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Getting Serious About Fixing the Health Care Payment System

July 25, 2009

Getting Serious About Fixing the Health Care Payment System

I attended a fascinating, intimate breakfast session at Fortune Magazine's Brainsstormtech Conference in Pasadena on Friday (Twitter #brainstormtech). This was maybe the most interesting session I attended at the whole three-day event. There were three presenters, from Cisco, Athena Health Systems, and mPedigree. The mPedigree guy, Bright Simons (pronounced "Simmons"), developed a technology and launched a company to help consumers in Africa verify the authenticity of the drug products they buy at pharmacies, using mobile phone technology.

Apparently a large percentage of products shipped in to Africa for retail sale, especially from China, are fake. The problem we hear most about has to do with fake Gucci bags and the like, but a more dangerous and difficult issue is fake pharmaceutical products. Bright said in some categories as many as 40% of the products imported are simply fraudulent, and in the pharma category this creates not just an economic problem but a serious health risk, as well.

However, one thing almost all Africans know how to do is top up their cell phones. Mobile phones have a 40% penetration rate in Africa, and 80% of people at least have access to a mobile phone, even if it isn't their own personal device. To top up a phone, the user will buy a top-up card in a retail outlet, scratch off the number on the card, and text it in, at which point the operator extends his time on the phone.

So mPedigree is working with African governments to ensure that drug products come with item-by-item authentication numbers. You buy a product at the pharmacy, open it, scratch off and text in the enclosed authentication number, and then you get a message back confirming that the product is genuine, and not a fake. It's a smart system.

But there are lots of applications for this kind of connectivity in US health care, also, as Jonathan Bush pointed out, from Athena Health. His is a public company with about a $1 billion market cap, and their main line of business is processing claims for doctors to be paid by insurance companies. Jonathan said their company actually has data to show that more than 50% of doctors' orders simply disappear and aren't carried out - whether it's an order for an X-ray or blood test, or an order for a prescription to be filled and the drug taken by a patient. This is an astounding figure, but he assured us it was real - and they didn't comb through their data to try to produce this figure, it just dropped out of the other analysis of claims data they were processing. But, said Jonathan, cell phones could easily be used to report prescription compliance and other things to help ensure that doctors' orders were fulfilled.
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Pitney Bowes' Jim Euchner was at the table for this event with us. (Pitney Bowes was my sponsor for this conference - I was there as an "official blogger" for the PBConnect site.) Euchner said his company had a strong product offering in the medical compliance arena, and that the problem with noncompliance wasn't always just oversight or forgetfulness. Sometimes a drug has unpleasant side effects, or a person simply doesn't want medicine in his body - there are all sorts of social, psychological, and cultural factors that drive noncompliance.

And Cisco's Kaveh Safavi, VP of the company's health care practice, finished our session with some truly interesting findings from their company. For instance, 1% of health care claimants are responsible for 29% of claims, while the bottom 60% do only 1% of the claims, and 80% of employees will NEVER incur $8,000 in health care costs in a single year, which is about what the average insurance premium is. Also, 86% of all national health care expenditures go through third parties, and this creates a tremendous problem in terms of the dissociation of payment from treatment. We all want our health care costs to be paid, but "insurance" is what we should buy to protect against catastrophic losses, while instead many consumers have first-dollar coverage for everything, either because their companies provide it or because they buy added coverage to provide it for themselves.

Medicare, for instance, is a classic case of very poor utilization of resources. Athena Health's Bush said Medicare is without a doubt the single worst case of poor health care utilization management in the whole world, bar none. At this point, another member of the audience (not identified in this post for obvious reasons) said that her father, who is perfectly healthy, is on Medicare, and he goes in for an MRI every month or two, just because he can. He has no idea what it costs, but it costs him zero, because he has first-dollar coverage (he has a supplement to Medicare that provides this). So, despite the enormous cost of doing an MRI, he apparently talks his doctor into recommending them for him anyway, just to make sure he doesn't get sick! The doctor gets paid too, of course, so everyone is gobbling up these free public resources. (It should be no surprise that US health care costs are soaring out of control, and no one seems able to fix it.)

At the end, our moderator asked the panel to state the one thing they would tell Washington, if they had a chance, in order to deal with health care. Other than ensuring that patients get better connected to the actual costs themselves, so that they at least have some "skin in the game," the most interesting suggestion came from Jonathan Bush, who suggested that deregulating enough to allow individual entrepreneurs to take charge of particular types of medical treatments would probably be the best course. Doctors own the whole show right now, and the only alternative being investigated is whether to give some of the responsibility to the government, which would probably be even more disastrous. Bush said we really ought to let some creativity flourish in the nooks and crannies. To take a simple example, he said x-rays could almost certainly be delivered at a small fraction of their current cost, if there were just a bit of entrepreneurial vigor thrown into the process.

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