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 the Saturday, December 22, 2012, issue of The Wall Street Journal, there was an inspiring story written by James Zweig called “The 107-Year-Old Stock Picker.”  The subject of the story was 107-year-old Irving Kahn, the chairman of the Kahn Brothers Group, an investment management firm based in New York City.  As Zweig describes him:

“He personifies the virtues that Graham (Benjamin Graham) spelled out in his classic 1949 book “The Intelligent Investor,” from which this column takes its name.”

Later on in the story, Zweig tells us more about Kahn:

“Discipline has been a key for Mr. Kahn. He still works five days a week, slacking off only on the occasional Friday.”

In answer to a question about his remarkable longevity, Kahn responds:

“Millions of people die every year of something they could cure themselves: lack of wisdom and lack of ability to control their impulses.”

Irving Kahn appears to be an individual firmly grounded in the real world, and as active as a 107-year-old can possibly be. Zweig commented: “In some ways, Mr. Kahn says, these are the good old days.”  As an investor, he correctly notes that he has more tools than ever available to level the playing field between investors and those from whom they buy securities.  His goal is to know more about the stock he is buying than the investor who is trying to sell it to him. He is energized by his job and his daily life, and his physical faculties have declined relatively slowly.

Although I have had many role models in my life, certainly Mr. Kahn has to be added to them.  I believe that the key to health and longevity is a continuation of one’s passionate commitment to family and friends, causes, and work.  When someone completely “retires” from active living, he or she actually increases his or her psychic burden.

The other key to healthy longevity is to live every day with the appreciation of life that a productive very old person carries through the day.  When I have met such people, very little that bothers me would bother them, because they have had a few extra decades in which to put life into perspective.

How do they think differently from someone at my age or someone far younger than I am?

• They have been through enough up-and-down cycles in life to realize that neither success nor adversity is permanent.  Life has a mix of both every year for us.
• Just as those who have had near death experiences tend to worry less about just about every other problem, those who have relatively short life expectancies tend to consider daily problems to be of lesser consequence.
• They celebrate small successes every day.  At first glance, this would appear to be an acknowledgment that a person has failed to achieve more ambitious goals, but it actually increases the likelihood of more ambitious accomplishments.  Efficiently taking small, successful steps often gives an individual the ability to adapt to changed conditions and achieve success with fewer big failures.

Conversely, by encouraging older people to retire and disengage from active work, we inadvertently put them in a much more psychologically vulnerable position.  They lose the ability to see past the news headlines into the many good things that are happening.  They get fearful, when they should be celebrating the progress we are making on many fronts.

Why do I believe that to be the case?  Someone in the flow of the business, political, cultural, and community world has a much better understanding of reality than someone who gathers information from the mass media.  The TV media, in particular, is designed to report what it calls “news,” but what is typically a highly distorted and negative selection of the broader flow of events and trends.  Initially local news editors, but now national and global news editors as well, on all news stations select stories for broadcasting or printing based on the principle of “If it bleeds, let it lead.”

For this reason, although the world is less violent than it was two decades ago, and the absolute level of crime is the lowest it has been for decades, the sensational reporting of crimes gives the impression that violence is at an all-time high.

Recently, I met a highly accomplished journalist and author named Greg Behrman, who feels the same way I do.  We spend far too much time covering what’s wrong in the world, and not enough time spotlighting the things we are doing right, and that require considerable innovation in solving problems.  Think about this point for a minute in a number of contexts:

• As a country, we are seeing a significant increase in the percentage of people that are overweight or even obese.  We have a true public health crisis in slow motion.  That is no longer news.  We see it all around us, particularly in the Southeastern United States, and in the lower income parts of big cities.

However, I learned that New York City has actually stopped and even reversed the incidence of childhood obesity, but I did not learn it from the news media, but from a speech given by Dr. Tom Farley, the City’s Public Health Commissioner.  I am sure that the advisory board meeting at which Dr. Farley spoke was not the first time at which this news was made public, but it would be difficult to find this story in the popular media.

• We get the impression that we are a more violent world than ever before, but Joshua Goldstein recently published a book called Winning the War on War, which documents that the absolute level of armed conflict is declining over time.  Why do we not see these statistics dominating the airwaves?

• The U.S. has had great success in several public health campaigns over the last four decades in reducing the percentage of adults who use tobacco, the likelihood of automobile related fatalities, the likelihood of workplace-related accidents, and the incidence of alcohol abuse.  This is not broadly or frequently reported.

• Our air is cleaner, there is a lower incidence of acid rain, and the level of hazardous waste discharges in our factories is far lower than it was 40 years ago, but there is very little reporting on these positive environmental trends.

• In many respects, medical science has enabled us to achieve a better quality of life than was possible when I was growing up.  My wife was an early beneficiary of lasik surgery, which eliminated her need to wear contact lenses or glasses for everyday distance viewing (although she still wears reading glasses.)

Whenever I am down, I think of Irving Kahn, but more importantly, I think of the old Frank Sinatra song That’s Life, particularly one section of the lyrics:

I’ve been a puppet, a pauper, a pirate, a poet, a pawn and a king

I’ve been up and down and over and out and I know one thing

Each time I find myself flat on my face

I pick myself up and get back in the race

That’s Life, That’s Life

I tell you, I can’t deny it

I thought of quitting, baby but my heart just ain’t gonna buy it.”

We should take a moment upon reading this and celebrate Irving Kahn and everyone like me who keeps getting “back in the race.”  For, in doing so, he has clearly discovered the true fountain of youth.

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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I have been through a very stressful period in my life, for a variety of reasons.  However, the challenges of coping with the sources of that stress have actually changed me for the better and improved my long-term health.  I have had to adjust my orientation to problems in two fundamental respects:

• Increasing my focus on the present, as opposed to brooding and worrying too much about the past or the future; and
• Believing that every problem I could conjure up has a solution.

Both of these orientation changes were most difficult for me.  I am a person blessed (or cursed) with a great ability to understand and dissect history, and to learn from it.  I also have prided myself on my ability to see potential opportunities and risks quite far ahead.

Being a CEO particularly reinforced both orientations.  I studied the history of both successful and unsuccessful initiatives within my own organization and learned from the successes and failures of others.  I saw patterns as I looked at the present, based on what happened before.  I also was able to plan and envision the future, because I could see multiple potential futures and prepare for a broad range of those futures.

However, both orientations, taken to an extreme, are unhealthy. Understanding the past without reliving the emotional burden of past failures, whether they are mine or someone else’s, is healthy, but it is very difficult to revisit past failures without experiencing some regret or guilt associated with them, or some nervousness that they will be repeated.  There never is a perfect fit between any past set of events and useful insights for a problem currently presenting itself.

As for the future, I found that I spent too much energy worrying about low probability events that never came to pass, especially if those events were further out in time.  One of the biggest challenges leaders face, as Andrew Grove of Intel eloquently and thoughtfully describes in his classic Only the Paranoid Survive, is distinguishing between true strategic inflection points and false alarms.

By letting time pass and letting things happen, I found that my resourcefulness was sufficient for addressing problems as they came up.  I also found that I approached those problems with a clearer head and with less draining emotions.

The second change in my life came with the most important change in my headset, largely as a result of the innovation of which I have become aware from doing a lot of research online.  That change in my way of thinking about the world is the belief that every problem has a solution, and that there is no problem that cannot be overcome, no matter how difficult it seems in the short run.

Over a lifetime, I have tended to believe that there are natural boundaries to the range of solutions available to solve a problem.  I now believe that someone who is determined to find a solution can go beyond traditional boundaries to find a solution.  Those boundaries come from thinking in fixed categories when the world consists of increasingly fluid categories.  Ways of thinking about the world that we assumed were immutable laws of nature turn out to be much less immutable than we believed them to be.  We even find that our vocabulary no longer captures what is happening.

For example, in thinking about a future time in which we may no longer have the ability to drive because of reduced capabilities, we may narrow our geographic options to locations with public transportation, because we think of either “driving” a car or being a “passenger” in a car someone else is driving.  What we have not contemplated is the idea that a car can operate automatically with no human “driver.”  Google has created such a car, and it would not surprise me that, as I get to be unable to drive 2-3 decades out from now, I will still have mobility because of access to self-driving automobiles.

We also think that cars ride on land and airplanes fly in the air.  What we have not contemplated is a vehicle that can operate in the air at some points in time and on the ground at others.  Cars may also have the ability to operate on the water, as well as land and air. A combined land-air vehicle exists today.  Is it an airplane when it is operating on the ground or a car that flies?  We have no terminology that describes it adequately.

Today, we are in an era in which anything we contemplate, good or bad, can be made to happen, given sufficient time, resources, and tenacity on the part of someone or a critical mass of individuals who want to make it happen.  I still have trouble internalizing this, and wake up in a cold sweat worrying on too many nights, but I eventually remind myself that we are living in the most innovative time in history.

In the book Imagine, author Jonah Lehrer describes situations in which great creative people are blocked and then have a burst of insight that breaks new creative ground.  In fact, his first example in the book is the process by which Bob Dylan ushered in a new era of lyric creation with his process for creating the song “Like a Rolling Stone.”  Lehrer argues that the most transformative thinking happens when people let go, relax emotionally, distract themselves with seemingly unrelated thoughts, and then allow the transformative insight to present itself, often without an understanding of how or when it will happen.

For those of you reading this blog, learn to relax, use the tremendous resources available online, and envision less bounded and constrained futures.  It will make your daily living routine a whole lot easier and less stressful.

During my 35-year career at large organizations, the description of the goal of providing equal opportunities for women, people of color, and other disadvantaged groups changed from “equal opportunity” to “diversity.” Today, that word would be “inclusion.”

What is inclusion?

“Inclusion” means three things:

• building a diverse organization;
• respecting everyone in it; and
• welcoming and act upon their input.

Excelling at inclusion requires qualities Jim Collins describes in a Level 5 leader in Good to Great, particularly, the combination of modesty and strong will, and the ability to seek out market feedback, which he calls “confronting the brutal facts.”  Inclusion requires more listening than talking, and more consultative and less traditional “selling.”

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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.

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.