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The U.S. health care crisis: can CEOs turn up the heat on Washington for solutions?

When chief executives say that something strikes fear in their hearts, chances are they're talking about something truly awesome. And what is scaring CEOs these days? The nation's health care crisis. "It's frightening what this could do to our country," said Larry Johnston, chief executive of the supermarket chain Albertsons and one of more than a dozen top executives who participated in a Dec. 10 roundtable on health care reform sponsored by the Blue Cross and Blue Shield Association and held at The Breakers in Palm Beach, Fla. Johnston went so far as to predict that spiraling health care costs, if unchecked, would bankrupt the nation.


A central problem is that, unlike their counterparts in nearly every other industrialized nation, U.S. businesses are forced to shoulder most of the load. "It's ridiculous," said William Brody, president of Johns Hopkins University and a trained physician. "We're saddling corporations with the burden of health care. People are not connecting bankruptcy of corporations to health care costs."

The link between health care costs and corporate failures is clear in at least two major industries, steel and airlines, and there's speculation that the auto industry could be next. Gary Cowger, president of General Motors North America, said: "We spend more for health care than we do on steel. It's probably the biggest competitive issue we face."

Business leaders need to communicate the seriousness of the health care crisis all the way to the top, said Fred Smith, founder and CEO of FedEx. "I personally think at the end of the day the only thing that would get this thing off center is for a very large part of Corporate America to simply say to the president and say to the majority leaders, 'If you don't fix this, there's not going to be a damn job in manufacturing in this country.'"


However, it's not just manufacturing. Any business that pays all or a portion of its employees' health care premiums is struggling under the costs. On average, according to the Bureau of Labor Statistics, employee health benefits have reached 7 percent of total wages and could hit 25 percent by 2014. And because the government's Medicare underpays for care, business makes up the difference. Smith says the business subsidy to the government totals at least $60 billion a year.

What makes the problem especially fearsome is that there is no end in sight. Without some kind of fundamental change, the costs will just keep rising. By 2012, health care is expected to take up nearly 20 percent of GDP, according to the Centers for Medicare and Medicaid Services.


The economics are simple: endless supply meets insatiable demand. America's well-oiled technology and innovation machine churns out medical marvels every day: arterial stents, fancy new knees and a wide selection of drugs to fix erectile dysfunction, to name but a few. And consumers want it all, as long as someone else is paying.

"Right now in America, our attitude--every individual in America--is that I have the right to the best health care in the world," said J.T. Battenberg, chief executive of Delphi, the large auto parts and electronics maker. John Forsyth, CEO of Wellmark Blue Cross and Blue Shield of Iowa and South Dakota, said, "People ask, 'Why isn't everything covered? Why do I have to pay a component of this?'"

Demographics are pushing the problem from unmanageable to unsustainable. Americans are living longer, and the baby boomers are moving into the sick-and-dying stage of life. That will mean levels of health care consumption that will dwarf anything spent on medical care to date.

The irony is that rising costs are driven ever higher by the health care industry's own success. "If you think about it, the most efficient health care system is one that if you have a heart attack you die immediately," said Brody of Johns Hopkins. "But what happens now is we have automated defibrillators that save lives. Those people then go on to get angioplasty. They don't die of their acute coronary disease, but 15 or 20 years later they get congestive heart failure," racking up costs all along the way. A generation ago, Forsyth said, 85 percent of Americans died at home, whereas today 85 percent die in an intensive care unit.

Practically all industrialized nations other than the U.S. ration out health care to limit spending. "It's a lot cheaper in England," Forsyth said. "They don't provide dialysis after, like, age 60. Think of trying to do that in this country," Americans don't tend to view health care the same way they do other products. With most purchases, they let the marketplace set limits on supply and demand, but it's the end customer who pays. Not so in health care.

So it's a twisted situation: Health care costs are threatening to bankrupt businesses, while consumers keep spending other people's money to treat their illnesses--to their last dying breath.

Anyone looking to fix, or at least mitigate, the health care crisis needs to look at both the tactical and the strategic, the one-time efficiency fixes along with fundamental changes in the system itself.

On the tactical front, great effort is being applied to outcomes-based research, quality and best practices: compiling data on what works in medicine for the vast majority of patients, and using that data as a basis for care.

What the health care establishment doesn't yet do very well is communicate that information to its practitioners. "Eighty percent of the doctors know what best practice is ... but only 20 to 25 percent really practice at best-practice levels," said Forsyth. "It's because they don't have the necessary information."

Digitizing Patient Records

Everyone around the table agreed that electronic common forms for patients, which would follow them wherever they end up in the health care system, would go a long way toward improving quality and efficiency. (See "Health Care's Paper Chase," page 38.) FedEx's Smith said he recently told departing Health and Human Services Secretary Tommy Thompson that Medicare's motley collection of forms is a major part of the problem.

Despite the obvious benefits, there are plenty of institutional and legal barriers standing in the way of a move to use electronic forms. Not the least of them is that doctors may be some of the most computer-phobic of all professionals. A major California hospital chain recently began paying doctors $5,000 to learn how to use computers, providing lessons that began with revelations such as "This is a mouse."

Common data help detect patterns in spending. But even with current data, companies would benefit by taking a hard look at where health spending is going. "We figured out pretty quickly we didn't know what was driving our costs," said Smith. Smith also suggested that CEOs get closer to the problem; he personally joined the board of the Mayo Clinic, in part to "get a handle" on health care.

Greater efficiency will reduce costs and must be pursued, but it won't fix health care. Constant supply and insatiable demand will keep pushing prices ever higher if the underlying dynamics aren't changed. Giving consumers more "skin" in their health care decisions--in other words, shifting costs to employees--has become the norm. But workers, especially unionized workers, are strongly resisting. In fact, service unions in particular are using health care as an organizing tool. "The unions are not going to give up any of their health care benefits at all," says Edward Rabin, president of Hyatt Hotels. "It's their only opportunity to grow their membership."

Ironically, the consumer share of premium payments, now about 15 percent, is at an all-time low. The cost shifting hasn't kept pace with the price hikes. However, if not managed carefully, shifting costs could create social and political upheavals--with the risk that the burden on business could be made worse through, for example, employer mandates.



Although it sounds like consultantspeak, good communication with employees about the health care crisis is essential, both from employers and from medical providers. "Part of this, then, is to educate people," said Wellmark's Forsyth. "Once you have the skin in the game, how do you use it? How do you get the information you need?"

To the many CEOs who say health consumers are fully capable of making medical decisions on their own, Forsyth had this to say: "Think of yourselves. When I was running the University of Michigan hospitals, people like you would call me all the time. You'd have an issue and you wouldn't know how to access the health system, you wouldn't know what best practice was. If CEOs don't understand that, how is the rank and file person going to understand that?"


Correcting misinformation is important, too. Drug industry ads are a hot topic of debate. Brody said drug costs for Johns Hopkins workers are up 168 percent over five years. Forsyth noted that "before there was direct-to-consumer advertising, that wasn't a huge issue. Demand was pretty flat. You can trace it back to the beginning of direct-to-consumer advertising, and you can look at the top 10 advertised drugs, which are the top drugs driving your costs."

The drug ads coax consumers to request brand-name drugs from their doctors, and the pressures of business cause doctors to relent, even if another drug is cheaper and as good or better. "Doctors say, 'I can write that prescription and I have a satisfied customer in a fairly quick visit,'" said Forsyth. "Or they could say, 'Now, for your allergies you really can do over the counter,' and have a 20-minute conversation and potentially have a dissatisfied customer and have lower productivity."

But should the government ban prescription drug ads on television? Most around the table said no. Seeking more government regulation on business just rubs too hard against the grain for many CEOs.

However, CEOs are beginning to recognize that government is deep in the health care game, and that no solution to the crisis will be found without government participation. They are acknowledging they will have to begin lobbying for tort reform to keep the cost of defense medicine down; legislation to expand insurance pools and mandate coverage, like many states mandate car insurance; or even to provide catastrophic coverage so more people can better afford noncatastrophic health care.

Above all, business leaders need to discuss health care more often, find areas of consensus and then take action. "The economy has been good enough and the war on terror has been extreme enough that both the business community and the political class have been able to stick their heads in the sand," said FedEx's Smith. "One of the worst things that I can tell that's happened in terms of business issues in Washington is the war on terror. It's just all consuming. Everything is just Iraq and homeland security. I think that's the reason this isn't the No. 1 issue in Washington right now."

Ultimately, government must help business make the marketplace work. One constant refrain at the roundtable: Incentives are horribly misaligned in health care, so the marketplace really isn't working right now. Brody suggested that Johns Hopkins hold meetings with business leaders on health care, in concert, perhaps, with the Mayo Clinic. Interestingly, Battenberg suggested that clergy be invited to participate. Discussion of society's ethical approach to the waning days of life, and what treatment is appropriate, is essential to any deep discussion of the health care issue. John Maynard Keynes famously said that in the long run, we're all dead. He may never have imagined how expensive it would one day be to get there.
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Title Annotation:CEO2CEO SUMMIT; Chief executive officers
Author:Mitchell, Russ
Publication:Chief Executive (U.S.)
Geographic Code:1USA
Date:Jan 1, 2005
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