Derail the Healthcare gravy-train: introduce competitive multi-sourcing

Gravy_Train Being a relatively recent immigrant to US society, it's fascinating to observe the political games corporations and politicians play to reach their desired outcomes. 

What I find a little absurd is how easy it is to decipher the real political motives behind all the rhetoric; especially those ridiculous commercials sponsored by insurance companies trying to protect their monopolistic positions and keep their gravy-train chugging along.

Working in the sourcing industry forces you to cut quickly through complex issues to find sensible solutions, and healthcare doesn't seem a whole lot different – despite the sheer scale of the issues and requirements.  Trust me,


having spent most my life in the UK, government-owned healthcare is never the way to go.  A lot of my family work for the National Health Service (NHS), and the disorganized patient-service, layers upon layers of bureaucratic administration, waiting lists that would be unbelievably unacceptable in this country, create a very deep hole that is almost impossible from which to escape.  In fact, the NHS has been outsourcing like crazy the last few years as it tries to drive out cost and access skills it simply cannot develop itself.  It's become a gravy train for service providers and consulting firms alike – and even more of a cost-drain than many of the UK's other public services, which also pour out billions a year on back-office support.  The NHS can't even afford to employ specialist doctors in some areas because of recent budget cut-backs (something with which I have personal experience).

While this governmental cost-drain scenario is a highly undesirable outcome, so it the monopolistic outcome, which is currently plaguing the US healthcare industry.  Remember the old days of the telecom monopolies where the providers effectively set their own prices and created a whole gravy train of their own?  Remember when the airline industry only had high-cost travel options?  Even today I have to pay to watch re-runs of the Godfather on cable, despite shelling out $100 a month for their movie packages…

Back to the point of this post… how have large corporations been driving out cost, increasing transparency and competitiveness within their global sourcing models?   Not many use one service provider for all of their IT or BPO requirements – they create a competitive ecosystem and multi-source to competitive providers who fight for new projects and new contracts.  It keeps the suppliers on their toes, keeps prices competitive, and (should) help improve productivity as providers also compete on quality and outcome-based goals.  The key caveat is to ensure this ecosystem is managed effectively to ensure service providers are meeting quality standards, service levels etc.  A healthy ecosystem ofservice providers, eager to compete for business is creating downward pressure on prices, increased customer choice, and also a quality dimension where providers need to create more innovative customer offerings in order to differentiate themselves.

Seems to me the answer with the US health insurance providers, is to create a similar ecosystem where there are more providers in play, where they are held to certain standards, and are regulated with how they price their services.  Again, the caveat is to ensure this ecosystem is managed effectively.  If the government can help kick-start this ecosystem, them I'm all for reform.  There's nothing wrong with a government insurance alternative if it drives more competitiveness into the system, but the key is to create a competitive environment where the government only needs to step in to ensure everyone in playing by the rules. 

I'm excited to see how this will play out; breaking-down closed markets and monopolistic corporate behavior will do nothing but good for thehealthcare system that is crippling the competitiveness of US businesses today.  And if we need to train more doctors and nurses to support the millions of newly-insured, is that such a bad way to stimulate the US economy?  Seems to me that the healthcare industry is going to dominate global economies for decades to come, with the increasing cost of caring for elderly citizens, Alzheimer patients etc.  If the US can seize this reform as an opportunity to lead the world in medical research and healthcare practices, isn't this just the way to stimulate a tired economy?

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16 Comments

  1. Posted September 11, 2009 at 1:07 pm | Permalink

    This is a thoughtful analysis/comparison of the current US crisis – and I hope many people read this, forward it, post it and write to members of Congress insisting a strong reform bill is passed. Thanks for sharing your own experience and putting it in a practical business context.

  2. Darryl Stephens
    Posted September 11, 2009 at 3:53 pm | Permalink

    Completely second Donna’s comments. Phil does a great job here of simplifying the issues in a pragmatic business context.

    Darryl Stephens

  3. Michael Gardner
    Posted September 13, 2009 at 9:20 pm | Permalink

    The problem with a government insurance alternative is that it won’t create a competetive market. Subsized health insurance is not playing on a level field as private health care. The appearance of lower cost (not taking into account the taxpayer subsidized premiums) premiums to an employer will be too big a carrot for them not to bite. As more and more people are driven to the illusion of lower cost government health care, it will drive up the cost of premiums for the rest of the private health insurance holders. At some point, either only the extremely wealthy will have private insurance, or they will be self insured. At that point, the only option will be government health care.,It will be like the worst of all the HMO’s as there will be no competition and no incentive for efficiency or effectiveness, since the motivation will be power and self preservation of bureaucratic jobs.

    If people were allowed to purchase insurance across state lines, and if the for profit trial lawyers were limited in their insurance claims, thus discouraging multi-million dolloar lawsuits, and as an added result, lower cost by negating the need for numerous unnecessary tests so doctors would not need fear malpractice suits due to negligence charges, we could start to see some real reform in the medical field.

    Michael Gardner

  4. Posted September 13, 2009 at 9:22 pm | Permalink

    Phil, there are over 1000 health care insurors in the US. The problem is that they may not compete across state lines. Eliminate that provision and you have instant private sector competition. No need for the extraconstitutional federal intervention. Regulation is the problem. Remove the regulation which does not allow for free transactions within the insurance delivery system.

    Don’t do. Undo.

    Andy Avery

  5. Doug Lambert
    Posted September 13, 2009 at 9:25 pm | Permalink

    Phil:

    First, the government is not the answer to anything.

    Second, if Obama can find and eliminate 500 million dollars from fraud and waste he do so right now. If not it is malfeasance of office.

    Thirdly, a power grab should never be confused with a plan of action. The health reform stalking horse is an old progressive chestnut.

    Thank you 2010 “the end of the nightmare”,

    Doug

  6. Mike Barrett
    Posted September 14, 2009 at 9:33 am | Permalink

    Yes Phil… this is one part of the solution. But there are so many other parts that need to be addressed at the same time. Tort reform, intra-state purchasing, and educating more doctors for less in this country will also help.

    Obama is learning, albeit slowly. A complete govt run system is not the answer by itself, but it will go a long way to increase much needed competition… not to mention provide healthcare for the 30+ million American who have nothing today. In the end, I’m hoping this reform effort will also get insurance companies to refocus on what they should’ve been focused on in the first place, the health and care of their members. Instead, the “for profit companies” use our premiums to make money in the financial markets for their stockholders. For that, they should be ashamed.

    Mike Barrett

  7. Posted September 14, 2009 at 9:35 am | Permalink

    The solution to fixing the American health care system is very simple.

    1) Remove any, and all, tax breaks for health insurance.

    Employers will cease to provide insurance when there are no longer any tax incentives for doing so. This will force the whole system into a user-paid mode, where individuals are responsible for their own health care. This single shift in the system will bring a degree of fiscal discipline to the system that hasn’t been seen since the ’30s.

    2) The government should remove all licensing and approval requirements for providing medical products and care

    Costs will fall dramatically if pricey approvals for medicines or other medical equipment are no longer required. Moreover, many tasks can be easily handled by technicians rather than super-highly trained physicians. If we allowed technicians (trained in basic medical care procedures) to provide care we would be able to drastically cut costs. Heck, consumers should be able to use self-diagnostic software to determine treatments and self-prescribe medicines.

    The market would be pretty good at ensuring quality on it’s own. Health clinic chains that get bad repuations will simply have no clientelle.

    Michael Surkan

  8. Posted September 14, 2009 at 10:37 am | Permalink

    I agree with Michael, but will add that we desperately need tort reform. Yes, I know, someone’s going to come back with that $1B, drop in the bucket, number, but that does not include the cost of butt-covering medical tests and malpractice insurance, which gets passed along to the patients. How high would your prices be if you were a small busness paying $100,000-$200,000 per year in insurance? And health insurance companies should be allowed to sell polices interstate.

    Oh, and Doug is right. Government is never the answer. It’s usually the proplem. One of the biggest problems with health care is that we’ve got too many snouts in the trough already. How is adding hundreds of federal snouts going to help?

    Herb

  9. Posted September 14, 2009 at 11:31 am | Permalink

    This is a good issue which transcends several verticals right now. The challenge with the global sourcing models in play within companies including those in the healthcare sector is that they still operate on “rate card” thinking.

    The most mature sourcing models in companies across industry will tell you that they have gone beyond the rate card mentality and also look at better alignment of skills and competency, domain experience and methodology and while these are all necessary parts they still miss the mark on the fundamental point of having an effective sourcing program.

    That fundamental point is the ability to measure the effectiveness of the components that make up a sourcing model. The ecosystem needs to operate on principles of measurable business benefit. Typically there is business impact analysis done on the front end of a project in order to secure funding but those numerical indicators rarely show up again throughout the project lifecycle.

    Measuring the business benefit and how the outsourcing companies are doing against the defined success criteria enriches the ecosystem, drives material impact and value in decision making and translates into customer satisfaction that is realized much earlier in the process.

    These are not ethereal concepts but they are radical mind shifts for larger, monolithic IT groups that change slowly. The objective is to focus it on one line of business, implement an effective sourcing program, measure it, show the win and then continue moving across the enterprise.

    As it relates to the larger healthcare issue, I don’t believe it is a “one size fits all” approach – look at the UK and it’s challenges with national healthcare. The problem is the same as it is with a sourcing model or any governance program…the people’s experience and skill to execute effectively,

    Alex Adamopoulos

  10. Posted September 15, 2009 at 8:31 am | Permalink

    The mistake being made right now is the pervasive belief that this is a battle between total Government control and the banking and insurance cartels’ gangster capitalism, when what we all really want is for somebody to make the “gangster” part to go away. And we actually know how to do that, having fought similar battles in the past with power companies and such. All that need to be done is to let the insurance companies continue to operate but declare them to be Public Utilities and regulate them accordingly.

    Think about what has happened over time to the cost, availability and quality of electricity and clean water, and I think you’ll see a third alternative too.

    Robert

  11. Posted September 15, 2009 at 8:34 am | Permalink

    Increasing competition where you have 10 fat elephants ‘compete’, doesn’t help very much. Increasing competition as in: having the ground cut out for nimbler animals to show up to serve customers: is what can deliver the results you are expecting. But this is next to impossible in the current state of healthcare-health insurance business. Unless you as a health insurance company have a big chunk of customers in your pocket already, hospitals aren’t signing up for any of your “Plans”…and unless you can present some choice of Hospitals and medical professionals that accept your “Plans”, you aren’t getting any customers! It’s a chicken and egg scenario, interstate ‘competition’ of insurance providers isn’t going to help any. So one approach to get Competition could be to break the biggest insurance companies into smaller one, a la antitrust scenario. But even that might not help a great deal. Really the insurance business thrives when the loss being covered is HUGE.

    So a Health Insurance company will always want a medical bill made by a service provider to be Very High, that’s what will drive the prospective consumers to them. And the insurance company deters the consumer from consuming much by ingeneous combination of crippling Deductibles, Copays and Coinsurance that apply on top of the sizable monthly insurance premiums. Ridiculous healthcare pricing (euphemistically called “cost”) is inherent in a system where healthcare is distributed by middlemen appearing to be “insurance companies”. This inter-state competition and tort reform is not going to make much headway in my opinion to make either Raw Medical Bills Or Insurance Premiums Or Total Out of Pockets significantly lower. Whether you put in place a direct free market in healthcare (relegating Insurance to Catastrophic Illness Only), Or Create a Public Option to keep Insurance Companies and Hospitals honest, either way you are talking decisive Govt action.

    Public Option and any kind of Govt action is opposed by the ‘Liberty’ and ‘Govt = Tyranny’ Crowd, many of whom are themselves the worst sufferers in the current Pvt sector tyrranny rooted in the very way any insurance business works and it’s effect on being used in an area for which it is not fitting. The righful place for insurance is where loss is already High if the Insured event occurs. If you are going to force an insurance model on consumptions like regular health checkup, they’ll get those things priced high enough so they can get some “sensible”, businessworthy premiums out of us!

    To most people healthcare and insurance company are synonymous, so shrinkage of Insurance companies is not going to happen as people will be scared to death of an adjustment period where medical providers will still be on their pretence-pricing and there will be no Capt Kirk (“Priceline Negotiator” aka Insurance Company) to cut it down to a somewhat payable amount. Besides, cutting insurance compnies’ role down to size will imply shaving off some of the GDP.

    There are just too many other things mixed up with healthcare “pricing” (ideological, indoctrinational, psychological and ‘economic’) pulling in different directions. I’m sure inter-state competition and tort reform won’t do the job – they can at best supplement Govt action (if any gets taken, with all these protests!) to deflate the Healthcare pricing-Insurance-EOB-Out of Pocket bubble. More likely, any meaningful action will get thwarted, the “Irrational Exuberance” of Healthcare will continue until it falls under its own weight.

  12. Posted September 15, 2009 at 9:14 pm | Permalink

    I agree with the first part – multi-sourcing helps keeps the prices competitive and other service levels much above par.

    That said – Phil, I dont believe govt reform will enable anything in that direction. I believe you are suggesting that govt stepping in will create a ‘pricing table’ that will force providers to be competitive on costs. I dont believe so – if there was such a possibility we would have seen a ‘Geico’ or a ‘Southwest’ in healthcare insurance industry by now.

    The issue is within the healthcare provider system; we can have a lengthy brainstorming session to come out with a million reasons for the same – however, our lawsuit-happy mentiality has ensured that doctors don’t focus on ‘what is right’ but ‘what is legally right’ (e.g. yesterday I heard on NPR, a doctor restrained a old person for over a month to make sure he is fed properly – otherwise “he would die” – the old person died in a months time and unfortunately, he spent his last days being restrained (hands and feet).
    Not to mention, the costs for hospitalization perhaps may not have been required). This is just an example, please don’t take this as judgement.

    There are multiple such examples we hear on a daily basis. Last month’s HBR issue had an example of wasteful preventive checkups, which is a revelation to me; I always thought they(checkups) are absolutely great.

    We have to focus on the root cause which I believe is to define the ultimate objective of the medical treatment and the training of the doctors to handle every case.

  13. Posted September 15, 2009 at 9:38 pm | Permalink

    Vishal: you hit on a great point here. I have to confess that it’s a very, very tough cultural change that is necessary – the move away from “legally” right to “morally” or “medically” right is right at gthe heart of many of the problems.

    And some of these other comments add to the complexities of what needs to change for this reform-drive to get anywhere. My take is we need to start SOMEWHERE, and if that means trying some new ways to introduce competitiveness in the system, even if they may struggle at first, we have to at least try and start making changes. I believe all the intrinsic issues, such as several of those mentioned, will slowly unravel, but they have to be dealt with one at a time – you can’t do this all at once.

    PF

  14. Justin Levy
    Posted September 16, 2009 at 8:34 am | Permalink

    Phil sums this up perfectly with his last statement. One thing at a time, but we need to start somewhere.

  15. Posted September 16, 2009 at 5:33 pm | Permalink

    I agree the cultutral change is the really hard part.. I echo Phil’s comments on the NHS system in the UK, having spent the first 30 years of my life there I would go further and suggest that if you want to see a case study of inefficiency and waste the UK government program is all the review you will need. We do need to get something done here to “move the needle”, I think the earlier mentions of tort reform and allowing the insurance providers to operate across state lines are at the very least a good start.

  16. gk
    Posted December 29, 2009 at 2:05 am | Permalink

    Outsource not only the IT, but also the doctors and hospitals, then you may be able to cut the costs even further. I think the private healthcare in US is doing a very good job. I think the govt can pay for the insurance of the people who do not have insurance so that all people are covered by the health insurance. Both the private insurance players and the government have to work together to make the health insurance industry serves its purpose.

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