I have strongly believed that CEOs should make employee health a high priority and have been bewildered when they delegate that responsibility to their Benefits departments.  I successfully created a culture of health at Pitney Bowes, but relatively few CEOs have followed my path.

However, some smart and rational CEOs, whose scarcest resource is time, believe that they can deliver shareholder value by putting their priorities elsewhere.  Their reasoning may be as follows:

• Traditional population health improvement programs have not worked in large organizations; and
• The best path to reduced healthcare costs may be to reduce U.S. employee headcount.

Few employees use wellness, disease management, and care management programs. Since employers usually pay a vendor fee for these programs over their entire population, they generally fail to produce a population-level economic return. Why do so few employees use them? The most obvious reason is that the vendors have no incentive to maximize participation, since it increases their costs and reduces profitability.

However, these programs fail to draw widespread participation even when employers and vendors aggressively market them. Understanding why is critical to improving population health.

Most people only use wellness programs when they can be fit into their daily life routines.  Moreover, many employees consider mandatory wellness program participation to be an unwarranted intrusion on their private lives, and a bad example of the “nanny state.”  How can employers get buy-in from all those who should use the programs?

First, employers need to educate employees that increased healthcare spending reduces the amounts available for salary increases and other cash-based benefits.  They also need to explain that uncontrollable labor costs make a wide range of headcount reduction strategies more economically viable.  What are CEOs who do not attend to improving population health doing instead?

Unfortunately for already insecure employees, one answer is that they are aggressively looking for ways to reduce U.S. headcount.  How are they doing it?

• They will substitute technology for labor wherever possible. Automated voice response systems replace human operators. Robots instead of people move physical items. Heavy equipment replaces construction workers in moving dirt.  We will also see an evolution toward the eventual penetration of self-driving automobiles, which will eliminate jobs for millions of truck, bus, taxicab and limousine drivers.
• More tasks will be offloaded to offshore workers in low labor cost markets.
• More tasks will be outsourced to more technologically efficient and enabled third party administrative services.
• More tasks will be done by contract workers of short duration, employees who are being tested in a 30-90 days “probation” period, or even unpaid interns.  Companies also refer more work to teams of undergraduate or graduate students who will trade compensation for school credit.
• Businesses create more customer self-service opportunities, as airlines have done for over two decades in creating automated reservations systems, and, more recently, automated systems for securing boarding passes.  Retailers will expand customer-managed checkout processes.  Even restaurants will move slowly, but surely, toward more automated ordering and food pick-up systems.
• Big data analytic systems will replace highly skilled human tasks, such as Amazon.com and Netflix have employed in building recommendation systems for book and movie acquirers.  Even law firms are now authorized to use technology to sort documents for responding to certain government document production requests, saving client money and lawyer labor.
• Healthcare will move from face-to-face human interactions to technology that automates physical examination, and non-invasive self-administered biometric monitoring will reduce the need for more skilled healthcare professionals.

However, CEOs are employing two other strategies as well for reducing healthcare cost burdens:

• Companies locate facilities in areas with better-educated and healthier populations, and lower healthcare costs. They require higher levels of education for each job and benefit from the fact that higher educational attainment correlates with better health.
• Finally, they substitute part-time employees for full-time employees to reduce the population for which they have healthcare benefit responsibility.

However, after they exhaust all low-hanging fruit that enables them to avoid having to improve employee health, they will realize that, for the core of their stable, mission-critical, full-time U.S. workforce, they will need a robust population health and healthcare cost management strategy.

For that population, they will need to reinforce a culture of health inside an organization by executing on strategies and tactics that improve health. They can change the daily environment in which employees function, either directly at work, or using their influence, indirectly in the community and at home.  Well-respected public health researchers like Sir Michael Marmot and Dr. Anthony Iton, (the author of a wonderful study called Death by Unnatural Causes, when he was the Public Health Director for Alameda County Californida) have demonstrated that 85-90% of what determines our health happens outside the healthcare system.  Our daily living environment drives our health outcomes much more than access to high quality healthcare.

The recently released State of Oregon study on its Medicaid population, demonstrated that while those citizens on Medicaid had easier access to healthcare and avoided financial ruin, they had no better health-related outcomes than those not participating in the Medicaid program and the total amounts spent on their healthcare were not lower.

How can an employer alter the daily working environment of employees to make it better?

• Make healthier foods and beverages and lower portions of them more affordable and accessible than junk food, although employees are less likely to rebel if they retain the choice to eat less healthy foods.
• Make all facilities tobacco free.
• Create facility plans and work processes, which induce more walking during the day.  Eliminate desktop printers, reduce the number of private offices, and create attractive stairways in place of elevators to induce walking.
• Have fewer meetings of shorter duration to reduce forced sitting down, since prolonged sitting is one of the least healthy activities in which we engage every day.
• Have more ergonomically friendly furniture and furnishings and LED lighting in all workspaces.

Even if employers do not particularly care about the per-employee cost of healthcare, under ObamaCare, the non-deductible 40% excise tax, sometimes called the “Cadillac tax.” is based on the per-employee cost, not the total healthcare cost budget.  That tax will hit all employers who fail to manage their per employee healthcare costs below $10,200 in 2018.

ObamaCare has many conceptual flaws, but if it forces employers who have the best ability to influence employee health and healthcare cost management, to tackle the problem, it will have at least that as a positive, if unintended, outcome.

In talking with Dr. Robert Green, one of the handful of leading-edge researchers and thinkers on the promise of genomics in transforming health and healthcare, I have gained some quite interesting insights.

Dr. Green is a physician-scientist at Brigham and Women’s Hospital and the Harvard Medical School and has focused much of his professional life on a subject of great passion to me, patient empowerment.  As strange as it may sound, he has had to do a considerable amount of clinical study work to prove to the medical community that the consequences of doctors telling patients that they are at serious risk of a degenerative and currently incurable disease are, on balance, positive.  His work in that regard has been done through a series of studies called the REVEAL Study, for which he has been the principal investigator.

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Because of my focus on enabling individuals and families to maximize their health and get the best possible value from health care and health spending, I have often focused on those factors driving the use of the healthcare system that are not given sufficient focus by others.  One such factor is the intensity of healthcare usage caused by injuries.

As a result, I was gratified to read a major story in The New York Times Magazine October 28, 2012, issue entitled “The Dead Don’t Lie” by Robert W. Stock.  The story is a profile of an epidemiologist at Johns Hopkins named Susan Baker.  The main message of the story is that Ms. Baker has spent most of her professional life focusing on healthcare encounters caused by injuries of various kinds.  The good news is that she has made great progress in many areas in which she sought to make a difference.  The bad news is that our society is seeing a significant increase in new sources of injury.

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Because of Whitney Houston’s recent tragic death, a number of articles have been written about the continuing challenge of helping prevent and treat drug and alcohol addiction.  Not surprisingly, the articles have particularly focused on the failure rate of treatment programs used by entertainers and other celebrities.  As a former CEO, and a 30-year veteran of life in a big organization, I knew, and became aware of, many people with drug and alcohol addictions.  I even have a few long time friends who are recovering addicts.

I am not surprised by hearing that celebrities enter an expensive residential drug or alcohol treatment program, and then experience a relapse relatively soon after finishing the program. The first critical success factor in addressing an addiction is recognizing that the behavior occurs in a particular set of social settings.  Success means removing the addicted person from the social settings supporting the addiction.  Unfortunately, most celebrities return to the same world from which they came, and, even if they disengage from the particular relationships that spawned the addiction, they find other destructive relationships.

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Over the past few weeks, I have been to a major data center, attended a medical school advisory board meeting, met with several providers of both wearable and non-wearable biometric data collection systems, and looked at the increasingly sophisticated array of biometric kits available at the major pharmacies.  I have concluded that we have the potential to improve health, to improve the quality of health care, to reduce health care system costs, and to transform the role of nurses and doctors through technology.

Each of the experiences I have described above has shaped my thinking, but each has done so in a different way.

The data center visit

I visited a large data center, in which the operators are using state-of-the-art monitoring systems for electrical power, climate control, and the performance of its computer and server systems.  A company on whose board I sit, Eaton Corporation, is a leader in providing comprehensive power management solutions for data centers. What is remarkable about the large data centers is the degree to which these centers no longer need human beings to monitor many system components.  The central control hardware devices and software programs provide data on thousands of points within the system.  There are less than 10 employees for a huge data center.

What insight does this have for health care?  To the degree that we are designing a system that enables remote and comprehensive monitoring of the state of health of a patient population, we can do so with relatively few healthcare professionals.  Although we talk about a serious labor shortage, the labor shortage assumes an indefinite continuation of the face-to-face diagnosis and treatment systems we now have, as opposed to the remote monitoring systems toward which we are heading.

The term the data center people when describing a center monitored predominantly by sophisticated hardware and software technology is a “lights out” system.  We must evolve to a “lights out” healthcare system on the same model.

The medical school advisory board meeting

As we think about healthcare professionals being trained in modern medicine, it becomes clearer than ever that healthcare professionals not only need to learn traditional human biology and body chemistry, but to be steeped in the field of bioinformatics.  Bioinformatics is a relatively young field of knowledge and skill in which diagnoses and treatments are developed through both onsite and remote data collection and the computer-generated analyses that use the data.

There will never be a complete loss of human judgment by trained health care professionals, but their efforts can be focused on those cases in which human judgment can make the biggest difference.  Getting good data on biometric indicators, health and healthcare history, and the foods, beverages, prescription drugs, over-the-counter drugs, and other items ingested by an individual is critical to enabling the human judgment factor to work best.

Medical schools are beginning to understand the importance of bioinformatics, and to incorporate course material on this field.

The visits with biometric device producers and health plan administrators

The Dossia Health Manager now is able to aggregate not only the comprehensive clinical history on an individual, but biometric and daily activity data that enables the healthcare professional to get a much more complete picture of the individual’s state of health.

Even better, there is an increasing effort to integrate biometric data tracking and management into health plan designs.  Employers and health plans have been providing services and incentives to get individuals to participate in health risk assessments, but these have been one-time exercises, as opposed to a program of capturing and tracking health data all the time.

There was a 2010 Kaiser Permanente study which supported the view that someone who regularly tracks blood pressure is 50% or more likely to control blood pressure.  This is consistent with a broad principle, often articulated about business objectives, that what gets measured gets managed.  The ability to capture blood pressure data with wearable devices is better than ever, and should be stimulated with incentives and rewards.

Shopping at the local pharmacy

Perhaps the most interesting learning I have done over the past month has come from wandering through several pharmacies while I was shopping for a few items.  Near the pharmacy counter at every counter is an increasing variety of home health test kits which are getting close to laboratory accuracy.

One which particularly caught my eye was a kit costing about $30, marketed by Bayer, which enables a user to draw a drop of blood and get a quick reading on his or her Hemoglobin A1c level.  Hemoglobin A1c is a leading indicator of Type II diabetes.  In the past, someone like me, who monitors this biometric indicator as closely as possible because of a family history of Type II diabetes, a genetic predisposition to the disease, and a slightly elevated level of blood sugar, would have had to get a physician to write an order for a laboratory test.  I would have had to schedule an appointment to get blood drawn, and would have had to wait at least one day, and possibly longer, to get my A1C reading.

Today, I can buy my own kit, draw my own blood, and get a same-day reading of my A1C level.  While I would not rely on a home test kit for a definitive diagnosis, I can track general trend information and can do so far more frequently than would be the case if I relied on a physician’s order and on having to schedule an appointment at a lab.

The next step in the evolution of these biometric devices is to make them able to communicate automatically with either a smart phone or a laptop or desktop computer, so that the data can be communicated directly back to a personal health record controlled by the patient.  Once that happens, the productivity of healthcare professionals will increase dramatically.

Instead of having nurses reside at a physician’s office or visit each patient at home, the nurse can work from either a home-based desktop computer or a mobile laptop or I-Pad device to track the health status of a much larger patient population than ever before.  Physicians would write orders to that nurse relative to what biometric indicators are most relevant for a particular patient.

Final comment

The biggest obstacle to adoption of this “lights out” healthcare system is the resistance of those who have built strong capability and income from face-to-face diagnosis and treatment systems.  If I operate a large medical practice based on the assumption that I must see every patient I treat, it will be very difficult to put into place systems and processes that operate as if I am not there.  The biggest challenge in diminishing this resistance is not technological or educational; it is the fear of losing income, jobs, or status.

One of the biggest causes of higher health care costs is “supply-driven demand.”  As Niko Karvounis wrote in a 2008 blog in Healthbeat:

“High consumption of care is driven by the crowd of academic medical centers, specialists, and equipment needed to perform tests. The Bay State has one doctor for every 267 citizens — versus one doctor for every 425 people in the nation as a whole. Supply drives demand. “

Supply-driven demand happens for two reasons, often overlapping:

• Healthcare providers believe in a particular treatment or therapy, and try to maximize the number of people who access it.  This is often reduced to the saying that “If you have a hammer, every problem is a nail.”  Supply-driven demand occurs when people who should not be customers for a particular service become customers because the provider of that service force it beyond its natural market.
• Healthcare providers have excess capacity, and try to get that capacity in use.  This happens with expensive diagnostic imaging equipment, hospitals, and outpatient centers.  It is even arguable that physicians react to reduced usage of their services by patients who become healthier by increasing the frequency with which they see other patients.

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Many commentators state that the U.S. does not have a single health care system.  They are correct: there are really eight different “systems.” Regardless of what happens with the legal challenges to the Affordable Care Act, I believe the U.S. healthcare system will continue to evolve in all eight in the way I describe below.

Some large self-insured employers will move their employees to the newly created state and federal health exchanges.  They will pay taxes or penalties to do so, but it will be better economically, in the short term, for them not to have responsibility for employee health care costs.

However, many employers will invest in the health and wellbeing of their employees, and derive competitive advantage from doing so.  Why?  For employers free to design an optimal healthcare system, including onsite clinics providing comprehensive primary care and developing a selective specialist provider and hospital network, the ability to design a good healthcare system gives them much more control over their employees’ health status, sense of wellbeing, and health benefits costs.

Some employers, like American Express, are even building care delivery networks outside the United States, in countries that have single-payer systems and that have government-employed doctors and government-owned hospital networks.  The staff physicians for these employers provide far better care, which is very attractive for talent recruitment and retention.

What employers will opt out of offering direct health care coverage?  Companies that have lost control of health care costs, such as those with exceptionally generous collective bargaining agreements, will welcome the chance to offload their entire population to health exchanges.  In many companies, CEOs simply do not understand that they can manage employee health and wellbeing and deliver shareholder value.  In others, corporate benefits departments do not want to assume responsibility for health care cost reduction.

Employers who retain health care coverage will develop better provider networks, and may even create multi-employer consortia.  This is happening in Southeastern Wisconsin, with Quad Med, Briggs & Stratton, Miller Coors, and Northwestern Mutual Life.  It is also happening with a consortium of labor unions in the New York City in the UNITE Here Health Center.

What will these employer-based health plans look like?

• They will migrate toward consumer-directed plans with high deductibles and co-pays for plan participants;
• Plan participants will be given significant incentives for making the best choices for their health, health care, and health benefit plan spending;
• Plan participants will be given continuously improving tools for self-managing health, including consumer-controlled personal health management systems like Dossia, clinical decision support tools, choices among health and wellness vendors, and good information and technology tools for continuously monitoring health; and
• Employers will put more decision power into the hands of plan participants and will force health plans to market directly and successfully to consumers to secure revenues.

These employer-based “accountable care” systems will be among the world’s best health care systems.

The wealthiest Americans will leave the core systems of which they are a part and pay extra for concierge medicine. They will consult with physicians who accept no Medicare patients and who direct their patients to the world’s best care, wherever available.  These Americans may actually be consumers of medical tourism, when that care is superior outside U.S. borders.

There is precedent for this.  In the UK, the top layers of UK society initially acquired supplemental health insurance through BUPA and, more recently, seek out care wherever it can be best delivered, including India, Singapore, and the United States.  Medical tourism started to meet the demand from single-payer systems abroad, but it will get bigger here.

There will even be increased medical tourism within the United States.  Concierge doctors will refer patients anywhere in the country in which they can secure the best care.  This system will also deliver exceptional care.

Some Americans will receive world-class care because of the lucky accident of where they are living.  Those Americans in the seven states in which Kaiser-Permanente is licensed to do business, or in Utah, where Intermountain Healthcare is based, or in Washington state, where Virginia Mason is based, or in Southeastern Pennsylvania, where Geisinger is based, will get excellent healthcare.

Other systems around the country will attempt to copy them, and some will succeed, but most will have difficulty, because, for the most part, world-class accountable care organizations will have been created in business models in which the primary care physicians are staff doctors paid a salary and in which there are tightly controlled specialist networks.  These systems work because they effectively limit patient choice by steering patients into a single managed care network.  They will stop seeming like a satisfactory alternative when the limitation on patient choice produces bad outcomes in a handful of high visibility cases.

There is precedent for this.  Back in the 1990’s, payers were effectively controlling healthcare costs and utilization through tightly managed care networks.  These systems also delivered a reasonable level of care quality.  However, they were dismantled because there were a variety of high-profile cases in which it appeared that the healthcare delivered was of inferior quality because the patient could not select the provider of choice.

Most government-run systems outside the United States use some form of provider choice control or give patients no choice as to providers.  Some have “gatekeeper” systems in which the patient cannot directly consult a specialist.  In the United States, such systems can survive only if they can avoid getting legislated or regulated out of existence because of the appearance of delivering inferior care.  They survive, but are highly vulnerable to being dismantled.

Many people have used the Veterans Administration and Military Healthcare systems as models for great healthcare at an affordable cost.  They have electronic health record systems.  They take advantage of broad clinical learning.  They deliver convenient and low-cost care through staff physicians and nurses paid on salary, and they develop long-term relationships with their patients.

However, because premiums paid by users are so low, and raising the prices paid by veterans and military families is politically suicidal, the federal government will reduce the financial burden of this system by quietly reducing the supply of care, rather than working to reduce demand.  They will shrink the size of facilities, the size of their staffs, or the hours of service, rather than increase the cost of accessing them.  Although shrinking a hospital or outpatient center is politically challenging, demanding that users increase their premium payments by several thousand dollars a year would be politically suicidal.  For example, the military health care system charges a 60-year-old military retiree $426 per year in premiums, a ridiculously low payment, considering that this type of retiree costs the system in excess of $10,000 per year on average.  However, raising premiums to even $1,000 per year is the metaphorical “third rail” issue; politicians will not touch it.

The best place for low income Americans dependent on Medicaid or other safety net health care programs is at community health centers.  These centers are generally better equipped to handle the complex problems low-income Americans face, particularly those with language and cultural barriers.

The top community health centers have expert resources to assist patients in applying for government benefit programs, in managing transportation and childcare issues, in addressing related social service issues, such as domestic violence, and overcoming language and cultural barriers.  They also tend to manage appointments for patients with more unpredictable schedules far better than a traditional private health practice.  Finally, they develop expertise in managing the different kinds of health problems very poor people have, compared with their non-indigent counterparts.

The Medicaid legislation passed in 1965 contemplated that Medicaid and Medicare patients would be part of mainstream health care systems and that Medicaid and other safety net programs were simply ways of paying for health care for poor people. We now know, from nearly five decades’ experience, that low income people have other overwhelming life challenges.  Their health care, economic and family needs are different, and are interrelated.  They need expert care a community health center is better equipped to deliver.

Medicaid and other safety net programs could have paid more for health care, and enabled private practice physicians to handle Medicaid patients, but the reimbursement rates for Medicaid providers are so low that private practice physicians have increasingly stopped seeing Medicaid patients.

Therefore, the community health centers will end up handling them, and will actually do a reasonably good job delivering care.

In trying to address budget deficit issues, the Obama administration and its successors will try to reduce what Medicare pays for health care.  This will cause even more medical practices to drop Medicare patients, because these patients have more complex health challenges for which the doctors will be paid less.

We continue to see a hemorrhaging of primary care physician populations, which leaves the Medicare populations even more poorly served by private practice physicians.

Medicare patients will seek out more care at retail clinics for minor illnesses or injuries, at urgent care centers for serious conditions, at emergency rooms for acute conditions.

We will see shrinkage of the physician population with the skill and will to take on older patients with more complex health care challenges.

Most Americans who work in small businesses, who freelance or are self-employed, who are unemployed, or who work for large companies that have abandoned health care coverage will end up in health exchanges.  They will get a progressively poorer quality of care from private practice physicians. They will wait longer for care, have long waiting times in doctor’s offices and hospitals, have short visits with healthcare providers, get too many diagnostic tests in place of more careful physical examinations because the fee-for-service system will survive and drive dysfunctional behavior by physicians and hospitals.

They will also visit urgent care centers and emergency departments more than they should, because these parts of the healthcare system will be accessible to them.

While the quality of care delivered through this government-regulated system will decline, the cost for patients will increase significantly.  There will be high deductibles and co-pays, and the risk pool in this population will get worse over time.  The state-run exchanges and any other system created and managed under the Affordable Care Act or any regulations emerging from it will receive those members not wanted in other systems.  For example, employers with already healthy populations will retain their health plans; employers with unhealthy populations will happily dismantle their health care coverage and drive employees to the exchanges.  There will be an “adverse selection” problem.

The titanic battle between proponents and opponents of the individual mandate, that is, the requirement that individuals either purchase health insurance or pay a penalty for not doing so is constitutionally and politically critical, but arguably irrelevant to whether our country will end with everyone insured.

The individual mandate design created by the Affordable Care Act, as well as the Massachusetts design, both are flawed in driving individuals to secure health insurance because the penalties an individual has to pay if he or she does not elect to secure insurance are inadequate.  I have commented on this more than once: if an individual driving into New York City were to have a choice between paying $40 to park legally in a garage or paying a $20 parking ticket for parking illegally on the street, the vast majority of individuals would elect to park illegally.  It’s nice to have a symbolic penalty, but such a penalty works only if the cost of noncompliance is close to, or better yet, greater than, the cost of following the law.

Because our elected officials did not have the courage of their convictions to create meaningful incentives or penalties for getting every individual covered by health insurance, a significant part of the population, many of whom will be young, healthy people who usually subsidize older, less healthy people, will remain outside the health insurance system.

They will actually have more attractive health care options available to them.  They will access retail clinics for treatment of minor illnesses and injuries. They will have more retail choices for both immunizations and periodic screenings.  They may even be able to access medical tourism options for surgical procedures that would otherwise be prohibitively expensive, even in an insured health care system. They will continue to access acute care at emergency departments.

They really do not need to secure health insurance until they have a condition that is both expensive and chronic, one in which emergency department care is inadequate.  In the past, they would not have risked waiting to get health insurance until getting a chronic condition, but the Affordable Care Act eliminates any barriers to them securing insurance whenever they can no longer operate in the uninsured system.

Oddly enough, absent a much more punitive individual mandate, the Affordable Care Act may actually drive more individuals into the uninsured system for longer stretches of their lives.

Final Comments

It is very difficult to reform the multiple health care systems that, in aggregate, employ over 15 million people, most of them in middle-class jobs, that contribute almost $3 trillion per year to our economy, and that are perceived to deliver two public goods, healthcare and insurance protection against catastrophically high healthcare expenses. Change will come from a combination of evolutionary development of better care for those who can acquire it outside the systems heavily regulated by the government and increasingly complex and dysfunctional government interventions.

The goal of universal healthcare equitably available to all Americans will not happen.  Those smart, rich, or resourceful enough to demand great care will get it; the remaining Americans, overwhelmed in trying to manage their daily lives or not sufficiently “street-smart” or rich will be lucky to get adequate, affordable care.  The more government tries to intervene to achieve fairness or to correct fraud, waste, and abuse, the more the system will create new opportunities for fraud, waste, and abuse. Moreover, as noted above, the government’s misguided attempt to eliminate denials of coverage for preexisting conditions will provide a perverse incentive for more individuals to drop out of the health insurance system until it becomes economically untenable for them to stay out. Every government intervention will result in a new set of “gaming” opportunities.

Some people would say that we have a crisis in health, healthcare, and health insurance, and that the crisis should be a call to action.  Unfortunately, the history of our representative form of government would suggest that crises are noticed and acted upon when they are triggered by highly visible events, coupled with strong leadership and large movements to take advantage of them.

Moreover, even when there is a crisis, there has to be an agreed-upon paradigm for how to think about the issue.  We do not have that:

• We do not have a consensus on how to resolve the healthcare crisis.
• We want everyone to have health insurance, but are not prepared to take the hard steps to penalize those who refuse to buy it.
• We support the goals of unlimited patient provider choice, unlimited access, very limited penalties for irresponsible and destructive patient behavior, and the belief that more access to care always yields better care and better health.
• We know that unlimited access and unlimited choice yield bad economics, but do not fully understand that most of the cost of healthcare comes from preventable and controllable decisions that should be penalized more; and
• We have exceptionally little understanding of the degree to which more care often means worse care and poorer health.

Our system will simultaneously improve in certain respects and deteriorate in many others for the next decade, but I am confident that it will settle into a complex, multi-segmented system like what I have described.

In the July 6, 2011, issue of The Wall Street Journal, Roger Bate has written a column entitled “Beware the Risks of Generic Drugs.” He specifically zeroes in on drugs produced from ingredients sourced in China.  Although this story is about the issues associated with generic drugs, the bigger question it raises is why pharmaceuticals would cut corners on such critical processes as the sources of ingredients for their drugs. At least one of the root causes is the relentless pressure governments, insurance companies, and employers feel to reduce costs by reducing the acquisition prices of drugs.

When governments, private insurers, and self-insured health plans try to drive drug prices down and, specifically, to convert patients from using generic drugs instead of branded drugs, there is a limit in terms of cost-saving opportunities available, without putting patients at risk.  To push cost savings beyond that point inevitably raises a huge risk of acquiring generic drugs priced at a level that does not optimize patient safety.

We cannot solve our health care cost crisis entirely primarily by driving prices down for drugs, supplies, devices, and medical services.  We have to reduce unnecessary usage of the health care system, and to drive the healthier behaviors that are the most sustainable way of reducing health care system usage.

Publicly held businesses and governments under stress for excessive costs often have the tendency to flex their muscles in procurement processes to demonstrate their ability to save money.  The unit cost savings are visible, the savings opportunities are often immediate, and the purchasers can present themselves as fiscally responsible.  Moreover, it is far more comfortable for payers to beat up on suppliers through the procurement process than to deal with the messy questions associated with inappropriate usage of the health care system, or driving people to engage in healthier behaviors.

There are two things wrong with relying on procurement strategies as the primary cost reduction tool:

• Unless there are tight controls on what is purchased, cost reductions are often covered by sellers cutting corners in what they are providing, or reserving the right to charge for what had been given away.  Government contractors have mastered the process of low-balling initial contract price offers, and then making huge profits from “extras” which are inevitably required by the government at a later time.  The so-called savings are phony; they are merely costs that are deferred to a later time and are often higher than a more comprehensive competitive bid.
• The sellers who agree to accept lower prices and try to honor them according to their terms often find themselves unable to perform profitably.  Over time, the pool of sellers willing to bid on business that is consistently likely to be unprofitable shrinks.  Eventually, the purchaser has no competitive options.

In the pharmaceuticals context, the corner cutting can be fatal to patients, as was the case with heparin.  Although I obviously cannot know what happened in every health plan procurement negotiation, I would not be surprised that purchasers which drove a hard bargain on pricing for generic drugs created an environment in which the supply chain functions of pharmaceutical manufacturers attempted to acquire ingredients for the drug at a price that could not be supported with the extra cost of a tightly controlled supply system.

There are no “magic bullet” ways to take drug prices down beyond a certain point.  Major drug manufacturers are administratively inefficient; they spend excessively on marketing and sales; and they may still have less efficient research and development processes.  However, beyond a certain point, cost cutting will cause people in their organization to take actions that put processes at risk.

Employees of pharmaceutical companies are not excessively evil or reckless compared to other businesses or governments; this is true of every large organization.  Employees under severe pressure anywhere to cut costs make stupid and reckless decisions to keep their jobs.  They particularly cut costs in areas in which the consequences are less visible or more likely to appear at a later time, especially if they can transfer the risk to someone else.  They are unlikely to go after the most sustainable cost reductions, which involve messy structural reform of their organizations.

In the health care marketplace, this was illustrated particularly with the Johnson & Johnson manufacturing safety problem in the last few years.  Much of the publicity about that case demonstrated that the root cause was a culture that, over time, became excessively focused on cost cutting at the risk of patient safety.

Relative to other areas of health care, the same principle applies: there is no free lunch when costs are cut excessively in the procurement space.  One major firm was very happy with the fact that its insurance plan administrator significantly reduced the payments due to physicians, hospitals, and other healthcare providers. The plan administrator secured a very good long-term contract because it presented itself as having a better ability than other administrators to negotiate prices with providers.

Unfortunately for the Company, the consequence of this hardball negotiation process was that many providers left the network and stopped treating patients with whom they had long-term relationships.  As a result, the Company lost in two ways:

• Some patients stayed with these providers, who were now out of the network and were charging much higher prices.  Even with lower reimbursement percentages for out-of-network care, the Company still paid more.  Out-of-network costs shot up.
• Some patients changed providers, received disruptive and suboptimal care, and were very unhappy with the Company for causing this to happen.

As a CEO, I was never comfortable with strategies based predominantly on procurement-based price reductions.  They tended to work for 2-3 years, and then fell apart.  The better strategy was to work with vendor-partners to get better products and services through sustainable cost reductions.  For example, I always liked solutions in which parts were re-engineered or packaging was reduced, or a less expensive, but equally reliable, way to ship the product was found.  These kinds of cost reductions were more challenging, but they worked.  Cost reductions based solely on price concessions struck me as a very lazy way to reduce costs.  I supported them, but, to a limited degree and for a limited period of time.

Ultimately, the challenges of reducing health care costs will require us to make deep and broad structural changes on how we live our lives, and allocate societal resources.  The move from branded to generic drugs is a small step in health care cost reduction, but, like every other, it has limited value and has to be managed with great care.

We are at the stage at which a new health plan paradigm needs to be adopted by governments and insurance companies.

The Old Paradigm: Healthy people subsidize those who get sick or injured through no fault of their own.

Throughout the history of U.S. health insurance, the prevailing paradigm was that everyone paid for health insurance, with the healthy people paying higher premiums to subsidize those who became sick through no fault of their own.  State insurance regulators authorized the issuance of health insurance policies with three rating frameworks:

• Community rating: everyone paid the same premiums;
• Adjusted community rating: differences in premiums are allowed, based on population demographic factors like gender, age, and geographic differences in health care delivery costs; and
• Experience rating: those with pre-existing conditions either were denied coverage, paid more, or had coverage exclusions.

All these systems assumed that insured people had no control over their health.  Therefore, adjusting premiums based on individual behavioral risk factors, such as smokers’ penalties, allowed in life insurance policies, or premiums based on taking a drivers’ education course, part of automobile insurance ratings, were not allowed in health insurance policies.

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I have now been the President and CEO of Dossia for almost four months.  As I look at the personal health record landscape, I think that those who care about this space need to rethink some fundamental directional assumptions about health information technology.

We are “consumers,” not just “patients”

The term “patient,” as applied to health information, has two flaws: first, we need health-related information at all times, not just when we are in a doctor’s office.  Health management is a 24×7 activity, not an activity confined to our clinical encounters, which are a tiny fraction of everyone’s life.  Second, “patient” is a passive term.  We should be controlling the management of our health, not being a passive recipient of clinical care.

We need all clinical information, not just medical information.

Our health care system encounters are with doctors, hospitals, outpatient centers, pharmacies, labs, imaging centers, dentists, alternative medicine providers, nutritionists, fitness trainers, health counselors, and retail outlets at which we receive immunizations and screenings.  We need all information, not just what our preferred doctor, hospital, or insurance company wants us to see.

The “medical home” and “accountable care organization” concepts contained in the recent health reform legislation are somewhat flawed because they assume we will concentrate our health care in one system.  That will never happen because we will want choices, even if we stay in the same geography. However, a sizable part of our population will change residences, which will force changes in health care providers, employer plan sponsors, and insurance plans.  We need a comprehensive and portable health information system.

We need all health-related information, not just clinical information.

Much of what matters to our health relates to non-clinical activity: what we eat, how active we are, how much sleep we get, how much stress we feel, what vitamins, herbs, and over-the-counter drugs we take, what infections are exposed to us, our genetic make-up and expression, what environmental hazards present themselves to us, and what injuries and cumulative physical stresses we risk.  We need all of that information presented accurately, automatically and comprehensively into a health record, not just what we can remember when asked by a doctor.

We need help navigating through health care payment sources.

The days when most Americans could anticipate having all their health care costs covered by a health plan are long gone.  Today, we navigate payment through four sources: the health plan, a tax-deductible vehicle like a Flexible Spending Account, a Health Savings Account, or a Health Reimbursement Account, an employer or other incentive program, or self-payment.  We need help navigating through these different payment streams.

We need help making health care decisions.

Health care decision making is increasingly complex.  It is influenced by cost, quality of care, relative effectiveness of treatments, and what health plans and other payment sources will cover.  Consumers increasingly need more decision support, because choices are imperfect.

We need to recognize that health-related decisions are often made by someone other than the patient.

The health care system and policies related to it, such as privacy policies, assume that most health-related decisions are made by the patient.  However, we know that this is not the case for many parts of our population.  Parents make health decisions for children, but a parent also drives health decisions for a spouse, for elderly parents, and even for elderly in-laws. People living together outside of traditional marriages are also making health-related decisions for domestic partners. Additionally, more elderly people are giving others health care proxies to make decisions for them under certain circumstances.  Our health care system needs to recognize this reality and accommodate in access to health information.

We need to recognize that people need help with decisions relating to health management.

The personal, consumer-controlled health management system assumes that, for many medical decisions, the decisions are not simple and the choices are both imperfect and inherently based on incomplete information.  Health management tools have to be available to make the health record more valuable in bringing to bear on health care decisions.

Privacy preferences are not simple and they will change, based on changing life circumstances.

Many privacy advocates, who are highly suspicious of the security and privacy of any health information system, and who may have experienced or been made aware of bad health outcomes because of misuse of health information, assume that everyone wants health information kept private. The real world is more complex.

Some people freely share their health status on public web sites, and on semi-public sites like Facebook, knowing that the information is no longer secret as a result.  For some, they do not care who knows.  For others battling a debilitating disease, they want to share information to get the best possible sources of help.

Others are willing to share information based on their need to find out better sources of help on allergies, back pain, or injury rehabilitation, but do not wants others to know that they have heart disease, because of job-related concerns.  Anyone who expects to apply for a health insurance policy wants to keep health information secret to the degree that it affects their ability to get insurance or to get the lowest possible rates.

Privacy consent management has to allow patients or caregivers to express precisely patient preferences and to have those preferences honored.

Moreover, people who express a preference at one time may change that preference, based on changed life circumstances.  Someone who is newly diagnosed with a condition may have more desire for privacy, or, in the alternative, may want information communicated more broadly.

Any privacy system has to make it easy for individuals to change preference profiles.

Conclusion

The state-of-the-art personal health management system needs to take all these factors into account.  Too much of what passes for personal health record systems today are based on flawed assumptions about how health, health care, and health benefits actually work. Dossia strives to help people function in the world as it is, not as we believe it once was.