Reducing the Waste
STANFORD GRADUATE SCHOOL OF BUSINESS — As a medical resident three decades ago, Bill Frist came to the Stanford Medical Center to work with famed heart-transplant surgeon Norman Shumway because Frist’s superiors at Massachusetts General felt transplanting hearts was too expensive. Today, transplanting organs has become a routine procedure extending the lives of thousands of people, says Frist, a heart and lung transplant surgeon, Vanderbilt University business and medicine professor, former U.S. Senate majority leader for the Republican Party, and an investor in healthcare-service startups. Transplant surgery is just one example of the ethical dilemma society faces, Frist says, when it tries to decide early which innovations will be effective and economically wise in the long run.
The coauthor of the law that added prescription drug coverage to Medicare in 2003, Frist was invited recently to share his policy and investor perspective on the 2010 U.S. Affordable Health Care Act with Stanford graduate students in business, medicine, and engineering. The Program in Healthcare Innovation of the Graduate School of Business hosted the briefing as part of a series on how health care reform might affect health care innovation. Here are excerpts from an interview with Frist conducted after the student briefing.
How can we reconcile the need to cut health care costs with providing profit margins to innovators?
Health care over the last 40 years in this country has been associated with spending 2.5% faster than GDP, on average, year to year. Within that spending, there is an estimated 30% inefficient use of resources — money that does not improve the prevention of disease or health of an individual. The fact that 17.9% of GDP is spent on health care today, with huge amounts misallocated, gives huge opportunities for people committed to innovation and creation of new knowledge that will ultimately improve the health of individuals. That means that good margins can be made by smart, results-oriented companies. And there will be winners and losers. The winners will likely be those that provide the highest value, the best quality of care and health outcome for each dollar invested. The best way, the fastest way, the most efficient way, to achieve value and eliminate the waste is, I believe, to rely on the power of market efficiencies.
You came to Stanford earlier to work with Norman Shumway, but you indicated you don’t think Silicon Valley is doing as much innovation today in health care. Why?
Silicon Valley has led the United States and the world in many areas including advances in the basic sciences, patent development, medical imaging, pharmaceuticals, and information technology. Where Silicon Valley, similar to the rest of the country, has failed is to innovate in health care system delivery. By that, I mean delivery of care through new models of acute care services, home care, hospice, prevention, and wellness promotion. Health services account for about $1.7 trillion of spending in America, of which as much as 20 to 30% is wasted on things other than patient care. This provides a huge opportunity for smart minds, aggressive minds, to reduce the wasteful component of this spending. It’s not just Silicon Valley that has failed to innovate in health delivery systems. It’s the United States of America.
I mentioned today that government plays a very important role in setting the framework for health care reform. Our academic institutions are critically important in terms of discovery and new knowledge, but it is the private sector, through investments, through taking advantage of markets, that the real solutions will be developed.
How are you investing in health care services?
At Cressey & Co., we focus 100% on health services, not medical imaging, not molecules, not pharmaceuticals, just better ways to deliver health services. We focus on the post-acute care setting including home care and hospice, behavioral medicine and mental health, and software to facilitate care outside of the hospital.
We invest where we know we can bring efficiency to delivery, especially where health and demographic trends dictate the greatest need. For example, we partnered with a superb home health management team who quickly became first in class, in part by developing hand-held technology, which increased quality of care delivered by each nurse. Productivity increased. Nurses became individually empowered with information. Patients healed more quickly. The device provides the nurse with a checklist personalized to the patient. Each entry is reported back in real time to a dashboard at a central office, with real time monitoring of more than 1,200 nurses in terms of quality, in terms of outcome, in terms of task, and in terms of results.
Do you see social media helping innovation in health care services?
Social media will play a huge role in solving some of the big health care challenges in this country. For measures of health, such as how long we live and infant mortality, we know that genetics determines 30% of outcome. The environment determines about 5%, socioeconomic status about 15%, and, surprising to most, health insurance and doctors and hospitals determine only about 15%. And most importantly, 35 to 40% of outcome is determined by behavior. Forty percent of how long we live today is going to be determined by how we behave and what we do — what foods we eat, do we exercise, do we smoke, do we wear our seatbelts. The most effective way to influence behavior is through peer-to-peer social interaction, the tool of which will be social media in the future.
Would you describe what you are doing now with Facebook?
The Facebook initiative is a good example of social media improving quality and access of health care. The need for organ donors is critical, with over 113,000 people around the country waiting this very second for an organ donor. We know that of those waiting for hearts, about one in four will die before a heart becomes available. But, ironically, there actually are sufficient potential donors if they are made available. When people learn that they can become an organ donor, and that their intention could save the lives of as many as six other people, they are more likely to sign up with their state organ donor registry. Facebook, through its 160 million users in the United States of America, introduced last month an opportunity for each to boldly identify themselves as organ donors, with an emblem on their Facebook page. This status will, in all likelihood, stimulate discussion among their 160 Facebook friends, on average, in a peer-to-peer way. We have seen a doubling of the number of people becoming organ donors over the past 30 days because of this Facebook initiative. This will save lives.
Are you concerned that the Affordable Care Act will not work financially if the U.S. Supreme Court strikes down the individual mandate for Americans to buy health care insurance?
If the individual mandate alone falls, it means that about 15 million people who would be covered under the new law will not be covered. The employer mandate would still stand, the state exchanges would remain, and the insurance reforms would stand in all likelihood. When we have over 170 million people today obtaining coverage through their employer though private health care insurance, and millions of others obtaining their government coverage through private plans, I do not think the action of not adding another 15 million will dramatically impact the fundamental structure of the private markets. The markets will adjust, even with the mandated insurance reforms.