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.

Why don’t more Americans go into public service?  This is a most important question, because the public sector is being crippled by mediocre, sometimes poor, and, infrequently, but too often, corrupt leadership.  When I was young, my parents strongly encouraged me to consider either a career in public service or taking on periodic assignments in public service. I do not want to romanticize government officials in the past, because many of the pathologies we see today have been around for centuries and even millennia.

Nevertheless, I grew up reading about historical figures like the Roman leader Cincinnatus who left his farm to serve in a leadership position, fulfilled his public responsibilities, and then returned as quickly as possible to his farm and his family.  George Washington was admired because he completed his two presidential terms, and then went back to his Virginia home.  Both of these leaders represented a set of values which placed public service above personal ambition.

(more…)

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.

(more…)

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.

Upton Sinclair, the author of The Jungle, and a renowned journalist from the early 20^th century, once said that “it is difficult to get someone to understand something when the continuation of his livelihood depends on him not understanding it.” This is a profound, but simple, truth.

Whole industries and marketplaces, and often political and social paradigms, depend on people willfully denying reality.  In health care, the stubborn myth is that more care is always better care.  This myth enables health care providers to make more money, not have to make tough end-of-life decisions, and appear to be giving the patient what he or she wants.

(more…)

The recent tragic suicide of Dave Duerson, a great professional football player, who made a conscious decision to end his life in a way that enabled his brain to be donated to Boston University’s Center for Chronic Traumatic Encephalopathy, reminds us of a profound truth about our nation’s health care crisis: we have to address the root causes of unhealthy and destructive behaviors before we can change the behaviors.

The assumptions underlying many of our health care policies are that people are most motivated to do what is healthy for them and their families, and if we could only get them good information, and good and affordable care, they would do the right things.  Unfortunately, the reality is much more complex.

(more…)

President Obama has proposed billions of dollars for rebuilding America’s transportation infrastructure.  Many others, including the America 2050 project, have very thoughtful plans for more intelligent transportation networks that will enable America to be globally competitive.  As a person who has been a strong advocate for transforming our transportation infrastructure, I could not agree more with the goals of better use of our transportation infrastructure and more public transportation in place of single-occupant vehicles.  The one place in which I might take a different view from those who advocate building new transportation systems is that I believe we need to repair, maintain and getter better yield from what we have.

However, I also believe that we could reduce the stress on our transportation systems with three non-transportation initiatives, all of which are far less expensive to implement than building a lot of new transportation infrastructure.

(more…)

In the Sunday, January 23, 2011, New York Times magazine, there was an article entitled “The White House Looks for Work,” written by Peter Baker, a reprint of an article that appeared in the New York Times online version on January 19, 2011. The article contains some hard-hitting photos of people residing in Rockford, Illinois, a city that clearly has faced some very difficult times.  The people pictured in the article are all gainfully employed, but they all comment on how difficult life in their community has become, and how many people are unemployed around them.

One of the most difficult things for people in that situation to understand is that the key to reducing unemployment is to figure out how to create businesses and jobs that bring money in from outside the community.  To do this, a community has to come together, figure out what people somewhere else with extra money to spend need most, determine what they can offer those people, and then develop and implement plans to create businesses and jobs to meet the needs of those distant customers.

(more…)

The iconic image, whether a photo or video clip, often shapes the perception of events in profound ways.  As I am learning as a film producer, those who market films specifically look for that one still photo or freeze frame that not only captures the essence of the film, but creates dramatic power.  In an article in the January 20, 2011, issue of The New Yorker, called “The Toppling,” author Peter Maass makes the point that the iconic images of Iraqis tearing down the statue of Saddam Hussein in Baghdad’s Firdos Square on April 9, 2003, was largely a media-staged event.

The significance of these images is that they seemed to convey a sense that Iraqis were ecstatic about the overthrow of the Saddam Hussein regime.  Many commentators compared the statue toppling to the images of Berliners tearing down the Berlin Wall in 1989, or the Rumanians tearing down the statue of their totalitarian dictator Nicolae Ceausescu.  However, whereas these other cases were largely spontaneous expressions of joyous citizens of Germany and Rumania reflecting their newly found freedom, the Baghdad celebrations were clearly premature and, as a result, reflected a strange mix of a few Iraqis, a few media people, and few military personnel.  The power of the images of Iraqis celebrating the American liberation by the symbolic act of toppling Saddam Hussein’s statue may have kept Americans from questioning the wisdom of how the Iraqi war was conducted for quite a while.

(more…)

On Thursday, January 6, 2011, the Dossia Service Corporation announced that its Board of Directors had elected me as the new CEO.  I am thrilled for this opportunity, but it has also reminded me that I have a more hands-on responsibility to insure the security and privacy of the individuals and families who have entrusted us with their health information.

Fortunately, Dossia is not only in compliance with all applicable laws and regulations, but, having had to market our personal health record system through large employers, we have had to meet much more challenging security and privacy standards than our competitors, who market directly to consumers.  I am very familiar with exacting security and privacy standards from working inside a company that had to manage sensitive financial information for postal services and their customers because of our postage meter business.

(more…)