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March 13, 2018

Waiting for Innovation that Lowers Health Care Costs

Summary:

When a young reporter at the Wall Street Journal would get excited about the seemingly unlimited growth prospects of a company or a market, an old hand would say, “Just remember that trees don’t grow to the sky.” That advice proved wise plenty often — think Enron, Theranos, pick-your-favorite-bust. But healthcare in the U.S. is sure trying to prove the old wisdom wrong.

After a stretch where price rises had slowed at least a bit, the Centers for Medicare and Medicaid Services predict that spending on healthcare will climb 5.3% this year and an average of 5.5% a year through 2026. At that point, CMS expects spending to total $5.7 trillion, or 19.7% of the U.S. economy, up almost two percentage points since 2016. Spending on drugs is expected to climb even faster than the rest of the healthcare-industrial complex, increasing an average of 6.3% a year.

Tree, meet sky.

The spate of mega-mergers, such as the Cigna deal to acquire Express Scripts, will supposedly make healthcare more efficient and lead to lower prices, but don’t hold your breath. Somehow, I don’t think Cigna is paying $67 billion so it can cut Express Scripts’ revenue.

Meanwhile, the horror stories keep mounting. A student in Texas had back surgery and, months later, was asked for a urine sample to make sure she had stopped using pain medications. Then she got a bill for $17,850. Her insurer said it would have paid roughly $100 for such a test, but she was personally on the hook, and the lab wouldn’t back off its fee. Her father, a retired physician, eventually negotiated the lab down to “only” $5,000 and paid the bill.  

While the focus in Washington continues to be about who should pay for healthcare, the bigger problem continues to be that those of us in the U.S. pay far too much — roughly twice what other major countries pay, while consuming the same amount of care and having the same quality of health. 

Not being any more optimistic about Washington than I am about mega-mergers, I continue to look to big employers to drive change by simply refusing to put up with the current state of affairs and by using their muscle in the marketplace. While waiting to see what Amazon, Berkshire Hathaway and JPMorgan Chase can do, I look to examples like Walmart and its Centers for Excellence as the way forward. Change won’t come quickly, but maybe it can actually come if we starve the tree long enough. 

Have a great week.

Paul Carroll
Editor in Chief

P.S. I mentioned last week that we were working with our friends at The Institutes to develop curricula that will help insurers leverage approaches and programs that will deliver measurable growth through innovation. Here is the formal release on that initiative. Let me know if you have any questions, or if we can help.

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About the Author

Paul Carroll is the editor-in-chief of Insurance Thought Leadership. He is also co-author of Billion Dollar Lessons: What You Can Learn From the Most Inexcusable Business Failures of the Last 25 Years and the author of a best-seller on IBM, published in 1993. Carroll spent 17 years at the Wall Street Journal as an editor and reporter; he was nominated twice for the Pulitzer Prize. He later was a finalist for a National Magazine Award.

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