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A crucial cure for health care: Six steps to curb raging inflation

Health-care investor Albert Waxman says the need to substantially trim the crippling U.S. health care inflation rate is getting lost in the shuffle and offers six steps to cut costs. He writes: “We can still cover the uninsured if we refocus reform on creating true value for health care spending and align patient, provider and payer incentives around good medicine.”

Albert Waxman, is the chief executive officer of Psilos Group, an investment firm with a particular focus on driving down costs, improving quality and aligning incentives across payers, providers and patients.

The U.S. House of Representatives pushed the likelihood of mandatory U.S. health care insurance a giant step forward by passing a health care reform bill that is likely to become law in some form this year or next. That’s the good news. Unfortunately, this is dwarfed by the bad news: The focus of the legislation is the implementation of health care for the uninsured, not fixing the health care system overall. So the need to substantially trim the crippling U.S. health care inflation rate is getting lost in the shuffle.

Health care premiums have soared because health care inflation is nearly triple the overall inflation rate. Last year, during a period of general deflation, health care inflation rose 5.5 percent. Health care costs are expected to consume nearly 20 percent of the gross domestic product by 2017, the year that Medicare is projected to become insolvent.

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While there is still time, policy makers must take steps to substantially amend the nature of health care reform. They must set clearly articulated goals, including a normalized health care inflation rate. They must build alignment across multiple interest groups to make sure that all key stakeholders are truly on board, not just passing legislation. Most important, they must shift the focus of the debate from “who pays” to “how much” America should pay for an effective health care system that delivers real value. If this isn’t addressed, no changes will ultimately succeed.

Fortunately, multiple players in the private sector, including Psilos Group’s portfolio companies, have made considerable progress addressing health care inflation on various fronts. They have proven that costs can be cut and quality improved simultaneously, which is key for reform itself to pay much of the tab. Here are six ways this can be accomplished:

  1. Embrace “accountable care” for chronic illness. Chronic illness is the biggest burden on health care. Fifteen-million elderly Americans have at least four chronic illnesses, such as diabetes and high blood pressure, costing the government $350 billion in Medicare alone. Accountable Care Organizations have produced significant quality improvements and cost reductions and could save $750 billion over 10 years.
  2. Use technology to eliminate hospital-based errors. Hospital-based errors account for $7 billion to $10 billion annually in excess Medicare costs alone. Several U.S. companies now have products that significantly mitigate or eliminate these errors but whose technology is not widely adopted.
  3. Create electronic personal medical records. Patients’ medical records must be digitized and consolidated around the patient, not the physician or hospital.  These records should be delivered directly to physicians at the point of care to improve medical decision-making and eliminate redundant tests. This could produce savings of $500 billion over 10 years.
  4. Reform “defensive medicine” practices.  Physicians often provide treatments, even when they know they are unnecessary, excessive or redundant, because failure to do so may result in a malpractice suit.  We must establish a culture of doing the right thing and adopt legal reforms that enable good medicine to flourish.
  5. Replace “fee for service” with performance-based reimbursement. Accountable Care Organizations are an excellent role model for this. They reward clinical outcomes, rather than reimburse providers based on the number of procedures performed.
  6. Provide incentives for healthier lifestyles and behavior. New “value-based” health plans incentivize patients to take care of themselves through preventative wellness programs and compliance with chronic illness treatment plans.  These plans have demonstrated substantial savings to both patient and payer.

Health care reform is essential and the tipping point is here.  We can still cover the uninsured if we refocus reform on creating true value for health care spending and align patient, provider and payer incentives around good medicine. Many of the above ideas have been proven on a smaller scale.  Now is the time to convert these models into systemic change so we can deliver sustainable reform for all Americans.

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