Bargain Medicine: Anatomy of a High Quality Healthcare System, Valiantly Operating with Inadequate Funding, or Socialism in Actions: How to over Promise and Under Deliver ; Mr. Kenneth Abramowitz, Managing Director, The Carlyle Group: The title of my speech today is: Bargain Medicine: Anatomy of a High Quality Healthcare System, Valiantly Operating with Inadequate Funding. Or, if you don't like that title, the second title of my speech is: Socialism in Action How to Over Promise and Under Deliver, which we also do in America, it's not an innovation of Israel. Page 1: the key problem facing all healthcare systems, of course there's nothing much we can do about the aging of the population, technology and inflation that's inherent in the service business, but there's many factors which can be controlled if we want to. We have a medically uneducated insufficiently price sensitive consumer everywhere, the sick funds posses very little expertise in medical management, there's always mandates to impose new services; the physicians practice healthcare in very different mechanisms in different parts of every country; we focus on acute care, not preventive care; we have insufficient medical outcomes data, we overuse physicians specialists; we heroically try to save dead patients and we have few effective ways of controlling pharmaceutical costs. Other than these issues every healthcare system is operating perfectly. On page 2: some of the key problems facing the Israeli healthcare system the government in Israel is very large and does not have enough money to support the system; the health basket is too large in some areas, like low technology areas, but too small in high technology areas; the sick funds are not given adequate resources; the capitation rates are not properly age, sex or disease risk-adjusted; the sick funds pay hospitals on an arbitrary basis through per diem payments that are not properly adjusted for the cost of the patient; the high cost procedures are not focused onto the best institutions in the country and 1
the sick funds payments are hospital focused and do not sufficiently upset out patient care or rehabilitation or psychiatric or homecare. On page 3: over the past 5 or 7 years the capitation payments from the government to the sick funds has fallen about 3% a year which is a very serious situation. In contrast, on the next page, page 4, in America we have the opposite problems: over our past 5 or 7 years healthcare costs for corporations have risen 15% a year, so the key point is there is something in between Israel and America which would create an ideal system. Let's go to the next page, page 5: to fix the American system, I just want to spend a few pages to show you how we in America are trying to fix the system, on page 5, this is an article that I was quoted in, and one of the key issues is changing benefit design. You must change the benefit design because if the patients are very price insensitive they obviously demand too much care. In America there is a big debate about how to change the benefit design, by that I mean how to add more copayments, more deductibles, essentially make it more expensive to access the healthcare system and to make it more expensive if you do not do what you're supposed to do or if you do not go to the best hostels or the best doctors or to the right doctor you might have to pay extra money out of your own pocket. On page 6: another big issue in America is targeted medical management. At the right of the page, for this company, WellPoint, which is an insurance company in California, 8% of the 5 million lives that they cover create 70% of the cost. So what they realized is they should spend most of their energy on a very few group of people, that 8%. Furthermore, on the left of the page 20% of the members have chronic care diseases, like asthma, congestive heart failure, diabetes, 2
depression and oncology and they are focused on trying to get these patients to the right doctor at the right time at the right hospital at the right setting to get the right pharmaceutical and the right dose at the right time. On the next page, page 7: another company in California, PacifiCare has divided its members, they insure about 3 million people, they have divided their population into 5 different segments and have a separate medical management strategy for each segment, for catastrophic patients, that's the 3% of the patients, that might be 50% of the cost, they have nurses and social workers and constant communication with these patients to make sure they move through the system in the right way because when people are sick they don t know how to access the system, they're just trying to live, or breath, so they need help, from nurses or social workers, to help them move through the system. There is also special populations of terminally ill people who should go to hospices, there's chronically ill people who need disease management programs, which is nurses and working with these patients in constant communication, acutely ill people in the hospital and of course the well patients. On page 8 another insurance company called United Health Care, has realized that by sharing data with their physicians, United Health Care insures about 15 million people, by communicating with their physicians and sending them computer printouts of which patients are not getting certain drugs. It encourages those physicians to prescribe certain drugs for a certain population, so for example people who've had heart attacks are supposed to get drugs called ACE inhibitors or Beta-blockers. In 1997 65% and 72% of its members were getting these drugs. In 2002 75% and 82% were getting these drugs and it should be a 100% and the sick funds are determined to get these statistics up to a 3
100% so that a 100% of the people who could benefit from a certain therapy get that therapy because the lowest cost way to treat patients is to treat patience in the right way at the right time and not have mistakes. Mistakes cost the system money and obviously hurt patients and so there is a realization in America that the most efficient, the most, the highest quality, the most, the fastest access to the right care is the right way to actually hold down cost. The next page, page 9, is an article from the Wall Street Journal showing that busy surgeons who have much practice are good for the patients. Now what the health plans are doing is trying to get the patients to see the best surgeons by communicating this data to the patients through the internet and encouraging the patients and soon encouraging the patients to go to the best doctor so for example, if you go to the best doctor you might have to pay, for example, 50 dollars and if you go to someone that they don t think is the best doctor you might have to pay 250 dollars and that way to encourage people to see the best doctors for their own benefit. The next page, page 10: many people forget to take their pharmaceuticals. The number one way to improve healthcare in America and Israel is simply to get people to take the medicines that the doctor told them to take in the first place. The next page, 11: one issue that we do not like to talk about in any country is deaths that are totally unnecessary, so in America it's estimated 7,000 people die every year, in Israel that would be about 150 people, and it costs 2 billion dollars a year because patients get the wrong drug in the hospital, right? The patient is lying down, they are sleeping or under anesthesia, what do they know, so either the 4
pharmacist makes the mistake, the nurse makes the mistake it's inexcusable but it costs much money when these mistakes are made. On page 12: in order to encourage people to stop making mistakes it's a good thing to pay people, and in particular hospitals and doctors to meat certain standards and to raise the standards of the country to the best standards that are available in certain medical groups or certain hospitals. On page 13: there is what we call "a quality gap" in America, this article from the Wall Street Journal estimates that 57,000 people die in America, this would be the equivalent of about 4,000 people in Israel, die every year simply because healthcare has not been standardized, because the best demonstrated practices are not spread to all the hospitals and all the medical practices and because there's not sufficient care coordination for the people who have chronic diseases. The next page, page 14: the government is beginning some helpful role here, and the most helpful role that the government plays is in the area of nutrition. The government has for 10 years now forced the food companies to describe what's in their food, and at the same time people become sensitive to eating less fat, less cholesterol, and now in the year 2006 the government is going to force everybody to say how much trans fat, that's a special type of fat that the doctors have decided is particularly bad for you, and in 2 years all the manufacturers must tell everybody how much trans fat there is in their food. Needless to say, nobody wants to show how much trans fat there is so they are not trying to eliminate that trans fat from their food and then there'll be a marketing war of different companies saying: "buy my food because it tastes good and you ll live longer". 5
Now, let's go back to Israel, page 15. Israel has many accomplishments that it should be proud of. It provides 100% coverage to the population, which they should be proud of; in America we only provide coverage to about 85% of the population. The per capita expenses are only 2,000 dollars a year, in America we spend 5,700 dollars and we do not live any longer in America than you live in Israel. The physicians are well trained, the hospitals and physicians participate in clinical trials, have access to the latest technology and the hospitals and clinics are well distributed around the country. Let's go to page 16: but, to improve the healthcare system there's no such thing as a perfect healthcare system and there never will be. But, to improve the healthcare system, first it would be nice to have more money. To have more money it would be nice to have an economy that grows faster. So I just have a few issues that would help the economy grow faster, because if the economy grows faster there is obviously more money for healthcare. Number 1: the government should privatize virtually every company in the next five years. If I were the Prime Minister, in that unlikely chance, they would be privatized in the next five months! But, there is no reason for the government of Israel to own any companies. A government is a government; it s not a business. A law should be passed to greatly ease the ability to fire employees, because if you cannot easily fire employees, employers will not quickly hire employees. There is a reason why America has 5 or 6% unemployment and everybody has 10, because we make it easy to fire employees and therefore employers are fast to hire employees. Also, the government should freeze the minimum wage for the next 10 years, maybe for the next 1,000 years you could say force, if you want 6
to use that word, encourage the minimum wage folks to work a little harder, to go back to school and to not be happy living on unemployment. Number 4, in America 85% of our hospitals are not for profits. We make it easy for those not for profits because we make it easy for them to borrow money at lower rates. Also, when people contribute money to the hospitals it's 100% tax deductible from their income. When people give money in Israel to their hospital of choice it also should be a 100% deductible. Now, another way to have more money obviously is to cut costs. Hospitals should be allowed to negotiate directly with doctors and nurses relative to wages and work roles, these issues should not be decided by the government, they should be decided hospital by hospital, and if you have a house and you want a painter and you hire a painter, the government should not negotiate what you pay that painter and it should not decide how fast the painter should work, and if you want to fire the painter for your house you should fire the painter. Well, hospitals should behave similarly. Also, the benefit design should be allowed to change faster to increase the price sensitivity of the patient. As I discussed before, the food company should be forced to tell people what's in their food, and obviously you should raise taxes on cigarettes and liquor. Page 17: in one minute I am going to give you 28 easy steps to improve the healthcare system, which are collectively not so easy. I am not going to go through each of the 28, I had to fit it on one page, that's why it says 28, I could not fit more than 28 suggestions on one page. Relative to the government, the government should implement more 7
reliable capitation reimbursement more accurately adjusted for age and sex. The government should implement what we call leapfrog, that's an organization set up in America by employers to monitor the quality of care for their employees or their patients. Also health plans should be measured by something we call HIDDES which also has been set up by the industry in order to monitor the quality of the different sick funds. The government should eliminate price controls over supplemental insurance, if someone wants supplemental insurance that's a personal choice, and if it's expensive or if they want special services they should pay for that themselves. There should be no price controls over simple things like over-the-counter drugs, just skipping down, the government should sell all government owned hospitals, should mandate that all citizens become organ donors, unless they chose not to be, we have the same problem in America, nobody wants to be an organ donor but you can be an organ donor if you say that you are willing to be an organ donor. Both societies should switch it and make everybody an organ donor unless you chose not to be. For the sick funds they should focus on the 20% of the people or 80% of the cost and for hospitals they should try to get paid for quality as with the physicians. Skipping over page 18 in 15 seconds, let me just highlight page 19. I recently visited the Israel Heart Fund at Meir Hospital in Kfar Saba who are doing a very interesting disease management program on patients who have had heart attacks and by providing rehabilitation services and dietitian services they've shown that they can upgrade the quality of care, so they pilot projects in Israel they must be standardized, moved to the rest of the country, increased to different diseases and by focusing on the 20% of the people or 80% of the cost for almost no extra money Israel can improve the quality of care and lower costs simultaneously. Thank you very much 8