A Realistic View of the ACA – Part 4

In Part 1 of this series, I introduced the series and covered the first part, Repeal.  In Part 2, Transition, I focused on a relatively simple transition plan for people currently covered under the ACA, including some of the financial math that would be associated with such a plan. In this Part 3, Replace, I focused on essential elements that would need to be included in a system to permanently replace the ACA.  In this Part 4, Looking Forward, I’ll get into 1) how repeal and replacement of the ACA could potentially be the main determinant of the outcome of the 2018 mid-term elections and/or the 2020 presidential election, and 2) what the future will probably look like under the replacement law if it is successful.

2018 and 2020 Elections Could Swing On Success Or Failure of the ACA Repeal/Replace Scenario

If repeal and replacement of the ACA is viewed as highly successful, that will favor continued and potentially even heavier Republican dominance. If is viewed as a total flop, that will favor at least some swing of the pendulum back toward Democrats.  Whether the outcomes of those elections are “sweeps” in either direction will depend on the perceived success or failure in other areas [immigration, terrorism, etc., but probably mostly the economy].

Note. Although the preceding paragraph assumes that the Current Paradigm will not fully “die” in another 2, maybe even 4 years, we must keep that factor in our thinking. A major acceleration in the paradigm shift underway, which I think is likely because of Mr Trump’s leadership style, would essentially erase the Republican/Democrat domination and change future elections dramatically [see the page A Major Paradigm Shift Well Underway at this site for a more in-depth description of this paradigm shift, and my blog post Election Aftermath – 1 for a confirmation that such a shift is underway].

It will be very interesting to see how the media characterizes both repeal and replacement. The extreme liberal bias in the media will no doubt result in second-guessing Trump and his administration at every point. The media’s strong supportive tone in reporting on Obama for the past eight years will turn into resistance and skepticism in its reporting on Trump. This will make Trump’s task in repeal and replacement much more difficult than Obama’s task in getting the ACA pushed through [i.e., Trump will have to not only produce a successful transition, but also counter negative press about it — much more challenging than having a press that is essentially a cheer-leading squad].

The Unfolding Of Healthcare From Here

There are two trends that I believe are imminent and will consume an increasing share of both financial and “mainstream” media coverage about Healthcare over the next few years.  Both would no doubt have occurred regardless of the presence or absence of the ACA or its replacement, for one simple reason: in 1960, Healthcare costs were 6% of the GDP; at the end of 2015 [most recent finalized data available], they were 17.8% and still rising. You don’t have to be a mathematician to understand that this is an exponential trend that not only will not, but cannot continue. Any component of the economy exhibiting that kind of exponential increase in the percentage of the GDP is headed for massive change, because continuation of that trend would ultimately result in that component completely dominating the economy and, over time, literally shutting down all other components.

Home Health And Other Alternate [Non-Hospital] Service Delivery Venues

One of these trends has to do with a major shift in how Healthcare services are delivered — specifically, a shift toward a substantially higher percentage of care that is delivered in venues other than hospitals. I believe hospital care will become more and more associated with very complex surgeries and other conditions that require intensive care and highly expensive equipment, that smaller hospitals will ultimately become more like networks of “remote emergency rooms” associated with large tertiary care hospitals, and that home-based care will become much more prevalent than it is today.

The trend toward alternate-venue delivery of healthcare services has actually been underway for well upwards of a decade [one evidence being the proliferation during that time of Urgent Care Centers, often staffed by Physician Assistants and Nurse Practitioners], but it is accelerating much more rapidly now. Also, more in-home service [Home Health] agencies are starting up, and existing ones are experiencing exponential growth.

The reason for this trend is no more complicated than cost containment. Hospitals have extremely high fixed costs when compared with those of alternate venues [particularly patients’ homes], and per-service costs in the alternate venues do not include allocations to cover those high fixed costs. Variable [labor and materials] costs are also higher in tertiary hospitals because of specialty staff and materials that have to always be available in them [this staff and those materials are not actually needed for many, many procedures].  Even when transportation costs [e.g., of medical professionals to patient homes] are accounted for, overall costs are still lower. As icing on the cake, it is quite possible that the quality of some alternate-venue services, all things considered, could actually be higher than the quality of services delivered in hospitals.

Massive Re-Engineering of the Healthcare Industry

The other trend I see on the horizon might actually be several different trends that could be viewed separately. I am grouping them into one because they will all be fueled by one main driver — the huge and rapidly growing need for improved overall effectiveness, a term I like to use to describe the ratio of quality divided by cost. Since there is no single number that reflects quality, this ratio does not exist, but referring to it conceptually is a concise way to define overall effectiveness — i.e.: if quality improves and cost remains constant, overall effectiveness [OE] increases; if quality remains constant and cost is reduced, OE increases; and [the ideal scenario] if quality improves and cost is reduced, OE increases dramatically.  This trend, then, can be thought of as a massive re-engineering of the Healthcare industry, not unlike what we have seen over the past few decades in other industries — notably manufacturing and mining.

Although considerable progress has been made in the past decade or so, Healthcare, in comparison to other industries, is still extremely inefficient. With all that technology has done to increase the OE of other industries, Healthcare is still a very “manual”, labor-intensive industry.  Granted, barriers to progress in Healthcare are probably more intense than in other industries [information security, for example], and risks of failure are more severe [loss of life from system failures rather than just recovery costs and/or lost revenue from outages in other industries], but the biggest barrier is burdensome regulation.  Getting into the details of that is beyond the scope of this blog post, but believe me, I wrestled with the Healthcare regulatory environment for decades. It’s like putting a boxer in the ring with one arm tied behind his back.

On the positive side, I believe the stage is now set for huge leaps in OE in Healthcare. Technology [telemedicine, more sophisticated yet less expensive testing methods, smartphones and smart watches and other “wearables”, smart homes and the “Internet of Things”, emerging standards for information interchange, more non-invasive “surgical” procedures …] is poised to facilitate massive functional changes, and the current leadership mindset of reducing government regulations, although mostly articulated in terms of environmental and financial regulations, will hopefully extend to Healthcare.

And Finally … Actually Dealing With Fraud and Abuse

Another factor that would contribute substantially to OE is virtual elimination of — not just reduction in — fraud and abuse [one notable example being providers who obtain reimbursements from Medicare and Medicaid based on fraudulently reported diagnoses and/or procedures]. This has become a standard claim of both Republican and Democrat candidates for at least the last six presidential election campaigns, and it has even been quantified by DHHS at $60 billion [that’s BILLION, with a “b”] in 2015. In my years as a senior executive in large regional healthcare systems, if I had told my Board that I had become aware of $16 million in unnecessary and avoidable expenses [about the same percent of annual budgets in those organizations as $60 billion is of the $3.8 trillion federal budget], particularly if they were related to fraud, it would have been OK if I had simultaneously articulated my plan for eliminating them in the current quarter. If I had said I just wanted them to be aware, and that I had formed a task force to look into the matter and fully quantify the problem and give me recommendations by the end of the current quarter to completely eliminate that waste in the next quarter, that might have been OK, too.  Had I then said in the next quarter that we were still researching the matter without simultaneously reporting at least some progress toward fixing the problem, I would have been fired on the spot. Only in government can a $60 billion [that we know of] problem be allowed to exist for decades and still be talked about by politicians as something that “we need to look into”.

Series Conclusion / Upcoming Plans For This Website

This post concludes this 4-part series that I entitled A Realistic View of the ACA.  Since this topic is so critical to the success of the Trump administration, I have decided to include the main content of Parts 2 [Transition] and 3 [Replace] in a new section of pages at this website that will focus on the future [Healthcare being only one of those areas of focus]. When that section’s content is ready for publication [which I’m currently targeting for sometime in January 2017], I will announce it in a blog post.  I have already drafted quite a few additions to the page that was originally the content of the Replace plan in Part 3 [some of those additions stemmed from reader comments].  Stay tuned!


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Charles M. Jones

Author: Charles M. Jones, PE, CPA

[retired — neither license active]

2 thoughts on “A Realistic View of the ACA – Part 4”

  1. Yep! The best way for fraud & abuse to flourish is to have a beaurocracy so large that by the time the system discovers the fraud – the money has already been spent!
    Better to have smaller audit centers of accountability – not to mention smarter, more “common sensible” representation.

    Liked by 1 person

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