It is not news that American health care is in crisis. Between 2000 and 2006, health insurance premiums grew almost five times as fast as the rest of the economy, almost four times workers earnings and more than twice the growth of business net income. That rising cost is pricing individual, corporate and governmental purchasers out of coverage, with impacts for mainstream and low-income Americans.

 

Enrollment in private sector health coverage represents about half (56% in 2004) of all health care dollars, and is rapidly eroding. Employers in small businesses, with 50 or fewer employees, are dropping coverage three times as fast as in larger business. While premium costs have skyrocketed - between 2001-2006, it grew about 5 times general inflation, 4 times workers’ earnings, and twice the growth of business income - those of us who still have coverage know it is less robust than just a few years ago, with narrower benefits and higher out-of-pocket costs. In other words, the cost per unit of benefit has risen even faster than the explosive growth of premium.

 

But it would be a mistake to think that insurance is the only issue. Health care is a vast complex of professional and organizational enterprises, encompassing manufacturers, suppliers, doctors, hospitals and other care delivery organizations, financial and risk management institutions and constellations of support organizations. In 2007, this economic sector, the nation’s largest, absorbed $2.2 trillion, one dollar in seven in the US economy and 1 job in eleven. Given these numbers, it is not unreasonable to expect that financial events within health care could reverberate throughout the rest of the economy.

 

It is impossible to know exactly how much waste there is in America’s incredibly complex health system. But experts agree that one-third or more of health care cost – at least $800 billion dollars a year at this point – is inappropriate, unnecessary or the result of administrative waste in every part of the system. There are many drivers: inadequate management tools, enormous workloads, greed, defensive medicine and perverse financial incentives. (Still, most of us receive good care when we need it, and most healthcare professionals in every sector earnestly believe their contributions are important and good.)

 

Two deep structural flaws promote excess in healthcare. First is fee-for-service (FFS) reimbursement, the prevailing payment methodology, which pays for delivering services and products rather than for achieving results. Under FFS, more procedures produce more revenue, and the opposite is true as well. Doing less, even while getting the same results, produces less revenue, so healthcare organizations have little reason to pursue efficiencies. This explains in part why healthcare lags far behind other business sectors in investments in tools and methods that streamline and error-proof processes.

 

The second flaw is that objective pricing and standardized comparative performance information is generally unavailable. This makes it hard for managers to identify problems and opportunities so they can be addressed, and it results in poor or even dangerous performance generally going unnoticed. Worse, the awareness that behaviors are difficult to detect has created an opportunistic culture that pervades the entire industry, with aggressive tactics for revenue generation that add cost without adding value. Because information is mostly unavailable on cost, on who doesn’t do a good job and on what doesn’t work, the market cannot easily distinguish and favor appropriateness and excellence.

 

The industry has taken its first tentative steps toward the two most important cost reforms – transparency and performance-based reimbursement – but the intensity and potential scale of the crisis warrants more focused, immediate national attention and resources. In any case, we shouldn’t rely on the healthcare industry to drive or even support these changes. Few groups willingly lose financial ground. Industry lobbies will likely oppose reforms that threaten financial performance.

 

So real change, if it comes, must be led by non-healthcare business, the one group stronger than healthcare. Only business can align, focus and impose the performance disciplines that can make better care more available in America, and re-establish the industry’s stability and sustainability.