Ignoring the Lyrics of the Gambler: the love for the Boom and Bust cycle

You've got to know when to hold 'em, know when to hold'em.

Know when to walk away and know when to run

The lyrics above are from the Kenny Roger's karaoke classic, The Gambler. Perfect for tone deaf karaoke singers and words that are ignored by free market economies who appear unable to break a boom and bust cyle.

This realization has occurred to many hedge fund managers, but I became interested in this from learning about Steve Eisman in the Michael Lewis's The Big Short. Like Lewis, I really enjoyed Eisman because he was a hedge fund manager who won't ask you how big your boat is and knows what credit card debt is (reference: the skit "Advice from a Hedge Fund Manager"). Eisman is also known as the guy who predicted the subprime mortgage melt down early enough to bet against it. Less known was that he was as genuinely angry as your average social worker at how subprime lenders were exploiting lower income Americans.

Eisman's next target is the for profit education system which he believes is poised to implode and has also been accused of exploiting lower income Americans. As Eisman or enraged former social workers like myself would say, for profit education institutes exist to skim off the top of education loans by saddling students with debt for a degree that will not help them in the job market. For profit education institutes would indignantly say that they help marginalized individuals get an education in order to help break the cycle of poverty.

The fact that for profit education institutes are very profitable and academically and socially perform at the levels of less expensive 2 year community colleges (and they are 4 year institutions) doesn't help their case. Their profitability has spurned investment which has caused these institutions to become the fastest growing sector in the education system and inhaler of federal loans.

In some ways this has a lot of the characteristics of the subprime business. Easy access to money from the government has fueled growth that has relaxed lending/admissions standards. Regulatory agencies are swooping in and hedge funds are starting to bet that these companies stock will fall in the form of short selling. There will be a bust which will result a lack of payment of loans which have been packaged into securities somewhere which will defaults that are buried in investor portfolios. Since it is unknown where those portfolios are buried, banks will start to mistrust each other which may reduce lending. The only thing difference is that MBA students haven't started to major in education like they majored in real estate during the subprime boom. It also won't be on the same scale as the subprime mortgage business which had reached one trillion dollars. Therefore, we won't have to learn what number is bigger than a trillion but there will be another outlet for indignant rage.

I question if there is any way to ever prevent these boom and bust cycles or are they a permanent part of our beloved free enterprise market that 70% of Americans support according to the Economist (read in a British accent)? Stopping the boom cycle is actually more straight forward as a monetary intervention in the form of the federal reserve board raising the interest rate for banks lending to each other would have a big impact. It's one step by a government body to slow the torrent of easy credit to a brisk stream. The frustrating aspect is that would result in even the liberal New York Times accusing the government of being socialism. I believe in a lot of things that aren't likely to happen (Cleveland Indians winning a World Series, for example) but I don't believe in that happening.

The more popular side of the equation would be to stop the bust cycle. Some of the levers being discussed in the subprime crash were limiting short selling. However, short sellers like Eisman, are increasingly being viewed as serving a useful private sector watch dog. Additional regulation is another option but that usually happens after the fact. Health care has also been considered a candidate for a bubble and the boom and bust cycle given it's rapid increase and overvalued services. The for profit sector is a minority player in this industry so if there is no bust, that could be considered a part of the equation.

Otherwise, Kenny Roger's lyrics will continue to apply to western economies' addiction to the boom and bust cycle.

What the US Health System should be when it Grows Up

In 5th grade, I decided that when I grew up, I was going to be a writer who lived in a mobile home. The writer part came from my 5th grade teacher who gave us lots of creative writing assignments. I don't know where I got the idea for living in a mobile home. I think that I thought it would save a lot of money since I wouldn't have to buy both a car and house. I pictured parking the mobile home either outside my parent's house or outside the drug store where I got candy. I had never heard of trailer parks at that time which certainly would have impacted my decision.

Like my 5th grade career plan, the US health care system has some flashes of brilliance and some thinking that is not well founded. The current system can easily be described as one that values innovative high tech care that is driven by specialists and venture capital. It pays for all that care by denying a certain percentage of Americans access to it. An interesting part is that someone else generally pays for our health care. Employers pay for their workers' health care, workers pay for the senior citizen's health care, and the government pays for the health care of the poor. In a country that emphasizes personal responsibility and the ability to buy what you want, this is an interesting contradiction.

The unfounded thinking is that the US health system can be transformed to covering all Americans while maintaining the same level of innovation. That is where the US health care needs to grow up and develop a plan for what we want our health care system to look like. A realistic strategy and philosophy will stop divisive arguments around public option plans or if Obamacare plans to sell grandma's organs to gypsies to pay for free colonoscopies for the uninsured. If there is no philosophy that mentions funding by gypsies or government takeovers then those arguments melt down faster than France's soccer team.

Many other developed and non-developed nations have made these tough choices while designing their health care systems and funding it based on these strategies:

• Rwanda has a national health plan that covers basic services and primary care where everyone pays $2/month regardless of income. High end specialty services are often not available or has a long wait as it is a developing nation that relies on donations. However, the philosophy and decisions are very clear. It's an individual mandate that everyone pays the same amount regardless of income. The public program covers basic services, primary care, but will not necessarily cover the most innovative care. It's distribution model is very local as an area's clinics are funded by the local citizens and vary.
  
• Thailand has a similar health system to Rwanda and is dubbed the 30 baht plan because that's what everyone pays. However, their health care system has aspects of the England's system as health care is allocated centrally by a body of primary care physicians who decides what services will be purchased. Their philosophy has the individual mandate, a very centralized system, and has physicians making the decisions that health insurance companies make in the US.
• England and Canada systems are fairly well known but in philosophy, they are centralized and control health care from top to bottom. Private insurance or providers are squeezed out. In exchange for offering low cost, quality care, these countries sacrifice access with long waits or denials for services.
  
• Germany has a two tier system that mixes public and private aspects. The public tier provides a basic level of services and pays physicians a capitated rate or set amount to provide them. If people want more care, they get private insurance and there is a thriving private provider market. Morocco has a very similar system.
• China had an interesting public/private blend where clinics were run by local government and provided subsidized basic services at a low cost. The philosophy was to provide low cost care to the poor (which is the role of most governments in health care). However, clinics and providers could charge whatever they want for medication, imaging, or other ancillary services. As a result, these publicly employed providers highly encouraged medication, imaging, and these ancillary services since they made a lot of money and the system looked a lot like the US. Dissatisfied with the results, China changed the system.

The reader can see clear philosophies in these systems. There are individual mandates, required taxes, defined government services, and defined private sector role. They US system was pretty much created by following the money in a free market environment and the results are what Maggie Mahar calls money-driven medicine that does produce some of the best care that money (lots of money) can buy. It was not a planned system like our education system. Since the US developed a centralized plan for education (basic level of public services covered and a private system for those who want more) without devolving into socialism, it's possible to do the same for health care.

At the beginning of writing this post, I wondered what the philosophy for the US health system could be? What could combine our zeal for personal responsibility, free market principles, desires to sell the elderly to China to pay off our debt (okay I'll stop the death panel jokes), and need for colonoscopies on demand (but I'll never stop the colonoscopy jokes)? It actually became quite clear:

• We already have an individual mandate to contribute a portion of our payroll taxes (capped for the wealthy) to pay for Medicare. Redirect that money to our own health care for a basic public insurance plan or the public option.
  
• The rallying cry for all politicians is that "We won't let a government bureaucrat/insurance company/crazed llama get in between you and your doctor." Let's implement that with Thailand's system and put doctors in charge of purchasing health care. This is the Accountable Care Organization approach which is capitation 2.0. Take the money that people pay for insurance and give it to the primary care doctors. They will be responsible for purchasing services from specialists and hospitals.
  
• The free market aspect is that with increased power, primary care physicians will have increased pay. As a result, promising medical students won't sell their soul to become urologists or opthamologists because it's lucrative with good hours. I can't believe that many medical students are so disproportionately interested in those parts of the body.
• Since primary care physicians control the money, specialists, hospitals, drug and medical device companies will compete for their business. Again, free market reigns supreme.
• For those who want more insurance, they can buy it on the private market.
• The government will still pay for colonoscopies for the poor as they do everywhere from China to Rwanda.

There are barriers to this system (like the specialist dominated American Medical Association) but all these changes have been fairly strongly expressed in public rhetoric. The US has only sporadically done planning for its health care system but it's time for the system to grow up.

Don't let your Strategic Plan stand in the way of a Good Colonoscopy Joke

Anyone involved in strategic planning has learned that nothing can paralyze a planning process like trying to distinguish between a vision, strategies, and objectives. One simple way of distinguishing between those three could be:

Vision: #1 market share in the colonoscopy market
Strategy: Attract new patients with our outstanding facilities
Objective: Clean instruments at least 3 times a day

The paralysis comes when someone wonders if cleaning the instruments could be a strategy and the objective could be to purchase organic bleach. Some other genius will confuse a vision statement for a marketing slogan like "Your bottom is our top priority". Then the finance guy in the room will want every objective to have an ROI or they just can't support it. At this point, the strategic planning department has decided to just hire a consulting firm for next year's strategic planning process.

I bring this up because obviously I'm still scarred by some of my planning offsites and because I am reviewing the strategic priorities that form the pillars of this blog. They are pretty well mapped out on the right below the picture of the photo shopped purple baby hedge hog (It's really photo shop, I did not dye a hedge hog purple) as health policy, MBA admissions, knitting, and the Pacific Northwest. From my my tags, I have done an excellent job with health policy with 76 tags for "health care" and 44 tags for "reform" and with the MBA admissions process with 45 tags for "MBA experience" and 14 tags for "MBA admissions". I am pretty good with "Pacific Northwest" with 26 tags and lagging a little bit with knitting which only has 6 tags.

Given how remiss I have been with tales of knitting, I wonder if I should evaluate the strategy of my blog. Two other objectives (or are they tactics?) is to make as many colonoscopy and animal husbandry jokes as possible. I have always considered colonoscopies to be an objective under my health care posts but some recent data has caused me to reconsider. It turns out that I have 10 posts with the word "colonoscopy" in them and one of my more popular posts has colonoscopy in the title!

Some recent developments in my company's discussion around health reform implementation has spurned this strategic evaluation. The conversation has slowly risen up to the top before traveling tranversely and going down (I am foreshadowing). Health Reform requires the coverage of preventive services that receive an A or B on the US Task Force. Most of these preventive services like prenatal services or glaucoma screenings are already covered at a low cost by most health plans. However, this is causing all health plans to look at colonoscopies, an A rated preventive service, in a whole new light. Previously, health plan member could pay 20% of the cost which could be $250-$400. Under reform, colonoscopies would be free. This is causing a lot of discussion at health plans and a lot of colonoscopy double entendre like:
1. We really need to probe this issue and flush everything out.
2. Have we found everything and searched all the dark pockets?
3. Do we need to dig deeper?
4. Let's make this process as smooth as possible.
5. I think that I see the light at the end of the tunnel

It became impossible for someone to even say, "As a (w)hole, the colonoscopy benefit will change" without half the room falling on the floor in laughter. Finally, a regulatory staff member commented that he been eating, breathing, and drinking health reform, no one needed to finish the sentence on what else he was doing with health reform after all that eating.

For all of us who are taking health reform very seriously and working very hard to understand it, there is always time for a good colonoscopy joke. I may need to look at the role of colonoscopies in my blog's strategy. However, there are actually 12 posts about animal husbandry which may be a future topic.

With Health Reform, the Obama Administration Needs to Learn to Keep its Enemies Closer

In October 2009, the Obama administration declared the insurance companies an enemy and began keeping them at arm's length (or really middle finger length). This move was triggered by the decision of the health insurance companies lobbying group, AHIP, commissioned a PricewaterhouseCoopers (PwC) report that forecasted significant increase in health insurance premiums and lack of affordability. This report was released shortly before Congress voted and PwC (why the lowercase w? What did waterhouse do?) shortly refuted AHIP's interpretation and how the methodology was applied.

Kathleen Sebelius of Health and Human Services returned the favor with a Wall Street Journal editorial that was released the day before Medicare Advantage bids were due. It's methodology was also not applied well and was also released too late for it to have an impact. Although, Sebelius could have extended the deadline for bid submission if she actually wanted something to be done. Like the PwC report, it was the equivalent of an abstinence lecture to a couple during their 6 month prenatal visit.

This WSJ editorial was not the first jab on the health insurance industry by Sebelius nor was it the least effective. The prize for the least effective was the angry letter to WellPoint that pretty much received a F#ck Off response from their CEO.

The Obama administration has tried to brawl with the insurance companies as part of is health reform strategy and given the AHIP PwC report, I can't blame them. However, I do blame the strategy. Providers and hospitals brawled with the health insurance companies in the 90's once providers got big enough to fight back. In California, Sutter Health System and California Blue Shield made some of the World Wrestling Foundation rivalries look tasteful in comparison. It was also about as effective as both lost their reputation and money over the stalemate. Through consolidation, providers and health insurance have become equally strong which has mostly higher payments to providers and higher insurance premiums for the country. Still licking wounds from their previous battle, these two were mistrustful and had no interest in learning each other's business. For example, with medical management, providers have missed the opportunity that insurance companies capitalized on with nurse case management programs. Insurance companies could learn from hospitals on how to develop better cooperative partnerships with physicians.

The Obama administration is fighting a 90's style battle with insurance companies. Like acid wash jeans, it's no longer fashionable and not yet retro cool (like leg warmers). Although most in health care thought that the insurance companies would lose influence as their business models were not sustainable, they are as powerful as ever. There is no reason to think that the Obama administration's battle would have a different outcome as doing the same thing but expecting a different outcome is the definition of insanity.

My recommendation is that the Obama administration keep a closer relationship with the insurance companies. There is much to learn about the insurance model that can be applied to populatio health or how to talk its beneficiaries. For example, insurance companies learned a long time ago not to send glossy 4 page full color material to seniors since they see it as a waste of money. Insurance companies could price out some of the Obama administration initiatives which will help address future claims of affordability. Simply, it's an Abraham Lincoln, Team of Rivals approach of staffing his cabinet with his enemies. It would represent a new approach to competing with the insurance companies since the current approach hasn't worked for anyone else.

Democrats: Missing the Point about Segmentation in the Medicare Advantage Market

I read a recent Government Accountability Organization (GAO) report about the Medicare Advantage market that Democrats are portraying as an example of private health plans "piling on extra costs to health seniors." Some readers might be shocked at the Democrats accusation. Some readers might be more shocked that I actually read a GAO reports.

The reports notes that healthier Medicare beneficiaries who buy less expensive, lower premium plans have higher out of pocket expenses for hospital visits, skilled nursing facility stays, and other services than seniors in poor health who buy more expensive plans. The Democrats feel that is evidence that "health care reform will protect Medicare beneficiaries from unscrupulous insurers". I feel that a better parallel for this example is to note that college seniors tend to buy cheaper alcohol when hanging out with their friends watching sports than they do when they're on a date with a woman they're trying to impress. There is a time when a case of Pabst Blue Ribbon will get you a fist bump and a time when a nice bottle of red wine will get you invited back to her place. Democrats are really missing the point of market segmentation.

With health insurance, you either pay more upfront in the form of a higher premium to minimize the risk of having to pay more if you get sick or you do the opposite. If you are sicker, you are probably more likely to buy better health insurance because you know that you are likely to use it. This GAO report describes this perfectly. Healthier seniors buy cheaper plans that have a higher copays and out of pocket costs for hospital services or skilled nursing facilities. The plans are cheaper because they cover less services and according to the report, the 43% in good health prefer those plans. For the 20% in poor health, they will pay more upfront in order to have lower costs when they are likely to enter the hospital.

To underscore this example of segmentation, 55% of the plans that seniors in good health chose, had fitness discount benefits. Only 28% of the of the plan that seniors in poor health chose had fitness discounts. In other words, a healthy senior would rather pay a lower premium for a plan with a fitness discount than one with a good hospital benefit that they are not likely to use.

I should stop acting indignant when political parties spin reports to support their point of view. It's like getting indignant when your cat doesn't listen to you. But I can get indignant when political parties seem to completely misunderstand the data or think so poorly of the average citizen that we believe their illogical point of view.

The most interesting question that the report helped address is whether it is worth it to pay more for a Medicare Advantage plan with richer benefits. When we buy insurance, we always wonder if we should we pay more for the lower deductible an our auto insurance or will we never use it?

The report noted that the average premium for a plan that a healthy senior chose was $24/month, for a moderately healthy senior it was $37/month, and $31/month for a senior in poor health. For seniors in poor health, this likely includes Special Needs Plans (SNP) which receive more money from Medicare so they charge lower premiums. They also have less healthy, low income members so are not a good comparable. The best comparison is the $24/month plan for a health senior and $37/month for the moderately health senior. The difference per year is $156.

The report indicates that for the plans that a healthy senior would select compared to a moderately healthy senior are:

• $97 more for a hospital stay for the plans a healthy senior would select
• $14 more for an inpatient psychiatric stay
• $60 more for a skilled nursing facility stay
• $320 more for renal dialysis for the year

It looks like the healthier seniors are saving money with their plan selection. If a healthy senior has a hospital stay and a skilled nursing facility stay in a given year, they will break even from their premium savings ($156 vs $157). Otherwise, they will be ahead financially.

From talking with seniors, they make very calculated decisions when selecting a Medicare plan. They literally take out a calculator, look at the premium difference and how much they project to spend in out of pocket costs for services they are likely to use. They don't rely on Democrats to protect them.

MediCAID for Everyone

The title of the post really is Medicaid for all not Medicare for all. The excitement level for all single payer advocates should drop a little bit. For the rest of the population who is trying to remember the difference between Medicaid and Medicare, Medicare is for seniors, pays doctors a little bit better, and is the non-stigmatized government health insurance. Medicaid is the ginger-headed step child that has to sleep in the boiler room when it comes to government programs.

I tracked an interesting set of comments from the Archimedes group list serve, an Oregon-based advocacy group started by former Oregon governor John Kitzhaber. It was a debate on whether Medicare or Medicaid should be the health insurance plan that should be turned in to the single payer system. There were some participants who had both insurances. Ultimately, they admitted that they didn't like Medicaid because it was less widely accept by providers but primarily due to the stigma associated with it. Not surprisingly, Medicaid for Everyone has a branding problem.

From a plan design perspective, Medicare for Everyone makes little sense. It's designed for seniors and thus covers a screening for aortic aneurysms but no annual check ups. It covers eye glasses that one gets following cataract surgery but no routine vision exams. It covers 3 pints of blood for transfusion but not maternity services. It's benefit design fits the non-senior population as well as Glee's Rachel Berry's skirts and general wardrobe fits her. Finally, the benefit design basically covers 80% of all services with no limit to out of pocket costs. That leaves the beneficiary with 20% of all medical costs that are covered with no cap.

From a care delivery perspective, Medicare is a fragmented payment fee for service system that had the least successful experience with disease management in US health care history. Lifemasters, a disease management company, went bankrupt trying to work with Medicare.

Medicaid typically operates in a capitated managed care environment. The benefit design focuses on preventive care, mental health services that most of its beneficiaries need, and even dental. It focuses on fixed copays and limited out of pocket exposure. A primary care provider is given the budget and control of the beneficiaries health care dollars to use appropriately. Most of the currently uninsured have more in common with your average Medicaid beneficiary than your average senior citizen. Thus, Medicaid is the most appropriate federal health plan design to use for a single payer system.

I touched upon the provider payment issue with Medicaid which is the main current barrier to a Medicaid for All campaign. It's more difficult to find providers to work with Medicaid beneficiaries because it pays so little. The capitated payments that it provides don't cover a lot of health care services so delivery systems usually lose money on Medicaid. However, with any business that is losing money, there are always 2 levers. The revenue lever and expense lever. Health care has focused on growing revenue for a long-time which is why it increases at the twice the rate of inflation.

Health Reform will shrink revenue for health care organizations. Medicare's physician payment needs to be cut 21% according to current laws and commercial insurance revenue is not going to grow at present rates. Medicaid payments for primary care actually are supposed to increase. The biggest factor is that number of people with Medicaid is forecasted by McKinsey Consulting to grow by 25% through 2016. Employer insurance is forecasted to remain flat or the same levels at 2010. Health care organizations that can thrive under a Medicaid level payment structure will thrive in a post-reform world. It will grow more than any other insurance market and refusing to accept its patients because the payment is too low is not going to be an option.

Instead health care organizations will have to learn to adjust their cost structure in order to be able to make money under a Medicaid level of revenue. That includes deciding where to invest money and where not to. The care delivery system to be built around the Medicaid patient does not have to be expensive since the primary care provider is king (or queen). Networks can be narrow and special partners and hospitals can be required to be on the same electronic record system, use the same disease registries, and follow other protocols as a requirement for payment from the capitated pool.

Providers and hospitals have been in an expensive war for commercial insured patients. However, the competition for the Medicaid market can be a much cheaper fight and can be most lucrative in a post health reform world.