The Guest Blog

Waxman: Obama’s Big Miss-Tackling Healthcare Inflation

Dr. Albert Waxman, CEO and Founding Partner, Psilos Group

It’s been a long hot summer of debate and, dare I say it, discontent.

Over the past six months, Americans have watched with anticipation and increased trepidation as healthcare reform details slowly emerge.

President Obamahas appropriately led the charge to alert Americans about the crisis and the need for change. At this point, we all know our current healthcare “system” does not work and we have all seen plenty of evidence detailing the symptoms and root causes of healthcare’s failure.

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The problem, as evidenced by Sunday’s political talk show blitz, is that no one in Washington has addressed the real elephant in the room: healthcare inflation.

President Obama cited the right data during each of his interviews, specifically noting that healthcare premiums were up 5.5 percent last year during a period of negative inflation – and premiums have more than doubled in the past 10 years.

Healthcare costs are now growing chronically at double or triple the general inflation rate – and are expected to consume 19.5 percent of GDP by 2017.

Too bad none of the policy proposals on Capitol Hill include an economic plan that actually “bends the curve.”

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Based on my firm’s experience in private-sector healthcare reform, we urge policy-makers to take three immediate steps to reform the reform debate: 1) SLOW DOWN and develop a focused step-by-step plan with clear goals; 2) BUILD ALIGNMENT to make sure all stakeholders in the system are on board, not just that there are enough votes to pass legislation; and 3) SHIFT THE FOCUS from “who pays” for reform to “how much” we should pay for healthcare.

This last issue is ultimately the one that vexes American families, small businesses, large corporations, healthcare providers and all levels of government. Debating “who pays” is simply a political comfort zone that stokes traditional liberal versus conservative passions and fuels talk show rhetoric. However, it does nothing to actually cover the costs when bills are due. Addresing “how much” is a complex economic issue that needs to move front and center.

Clearly, it’s time for fresh thinking and transformational solutions that deliver President Obama’s targeted cost savings in order to cover healthcare for 47 million uninsured Americans. Fortunately, private sector “reformers” have tackled these issues for years, and many have proven it’s possible to cut costs *and* improve quality at the same time. Indeed, with a few smart bets on healthcare technology and service innovations already available, we believe reform can literally pay for itself.

Here’s how:

1) Embrace “Accountable Care” for chronic illness: Chronic illness currently represents the biggest load on Medicare – including 15 million people with four or more chronic illnesses costing $350 billion per year. Accountable Care Organizations have driven significant quality improvements and cost reductions in projects run by the Center for Medicare & Medicaid Services and reported by Veterans Affairs. Estimated savings over 10 years could be $750 billion, and $100 billion per year in the out years.

2) Use technology to eliminate hospital-based errors: Hospital-based errors result in more than 100,000 deaths per year, and studies have shown medication errors account for $7B to $10B annually in excess Medicare costs. Several U.S. companies now have products that significantly mitigate or remove these errors. Subsidizing broader deployment of these products would yield significant payback for patients, providers and payers alike.

3) Reform “Defensive Medicine” practices: Technology can help here as well. Through the use of evidence-based medicine, decision-making data can be delivered directly to physicians and nurses at the point of care. Combined with legal reforms, we can then free physicians from fear of unwarranted lawsuits and ensure they are properly incentivized to do the right thing.

4) Replace “fee for service” with performance-based reimbursement: Accountable care models reward outcomes and clinical results, rather than reimburse providers based on the number of procedures they perform. Reducing incentives to over-treat while not withholding care is a complicated balance to strike, but is critical to aligning incentives across patients, providers and payers by using market forces to ensure a functioning healthcare economy.

5) Provide incentives for healthier lifestyles and behavior: New “value-based” health plans incentivize patients to take care of themselves through preventative wellness actions such as immunizations and screening for chronic conditions, and following treatment regiments. These programs can save individuals $500-$600 per year and reduce costs to insurers potentially by thousands per patient per year, resulting in hundreds billions of savings nationally.

6) Enable ubiquitous Personal Medical Records: Beyond simply digitizing hospital records, a “personal medical record” provides patients with an integrated view of their healthcare. This shares vital information with individuals that improves their accountability for health decisions, while also reducing medication errors and redundant testing at the point of care. Current trials have shown savings of $100 per year for commercial patients and $500 per year for Medicare patients – which could yield $500 billion over 10 years if applied to all Americans.

Healthcare inflation is crippling our economy, and it’s high time that it takes center stage in the reform debate. Based on our real-world experience, there is ample room for substantial savings by eliminating waste and error as a matter of public policy. In fact, it’s the proverbial low-hanging fruit that can be achieved with modest investment in “pre-existing innovations” that have already demonstrated significant results on a smaller scale. By taking measured steps and using cost savings to fund other reform goals, we can still seize the day for sustainable reform – and improve healthcare costs, quality and access for all Americans.

Dr. Albert Waxman has more than 40 years leadership experience as an entrepreneur and investor in the healthcare industry, fueled by a particular focus on driving down costs, improving quality and aligning incentives across payers, providers and patients. As the CEO and founding partner of Psilos Group, he and has firm have funded and developed more than 38 innovative companies dedicated to this vision, including ActiveHealth, Click4Care, Definity Health, ExtendHealth, OmniGuide and SeeChange Health. Prior to founding Psilos, Dr. Waxman was a successful CEO at several healthcare companies. He most recently served as Chairman and Chief Executive Officer of Merit Behavioral Care and its predecessor companies, American Biodyne and Medco Behavioral Care, growing the company’s revenues to more than $800 million and managing successful IPOs, acquisitions and buyouts with Merck and KKR. Dr. Waxman previously founded and served as President, Chairman and CEO of Diasonics, Inc., one of the first medical companies to provide ultrasound and magnetic resonance imaging in the U.S.