Kicking the Can (13 page)

“It’s an oceanic concern…The other industries that drive economic growth will have to take up the slack. If we can make businesses more competitive by reducing the burden of health care costs, we should see economic expansion across every other industry,” Lowsley said.

“When we talk legal structures this afternoon, we’ll revisit this issue. I’ve made a provision to inject capital into the health care sector to compensate for lost GDP.
Thankfully, this issue is outside the contest purview,” Drummond said.

Vogel closed her eyes, shaking her head. Lowsley picked up on her mannerisms too and turned to Drummond. He used his hands to form a “T,” for timeout. Lowsley turned off the projector and stood facing the group, taking a few seconds to refer to the notes in his hands before speaking. “I think this is a good time to take a fifteen-minute break. Let’s meet back here at nine thirty.”

Drummond was starting to feel better and poured himself a cup of hot tea. Cala refilled the coffee and juice decanters and brought another pitcher of ice water. Fruit and croissants were restocked as well.

“Research design and terminology are foreign to some of you, so we’ll start with a review of key concepts and terms,” Lowsley said. “Our goal is to reduce health care spending. The changes we propose are called ‘interventions.’ The effect on health care spending from the interventions is called the ‘outcome.’ The process of forecasting future health care expenditures by optimizing interventions is called ‘deterministic modeling.’”

Lowsley and Drummond knew the terminology was not new to Jiang and Gupta. They lived it, given their professions. The hope was to bring Vogel and Baturina up to speed…be part of the process.

“Where should we begin…anybody?” Lowsley asked.

“We follow the money,” Vogel said.

“Bingo—we follow the money. We can access detailed health care expenditures through a database of paid
claims administered by the Centers for Medicare and Medicaid, CMS.”

Drummond dimmed the lights and Lowsley pulled up Exhibit B, a pie chart of annual expenditures expressed in percentages for hospital care, home health, skilled nursing, prescription drugs, physician services, and administrative expenses. Lowsley gave them a minute to become familiar with the figures.

“How will we know where to target interventions to achieve the highest return?” Vogel asked.

“I performed an extensive literature review when I prepared my thesis. I compiled a list of widely accepted reasons why our health care spending is so outrageous. Refer to Exhibit C.”

The exhibit identified the expenditures where the US overages were material: pharmaceutical pricing; hospital pricing; compensation paid to health care workers—physicians, nurses, managers, and allied health care professionals; administrative costs; expensive technologies; and behavioral issues—obesity, alcohol, and tobacco use.

“We’ll be applying the theory of ‘disruptive innovation’ to health care, developed by Harvard economist Clayton Christensen,” Drummond said.

“Good god, you’re not suggesting we use a Harvard economist are you?” Lowsley said with a long pronounced gasp for dramatization.

“I am,” Drummond said, smiling.

The tag-team approach—splitting presenter time between Drummond and Lowsley—kept their message fresh.

“Conceptually speaking, we need to change what the United States wants from its health care system, which means a transition from ‘the most technologically advanced and specialized care available in the world, without regard to absolute cost,’ to a system that values ‘affordability.’ When I wrote my thesis, I identified many promising opportunities for savings. Lowsley and I need a few days to dig into this data and brainstorm to determine the best approaches to reduce and eliminate costs.”

Drummond looked around the table—there were a lot of heads nodding with the exception of Jiang, who pierced Drummond with her eyes.

“It’s just before eleven. Let’s break for lunch and meet back here at two p.m. Gupta, will you meet with Lowsley and me at one thirty?”

47

P
eter Lowsley described it as a “what-if” analysis. “Our process will focus on input costs—wages, medical supply costs, general and administrative expenses, etc., and the volume and mix of health services delivered. Gupta, we’ll need you to construct algorithms that explain and predict costs.”

“You want me to use my software to create the formulas for calculating costs utilizing the inputs you identify,” Gupta said.

“Yes…can your software perform a proof to test the predictive accuracy of the algorithms by comparing expected costs to historical costs retroactively?”

“Yes. That’s the programming piece I added to SAS software for my employer. But it requires us to identify the distribution of values for each input. I need the complete data set, or a proxy for the data. If I have the data set, it’s a piece of cake.”

“No problem,” Lowsley said. “We will need the complete data sets for Jiang to perform stochastic modeling.”

48

A
t 1:55 p.m. the team was back in the conference room.

“We need to blow up the existing health care model and start over,” Drummond said. “What we select for a market and ownership structure will determine the future landscape of health care. The two purest models are the ‘public’ option, also known as ‘single-payer,’ e.g. the Canadian-style model, or the ‘private’ option, a market-based approach resembling the existing US commercial market.”

The afternoon sun was shining through the conference room window and the meeting space was a tad warm. Gupta pulled the window blind privacy sheer and bumped the thermostat down a notch, and a rush of cool air flooded the room.

“I’m recommending a hybrid structure called public-private partnerships. The actual legal structure could be a corporation or limited liability company. The basis for selecting a hybrid model is to yoke the innovation and efficiency of a market-based model, with appropriate governmental oversight. This legal structure will aid capital formation needed to fund the development of
the new model and compensate for a shrinking health care economy.”

Drummond believed making government a minority partner would achieve oversight without bureaucracy. Private sector innovation could take root and flourish in that ecosystem. A framework for this ownership structure already existed. The US government invested in publically owned and nonpublically listed companies through equity warrants and senior debt securities under TARP, the Troubled Asset Relief Program. Drummond believed this formula could be extended to publically traded and not-for-profit health plans, hospital operators, and physician groups.

“The formation and composition of these organizations will be a market-based phenomenon, not prescriptive, with the super committee picking winners.”

“Drummond, many citizens felt TARP was a total disaster,” Vogel said.

“Success in health care will require us to learn from TARP’s deficiencies. I acknowledge the original program was plagued by problems with oversight, transparency, and a lack of well-defined objectives.”

Lowsley’s epiphany manifested a high-spirited clap in reverence to Drummond’s public-private partnership model.

“You’re the man—pure genius,” Lowsley said, continuing to clap as he stood.

“Care to enlighten the group?” Drummond said.

“President Obama passed The Affordable Care Act, touted as America’s future vision for health care. A cornerstone of the legislation was this concept called
Accountable Care Organizations, ACOs. It was intended to be the fulcrum to reduce the growth of health care spending. ACOs were responsible for providing health care services to a population for a fixed budget. If the ACO came in under budget, it shared in the savings.”

Drummond was making notes on a legal pad as Lowsley continued his explanation. He explained ACOs were a means for the government to transfer the financial risk, and the burden of health care, to private organizations. The legislation set off a wave of consolidation among health care entities. Many believed the successful health care organizations of the future would integrate hospital, physician services, transitional facilities, etc., under one umbrella and accept financial risk.

“What happened?” Gupta asked.

“Initial ACO results were promising—but President Obama and Congress failed to endow the ACO concept with a funding mechanism for start-up costs. ACOs petered out because the upfront costs to capitalize the model exceeded the initial savings. The payback was closer to six years.”

Lowsley’s index fingers were now pointing at Drummond.

“Our man Drummond just plugged the hole in the dike that washed away Obama’s ACO hopes. By incorporating TARP and his vision of a hybrid market structure, he’s created a conduit for funding.”

“So…one-stop-shop, cradle-to-grave health care provider organizations that get kick-started through a TARP-like, governmental ‘angel investor’ program. Is that about the size of it?” Vogel said.

“The team’s progress should make you feel good,” Baturina said, with a tone of encouragement after the meeting ended. “The sessions have been constructive, and the team members seem relaxed. The communication and interaction has been professional and respectful.”

“Thank you for your encouragement and for volunteering to write up and post the schedules.”

“It’s well deserved…I’m happy to do it. It makes sense for me to assist with the administration. I don’t have the same workload.”

“It sounds like Jiang is in a holding pattern until you and Lowsley mock up the algorithms with Gupta. Do you care if I ask her to float with me—check in with the others, make sure things are going well? We had a breakthrough the other night. I think she’s responding to me. She’s thirty-one years old, but in many ways she’s emotionally still a child. She’s never felt genuine love and affection. I’m convinced she fits the pathological profile. It’s treatable, and I can help her.”

“I appreciate whatever you can do to keep her from throwing sharp objects. Have I told you how glad I am you’re on the team? You have a special gift with people, even if you are a
Rooskie
!”

49

C
hris Drummond needed a break from the mental heavy lifting. He decided to check up on the guys, so after dinner he slipped on a pair of shorts and flip flops and walked the compound. He found Lowsley swimming laps in the freshwater pool outdoors, kick turns and all. His gangling body slipped through water like a torpedo. He stopped and removed his goggles.

“Good sessions today, Drummond—I like your style. If the next fifty sessions are equally productive, we’ll turn the world upside down.”

“Right back at you—good work today. Tell me, how many fairies does it take to turn the world upside down?”

Lowsley responded by skipping his arm across the water with enough force to splash water on Drummond’s shorts. Drummond waved good-bye. Lowsley resumed his pool workout.

No surprise—Gupta was camped out in the arcade tapping his foot to the beat of music piped into ear jacks while playing
Donkey Kong
. Drummond enjoyed listening to the jingle—the music and sounds from arcade games of that era were unmatched. He watched Mario rescue the red-haired damsel twice before leaving.

He found Dain in the gymnasium shooting baskets from the painted arc, advancing one position each time he made the shot, starting over at first position when he missed. Drummond walked over and stood behind the backboard.

“I didn’t realize the Incredible Hulk could shoot hoops?” Drummond said, deciding it was his duty to give Dain a hard time.

“Careful, Drummond, I’ve been known to duct-tape guys to their bunks at night and shave their heads…and other body parts, if you know what I mean.”

Dain nailed a ten-footer off the backboard. Drummond retrieved the ball and bounce-passed it back.

“I had no clue America’s health care system was so screwed up. How did it happen?”

“It would require another white paper to answer your question. When Medicare was created in the 1960s with fee-for-service reimbursement, it started us down the pathway we’re on. Add to it ‘health care is local,’ meaning it’s a non-tradable service insulated from regional and international competition, and you can start to see how it’s evolved—lagging every other industry. Take technology, for example—it took an act of Congress to incent physicians and hospitals to adopt electronic medical records. The ethos of medical doctors is autonomy. It’s stayed a cottage business because doctors don’t want to cede control to giant corporations.”

“Do you believe we can achieve the necessary savings?”

“I hope so…”

Dain shot from the free throw line—
swish
. He advanced to the next position on the arc.

“What do you think of Baturina’s command of the English language?”

“Excellent”

“And Jiang’s?”

“Good.”

Drummond retrieved the ball and passed it back to Dain, snapping his wrists to speed the ball on its way.

“Why in the hell did President Cannon put a linguist on a team…if everybody’s fluent?”