THE WELL MED HEALTH CARE PLATFORM THERE IS NO SILVER BULLET? Taking and shaping new initiatives in health care to improve medical quality and to reduce costs, improve performance and competitiveness.
WHAT ARE THE ISSUES? Health care costs are an important element of business strategy affecting the workforce, customers and products alike. American business people confront fundamental choices daily in sustaining the healthy functioning of their workforce. These choices affect their cost structure, differentiation, productivity, performance and competitiveness. While direct medical costs drive total health care costs, indirect costs multiply the effects. Employee engagement, commitment and loyalty are key success factors in establishing customer s emotional connection to businesses, products or services. Thus, the importance of employee engagement. The way these health care issues are identified, addressed and balanced is an important strategic determinant of corporate culture, strategy and ultimately of business success and value creation. Direct medical costs include doctors, pharmacy and related insurance. Indirect costs include worker s compensation, absenteeism, short and long term disability and Presenteeism. Research shows indirect health care costs are 4x direct medical costs whether or not businesses provide insurance. This fact places businesses and Federal, state and local governments, in a difficult position with respect to managing these costs without adversely affecting employee and customer relationships. Direct medical costs are expected to increase 6.7% annually over the next decade. Health care will then be approximately 20% of GDP. This presentation explains why proposed reforms under discussion will not address and solve these fundamental cost problems. You do have choices going forward. Looking at the whole health care cost problem enables leaders to begin addressing these important issues affecting business competitiveness and performance. WELL MED innovates to change the conventional medical treatment model using advanced technology and proprietary intellectual property to restrain the over-use of specialty resources and proliferating technology improving quality and reducing costs. We are attacking the whole problem unneeded care of 30% totaling $70 billion/yr 1, unnecessary costs of $650 billion 2 annually per McKinsey & Co. HEALTH CARE COSTS HISTORY Historical cost increases, projections of future cost increases jeopardize the health, vitality and competitiveness of our business community. Businesses of all types are at risk from losing productivity and competitiveness due to health care related workforce and cultural issues, even while they restructure to contain the impact of ever increasing health care costs. For more than a decade, a great deal of energy has been expended in efforts underway at all levels to change the economics and trends of health care costs, to no avail. While it is still unclear what type of health care reform may be effected by Congress, it is highly unlikely these reforms will materially affect cost trends for a decade or more. Consumer directed health care has been a focal point of much expectations for change. The burgeoning of retail clinic alternatives with Wal-Mart, Target, Walgreens, CVS and others are creating potentially new patterns of treatment. These efforts have had no restraining effect on trends in costs. OPPORTUNITY Level Three Performance Solutions in Reno, NV has developed a comprehensive approach to addressing pressing health care quality and cost issues. The business is called The WELL MED Health Care Platform. The approach is called humancentered, evidence-based, wellness-driven comprehensive medicine. It combines conventional and alternative medicines with new technology and innovation. The WELL MED business plan is available online at www.l3ps.com/papers/well- Med/BusinessPlan.pdf. Additional documentation on various clinical and infrastructure innovations and topics are available online at http://www.l3ps.com/html/information.html. For additional information contact: Bill McCormick, Tel: 505-424-8890, e-mail: bmccormick@l3ps.com, Jim Johnson, Tel: 775-828-6161, e-mail: jjohnson@l3ps.com.
Figure 1 Key Cost Growth Factors 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2003 2004 2005 2006 2007 2008 Family Ave. Annual Prem. 13.3 9.7 9.3 5.5 5.5 4.7 Single Ave. Annual Prem. 9.7 9.2 8.9 5.4 5.6 5.0 Direct Medical Care 4.0 4.4 4.2 4.0 4.6 6.9 Worker Earnings 3.0 2.1 2.7 3.8 3.7 3.7 Inf lation 2.2 2.3 3.4 3.2 2.8 4.1 CPI-U 2.3 2.7 3.4 3.2 2.8 3.8 TREND INDICATORS FACTORS AFFECTING THE GROWTH OF DIRECT MEDICAL COSTS Figure 1 Key Cost Growth Factors, shows for the last five years, the annual Family and Single Average Annual Premium increase percentages 3 declining, while Worker Earnings, Inflation, CPI-U, and Direct Medical 4 all have increased. Given these trends and projected direct medical cost increases, the fundamental challenge in front of us today is to imagine a solution to the whole health care problem in the U.S. which reduces direct medical costs. Individual businesses can focus on reducing their indirect costs. It is valuable for business people to consider objectively: (1) the value of a healthy workforce; (2) the impact of employee health on productivity, costs, competitiveness and effectiveness; (3) the multiplier effect and overall impact of indirect costs on productivity; and, (4) how to strike an effective balance in terms of wellness, benefits, productivity, and workforce engagement, commitment, and loyalty.
Figure 2 - Growth in Direct Medical Figure 3 Direct/Indirect 350 1500 1300 300 1100 Indirect 250 900 200 700 500 150 300 Direct 100 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 100 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 GROWTH RATES OF DIRECT MEDICAL COSTS AND THE EFFECT INDIRECT COSTS DIRECT COST TRENDS Figure 2 Growth in Direct Medical is based on an expected average annual growth of 6.7% in 2007. Growth over the projection period ending in 2017 is projected at 6.7% per annum 4. Figure 3 Direct/Indirect is derived from Loeppke 5 and Edington 6. Figure 2 is cause for fundamental concern as projections are for direct medical costs to increase 6.7% annually for a decade or more. The reforms being discussed today can simply be evaluated for their ability to contain or to even lower direct medical costs. The result of this evaluation is the dismal prospect of needing to contain costs leading to more fundamental changes perhaps by allocating or rationing care and incentives. Even if not widely understood today, it is worth noting the fundamental changes down this path can be taken today by incumbents. Failing to do so for decades, they are now entrenched as the source of the problem not the source of the solution. The impact of indirect costs are now becoming clearer. Figure 3 shows the multiplying effect of the indirect costs on top of direct medical costs. Large companies have the potential to drive cost containment initiatives. Small businesses generally do not. This reality places ever greater pressure on the whole system exacerbated when more people are covered by insurance. This placers political and business leaders in a very difficult position with respect to reforms they can support.
Figure 4 Relative Cost of Poor Health OTHER FACTORS AFFECTING THE GROWTH OF HEALTH CARE COSTS KEY TREND INDICATORS Our aim at Level Three is to both improve medical quality and to reduce costs. The fundamental challenge in front of us today is imagining an acceptable solution to the whole health care problem. To this task we bring extensive new thinking and evidence-based innovation There is very little evidence today in the public discourse on health policy recognizing the full health care costs of a typical business. These are of two types: (1) Direct medical costs, e.g. insurance premiums, medical and pharmacy costs; and, (2) Indirect costs including Disability, Long and Short Term, Worker s compensation, Absenteeism, and Presenteeism. Figure 4 - Relative Cost of Poor Health presents the basic picture and cost relationships. Subsequent research by Loepkke 5 has provided substantiating evidence of the multiplying effects. Research has shown indirect costs are 4x direct costs. Companies that don t offer health insurance still are exposed to these indirect health care costs. A comprehensive approach to managing indirect costs which multiply the effect of direct medical costs can pay huge dividends and provide a significant return on investment.
Figure 5 Total Health Care THE COST ICEBERG THE INDIRECT COSTS ICEBERG Figure 5 Total Health Care uses the iceberg metaphor, 90% of the iceberg is invisible below the water line, to show the multiplying effect of indirect costs. Multiple research studies have been performed to validate the relationship of direct medical costs and indirect costs. A leader in analyzing data for evidence regarding these cost relationships is the University of Michigan, Health Management Research Center where the first studies appeared in 2003. Loeppke substantiates the fundamental validity of the Iceberg model metaphor as depicted above. These indirect costs are still largely invisible in the public dialog on reducing costs. In terms of health care costs, the portion below the water line are productivity costs which are incurred by every business whether or not they offer employees insurance.
1500 Figure 6 Targeting Health Care Savings 1300 1100 900 700 500 Indirect 80% of Indirect RANGE OF POTENTIAL SAVINGS 300 30% of Direct Direct 100 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 TARGETING THE OPPORTUNITY RESTRAINING COSTS AND REDUCING INDIRECT COSTS WHILE IMPROVING QUALITY We have combined the previous data in Figure 5 Targeting Health Care Savings showing how to target the area of productive economic benefits and opportunities for reducing indirect costs. The targeted area has an upper and lower limit for impacting indirect costs, for discussion: (1) setting an objective of achieving a 20% reduction in indirect costs making 80% the upper limit; and, (2) setting the minimum acceptable improvement or lower boundary for indirect costs at 30%. We are suggesting these upper and lower limits as a target range for shaping a program to achieve cost/productivity improvements so progress can be measured and tracked. The key point is achieving improved results by lowering direct medical costs and indirect health care costs brings large benefits and a significant return on investment to companies. Safeway is an example of one company pursuing this path.
PHYSICIANS Improved Quality of Practice Healers Can Heal Bounded Scope of Practice Only doctors do medicine (monopoly sustained) More Flexible Time Time-off from practice, research, if you want it Ability to Operate Independently GROWTH More Toys Bottom Line - Make More Money, e.g. Profit Top Line Growth - Grow Gross Income Elastic Networks PRACTITIONERS In the Game, Network Insurance Eligible, Payments Improved Focus - Practice Still Flexible Time Scope of Larger Number of Practitioners to Meet Expanded Needs PROBABLE STAKEHOLDER OUTCOMES PATIENTS Improved Quality of Care More Options More Choices More self-accountability Enhanced Human Dignity BIG PHARMA Access To New Markets Competitive Markets Potential to Improve Product Quality More Transparency OVER-THE-COUNTER SUPPLIERS Improved Product Range Market competition More Alternative Products Insurance Eligible, Payments MEDICAL TECHNOLOGY New Product Opportunities Market Competition, Risk Insurance Eligible, if effective INSURERS Growth, Scope, Scale More Competition, possibly from government Growing Top Line Competitive Bottom Line More scrutiny, transparency Tighter Margins Bankers to the System in conjunction with government GOVERNMENT Lower Per Citizen Entitlement Everyone Covered Just Solution More $s in the Game Risk Goes Up Improved Social Effectiveness - Relentless Cost Growth Government financing is transparent
THE FINANCIAL INVESTMENT Figure 7 The WELL MED Investment Plan Investment Plan Investment Exit Value 2009 2010 2011 2012 2013 I. START-UP CAPITAL COMMITMENT $2,000,000 ($10,000,000) $750,000 $750,000 $500,000 $0 ($10,000,000) II. ACQUIRE, BUILD, TRANSFORM BUSINESS UNITS A. Acquire, Control, Transform Acquisitions $15,000,000 ($39,000,000) ($39,000,000) B. Acquire, Joint Venture Infrastructure Companies 35,000,000 ($19,500,000) 5,500,000 15,000,000 11,000,000 3,500,000 ($19,500,000) C. PRIMARY CARE DELIVERY C.1 Primary Care Practices/Clinics (TBD) 26,525,000 ($78,000,000) 15,705,000 9,350,000 1,125,000 345,000 ($78,000,000) C.2 PPO - American Integral Care (TBR) 7,500,000 ($29,250,000) 3,250,000 1,500,000 1,750,000 1,000,000 ($29,250,000) C.3 WorkSite Clinics (TBD) 1,750,000 ($58,500,000) 400,000 350,000 500,000 500,000 ($58,500,000) C.4 Disease Management, Functional Medicine (TBD) 900,000 ($9,750,000) 900,000 0 0 0 ($9,750,000) D. Elder Care (TBD) 575,000 0 150,000 250,000 175,000 0 $0 E. Infrastructure [ABC, GIT-WELL, Partner or Variant] 8,500,000 ($97,500,000) 2,500,000 1,500,000 2,500,000 2,000,000 ($97,500,000) F. Benefits Consulting 1,750,000 ($17,550,000) 750,000 250,000 250,000 250,000 ($17,550,000) G. Chasm Insurance Holdings (VEBA, Pensions, Govt.) 500,000 ($40,950,000) 0 500,000 0 0 ($40,950,000) III. Liquidity Event on Exit ($400,000,000) ($400,000,000) Total $100,000,000 $82,255,000 $66,850,000 $21,550,000 $8,745,000 VALUE CREATING FOCUS IS PRIMARY CARE, RETAIL AND WORKSITE CLINICS USING INNOVATIVE INFORMATION TECHNOLOGY Figure 7 The WELL MED Investment Plan shows a prospective investment scenario of $100,000,000 for the WELL MED Platform as described in the Business Plan. It involves primarily growth through primary care and retail clinics, worksite clinics, insurance and supporting infrastructure. This strategy involves using Web 2.0 to provide social networking and other capabilities integral to comprehensive medicine. It emphasizes primary care as the hinge point for reducing or constraining over utilization of specialty resources and technology, and for providing innovation in quality of medical care. The effective acquisition and transformation of primary care/retail clinics involves forming strategic partnerships with or acquiring Alterative Link, Inc. and other businesses to obtain the proprietary intellectual property and patents on which to build the needed social networking site GIT WELL to form the core of the comprehensive medicine community capability.
EXPLORATORY PROCESS 1. EXPLORE PRIVATE EQUITY AND VENTURE CAPITAL FINANCIAL SOURCING 2. ELICIT MARKET FEEDBACK ON APPROACH BROKERS INSURANCE COMPANIES POLITICAL INTEREST GROUPS PHYSICIANS PRACTITIONERS MEDICAL TECHNOLOGIES BIG PHARMA OTHER INTERESTED PARTIES 3. REFINE STRATEGY A BUILDING 4. INITIATE CONTACTS AND DEVELOP PIECES OF THE BUSINESS 5. SOURCE SOCIAL NETWORKING CORE
NOTES This section contains notes and research citations of potential interest and value in deciding how to improve medical quality and to lower direct medical costs and indirect costs. 1. Fisher, Elliot et al, The Implications of Regional Variations in Health Care, Parts 1 and 2, Annals of Internal Medicine, 203; and, (2) Why Americans Pay More for Health Care, McKinsey Quarterly, Dec. 2008. 2. Farrell, Diana et al, Why Americans Pay More for Health Care, McKinsey Quarterly, Dec. 2008 3. Employer Health Benefits, 2008 Annual Survey, Kaiser Family Foundation. 4. Keehan, Sean et al, Health Spending Projections Through 2017: The Baby-Boom Generation is Coming to Medicine, Health Affairs, Feb. 26, 2008. 5. Loeppke et al, Health and Productivity as a Business Strategy, Journal of Occupational Medicine, July 2007 6. Edington, DW, Burton, WN, Health and Productivity in McCunney RJ, editor, A Practical Approach to Occupational and Environmental Medicine, 2003.