opposition to "socialized medicine" needn't despair.  More choices, competition and transparency of pricing and quality can achieve similar results.  John Cochrane in his Feb. 6, 2013 "After the ACA" lays out a Republican approach in which he makes many good points, though some of his glib fallacies make my blood boil. (I'll deal separately with these as well as with Steven Brill's Time article since this post is already too long.)