The Failed Politics of Healthcare in the US and the inevitable failure of Innovation — Part 1 (draft)

Note: I’m enjoying the conversational style that is peaking through the post and since it is longer than I intended, I’m posting drafts online so that I can use feedback to expand or contract the post as required.

Healthcare is expensive! Is that a problem?

We have a problem. We are no longer, collectively, capable of thinking critically. We don’t understand basic math or proportionality. We have trouble with ‘absolute’ versus ‘relative’ and we don’t really grasp economic concepts as they get thrown around in public discourse.

An adjunct professor for Healthcare Finance (Republican, Charter school promoter, and all-round-nice-guy) and I got along very well. He was deeply skeptical of the Affordable Care Act. For him, and for other conservatives, the over-a-thousand-page-long bill was an overreach by the Federal Govt. and gave Kathleen Sebelius, Secretary, Dept. of Health and Human Services (HHS), too much authority to create and influence regulation without Congressional approval.

My friend’s concerns were legitimate. ‘Obamacare’ (the moniker for the ACA for those of you who still don’t know) had several instances where ‘Secretary of HHS can / will decide’ at a future date how the law would be implemented and applied.

Yes, but that is the nature of Agency Law, in the US, I insisted. Agencies, are quasi-governmental bodies created by Congress to ‘manage’ those ‘specialist’ parts of governing where Congress doesn’t have the skill-set or the time to micro-manage a particular sector. Congress is supposed to be a 10,000 ft-type organization, I argued. It was within their scope to hand over such authority to ‘Secretary of HHS’. He dithered and remained unconvinced.

My concerns with the ACA were completely different. I argued it subsidized private enterprise and, inherently, made private enterprise reliant on Government and the Tax Payer; which is anathema to the concept of private enterprise. Given that Healthcare was such a large portion of the economy, I was concerned, too, that Capital, and Private Insurance in particular, had too much influence in directing Healthcare. Deregulation in banking and the ‘too-large-to-fail’ fiasco demonstrated (to me) that the private sector inherently couldn’t regulate itself, and, when faced with collapse requires (and often gets) a public bail-out.

He pointed out, rightfully, that a sector comprising a large portion of the GDP inherently isn’t necessarily a ‘bad’ thing. It could also be an indicator to the maturity and the significance of the economic activity in question. The US, and its people, perhaps could afford a certain quality of care and that size of the sector could be a reflection on the infrastructure required to provide said care. He had a point.

When viewed from this perspective, Healthcare at a GDP level, competes with other large sectors for private and public capital. What this means is that if one was spending less on Healthcare, then one could spend more on other sectors and vice-versa. This is important to understand. Jack Ma, rather famously, made this point recently.

The narrative around ‘Healthcare is expensive and this is a problem’, however, was given credence by the fact the US lagged behind other countries, when compared to OECD averages, in terms of broad health indicators, such as, Life Expectancy (LE) at Birth and Infant Mortality, on one hand and the prevalence of Chronic Disease on the other. OECD countries were also ‘spending less’ on Healthcare as measured in GDP terms.

A narrative hence developed → Most countries have a robust public sector presence in Healthcare — the US doesn’t — and they have better outcomes → So the US should also have a Single Payer / Public Option.

On the face of it, there seems to be some merit in this argument.

To understand if this assumption, was (then)/is (now) true, one had/has to dig deeper into the Cost Drivers of the US Healthcare system.

This is fundamental MBA stuff, but also, common sense.

What are the cost drivers of a system and how can one make those activities more efficient? For those of you familiar with Activity Based Accounting and Theory of Constraints, you’ll immediately see the merit of this approach when trying to understand, and ascertain, Innovation requirements.

Fail to do this properly, or fail to understand the root cause, and you have the wrong Problem Statement. Those familiar with the Stanford Biodesign Process (or what is being referred to as ‘Design Thinking’), too, will understand the logic behind this assumption. No one, intentionally, wants to solve the wrong problem!

All sorts of issues were identified with Healthcare but loosely fall under Moral and Financial categories. In other words, it was a travesty that there were people who didn’t have access to Healthcare or it was a Cost-driver.

Ranging from the litigious nature of US Law to the nature of pay-per-episode reimbursement, a few examples of some of the common narratives that were prevalent in the late 2000’s were:

1. A lot of people didn’t have access to care. This is both a Moral and Financial problem. What this means is that they didn’t qualify for Medicare nor Medicaid and they didn’t work for someone who provided coverage for them. Were we really a developed country if our citizens didn’t have access to care? And what happens to them when they get sick? They spend money out-of-pocket and become bankrupt!
2. The pre-existing condition scenario fell into the same buckets.
3. There was a Pareto-like association with Chronic disease and the costs associated with them. CPT’s (the way Providers tabulate and then bill CMS for services) were geared towards acute interventions and disease-prevention was largely in the hands of consumers. It was generally accepted that they weren’t any incentives to promote meaningful disease prevention since the consumer of these interventions bore the out-of-pocket costs. This seemed to be exaggerated by a sort of reverse demographic dividend in the form of the aging, and increasingly sicker, baby boomer cohort.
4. Other cost drivers included Torts and the associated Medical malpractice insurance that was especially playing itself out in the private practitioner Obstetrics specialty.
5. Finally, there was also the issue about Price Transparency.

A Focus on Chronic Disease

There was a slew of data that supported #2 and a major push in the ACA revolved around correcting the imbalance and making disease-prevention more reimbursable. Whether one compared Medical outcomes versus Surgical outcomes, or if one compared, presence or absence of known preventative-interventions between countries that had larger public-sector presence in Healthcare with the US, it was assumed, that the lack of preventative services had led to a greater chronic disease burden in the US.

There is an additional straight forward logic here; one to which I personally subscribe. The socioeconomic burden of Chronic Disease is clear to anyone who has awareness and an elderly relative. There is not only the on-going costs of maintaining the status-quo of a chronic disease, there is also, the associated costs of an inevitable ‘acute crisis’ which often requires a lot of resources to manage. These costs are borne out in a myriad of ways.

Simply put, and considered, the costs are borne by the individual, her family and friends, the infrastructure she relies on for treatment and the financial support system she has access to, to avail of said treatment.

When viewed from this perspective, it is easy to understand. One simply has to list ‘activities associated with prevention and care’ and then tabulate the costs associated with ‘consuming’ those activities. Literature and costs are established around preventative care and the idiom ‘prevention is better (and cheaper) than cure’ holds true when it comes to chronic disease.

It made sense to blame the system for no-incentives-for-prevention and hence super-expensive. But the link between the presence or absence of a Public Health System (PHS) and the prevalence of Chronic Disease wasn’t straightforward. This difference is important to understand.

Who was paying for prevention? Other Governments who provided Healthcare services for their citizens knew the burden of chronic disease (and disease in general) and were trying desperately to create social-and-preventative health interventions. Why wasn’t the US system doing so?

If one understands how CPTs are created, one can begin to unravel why prevention-CPTs didn’t exist. The private-sector-payers, who monopolized the under-65-year-old market, it was assumed, weren’t really bothered by the costs associated with chronic disease since their reimbursement patterns for adults largely consisted of surgical and other acute interventions.

Dig deeper into the creation of Medicaid and Medicare and one can understand why the Public Tax Payer were on-the-hook for the most ‘vulnerable’ in our society but the Private sector was ‘allowed’ to profit from the relatively ‘healthy-and-robust’. If one didn’t have the financial means to access healthcare, the State (here literally a State) would assist you in subsidies in the form of Medicaid. Medicare seemed to be an extension of the Social Security philosophy. Anyone in the middle apparently became ill by chance and so actuarial based insurance seemed appropriate and a nice public-private (and legislative) compromise. This was, after-all, the US. We’re capitalists here. The Federal Govt. here is mostly a writer of checks (cheques). More on this philosophy later.

This broad structure is the Payer component of US Healthcare.

Loosely, there are two types of reimbursement codes (not to be confused by the ‘types’ of CPT codes, of which there are three). One set maintained by the American Medical Association (AMA), and generally referred to as ‘CPTs’, and another set, maintained by individual insurers. CPT codes are used to bill the Center for Medicaid and Medicare by Providers (Doctors / Hospitals / Service Providers) and Private insurance companies could choose to cover code-sets maintained by AMA and could choose to cover those that made actuarial sense.

The private sector was nibbling away at Medicare (‘old’ people have money, are willing to spend it on health, and, need to since they are ill), but to do so, would have to petition AMA (and provide enough evidence) for the creation of a CPT. The regulatory mechanism by which interventions are ‘marketed’ is another aspect to consider, but, it is enough to understand here, that to create a CPT one has to have enough evidence of an intervention’s efficacy (it works) and that the intervention is approved by the FDA (FDA is concerned about Safety and Efficacy). Of course, once an intervention has been approved by the FDA, intervention providers can ‘market’ said intervention, by talking about said intervention in the form of ‘claims’ (hey you, consumer, buy this because you have mild-to-moderate blah blah).

You may think I’ve digressed here, but, I’ve intentionally gone on a tangent (though using the word ‘orthogonal’ might be more appropriate). What I’m describing is a public-private-philanthropic landscape with several antagonistic regulatory bodies with competing motivations, reliant on a particular process, to make money within their own fiefdoms, and are complicit, in assisting each other do so. Yes, this is an outsider perspective remember? This is the structure we have to change if we truly want a sustainable Healthcare system. And no, I don’t think Growth Economics will help us ‘grow’ out of the situation. The link with Growth and Quality of Life has decoupled over the last decade or so in the US. But more on this in Part Three.

Which micro-economic incentives work in Healthcare?

Changing behavior is tricky. Eating healthier can be difficult. Inertia may not just be a physical law of nature; it seems to play out in the mind as well.

I’ve recently moved to an apartment complex and traded a posh San Francisco living room with an awesome view for the view of a highway but more personal space. I’m happy with the compromise so far. The IKEA gods shine benevolently down upon me. From my leaf-dining table I can look out onto and beyond my east facing balcony and see cars moving on-and-off the highway at different speeds. I can hear the BART screech to a stop and then start once again. I even see, through the trees, pedestrians making their way from the BART station across the noisy overpass. I love this view despite the noisiness of it.

I didn’t feel the need for a car when I was in the city. Now, I do. It isn’t the walking-distance to the BART station, or, the time it takes to get into the city. My door-to-door commute is actually shorter (and easier). It is the fact that I have to use that overpass. I feel ridiculous walking (at least there is a foot-path) next to, and over, the highway. I felt the same way when I first came to Ohio. Developments have sidewalks but mysteriously end along with the boundaries of the development and don’t connect with each other. I had to walk on grass after coming back from the cinema hall. Those who know me — I’m polite — know I don’t walk on grass unless I’m in a park without pathways. Cars zipped by. Some slowed down. There was a strange sense that there was something wrong. I felt the need to stop walking and drive a car. Coming from Melbourne where I stubbornly refused to drive, this sensation was strange. Personal behavior isn’t as straight forward as we make it out to be. And yes, we all make decisions, but decision-making through a mind that is constantly distracted and one that is constantly having to think about itself is difficult.

The digital word knows this well as to many design-thinkers. Micro-behaviors are important to understand.

If you understand the way the human body works you inherently know a regular modern lifestyle is bad for your health unless you go out of your way to adopt healthy habits. The food we eat has slowly lost its nutritive value. The regulatory mechanisms overseeing Health in our country are influenced by large corporations to such a degree that a condiment is considered a vegetable and if you look at a socioeconomic condition of normo-weight individuals, they tend to be wealthier, on-average.

In a society where over two-thirds of our population is over-weight or obese, we have to recognize that it’s not just our Health system, but our entire way of living, that is failing. But how much of this is a Tax-payer problem? I would argue that all of it is a Tax-payer problem. When viewed from the framing reference of Sustainability, personal and Population health, it is clear.

If in 2007 you would have believed that the US has a higher prevalence of Chronic Disease because it lacked a Single Payer / Public Health Option, you would have only been partially correct. The UK (NHS) and Australia (Medicare) had similar levels of Obesity and both have state sponsored healthcare. If in 2010 you thought that Healthcare in the US was expensive in terms of GDP, you would have been partially right when compared to OECD averages. What you may not have known is that since the 2000s and even earlier the percentage rise in GDP for Healthcare had been rising uniformly. The US wasn’t unique in that sense. It simply had a higher base-line.

If you had, however, dug deeper into these numbers and deeper into the cause of chronic disease two critical understandings would have emerged.

A) The Private sector comprises of a larger percentage of GDP in Healthcare in the US than other countries and there is an economic disconnect between Private sector profits and private sector obligations towards Health vis-a-vie the Public sector’s ability to generate Capital to cover its obligations.

B) It was clear the US had a greater prevalence of Chronic Disease as compared to OECD averages and it was probably because we didn’t have a Public Health Option.

Let’s expand on the first part. As an example, the tax-payer and ultimately debt-holders of the United States are on-the-hook for financing Healthcare for the large Baby-boomer cohort and for everyone over 65. The longer we live, and the sicker we are, after 65 the more money required to maintain our health status. This money comes from the tax-payer. Medicare expenditure competes with Social Security, Defense spending and with the Endowment for Arts and Humanities Ok, I’m being facetious but you’re right, there is no need to be penny wise pound foolish). The tax-payer currently pays taxes for services that she will obtain after the age of 65. For current services, the tax-payer has to bare additional out-pocket-expenses (both figuratively and literally).

Add to this, the influence Private Capital has on the expenditure of Public Capital and one truly begins to see the structural imbalance. For those of you who don’t understand how laws are made in the US remember that private capital is used to finance Congressional elections every two years and Presidential elections every four.

SCOTUS conflates Capital with Freedom of Speech and fails to consider that conflating the same equalizes louder voices with softer ones. They are not. Individuals generally don’t have the same purchasing power as corporations. Lobbying is considered bribery in a lot of countries. The tax-payer is being squeezed ever-so-slowly and the services those tax-dollars are buying are decreasing because Private capital has the ability to eat away at those services through legislation passed by lawmakers.Capital is inherently self-serving unless directed otherwise. If it doesn’t grow then there is a problem. It is not difficult to see how it has eroded the Public Good.

But can we claw some territory back? Should we?

The second learning is more important, in the long term, from a Health sustainable-ecosystem perspective and we arrive at a juncture of American political ethos that troubles a lot of conservatives. The government should not be in the business of being-in-business. There were some principled voices that were against the auto bail-out for this reason.

But what has this got to do with Healthcare?

The logic is clear if one understands cause-and-effect. The tax-payer is on the hook for costs associated with Healthcare of the large Baby-boomer cohort that is living longer than its predecessors but also is sicker than its predecessors. It makes sense to invest in services that prevent the prevalence or delay the onset of chronic disease. The private sector, on the other hand, earns profits by providing insurance coverage for ‘Healthy people’ but isn’t on-the-hook for when people really get sick (after 65) and as such don’t have the incentive to create incentives that will lead to the mitigation of Chronic Disease.

This is a structural problem. One that can be potentially solved by micro-managing the private sector or one that can be solved by eliminating the structural constraints of system itself via a Public Option.

It is largely recognized that the Obama administration chose to ‘micro-manage’ the private sector because a Public option was politically toxic. Change is slow goes the argument and drastically overhauling the Health system would be dangerous. But did they address the core structural problem underlying Healthcare in the US? Did they actually solve the problem they intended to solve? Is ACA a long-term solution? If the ACA is working why are the Conservatives trying to dismantle it? Isn’t it a failure of our politics that we can’t even address the core underlying problems that affect such a key sector of the economy? Why is it that we can’t achieve a consensus on what needs to be done?

These are questions that should bother every voter in the country. I often wonder if they do.

The next post will cover the ACA and the Innovation ecosystem that resulted from the ACA. In the third part we’ll get creative and envision what a better Healthcare system looks like from both the Public and Private sector viewpoints.

Please feel free to ask questions and I’ll try my best to answer them or at least point you in the right direction with references.