Sunday, November 3, 2013

Obamacare More Than Enrollment

(Tom Scully, former GOP official, now Obamacare investor,  NYT Magazine)

Tom Scully (pictured above) worked on healthcare (among other things) for Bush I and was Director of the Center for Medicare and Medicaid Services (CMS) for Bush II. He is now Founder and CEO of naviHealth, whose website says:

naviHealth is a post-acute care (PAC) benefit manager partnering with risk-bearing healthcare organizations to lower PAC costs by empowering the patient, improving care coordination, and using a proven data and technology driven approach to enable PAC navigation.

Fascinating article. The first one I have seen like it. There will be more. A great many more. Opposition to Obamacare has been so absolute on the Conservative side that normally astute investment analysts have almost totally missed a very important fact set: The ACA is not just about enrolling the uninsured. It's a multi pronged effort to control healthcare cost inflation by shifting provider incentives from the fee-for-service model, to a coordinated-care, values-based model.

For the most part, business has - up until now - been listening to the GOP: the program is rotten through and through; it's a Government takeover of healthcare; it will restrict choices, lower healthcare quality, and raise premiums and overall costs; and it is founded on a losing economic proposition that the under 35s' will sign up, against their economic interests, since the penalty is way too low to make them become insurance buyers.

All of this is mostly wrong. There will be some restricting of choices - viz. the folks having their bare bones policies cancelled. Also possible are some supply bottlenecks - shortage of doctors in some areas - as the delivery system reacts and adjusts to the increased demand. But most of the other critiques are just wrong. The most important error is the GOP certainty that the young will not sign up, thus dooming the program to a "death spiral" of rising premiums.

Once businessmen, like Tom Scully, figure out that Obamacare isn't going anywhere, that it will be with us for a  long time, they will start to look for opportunities to invest. And the name of the game will be cost containment: how to help 1/6th of our economy, the healthcare sector, shift from a quantity of service model (individual units of service billed individually) to a quality and value model (pay more for better quality; give rewards for reducing system utilization or complexity - what Tom Scully and naviHealth are attempting).

A huge part of the US economy is moving into a time of conscious, intentional market disruption, and as any economic historian will tell you, when markets are disrupted and basic business models are changed, there is good money to be made by those able to see what's trying to emerge. The initial disruption caused by ACA is showing up in the insurance market, not the medical delivery system itself. But the ACA is chock full of "test and then scale" ideas for cost containment in the delivery system itself.

There are three ways to cut costs: change the price of medical care; reduce utilization of the medical system; and lower the complexity level of how patients are treated when they use the system. Most efforts in the past have focused on controlling price - reducing payments to hospitals, doctors, etc. This has distinct and well known limits. And because there was not much of this in the ACA, pundits concluded that there was no effective cost control that would come out of the bill.

What they missed completely was the very large variety of tests the bill authorized, looking to test ways of reducing system utilization and complexity: keep people healthier, so they don't need the system as much; like Tom Scully, work with acute care patients and support them post-op, so they don't need readmission to the hospital; organize the independent medical silos into Accountable Care Organizations that are rewarded in "bundled payments", and who make more money by keeping their patients healthy; use Electronic Medical Records to give all providers the same information about patients, and thus reduce unneeded tests, etc.

This is why healthcare costs are coming down. There's a revolution going on. The healthcare system is finally learning how to reward providers for not using the medical system,  in other words, for keeping people healthier.

This is a big deal. This is where Tom Scully is placing his chips. Many others are doing so as well. Healthcare costs will continue to moderate, eliminating our long term deficit/debt problem. Conservative anger over Obamacare has kept the country and some of its business leadership from seeing the seeds of transformation the ACA's many test and scale provisions have already launched.

And by the way, this is what the Independent Payment Advisory Board (IPAB) is about. Not a Death Panel. An efficient mechanism for bringing to scale methods that have proven out in tests.

Hang on. This promises to be quite a ride.

Tom Scully

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