The Fall of the Patriots

I just turned off the Patriots tanking against Pittsburgh and hopped on my twitter feed, where I found the distraction I was looking for in this paper. Oliver Wyman is a consulting group who I’ve worked with before. I think they do a good job with high level strategy work.  This piece is the second in a series. I’ll be keeping my eyes peeled for the rest of it.

 The background: As healthcare reform unfolds and insurance exchanges begin to develop, there will be about 40 million new customers in the market by 2015, and over twice that number by 2020.

 The problem: “Traditional health insurance products were designed for what is basically a wholesale market; they focus almost solely on the factors employers care about: price or cost, benefit design, and network model. They are not designed for a consumer-driven market, and they won’t succeed there. It is time not just for new insurance products, but for a new product model.”

 The solution: Oliver Wyman takes the ‘widget’ approach to product selection here, outlining five different criteria of health insurance policies. The idea behind this segmentation is not only for people to evaluate plans according to what they need, but also to push insurance companies and/or employers towards tweak payment provisions dynamically (i.e. narrow network plans, engagement models built around wellness, etc.) The five parts are:

• Benefits
• Provider Network Model
• Medical Homes
• Health Engagement Model
• Service Support

They also do a nice job of outlining some of the big knots that health plans have to untangle. In addition to creating more novel benefits that will offer the average Joe and Jane an understandable, affordable policy, they have to come up with price points for these things. This is always tough, but given the recession, the new competition on the exchanges (think of two gas stations across the street from each other), and the introduction of new federal subsidies, this poses a daunting challenge.

Finally, they outline three “types” of consumers – click on it and read them for yourselves. While these profiles are none too convincing or realistic, they’re introduced as admittedly rough sketches serving as a precursor to a national market survey. Whenever this survey comes out (“this fall”), it will be an important look into the future of health insurance business models. The types of insights that it might generate – what do everyday people think about insurance benefits? What are they going to look for and use? Which sub-strategies will evolve for different income brackets, who have different needs in their benefits, but also different blends of subsidy through employers and the federal government? are more than softball leading indicators.

While pinning up insurance companies on the wall as posterboys for our broken system is easy and popular, it’s not helpful. Political rhetoric about constitutionality of mandates and the burden on small businesses might offer a strategic advantage in a campaign, but it is only a luxury that we have because we passed a bill that Joe Biden described so aptly.

And it still is a big deal. It’s easy to forget that this country still has over 50 million people without health insurance. That’s 50 million people who have compromised access to a fundamental security – and in a country as wealthy as ours, a fundamental right -  in their day to day lives. We should all be helping and rooting for health plans to figure this stuff out.

Small Businesses and the Job Creation Myth

Texas governor and Republican presidential nominee-hopeful Rick Perry released his economic recovery plan this week. Among other conservative policies, it includes a flat tax provision. In a video interview explaining – and I use that word loosely – his plan, Perry harps on the idea that easing up tax and regulatory burdens on the wealthiest folks will incentivize them to invest capital into businesses – i.e. job creation.

How well this plan would actually work is a debate I’ll leave to others. I was more interested in the continued allusions to the mystical job creation engine. Political candidates and average Americans, myself included, have a tendency to romanticize small businesses. This is largely due to a casual lumping of small businesses with entrepreneurship into the same slice of American Pie.

In the post Steve Jobs era, the search for the next Apple, Facebook or Google is running full steam. In the post Office Space, 4 Hour Workweek era, startups and self-employment have become the new thing. But is entrepreneurship really the same thing as small business, and can we pin our hopes for new jobs on a collective set of fantasies and daydreams and VC funding? Probably not. While everyone wants to be rich, the majority of small business owners interviewed by two UChicago researchers stated their motivation was the freedom and flexibility, as opposed to a plan to grow.

Here’s some more dirt on small businesses in America:

• 90% of companies in the US are small businesses hiring fewer than 20 employees.
• Just over 60% of small businesses have 4 or fewer employees.
• Big companies (defined here as 20+ workers) hire 80% of workers in the country.
• The strongest economies have more workers in large companies (read the Yglesias quote)
• Small businesses tend not to grow well – 80% of small businesses between 2000 and 2003 didn’t add a single employee.
• Between 2007 and 2010, small business failure increased by 40%.

It’s kind of a mixed bag. Small businesses are undeniably a vital part of our economic makeup, and a growing part of our national identity. But do they really carry the cure for our economic woes?

With regards to economic development, which is essentially what the jobs-creation debate is all about, we can turn an eye towards emerging markets to see what’s been successful there (If you’ve read this blog before, you know that means India) The answer? Big companies are the king of the jungle. Big companies employ the richest people in all nations, have drastically higher rates of productivity, and are the biggest job creation engines in their local and regional markets. A pair of Dartmouth economists summarize: “hope of economic development lies in the creation of large registered firms, run by educated managers and utilizing modern practices.” An MIT study found that in India the average microenterprised shop pulls in $133. A year. People long for a job at a brand-name firm – for workers, big company jobs mean better benefits and higher salaries. The conventional attitude in countries who are adding jobs daily is just that, conventional: work for a big name company if you can. Only two percent of the recent graduating class at India’s top B-school started new businesses, for example.

However, common sense tells you that in developing countries, where people are looking to “make it” in the big cities with flashy jobs, there is a social status associated with working at a high end firm. One of my cousins in India has worked for Infosys and now works for Cisco, and he feels like kind of a big deal. Just as the corporation has been part of the modern worker’s identity in America and other capitalist economies, we’re seeing that idea take root around the world. But those cultures, who can tend to look westward for popular inspiration, aren’t immune to the lure of being one’s own boss. Case in point, my other cousin (the younger brother) is more entrepreneurial and left his job at Wipro to look for an overseas position or a startup idea.

The facts say that starting and growing a business anywhere is just plain harder. They have tighter profit margins and thus less room for mistakes. There’s diminished access to credit markets, particularly in a bad economy when much bank lending has dried out. For small manufacturers, despite the rise of Web-enabled production arbitrage (see: alibaba.com) they often have less access to export markets. The list goes on.

Despite this, people get dollar signs in their eyes thinking about their homegrown company, which has now been reduced to some pages of code, folding into a lucrative corporate acquisition, or being the next household name your grandma is using on her iPhone. In doing a recent market research project about the mobile health and tele-health markets, I was dumbstruck by the dozens of startups who have secured thousands to millions of dollars in funding. There’s also the intrinsic appeal: the thrill of the chase. Having ventured out on my own over the last five months and having been involved with startups for over two years now, I can attest to the creative rush and simple fulfillment of flexible hours and more project ownership. Working remotely is nice, too.

Pinning our hopes of economic recovery on small businesses then, seems less a practical idea, and more of a populist appeal. This seems fine in theory – but it is troublesome when policy positions that are supposed to help turn things around are based on scoring political points rather than facts.

So while no one’s hating on the new American dream of entrepreneurship, or saying small businesses are trivial, we should be careful not to conflate the two in terms of job growth for our nation. Jobs happen when companies grow. Big companies can grow at a faster clip. So in theory, it should make sense to we focus our big guns (corporate policymaking) on helping big businesses do well. But is Perry right about easing up the tax burden on the top of the pyramid? The Occupy Wall Street movement doesn’t think so.

The problem is when additional money is siphoned towards the top rather than getting re-invested and re-distributed. OWS and the 99% movement is the angry cousin of the idealist entrepreneur. Part of the appeal of small businesses is emotional – you know these people, you can see them in your neighborhood, and they aren’t tooling around in corporate jets on taxpayers’ bailout money. So while small business growth can’t provide the shot in the arm for job creation that we need, corporate America has proven it’s an irresponsible steward of our human resources. Maybe everyone should just start their own business.

The Evolution of Romneycare

Change is in the air in Massachusetts

With 2012 elections around the corner and Mitt Romney atop the Republican polls, we’ll be hearing more and more about Massachusetts’ high health care costs, and lesser and lesser about the reasons why they’ve gotten so high. Here’s a nice overview of the HCR landscape in the commonwealth:

“Because medical spending is driven not just by volume but also by pricing, a major question has been whether global payments alone will have much effect. It may be equally important, Mr. Patrick and others argue, to rein in the ability of the state’s most prestigious teaching hospitals and physicians’ groups to negotiate high rates of reimbursement.”

$0.02 – BCBS’s Alternative Quality Contract is a key step in getting providers on board. – they are really leading the way for payers to participate in global payments, and the participation of a huge provider player like Partners is great news. Fallon Clinic Reliant Medical Group recently joined as well, and I’ve heard fantastic things about how much money they’re getting back from BCBS for hitting target scores on diabetes HEDIS rates among other quality markers.

The point is, global payments can try to control volume of care, but they don’t do much to dampen high prices. As we’re seeing in Massachusetts, it takes a village to coordinate, negotiate and regulate lower prices. It won’t happen nationally. As health reform unfolds and we focus on expanding coverage as a nation, costs are virtually guaranteed to go up.  Addressing this will have to be a state-by-state process because of the 50 unique landscapes of big players, big payers and political theaters we have.

Local Changes, National Challenges

Farewell Fallon Clinic. Welcome, Reliant Medical Group

On Friday, it was my father’s last day as a physician at the Fallon Clinic.

This is not to say he retired, though we’ve been trying to get him to hang up the stethoscope for a while. Today, October 3rd, after 82 years of being a dominant brand name in the greater Worcester area, Fallon Clinic will officially be known as Reliant Medical Group. The name change was part of a larger tiff with the nearby Fallon Community Health Plan. The two used to be fully integrated, but inevitable market forces ripped them apart as FCHP sought to expand their provider network beyond the Worcester area, while the Clinic opened up its doors, arms and wallets to other health insurers.

Over the last ten years, the health care marketplace in the state of Massachusetts has become increasingly combative, with health plans and providers taking off the gloves over rising costs and lower reimbursements. Once universal coverage rolled out in 2006, things got even worse as health plans had huge new pools of beneficiaries, while medical groups started to team up with each other so they could squeeze higher prices out of the insurers.

Consolidation: providers, brands, and my father's lunchboxes

The other factor in the name change is related to this. One of these medical groups sprung up a couple of years back: Atrius Health. If you visit Fallon’s Reliant Medical Group’s website, you’ll notice the not-so-subtle cobranding. They are the sixth group to join the party, and as a result they’ll have some serious clout with FCHP, BCBS and the other insurers in the state, as they collectively provide care to over a million folks (over 15% of the state population).

I will miss the Fallon name. I cut my teeth on the EPIC^® EHR system as a college intern there during Fallon Clinic’s initial go-live installation in the summer of ‘06. It’s a wonderful organization and I’m happy to see them thriving despite the name change. When I asked my father how he felt about it, he said something like, “We’ll all miss the name. But things are changing.”

Indeed they are. As has become well documented, Massachusetts is a barometer for the rest of the nation as a result of our early health reform efforts. Accordingly, hundreds of insurance and hospital CEO’s around the country are in an arms race leading up to 2014, when most provisions of health care reform go into effect.

The phenomenon of hospital consolidation and insurer consolidation is a chicken-and-egg issue. It doesn’t make sense to argue whether or not it should or shouldn’t happen however, because it will happen – it is happening. As is usually the case in health care policy unfortunately, the patient’s perspective is left out of the picture. What happens to the affordability of care when health systems begin merging, hospitals start luring in physicians with higher salaries, while health plans begin joining up?

While health insurers are an easy target for vitriol, consumers and patients ought to keep in mind that they have every interest in keeping the price of health care low – after all, they’re directly paying for the majority of it. HealthAffairs put out a timely study suggesting that even without consolidation, health plan-heavy cities tend to have lower prices. From the abstract:

First, we found that 64 percent of hospitals operate in markets where health plans are not very concentrated, and only 7 percent are in markets that are dominated by a few health plans. Second, we found that in most markets, hospital market concentration exceeds health plan concentration. Third, our study confirmed earlier studies showing that greater hospital market concentration leads to higher hospital prices. Fourth, we found that hospital prices in the most concentrated health plan markets are approximately 12 percent lower than in more competitive health plan markets. Overall, our results show that more concentrated health plan markets can counteract the price-increasing effects of concentrated hospital markets, and that—contrary to conventional wisdom—increased health plan concentration benefits consumers through lower hospital prices as long as health plan markets remain competitive. Our findings also suggest that consumers would benefit from policies that maintained competition in hospital markets or that would restore competition to hospital markets that are uncompetitive.

So, when hospitals are competing with each other to have the lowest prices so they get more patients, and health insurers are competing with each other to provide lower prices to attract businesses and individuals (hello, insurance exchanges), then people should theoretically come out on top. When it’s done right, competition (and reform) in health care is a good thing. The problem is, as complicated as any and all of the above may all seem, it’s only the vapor that’s dissipating off of the exposed tip of the iceberg.

The heart of the problem lies in our fractured economy – people can’t stomach the idea of 9 percent increases in health care premiums (kudos to Anthony of KFF, healthcare data Wizard level 99). There has been much debate about whether this jump is a one-time spike or the start of a trend. What I don’t understand is how people are pontificating about this when the elephant in the room is quite obvious (From WaPo’s Ezra Klein):

Somehow, we should have seen this coming.

Sure, it’s not quite as simple as ‘more health care spending means higher premiums.’  But actually, maybe it is. In the political slugfest that we live in, healthcare vacillates from a universal right (2009-2010) to a government imposed burden on small businesses and unemployed individuals (2011-20??). Healthcare goes back and forth between being the kryptonite to our nation’s future (see above) and an intolerable burden on our current attempts at economic recovery.  What this suggests to me is that the ‘unsustainable future’ is here – health care costs are not getting out of control, they officially are out of control.

Anadolu Medical Center

Anadolu Medical Center

I spent a few weeks in Istanbul in July and August, and had the chance to make a couple of trips over to the Anadolu Medical Center outside of the city. It was a sprawling facility, built just a few years ago, and has formed a strategic partnership with Johns Hopkins Medicine. Needless to say, it was very impressive. For the interested, I wrote a series of posts for Healthglobe covering my visit to AMC:

Introduction to Anadolu

Cardiac Care On the Rise

Data and Quality Improvement

In addition to seeing the state-of-the-art facilities ($6M Cyberknife machine!) it was really interesting meeting the staff. I got to hear and see firsthand some of the major opportunities and challenges facing Turkish healthcare.

Like all other countries, there is a major rift between public and private modes of delivery and payment.  Private medical centers, clinics and hospitals like Anadolu are springing up to address gaps in quality, access, service. A population explosion in Istanbul (by some estimates, over 20 million people!) has resulted in a growing urban landscape with ballooning healthcare demands, a globalizing workforce and sense of culture, and the cash flow to start turning corporations’ heads towards Turkey as a place to do business. Private insurance is starting to take root. Quality is starting to improve. And as a result, people in neighboring countries are starting to see Turkey as a place to get better treatment than they can find at home.

I learned a lot about the international patient scene – it’s a lot different from what conventional ‘medical travel’ or ‘medical tourism’ is in the US. Whereas here the idea is to send patients to high-quality, low-cost centers of excellence overseas, the majority of medical travel in Turkey (and India, Singapore, Korea, Dubai, Brazil, Japan, Thailand, etc.) involves attracting patients from the region. In Turkey, this means patients from Russia, Bulgaria, the Czech Republic, and other parts of central and Eastern Europe and central Asia. Since 2007, there has been a 70 percent increase in the treatment of foreign patients in Turkey.

Their international staff was very focused on that particular region, but interested in how to build up their appeal in the US. I was able to meet with a couple of their department heads to share the insurer landscape in the US, especially in the light of quality-driven mandates in the health reform bill, and emphasize the role of data and measurement in proving a business case. It was a fantastic opportunity for mutual learning, trans-oceanic networking, and sightseeing (the hospital is right on the seaside).

A seaside sunset over dinner ended a fascinating and productive visit to AMC.