law for bailing out of coverage and the costs they currently see before them. They also need to be acutely aware of the many innovative efforts across the private sector that add up to a radical reengineering of the delivery of health care in America. The innovators have taught us that the costs of health care can be dramatically reduced as workforce health is significantly improved.
Smart employers are doing a better job of improving workforce health while controlling costs.
Note: A widespread default to individual insurance and government plans would sharply raise the national health care bill, because governments and insurance companies are slow movers when it comes to systemic changes. They are not good at managing costs. They are the wrong horses to ride for innovation.
The right horses are sharp corporate payers that are revamping the delivery of health care. They are bending the inflation curve. They and their consumer/employees are the game changers.
Their collective, transformative innovations add up to a megatrend. Their successes make this an optimistic book, regardless of the impact of ObamaCare on the health care insurance industry.
PRIVATE PAYERS FORGE DISRUPTIVE NEW BUSINESS MODEL
CHIEF EXECUTIVE OFFICERS across America, with a few exceptions, should offer a class-action apology for allowing the economics of health care to get totally out of whack.
By any financial measure, the existing business model for health care in the United States is busted, and the people in the corporate offices let it happen. They are paid lots of money to fix major problems facing their companies and the economy, and only a few have raised health care to the level of a strategic priority.
They didn’t apply the golden rule—he who has the gold rules. They are the payers for about half of the national health care bill, and they didn’t rule. (Indirectly, they pay for the other half of the nation’s health care bill, the public half, as well, through the taxes paid by their companies and from the taxes taken out of the wages of their employees.) Specifically:
■ The CEOs didn’t create a marketplace to bring supply and demand disciplines to the delivery of care.
■ They didn’t engage their employees as active managers and consumers of medical treatments.
■ They gave in on union contracts that enabled workers to practice economic misbehaviors.
■ They didn’t create a culture of health in their organizations.
■ They allowed providers to vertically integrate the health care supply chain, to the great disadvantage of employers and their employees.
■ They didn’t deploy the managerial expertise of their teams to build a better business model for health care.
Fortunately, there is an amendment to the CEO apology. A growing vanguard of innovative CEOs has taken measure of the magnitude of the challenge and has moved to action. The CEOs’ collective efforts have given birth to a disruptive business model that works. They are CEOs or former CEOs like Paul Purcell of Robert W. Baird & Co., Jim Hagedorn of Scotts Miracle-Gro, Steve Burd of Safeway, Tim Sullivan of Bucyrus International, and Bill Linton of Promega. (More on their stories later.)
A growing vanguard of innovative CEOs . . . has moved to action. The CEOs’ collective efforts have given birth to a disruptive business model that works.
This book is full of innovations that executives across the country have implemented in their companies. But before we dive into the new model, let’s look at why the current model just isn’t working.
A MODEL IN NEED OF REPAIR
There is a plethora of ways that the current model is broken, tracing back to World War II, when employers added health care benefits as a way around wage controls. The evidence for the current breakdown includes:
■ Costs have roughly doubled every eight years for the last four decades. At this rate, health benefits could equal base pay for many jobs within a decade. Some manufacturers report that the cost of insuring their workers exceeds that of production materials.
■ Costs per employee for family coverage average $16,351 in the United States, according to the Kaiser Family Foundation, and exceed $20,000 in many organizations. Those are painfully high numbers for any employer.
■ The Milliman Medical Index put 2013 costs at $22,030 per family of four, split 58 percent to the employer and 42 percent to employee in the combination of premiums, deductibles, and copays. The employee share of $9,144 exceeds the cost of food for most families.
■ Prices for procedures vary wildly—as much as 300 to 400 percent within regions, even from hospital to hospital and clinic to clinic within the same health system. It is pricing chaos.
■ More than 40 percent of U.S. companies don’t offer health care insurance. The prime reason is escalating costs.
■ Medical bills are now the leading cause of personal bankruptcy in the country.
■ The U.S. government has been running trillion-dollar annual deficits, with health care entitlements a leading cause of the red ink. Major national priorities like education and environmental advances are being crowded out. A recent defense secretary said the Pentagon spends more on health care than on weapons.
■ Many state budgets hemorrhage red ink or incur greater debt because of undermanaged health costs, especially in Medicaid.
■ Some municipalities have gone bankrupt, with public employee health costs as a major contributor to their insolvency.
A recent defense secretary said the Pentagon spends more on health care than on weapons.
This catalog of negative consequences adds up to a complete indictment of the existing business model for medicine, even as doctors and their teams deliver minor miracles on a daily basis on the treatment side. U.S. physicians and nurses are on the cutting edge when people get sick. Almost all practitioners deliver empathetic, professional, caring service.
But fixing sick people isn’t good enough if it bankrupts or financially stresses them, their companies, and governments in the process. The economic side of medicine has to be as effective as the medical side.
The Hippocratic Oath for physicians—“First, Do No Harm”—has to extend beyond medical outcomes to the economics of care.
WHO’S GOING TO FIX IT?
Unrelenting health care inflation has generated extreme frustration at private companies. Unlike public sector business managers, they cannot pass along cost escalation. Their customers won’t allow them to pass along excess costs. With nowhere to turn for relief, private sector payers are revolting. They have learned that management has been the missing link in U.S. health care, that management disciplines have to be brought to bear.
Put on another hat. Think about what a turnaround manager would do if confronted with a totally busted business model, one that has been going the wrong way for decades? The turnaround guru would look at the existing players—insurance companies, provider organizations, policy wonks, health care academics, and political experts in health care—and