At Bloomberg View David Gluckman and Peter Orszag present their findings about business executives’ expectations of health care reform:
We’ve just finished a study involving 300 senior health-care executives from leading companies in health-care services, pharmaceuticals, biotechnology and medical devices, along with top investors in the field. And it’s clear that they see big changes in the years ahead, driven largely by pricing pressure across the industry.
The pricing pressures, in turn, are expected to drive innovation. Interestingly, in the coming years, changes in how health-care payments are made are expected to be the most important form of innovation, though scientific breakthroughs will also play a critical role. What’s more, these leaders expect health-care companies to engage in new partnerships and collaborations — including with nontraditional competitors in the technology world, such as Google, IBM, Apple and Fitbit.
Most surprisingly, we found strong expectations that value-based payments for medical care will displace the traditional fee-for-service model, transforming the industry over the next five to ten years.
What’s driving these expectations? I can’t find any rational basis for them. They seem to be based on the “it just has to” hypothesis—the belief that because something is obviously out of whack and needs change that change simply must occur and not only occur but occur along certain lines.
Are Democrats calling for an end to fee for services? Are Republicans? Are providers? Are patients? Here’s a telling part of the findings:
About 30 percent of respondents in medical devices and health-care services said nontraditional players will transform the industry over the next few years, but only 14 percent of pharma and biotech respondents agreed.
In other words only one in seven of those on the frontlines in the arenas most at risk for disruption by “nontraditional players” think it will occur. Would anyone care to place a small side wager that they’ll exert substantial efforts to avoid being disrupted?
I think you have a bit of stuff wrong here, though if the ACA goes away then you are more likely correct. For example in our area, businesses are looking to team up more directly with individual hospitals or networks. We cost 40% less that our big competitor, with similar results. So, we are now seeing some businesses looking to have us as their primary provider. However, this is transitioning pretty slowly since it means a lot of workers would have to drive 15-20 minutes further and/or they might have to change PCPs. (At some point more health care economists will figure out that most patients are not homo economicus.)
Further, on value based payments that is already taking place and spreading. Medicare is leading the way. I expect that the privates will eventually follow. Pharma? Biotech? They have a lot invested in the status quo and won’t want it to change.
Steve
How is it that your cost structure is 40% lower than the competition?
We have a very lean management structure, we don’t cater to every proceduralist’s needs (i.e. they use the same equipment rather than everyone having their own special stuff), we pay a bit less and we don’t have the big endowment that our competitor has, we don’t have drugs on pharmacy just because they are the newest. Mostly I think we are just very cost conscious. They are on the correct side of the tracks and have a much better payer mix so they don’t have to be so careful. (I also suspect we somehow manage to fudge our stats on this just a bit, however I know people at the other place and am always amazed at how many management people they have running around and how wasteful they are (I think). They are now on their 3rd or 4th EMR to the tune of over $100 million per. We waited and then finally got EPIC.)
Steve
That all sounds laudable, although to get to a 40% lower cost structure, which is simply huge (as in almost unheard of), primarily through higher asset utilization and fewer administrators still doesn’t sound right.
However, the three components you cite (add in a not price conscious buyer) are really three fundamentals I have advocated for years. Fat staffs bedevil any business, and are a primary cause of high and escalating costs in education as well. As for asset utilization, I pointed out that Purdue U’s President told me they had been able to hold the line on tuition simply by using existing classroom space rather than continue construction. To do that he hired a real estate guy for his staff.
The point is, whatever your number, none of this speaks to ObamaCare schemes or single payer schemes or any of the other Rube Goldberg proposals bandied about. It speaks to basic management 101 and to competition – no bottomless checkbook – to control cost. Imagine if the entire nation could deliver health care service for 40%, 25%, even 15% less than today. Yet this seems anathema to politicians and various self described fixers. It’s almost like cost management isn’t really the goal…….
Just as a reminder the producers with the lowest costs, the best product, or the highest net revenues don’t always prevail. It might be nice to think that but it is not always the case.