Healthcare Reform in California: Which Side of the SeeSaw Are We On?

I mentioned in my last post that I was headed off to host UC Berkeley’s Institute of Governmental Studies program on Health Reform in California. Yesterday I had the honor of moderating a star-powered panel of health reform experts comprised of leading doers and thinkers in our California healthcare ecosystem.  Speaking in front of a room of about 200, we had a lengthy discussion about how healthcare reform will proceed in California, including how the details of reform may affect our State. There were some great discussions and the panelists, who included Diana Dooley, newly appointed CA Secretary of Health and Human Services, Cindy Ehnes, Director of the CA Department of Managed Care, Paul Markovich, Chief Operating Officer, Blue Shield of CA and Saum Sutaria, MD, Director of McKinsey & Co., were highly engaged in the debate.

Some of the discussion was to be expected and would be familiar to those who frequently think and read about healthcare reform. However, a few items really stood out to me and I thought I would highlight those today.

The very first question I asked the panel was, “What should the top 1-2 goals of health reform be? How do we know that “reform” has been achieved?”  Three of the four panelists answered with some form of “costs must come down” or “care would be more affordable.”  In other words, 75% of the panel looks at health reform primarily as the path to reduced healthcare spending.

Interestingly, Secretary Dooley focused elsewhere.  She said that effective health reform meant that people will be able to access care when and where they really need it and that consumers will be at the center of the process, actively taking personal responsibility for securing the right treatment in the right amount at the right time.  No doubt Secretary Dooley believes that reducing the cost of healthcare is also an important goal, and she has likely dealt with little else but budget-cutting in her department since her appointment last month.  Nevertheless, I think it is important to note the concept of consumer responsibility here.  Cost reduction is an essential goal, but we will never succeed in it if consumers do not start behaving differently with respect to their health.

Our healthcare system is riddled with vastly misaligned incentives:  providers are incentivized to treat too much (they get paid for services), insurers are incentivized to pay for too little (they get paid for keeping the premium in their own piggy bank) and consumers are incentivized to drink one more Caramel Frappuccino on their way to getting another one free.  Consumers, aka patients, are generally unfamiliar with the cost of the care they are seeking and have been trained not to even ask.  And yet, as I have written elsewhere, when faced with two choices of treatment and clarity regarding the cost of both, consumers routinely pick the lower-cost, less invasive alternative.  Make the consumer feel like they are spending their own money and they spend even less.  Hopefully the work that gets done in the health reform maelstrom will include some meaningful consumer-engagement programs, including financial incentives and comprehensible transparency around information relative to cost and the efficacy of treatment approaches.

Dr. Sautaria pointed out three pieces of information that highlight California’s unique set of challenges as compared to the rest of the nation.

1. The California population is aging faster than the rest of the U.S. population, putting greater chronic care and cost demands on our healthcare economy.  It is worth noting that California’s elderly population is expected to grow more than twice as fast as the total state population over the next several years;
2. California is required to undertake significant seismic retrofitting of its hospital delivery system by 2013, which will cost $50 billion and need financing that is not readily apparent;  and,
3. California has more uninsured citizens than 50% of the other states have total citizens, putting exceedingly high pressure on our Medi-Cal system and creating serious challenges to stressing it further with additional beneficiaries.

On the other hand, Dr. Sautaria noted that we have a much more advanced managed care and integrated delivery system infrastructure than most of the nation, giving us a bit of a jump on the Accountable Care Organization (ACO) concept than other states.  The question, several of the panelists noted, is whether ACOs are unicorns (everyone knows what they look like but no one has ever seen one) or (my addition) Jason from Friday the 13th (they keep coming back in concept but no one ever reports being happy to see them).

The biggest takeaway for me yesterday was how the law of unintended consequences could put the entire concept of health reform at even greater peril than the Republicans, and the Republicans are actively trying.   Three examples:

1. It was pointed out that the impact of Medicare cuts leads hospitals to cost-shift to private insurers, which in turn leads to an overpriced private insurance system. This, in turn, leads to employers dropping private insurance and potentially dumping their employees onto the public system now emerging.  But if everyone ends up in “low cost” plans that pay low amounts to providers (e.g., Medi-Cal and Medicare), private insurance costs will skyrocket faster than they already have and hospitals will collapse under the strain, making it harder for people to get the care they need when they need it.
2. Cuts being made by the State in various healthcare services will drive unemployment higher, as many provider organizations will be forced to close or down-size due to lower reimbursements and subsidies and thus shed workers.  As a result, today’s newly unemployed will become tomorrow’s newly uninsured.  So the more we reduce funding to the healthcare system, the more we exacerbate the problem of funding insurance for the uninsured.  Since many of the people employed in the healthcare system are younger and healthier, driving them out of the private insurance risk pool by making them uninsured dramatically increases the cost of the remaining private plans, which are left with higher risk (and thus higher cost) clientele.
3. The establishment of ACOs, while great in theory, will be a business proposition available only to large hospital and provider organizations.  Between the IT infrastructure, the administrative demands and the regulatory capital required to operate an ACO in California, small providers and hospitals will have to consolidate with their larger peers to survive.  And yet, every study of consolidation among providers demonstrates that it is the fastest route to higher healthcare costs as the monopolistic few command higher prices.  The law of supply and demand is alive and well in healthcare.

Oops, I hate it when that happens.

As we came to the end of the panel we had a discussion of “who wins, who loses” as a result of current efforts at health reform which amplified the paradoxes that characterize our healthcare system.  As Cindy Ehnes put it, “one man’s waste is another man’s income,” and therein lies the challenge.  Despite that, the panelists seemed engaged and excited about the opportunity to make a real difference.  Visionaries or delusional?  Only hindsight will tell.

Secretary Dooley concluded the panel with some interesting remarks that brought us full circle.  She commented “…while we don’t treat healthcare as a public utility, we expect it to perform like one, where there is a certain baseline of services always on.”

It is interesting food for thought.  We all expect the lights to go on when we flip a switch and the water to come on when we raise a lever, but we also expect to write a fairly substantial check for that service each month and that is not how we think about our healthcare.  We also all hate the profiteering monopolies that manage our public utilities, provide slow customer service and never answer their damn phones. There are many movements afoot to privatize various public utilities across the nation as a result.

So where is that perfect balance point?  The one where public and private contributions to a system deliver the harmonic convergence we all wish for?  When it come to healthcare, it’s hard to tell which side of the teeter-totter we’re sitting on.   And so we’ll let Aretha play us out:

You lift me up
When I’m on the ground
But as soon as I get up top
You send me tumblin’ down

Now your love is like a see saw
Your love is like a see saw baby
Your love is like a see saw
Goin up…. down
All around
Just like a see saw