Tag Archives: ABC

10 Reasons Healthcare Won’t Be Disrupted

Earlier this year, industry titans Amazon, Berkshire Hathaway and JP Morgan Chase (ABC) announced a partnership that would incubate a separate, non-profit entity aimed squarely at healthcare. Given the seed stage of the collaboration, the announcement was necessarily vague, but it did refer to an intent to address healthcare for their employees, improve employee satisfaction and reduce costs. The partnership has now announced the selection of noted surgeon, best-selling author and public health researcher Dr. Atul Gawande as the CEO of the unnamed entity. It’s a bold marketing step to be sure – and I have nothing but respect and admiration for Dr. Gawande – but neither employers nor new ventures will disrupt the fiscal burden of healthcare.

The trajectory of the ABC entity is still unknown, of course, but, like other high-profile announcements before it, I think it’s really targeting a fairly traditional group purchasing business model. At least that was the implication that CEO James Dimon gave to nervous healthcare banking clients at JPMorgan shortly after the press release hit this last January.

See also: Healthcare Disruptors Claim War Is Won  

In fact, there are a number of these group purchasing entities already in existence – and some have been around for decades. With about 12 million members, Kaiser Permanente is arguably the largest. It operates as a non-profit because the fiscal benefits should logically accrue to member companies and not the entity itself. Group-focused healthcare initiatives suggest that there will likely be a positive effect on ABC’s 1 million plus employees, but it won’t make systemic changes to our tiered – and expensive – healthcare system as a whole. Here are the top 10 reasons why this latest venture – or really any group of employers – can’t fundamentally change U.S. healthcare.

  1. Employer-sponsored insurance (ESI) isn’t the product of intelligent system design. In fact, there’s no clinical, fiscal or moral argument to support this unique financing model at all. It’s quite literally an accident of WWII history, and America is the only industrialized country that uses employment as the governing entity for health benefits. We could have changed this accidental system design decades ago, but we never did.
  2. Whatever the business of private industry (either privately held or publicly traded), unless  a company is literally in the business of healthcare, the vast majority have no specific healthcare domain expertise – nor should they seek to acquire it, because it will never be a true focus or core competency. ABC may purchase (or build) components of that domain expertise for their employees, but any of those fiscal benefits won’t auto-magically accrue to other companies – and, let’s not forget, at least some of those other companies are direct competitors to Amazon, Berkshire or Chase.
  3. Unlike Medicare or Medicaid, ESI (and commercial insurance, more broadly) supports inelastic healthcare pricing because it is literally whatever the market will bear based on group purchasing dynamics. This is also why Obamacare health plans are entirely dependent on a laundry list of subsidies. As individuals, few Americans can afford unsubsidized Obamacare plans outright. This also makes it entirely pointless to go through a lengthy legislative repeal process, because it’s relatively easy to simply cripple Obamacare outright. Just remove the fiscal subsidies – which is exactly what’s happened (or planned).
  4. The larger the employer (or group), the larger the fiscal benefit to the individual employer because of the group dynamic. That’s a compelling argument in favor of merger mania (leading to mega groups of millions of employees), but any of those effects don’t just trickle down to small employers. In fact, new business models (some with enviable unicorn status in the sharing economy) are designed to ignore health insurance or health benefits outright. They may funnel employees to group-purchasing options – but that’s a marketing sleight-of-hand to avoid the messy complexities and fiscal burden of managing ESI outright.
  5. Like most other employment functions, ESI — and the employment process known as open-enrollment — is arbitrarily tied to our annual tax calendar, but that has no correlation or applicability to how healthcare actually works. We should all contribute (through taxation) to our healthcare system, of course, but a period of open enrollment (with a very specific number of days) serves no clinical or moral purpose (other than to continually monitor for pre-existing conditions and possible coverage denial).
  6. While commercial titans capture all the headlines for many industry innovations (including high-profile healthcare initiatives like the ABC one), about 52% of private industry (either privately held or publicly traded) is made up of companies with fewer than 500 employees. Each of these employers is effectively its own tier of coverage and benefits. That works to support tiered (highly variable) pricing, but the only purpose of that is to maximize revenue and profits for participants in the healthcare industry.
  7. Big employers are notorious for binge (and purge) cycles of headcount that results in a constant churning of employees. Today, the average employment tenure at any one company is just over four years. Among the top tech titans — companies like Google, Oracle, Apple, Microsoft and, yes, Amazon – average employment tenure is less than two years. This constant churning of benefit plans and provider networks is totally counter-productive because it supports fragmented, episodic healthcare – not coordinated, long-term or preventative healthcare. Insurance companies tried to tackle this – only to be penalized when those efforts (which led to healthier members) were delivered straight to their competitors at the next employer.
  8. ESI represents a fourth party — the employer – in the management of a complex benefit over a long period. That function is administratively difficult for even three-party systems (payer, provider and patient) in other parts of the world. So why do we need a fourth party at all? We don’t.
  9. ESI is heavily subsidized through local, state and federal tax exclusions. While this hasn’t been studied at great depth, it’s not a trivial amount. By some estimates, the local, state and federal tax exclusions combined amount to about $600 billion per year – which makes tax exclusions tied to ESI the second largest entitlement behind Medicare. It’s effectively corporate welfare specifically designed to support expensive healthcare pricing.
  10. The employer contribution to ESI is significant – typically more than 55% of the cost for PPO coverage (family of four) – but this also helps employers keep wages artificially depressed. In fact, in recent years, the galloping cost of healthcare has tilted unequally to employees – and shifted away from employers. The days of sharing those annual cost increases equally are clearly over.

The combined effect of ESI – again, uniquely American – is the most expensive healthcare system on planet Earth and one of the biggest systemic flaws behind this ever-growing expense is ESI. As a distinctly separate flaw (I call it Healthcare’s Pricing Cabal), actual pricing originates elsewhere, of course, but employers really have no ceiling on what they will pay – especially for smaller (fewer than 500) employer groups. This year, America will spend more than $11,000 per capita just on healthcare, and the average cost of PPO coverage through an employer for an American family of four is now over $28,000 – per year.

Chart by Dan Munro; Milliman Medical Index 2018

Employers love to complain openly and often about the high cost of healthcare, but they also benefit from the corporate welfare of tax exclusions and depressed wages. The only evidence we need to see their reluctance about systemic change is their strong opposition to the “Cadillac tax” because it was the one tax proposal (through the Affordable Care Act) that was specifically designed to cap the tax exclusion on very rich (Cadillac) benefits. The Kaiser Family Foundation has a compelling graphic on the long term and corrosive effect of ESI.

Chart by Kaiser/HRET; Kaiser/HRET Survey of Employer-Sponsored Health Benefits

Don’t get me wrong: Employers could band together and lobby to change the tax code to end the fiscal perversion of ESI – but they won’t. They love to complain about high costs – but, collectively, they are as culpable as large providers that work jointly to propel prices ever higher, with no end in sight.

See also: Insurance Is NOT a Commodity!  

Which brings us full circle back to the announcement of Dr. Gawande as the CEO of the new ABC healthcare (non-profit) venture. As a writer, health policy expert and surgeon, Dr. Gawande’s credentials are impeccable, and I’ve faithfully read much of what he’s written for The New Yorker. One of my all-time favorite articles is the commencement address he gave at Harvard Medical School just over seven years ago. It’s a true classic — and worth reading often. It remains online here:Cowboys and Pit Crews.

I’ve often quoted a passage from Dr. Gawande’s address because it encapsulates the very real dilemma faced by practicing physicians and healthcare professionals the world over – from that day to this.

The core structure of medicine—how health care is organized and practiced—emerged in an era when doctors could hold all the key information patients needed in their heads and manage everything required themselves. One needed only an ethic of hard work, a prescription pad, a secretary, and a hospital willing to serve as one’s workshop, loaning a bed and nurses for a patient’s convalescence, maybe an operating room with a few basic tools. We were craftsmen. We could set the fracture, spin the blood, plate the cultures, administer the antiserum. The nature of the knowledge lent itself to prizing autonomy, independence, and self-sufficiency among our highest values, and to designing medicine accordingly. But you can’t hold all the information in your head any longer, and you can’t master all the skills. No one person can work up a patient’s back pain, run the immunoassay, do the physical therapy, protocol the MRI, and direct the treatment of the unexpected cancer found growing in the spine. I don’t even know what it means to “protocol” the MRI. — Dr. Atul Gawande – Harvard Medical School Commencement – May, 2011

It would be safe to say — without reservation — that I am a real Gawande fan, but the fundamental question remains. How much can a single private venture – however well-funded or staffed – change a fundamentally flawed system design? In effect – to change our whole system of cowboys to pit crews?

Until Dr. Gawande can change the tax code, any fiscal benefits of the new ABC venture will be nominal – around the edges of healthcare – and not at the core. What fiscal benefits there are will absolutely accrue to the member companies, but Dr. Gawande is no miracle worker and has no magic wand against the trifecta of accidental system design that keeps pricing spiraling ever upward. That trifecta is actuarial math, ESI and the transient nature of health benefits delivered at scale through literally thousands of employers. Commercial (or private) ventures of every stripe and size can certainly lobby for legislation to change the moral morass of tiered pricing through employers, but they can’t end it.

The bad things [in] the U.S. health care system are that our financing of health care is really a moral morass in the sense that it signals to the doctors that human beings have different values depending on their income status. For example, in New Jersey, the Medicaid program pays a pediatrician $30 to see a poor child on Medicaid. But the same legislators, through their commercial insurance, pay the same pediatrician $100 to $120 to see their child. How do physicians react to it? If you phone around practices in Princeton, Plainsboro, Hamilton – none of them would see Medicaid kids. — Uwe Reinhardt (1937 – 2017) – Economics Professor at the Woodrow Wilson School of Public and International Affairs at Princeton

This article first appeared at Forbes.com.

How to Master the ABCs of Innovation

Innovation is an imperative. Fortune 500 CEOs cited dealing with the rapid pace of technological change as their “single biggest challenge.” Another global survey of board members and senior executives identified the speed of disruptive innovation as one of the highest risks facing their organizations.

Innovation is also the source of great opportunity. More than half of CEOs in a PWC global survey ranked R&D and innovation as generating the greatest return.

Yet, the intense attention on innovation often misses a key element. Many companies are paying attention to immediate challenges and opportunities, including six technological disruptions that might make or break many companies. In my experience, however, too few are being innovative in how they innovate. This is the difference between buying fish and learning how to fish.

Douglas Engelbart, the noted engineer and inventor, captured the critical difference when he wrote: “The key to the long-term viability of an organization is to get better and better at improving itself.”

See also: Where Will Real Innovation Start?  

To understand why, take a look at Englebart’s framework for the “ABCs of Organizational Improvement.”

Every organization has an “A” process, which includes its core activities, such as product development, manufacturing, distribution, marketing, sales, etc. The A process is all about execution—carrying out today’s strategy and business model as well as possible.

Innovation is often thought of as the “B” process, which is to improve the organization’s ability to perform A. This includes improving through hiring and training, introducing new tools, adopting process improvements, etc. Effective organizations have systematic B processes for continuous improvement using methods like knowledge management, business process reengineering and Six Sigma. The B process is responsible for making the A process faster, better, cheaper and more profitable.

In Engelbart’s model, there also needs to be a “C” process. The C focuses  on improving the B process; it improves how we improve. It is the “C” process that is too often missing or haphazard.

The C process should systematically explore both the content and process of improving the A and B processes.

This includes adapting and adopting better tools and methods for continuous improvement, such as customer co-creation, open innovation, agile development and cloud computing.

The C process also provides license and resources to think big—to go beyond the incremental and consider the full range of possible futures for the organization. It explores doomsday scenarios that might drive the company out of business. And, rather than just looking for incrementally faster, better or cheaper innovations, the C process dares to dream big. It gives responsible license to start from a clean sheet of paper to explore truly disruptive innovation opportunities.

C process thinking led Xerox to create Xerox PARC and, as a result, invent laser printing and many aspects of the personal, networked computing. It also led Apple to the iPhone and Google to driverless cars.

The lack of a robust C process contributed to Kodak’s failure; Kodak resisted, for decades, thinking about digital photography as more than an incremental extension to its A process business built on film, paper and chemicals.

See also: 4 Hot Spots for Innovation in Insurance  

To use a racing analogy, the A process is the position of the racer. The B process determines the speed at which the racer is moving. The C process determines the acceleration, or the rate at which the racer’s speed is changing. (In math terms, the B process determines the first derivative, and the C process sets the second derivative.)

In the long game of business, a slow leader will lose to a faster competitor. The fastest competitor will be the one with the greatest sustained acceleration.

As you consider the innovation challenges to your core business, do you have a systematic B process? Just as important, do you have a systematic C process?

Are You Still Selling Newspapers?

“Who is that guy, and what’s he doing?”

Shaun called me, laughing. He explained that he had just heard about a teenager who was at his friend’s house. As they walked through the den – he saw an older man reading a newspaper in a recliner and asked the question above.

The man’s son said, “That’s my dad, and he’s reading a newspaper.”

The next question was, “What’s a newspaper?” followed by, “Where does he get it?” The son apologized for his dad’s eccentric behavior by explaining that there are stories about news, politics and sports in the paper.

It’s like what we can read on Google, Facebook, Twitter, Snapchat, Instagram or WhatsApp, or view on YouTube. Every morning a man drives by the house and throws a paper (usually in a plastic bag) out of his window and into our yard. Rain or snow, sleet or shine, dad walks outside to get it. Then he comes in and reads it like he’s doing now.

“Why doesn’t he have a smart phone? What’s wrong with him?” the friend asked.

These questions may shock those of us who walk to the curb at 5:00 every morning, anxiously awaiting our daily delivery. The newspaper is important to me. It is more than news or journalism. It is a ritual in my life, a daily ritual I’ve enjoyed for more than 50 years.

To the teen above, my ritual probably is crazy. To me, he seems stupid. In yesterday’s world, I’m right. In tomorrow’s world, he is.

Consider the profits made by the publishers of newspapers in yesterday’s world. Consider the Big 3 broadcast channels, CBS, NBC and ABC, and their dominance in the media world.

Now recognize that they are dinosaurs – smoking around the tar pits while awaiting their demise.

Is your agency or carrier or brokerage selling yesterday’s products to a population that is the past, or is your agency a living system that is growing with the marketplace as it will be and adapting what you sell and how you sell it to the buyers of the future, or are you focused on your reminiscences?

What populations/niches will you serve in tomorrow’s world? What will they be buying? How will you deliver it to them profitably?

I can promise they will be different than I am, and you must be different than you are – if you don’t want to go extinct! Will your model be paper or virtual?

Think new! Act now!