Some Health Care Insights

David Goldhill had a great and very long piece on health care in the Atlantic a few years back titled, How American Health Care Killed My Father. The premise of the article is that Goldhill's father catches a hospital-borne illness while in the hospital that eventually leads to his death.  Goldhill argues that had America had a consumer-centric health system in place, his father's death may have been avoided. I don't feel like diving in the consumer-centric argument today.  But there were a series of excellent insights that I took from the article that I want to call out.  Regardless of where you land on this issue, it's an excellent read and you should read the whole article when you get a chance. In the meantime, here were some of the most interesting insights for me:

• 100k people die every year from infections acquired while in the hospital
• the U.S. government spends almost 18 percent of our GDP on health care
• we spend 8 times as much on health care as we do education
• health insurance is a unique type of insurance in that it pays for all of our health care expenses, as opposed to just catastrophes
• this is the equivalent of paying for our gas with our auto insurance or our electric bills with our homeowners insurance
• most pregnancies are planned and known about many months in advance, yet they're financed the same way we finance an unexpected catastrophe
• the result of this unique insurance coverage has contributed to high costs; the average consumer could care less about the price of even the simplest procedure
• group health insurance was introduced in 1929
• employer based insurance grew significantly during WWII, when wage freezes prompted employers to expand other benefits as a way of attracting workers
• by 1954 most people still didn't have health insurance but that's when Congress passed a law making employer contributions to employee health plans tax deductible without making the resulting benefits taxable to employees.
• this led employer funded health insurance becoming by far the most affordable option for financing any type of health care
• for every two doctors in the U.S. there is one health insurance employee
• in 2007, the average health care insurance cost 12k per family up 78 percent since 2001
• the average American will pay 1.77 million dollars for health care, assuming growth rate of 3 percent a year, from age 26 to age 85
• hospitals may be shifting costs inappropriately to the ER to show the losses/investment they're making in charity care as most ER services aren't paid for
• when looking for an MRI he learned that prices vary widely between hospitals and that some hospitals wouldn't quote a price until the service was actually ordered
• some hospitals won't quote a price unless the patient is uninsured or is seeking financial assistance
• it's odd that it's been such a struggle to get medical records online, but that the billing for services that are included in that health record is all online and extremely sophisticated
• an individual would typically pay 2.5 times what an insurer would pay for the same treatment
• the price of LASIK treatment, an uninsured procedure, has nosedived over the last several years because it is subject to the forces of competition.
• conversely the price of an MRI hasn't changed, it's paid for by insurers and Medicare and thus not subject to traditional market forces that would make them less expensive
• the government has proposed investments in electronic health records of $50 million, only 2% of the health care industry's revenues
• but who's to say that doctors will adopt them, most of the benefit of this would go to patients, not providers, and patients aren't the real customers, insurers and the government are
• the bill for his father's five week stay was $636k -- $5k per night for the room, $145k for drugs, $41k for respiratory services,
• his family's share of the bill was only $992, the rest was paid for by Medicare at some huge discount

Sleep

Bill Maher made a great point the other night on his show.  He pointed out that that it seems that when relatively young celebrity deaths are drug related, it's most often partially caused by some kind of "downer", i.e. sleeping pills.  Whitney Houston, Michael Jackson, Anna Nicole Smith, Heath Ledger; all of them died from complications related to sleeping pills.  I looked back a few years.  Elvis Presley, Marilyn Monroe, Jimi Hendrix -- same thing.  The list goes on and on.

Celebrities with lots of fame and fortune are able to control nearly everything in their lives; what they eat, where they live, when they work, who they spend time with.  They control everything.  Except one thing: sleep.  

So it's not hard to understand why celebrities turn to pharmaceuticals to put themselves in control of the one thing in their lives that can't be controlled.

This is a scary reality, particularly as sleep aids such as Ambien and Lunesta are becoming more and more popular and readily available.  And it's not just celebrities that are trying to control their sleep.  These drugs are becoming a normal part of lots of people's lives.  The Today Show recently reported that 30% of women use some kind of artificial sleep aid.

One major danger associated with these "downers" is that users build up a tolerance and quickly need more and more of the drug to experience the same effect.  So even if the drug isn't technically addictive, the users become addicted anyway and have to ingest more and more to get to sleep.  So the use of these drugs can turn a minor sleep problem into a serious sleep problem.  Combine the use of these drugs with more common sleep aids -- alcohol or over the counter products -- and they can cause serious health problems.  They can quickly depress brain function and the central nervous system leading to unconsciousness, respiratory failure and death.  

I'm obviously not a physician.  And I recognize that when used properly sleep aids can impact people very positively, and they're probably very appropriate for patients with more serious sleep issues.  But sleeplessness is not caused by a lack of Ambien or any other drug.  It's caused by other factors.  Treating those factors, rather than covering them up with pharmaceuticals seems like the best bet to me. 

The best advice I've ever been given to cure sleeplessness is to simply stop trying to sleep.  Get up, read a book, write something, clean your kitchen.  Distract yourself from the thought of sleep and your body will most often get you back to bed when it's ready.  In the short term, this approach may lead to some sleepless nights and yes you'll have to give up some control.  But it's far safer than the artificial approach that seems to be taking so many celebrities before their time.

What's Driving Increasing Healthcare Costs?

A while back I read a great article on the health care cost crisis in the New Yorker by Atul Gawande.  The article is titled, The Cost Conundrum and I took some time to read it again today.  It's a long one.

It's so insightful that I thought I'd do a short post to call out the key points.  If you have any interest at all in health care I'd highly recommend giving it a read.

The article starts after Gawande learns that McAllen, Texas is one of the most expensive health care markets in the country.  In 2006, Medicare spent $15k per enrollee in McAllen, almost twice the national average.  

Gawande visits McAllen to find out why costs there are so high.  The answer is surprisingly simple and is outlined in this excerpt.

Health-care costs ultimately arise from the accumulation of individual decisions doctors make about which services and treatments to write an order for. The most expensive piece of medical equipment, as the saying goes, is a doctor’s pen. And, as a rule, hospital executives don’t own the pen caps. Doctors do.

He finds that doctors in McAllen are using their pens a lot.  They're more entrepreneurial and profit-minded than their counterparts in other markets.  And as a result are prescribing far more health care than an average market like El Paso, which is just a few miles away.

In 2005 and 2006, patients in McAllen received twenty per cent more abdominal ultrasounds, thirty per cent more bone-density studies, sixty per cent more stress tests with echocardiography, two hundred per cent more nerve-conduction studies to diagnose carpal-tunnel syndrome, and five hundred and fifty per cent more urine-flow studies to diagnose prostate troubles. They received one-fifth to two-thirds more gallbladder operations, knee replacements, breast biopsies, and bladder scopes. They also received two to three times as many pacemakers, implantable defibrillators, cardiac-bypass operations, carotid endarterectomies, and coronary-artery stents. And Medicare paid for five times as many home-nurse visits. The primary cause of McAllen’s extreme costs was, very simply, the across-the-board overuse of medicine.

Doctors in McAllen are more likely to pursue referral fees from other health systems, be shareholders in their own practices and be involved in other business ventures.  More procedures means more revenue and more money in their pockets.

Gawande argues that the solution to higher cost markets doesn't lie with the payer issue, as most politicians seem to argue.  Regardless of who's paying, when doctors in certain markets are prescribing increasing amounts of care, the cost problem doesn't go away.  Instead, the solution, he argues, lies in the promotion of systems like that of the Mayo Clinic.  

The core tenet of the Mayo Clinic is “The needs of the patient come first”—not the convenience of the doctors, not their revenues. The doctors and nurses, and even the janitors, sat in meetings almost weekly, working on ideas to make the service and the care better, not to get more money out of patients. I asked Cortese how the Mayo Clinic made this possible.

It pooled all the money the doctors and the hospital system received and began paying everyone a salary, so that the doctors’ goal in patient care couldn’t be increasing their income. Mayo promoted leaders who focused first on what was best for patients, and then on how to make this financially possible.

Healthcare & The Web

One of the things I'm a bit obsessed with is how we can better use the web to drive down the cost of healthcare.  With that in mind, I saw a post from Fred Wilson (the VC/Blogger) last week talking about healthcare and healthcare investment.  His simple point was that his VC firm hasn't found a large number of companies to fund in the healthcare space that fit their investment thesis.  In his words:

"But we haven't seen many large networks of engaged users emerging in healthcare. "

As usual, his post started a wave of comments -- 394 last time I checked.

Because I'm very passionate about this topic, I weighed in with my two cents and I thought I'd post my comment here (see below).

Over the next few years I expect that we'll see more and more companies using the power of the web (social, gaming, mobile, engagement, incentives, etc.) to address the healthcare problem.  And as a a result we'll see more and more capital (early stage and late stage) flowing into this space.

Healthcare: South vs. North

I read yesterday that many are accusing Obama of trying to equalize the north and the south.  One example of this can be found in the recent news that several states are suing the federal government, stating that the healthcare bill is unconstitutional.  

Specifically they’re focusing on Medicaid (government funded healthcare for the poor and disabled). Generally, southern states are more restrictive on Medicaid payments; northern states are more generous.  The healthcare bill would allow the federal government to force the southern states to adopt the Medicaid standards of the northern states, but without any federal funding to pay for it.  This is what’s known as a “unfunded federal mandate”, and is a major reason why many believe that the bill is  unconstitutional.

Healthcare Costs

Steven Burd, the CEO of Safeway, Inc. had a really interesting column in the Wall Street Journal a couple weeks ago outlining his company’s approach to reducing healthcare costs.  He included some fascinating statistics that I thought were worth pointing out:

• Healthcare spending will represent 18% of GDP in 2009
• 70% of all healthcare costs are confined to four chronic conditions (cardiovascular disease, obesity, diabetes and cancer)
• Most instances of the above conditions are preventable

Safeway’s approach to reducing costs is simple.  They reward employees financially for taking preventative measures based on the four chronic conditions listed above.  If they pass a baseline test on each of the four factors, they can save as much as $780 and $1560 for families.  

Based on the work I’ve done in this area, it seems that it’s nearly impossible to generate reliable correlations between investments in promoting healthy behaviors and reduced healthcare costs for companies.  But I think it’s nearly impossible to doubt Safeway’s investment is a long term win employees, the company and the public.