Change: It doesn't come from the establishment

Health care delivery is on the verge of major changes. It is happening, but not due to the Affordable Care Act (ObamaCare). It is because the health care system is fractured—even broken. We need change and change is “on the way” (not to quote Al Gore during his presidential bid).

The optimism behind this change is their grass roots origins…call it “Green.” It is originating from two sources (1) those who pay the bill (employers), and (2) from those who have a genuine, philosophical passion towards better, yet affordable, health care system.

Employers are, more than ever, shopping around for better, less expensive services, just as market forces demand. Wal-Mart and Lowe’s are subsidizing their patients’ trips (airfare for patients and family members, hotels and meals) to centers of excellence that provide surgeries and other services with prompt recovery. This enables workers to go back to work sooner than usual, utilizing less costly services, and, most critically, doing procedures only when needed. Employers, who have as little as 150 employees, are establishing workplace clinics that provide unprecedented access to care, low cost laboratory testing and imaging, as well as providing lower cost medications.

To understand the dynamics and to predict the reactions from various health care sectors, we need to answer one simple question: When health care cost drops, who pays the price? It is not the patients; they get lower cost, effective care. It’s not the employers; their cost drops. It’s not the doctors; they still need to deliver services.

There are several potential losers in this changing world of health care delivery:

The insurance industry, which profits on a margin, stands to lose a lot. The smaller the amount spent on health care, the less the revenues of the insurer. At a contribution margin limit set by the ACA, lower revenue means lower profit. One exception to that are certain third party administrators (TPAs). All they do is administer claims and provide access to providers. So we see self funded plans expanding at record pace in the current environment.

The pharmaceutical industry is posed to lose a lot. The public doesn't have negative connotations associated with equivalent, low-cost drugs and generics. Workplace clinics and TPAs do promote and incentivize patients to use generically equivalent drugs.

Major testing laboratories, as well as those that are hospital-based, are getting squeezed, too, since employers are negotiating rates for services that save up to 70% of the cost. Ironically, those laboratories are eager to negotiate such contracts, because their profit margin is still substantial.

Imaging studies, such as CT scans and MRIs, are being targeted, even by some insurance carriers. In fact, patients are becoming business savvy. They do shop around for cheaper rates, thanks to the out-ofpocket and co-pay system that has flourished in the last decade. In some cases, the cost of an imaging procedure done at a hospital is as high as four-fold when compared to the same service delivered in a community-based setting.

The ultimate losers in this scenario are the hospitals, who still maintain a monopoly, or at least an oligopoly, in the local markets, allowing them to charge as much as they wish; however, that is changing, and noticeably so. Some hospitals are awakening to this nightmare. If an employer is willing to subsidize the trip of their employee to Seattle for medical services (aka, Medical Tourism), they are obviously willing to send their Stark County employees to Cleveland or Columbus.

Expectedly, hospitals are reacting to this fear through several tactics. The obvious reaction would be to improve quality and cut cost to the employer, but that mind-set has not arrived yet. Maybe it is because the impact of the change has not hit the bone, yet…it will soon.

Instead, hospitals seem to be adopting one of two approaches. The first option is to do business as usual, entering the workplace clinic industry, staffing clinics with their employees who funnel patients to the usual “fat” system of emergency room utilization, excessive, unnecessary hospitalization and carving out imaging and laboratory services. However, that is not going to work, because of the new mindset of employers—a mindset that is skeptical, even suspicious, of the medical establishment in general and hospitals in particular.

Second is another “business as usual” approach using leverage on insurance brokers and community leader connections, especially leaderships in power whether in privately owned entities or municipalities and other government agencies. In particular, public sector employees continue to enjoy benefit packages that fare exceed what has now become common practice in the private sector. This tactic might work, on occasion, but even if it does, it can backfire. If elected officials fail to grasp the opportunity to save money for their health care plans, the people will revolt at the voting booth. Leadership of privately owned companies is also accountable to their boards of directors, as well as to their shareholders. If they miss an opportunity to save money, they might lose their jobs.

Regardless, change is here. It is inevitable. The health care system is fat. That extra panniculus is about to be shaved off, eliminating the burden it poses on the economic health of manufacturing and other industries. Winners will ride the wave of change while losers will fight it in vain or continue the ill fated, doing business as usual. Most humans want to be on the winning side. The rest will fall by the wayside.

Kelsey Knutty