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Health Care's New Entrepreneurs

So lopsided is the field that thousands of European scientists have relocated to companies in the U.S., where they have a better chance of transforming cutting-edge research into lifesaving new medicines.

But American health care is also much more confusing, impersonal, and expensive than it needs to be. Conflicting opinions from doctors and insurers often strand patients with complex diseases in a medical maze. Many primary-care physicians, frustrated with red tape and puny reimbursements, limit the number of Medicare and Medicaid patients whom they see, or they drop out of the profession altogether. Adding insult to injury, employers and employees face seemingly endless cost increases, with health-insurance premiums rising much faster than inflation or income.

Thankfully, entrepreneurs are finding ways to bring innovative, consumer-oriented health care to market—simplifying medical decisions, reinvigorating primary care, and lowering health-care costs. From health insurance to DNA-driven medicine, American health care is experiencing a revolution from below that promises to improve quality, lower costs, and empower people to control their own health care.

Today, we shop for cut-rate hotels on Travelocity, bargain for airfares on Priceline, and seek reliable information on everything from computers to flat-screen TVs at CNET. The same information explosion is occurring in health care. Dozens of websites, such as WebMD, Revolution Health, and eHealthInsurance, now offer consumers up-to-the-minute information on medical conditions, drugs, and insurance options, as well as basic quality information on doctors and hospitals. Internet-savvy patients can walk into their doctors’ offices knowing more about the latest treatments than their physicians do.

Critics counter that health care is more complicated than hotels. Without someone to help manage complex information, they point out, patients may find themselves overwhelmed by options, fall prey to snake-oil salesmen, or fail to see that they have received incorrect diagnoses or poor treatment plans. But where critics see a problem, entrepreneurs see an opportunity. Companies are finding ways to make even the most complicated medical decisions simpler for patients.

Take the Boston-based firm Best Doctors, founded in 1989 by Harvard Medical School professors. Best Doctors uses peer evaluations of physicians—polling 50,000 doctors worldwide in 400 medical specialties—to identify leading medical experts and then makes them available to 10 million patients in 30 countries. Normally, insurance companies limit patients’ access to specialists by requiring prior authorization for referrals, limiting access to preferred networks, or asking patients to pay more out of pocket. Patients whose employers offer Best Doctors, on the other hand, can go directly to the firm without prior authorization whenever they have serious medical problems and need help making decisions.

One such patient is John de Beck, a California teacher diagnosed with prostate cancer. De Beck faced a dizzying array of options, from cutting-edge robotic surgery to more traditional surgical, hormone, and radiation treatments. Since his employer had contracted with Best Doctors, John immediately had access to a “handler” who got John’s permission to send his medical records—including original biopsy slides and CT scans—to a Best Doctors clinical team. The team wrote a synopsis of John’s case and sent it to a leading Harvard expert on prostate cancer. Within a few weeks, John and his doctor got a binder from the expert that examined and explained his treatment options and made a personal recommendation for him.

Over the next year, John consulted with Best Doctors every time he needed to make a key decision about his treatment—for example, getting another opinion from a University of Chicago expert about a new type of radiation treatment, proton therapy. The depth of the reviews—and the fact that they came from leading experts who had no stake in his case—proved invaluable. “I can’t imagine, with the income that I’ve got, to be able to even find . . . somebody to personally review my case and write a personal diagnosis,” de Beck says.

“We trust patients to self-select,” Best Doctors president Evan Falchuk explains. “When they feel uncertain about something, they have the most interest in making sure things go right.” Falchuk hopes that Best Doctors is part of a growing trend toward more consumerism in health care—even in single-payer systems like Canada’s. “Even government-run systems are suffering from the same cost trends we are,” he says. Consequently, they are searching for ways to share costs with people, “and as the financial burdens fall more on individuals, those individuals want control.”

Marcus Welby, M.D. last aired on ABC in 1976. Fast-forward 30 years or so, and think about the prime-time doctor dramas that have replaced it: ER, Grey’s Anatomy, House, Scrubs, and Nip/Tuck. The folksy primary-care doctor familiar to patients a generation ago has all but vanished from America’s primary cultural medium, television—and this reflects his real-life decline. Insurance reimbursements, and especially Medicare, may pay primary-care physicians only a small fraction of the actual costs of treating patients, especially after one takes into account rising demands on doctors’ time and dramatically increased administrative overhead. Consequently, many doctors are retiring or avoiding primary care. In reality, as on television, hospital emergency rooms and expensive specialists are replacing them.

Personal relationships between primary-care doctors and patients foster long-term health and keep health-care costs in check, so this is an unwelcome development. And it could hardly come at a worse time. The need for primary care will rise rapidly in the years ahead as tens of millions of aging baby boomers develop serious chronic ailments ranging from heart disease to diabetes to cancer. The nation’s over-65 population will double by 2030; the American Academy of Family Physicians, however, reports that from 1997 to 2005, the number of med-school graduates entering primary-care residencies dropped 50 percent.

Policymakers compound the problem by advocating universal insurance schemes that would inject millions more patients into the system without fixing any of its underlying problems. In July 2007, the Wall Street Journal reported that many Massachusetts residents were having trouble finding primary-care providers, even as the state embraced a universal insurance mandate that could thrust 550,000 previously uninsured residents into overcrowded doctors’ offices. The Massachusetts Medical Society found that for new patients, the average wait to see an internist was up 57 percent since the previous year, to more than seven weeks.

Primary-care doctors’ woes are severe in the rest of the country, too. “Most physicians out there are in networks, meaning that they accept insurance and are held to the reimbursement schedules currently available to them,” says Kevin Kelleher, a Virginia doctor. And insurance rewards procedures—tests and surgeries—much more handsomely than it does working with patients on the prevention and management of chronic disease. The result: as reimbursements have flatlined or even declined, the traditional family practice has evolved into a high-volume, prebooked business in which physicians have just a few minutes to spend with each patient. “Double booking has become extremely common in the last six or eight years,” Kelleher observes. “Doctors don’t have any quality time to spend with their patients. . . . They’re lucky if they can address a current pressing health issue, let alone discuss prevention.”

Instead of waiting for the system to change, some physicians are changing the system. In 2004, in Reston, Virginia, Kelleher and Mark Vasiliadis founded Executive Healthcare Services, where clients receive a full range of preventive, primary-care, and acute treatments for a flat monthly fee of $150 to $450, depending on the size of their families. There are no contracts; if EHS clients don’t feel that they’re getting value for their money, they can leave. Kelleher says that EHS’s patient-retention rate is about 98 percent.

This out-of-pocket payment model counters some of the system’s perverse incentives. “We can very frequently just discuss problems on the phone with patients, since 90 percent of the diagnosis traditionally comes from their history,” Kelleher points out. “If someone calls with elbow pain, I can spend 15 minutes on the phone with them. I don’t have a financial impetus to get them into my office.”

Comparatively high prices allow EHS to operate with just 300 patients or so, a stark contrast with the 2,500 patients whom the average primary-care doctor must serve in order to turn a profit after low insurance reimbursements. EHS’s enviable scale won’t work nationwide, Kelleher admits, but he thinks that components of his program could be modified to accommodate larger practices and lower prices. For instance, patients could bolster their current insurance reimbursements with a flat monthly fee—maybe as little as $20—and in exchange receive enhanced primary-care access (longer appointments, say) from doctors with somewhat smaller practices.

Further, filing claims with insurance companies is so time-consuming and expensive that doctors could lower prices—perhaps by 20 to 30 percent or more—simply by offering more basic services on a cash basis. Primary-care physicians in this type of system would likely see fewer patients every day but could offer them more time and attention. Some observers have derisively called this “concierge medicine.” But it would be more accurate to say that Kelleher and his colleagues have embraced a primary-care model that puts the doctor-patient relationship first—where it used to be.

This model seems to be gaining traction with frustrated patients and doctors. Last October, one West Virginia doctor made national news when the Wall Street Journal chronicled his prepaid primary-care plan. Vic Wood offers the 100 or so patients in his plan unlimited primary and urgent care, basic diagnostic tests, and many generic drugs for a monthly fee ranging from $83 for an individual to $125 for a family.

One patient is a private music teacher who, before joining Wood’s plan, had gone without health insurance for four years because his wife’s health insurance would have cost him $400 a month. Wood diagnosed him with high cholesterol and is treating him, with excellent results. A local business started offering Wood’s clinic as a benefit, switched to a major medical plan with a high deductible, and saw its monthly premiums drop by $4,000. The firm’s health insurer lowered its rates the following year, noting that workers “required less time in the hospital and used Dr. Wood’s clinic for nearly all of their primary care,” reported the Journal.

Wood’s clinic isn’t without its detractors, particularly among insurance companies that see prepaid physician plans as competition. But it hasn’t deterred him. “I’ll sign up one patient at a time if I have to,” Wood told the Journal. “I can’t see my practice surviving for the next 10 years without this model.”

Henry Ford didn’t invent the automobile. He just found a way to mass-produce it, allowing him to sell an affordable, reliable form of transportation to middle-class Americans. Can twenty-first-century entrepreneurs do the same for health care, which seems defined by expensive, labor-intensive services? In a word, yes—by “unbundling” inexpensive services from expensive settings like hospitals and by moving from a reactive medical model that treats already sick patients (very expensive) to a predictive, personalized model that monitors patients for disease predispositions and keeps them healthy (far cheaper).

Wal-Mart, for all the fire that labor activists direct at it, is quickly becoming the Henry Ford of health care. It took a bold stride into health-care markets in 2006, rolling out a Florida pilot program offering dozens of generic drugs at just $4 for a month’s supply. The program quickly spread to other states and added many new generics, including medicines for glaucoma, attention deficit disorder, fungal infections, and acne. As of May 2008, Wal-Mart estimates, the program has saved consumers over $1 billion in prescription drug costs. Competitors like Target and Kroger have rushed to match its offerings.

Another low-price, low-tech step toward shrinking health-care costs is the emergence of convenient-care clinics like RediClinic and MinuteClinic, which are housed in larger retail stores like Wal-Mart, Target, and CVS. The first convenient-care clinic, QuickMedx (later renamed MinuteClinic), opened in Minneapolis–Saint Paul in 2000 after its founder, Rick Krieger, couldn’t find a doctor on short notice to administer a strep-throat test to his son. Wasn’t there a better way, he wondered, to get fast, convenient care for simple illnesses? “We are not talking about diabetes, cancer, or heart disease,” he told Harvard Business School researchers in 2002. “We are talking about colds, throat and ear infections.”

The convenient-care clinics all use a similar model: offer a list of simple, low-cost health-care services for the consumer who can’t see his regular physician or doesn’t have one. The clinics keep prices down by offering care from a skilled nurse practitioner under the oversight of a licensed physician. Instead of skipping care or going to an emergency room, patients strapped for time or money can just head for a local store. As of November 2007, some 800 convenient-care clinics were operating across the U.S., up from 62 in 2006, with hundreds more planned.

Despite their popularity with consumers, the clinics have met with opposition from some state medical societies and groups within the American Medical Association that feel that the clinics fragment health care by preventing patients from developing long-term relationships with primary-care physicians. Web Golinkin, RediClinic’s chief executive officer, believes that these concerns are greatly exaggerated. “The reality is that care is already fragmented,” he says. Further, millions of Americans don’t have primary-care physicians or have trouble accessing them, and millions more lack insurance; convenient-care clinics may not address all these patients’ needs, but they can at least get them routine care and provide an entry point into the broader health-care system. “We see a lot of patients who are outside of our scope of practice,” Golinkin acknowledges, “but we refer them back to their primary-care physicians if they have one and help them find one if they don’t.” He objects to the idea that patients must seek an expensive consultation for every medical condition: “Spending $200 or $250 to treat a consumer’s strep throat is not a sustainable model.”

Convenient-care clinics show a lot of promise, but state regulations that prohibit them outright or make it difficult for them to operate effectively are holding them back. “Probably the biggest hurdles are regulations of physician oversight of nurse practitioners,” says Golinkin. Most states require such supervision, but some take the principle to an extreme by requiring doctors to be on site at the clinics or by severely limiting the number of nurses they can manage at one time. These regulations drive up clinic costs, making them unprofitable.

Other states strictly regulate who can own and operate the facilities. According to the California HealthCare Foundation, California laws “require ownership by local physicians who operate the health care facility”; as a result, the CHCF notes, “there are very few clinic operators or clinics in California,” though MinuteClinic is trying to gain a foothold there. And even in California, promising early evidence suggests that convenient-care clinics, despite their scarcity, are changing the economics of basic health care. In May 2007, the Los Angeles Times reported that the state’s largest physicians’ association, HealthCare Partners Medical Group (with more than 500,000 patients), started posting prices—at a substantial markdown—for many common procedures, in a direct concession to competitive pressure from convenient-care clinics.

The really exciting strategies for controlling health-care costs are genetic technologies that will identify the tiny differences in DNA that make some people susceptible to various diseases, from diabetes to Alzheimer’s. Myriad Genetics reports $100 million in revenue for a test that has told 150,000 female customers whether they carry the BRCA gene, which puts them at increased risk of developing breast or ovarian cancer. Another company, Navigenics, offers a $2,500 test called Health Compass that screens consumers for 20 conditions, including diabetes, prostate cancer, and obesity. “In five years, we will have a very large number of these gene tests,” Kari Stefansson, who leads the biotech firm deCode Genetics, told Forbes, “and they will be frequently used, at least by an educated portion of the population who will want to know.”

Over the next 10 to 15 years, moreover, technology will offer Americans customized health-care solutions tailored to their individual genetic profiles—individualized regimens of exercise, diet, and drugs to ward off diseases far earlier and more effectively than is possible today. One small company that exemplifies the trends in personalized medicine is Genomas, which is exploring pharmacogenomics, or how drugs interact with people’s genes to produce different reactions. Many patients taking common drugs—statins for high cholesterol, for instance, or antipsychotics for mental illness—have adverse reactions that lead them to switch medicines repeatedly or to stop taking them altogether. These actions can lead to more expensive health complications, like heart attacks. Some experts estimate that about 2 million serious adverse drug reactions may occur every year, producing 100,000 deaths and billions of dollars in excess health-care costs. Genomas’s technology, which it calls PhyzioType, may help physicians and insurers predict common side effects and realize huge savings. (One study has found that effective genetic testing for a single blood-thinning drug, warfarin, could help patients avoid “85,000 serious bleeding events and 17,000 strokes annually,” reducing costs by $1.1 billion.)

The field remains in its infancy. Some voice concerns about the quality of the science linking newly discovered genes with complex conditions like heart disease or diabetes, and worry that fly-by-night companies will just hand patients test results without any counseling about what they mean. These concerns are legitimate but not insurmountable—and it’s easy to see how powerful market applications will emerge. Patients with a family history of chronic ailments like diabetes, heart disease, and cancer, for example, might gladly pay extra for an insurance package that included genetic counseling and guidance on which drugs were likely to offer the best outcomes and the least risk of dangerous side effects.

To unleash the full promise of these new technologies and business models, policymakers should deregulate the market for medical products and services while liberating consumer demand. Congress should give individuals the same tax deduction for the purchase of health insurance that employers now have. Also, because each state currently requires any insurer doing business in that state to cover certain mandated services—driving up the cost of basic health insurance—we should create a national market for health insurance, perhaps through an optional federal charter (as now exists for banks) or through direct cross-border sales. This increase in individually owned insurance and real market competition would encourage companies to offer a broad mix of new health-care services and insurance products that cater to consumers’ real needs at prices they can afford. As the insurance environment became defined by individuals purchasing their own portable coverage, employers, unions, and hospitals would become trusted health-care intermediaries and help patients navigate the system.

In 2003, Congress enacted a moratorium on Medicare payments to physician-owned hospitals that has since expired, though opponents keep trying to resurrect it. It should stay dead, thus encouraging health professionals to explore new venues for patient care and create new bundles of health-care services. Doctors, convenient-care clinics, and specialty hospitals could then compete for customers in a wide variety of health-care settings. There isn’t one store for electronics, and there’s no reason that there should be one venue, or just a few, for health care.

Today, you don’t have to pick up a science-fiction novel to envision the future of health care. Convenient-care clinics already offer a wide range of basic health-care services at affordable prices; more services—perhaps including genetic testing—are sure to follow, with the results flowing back to a patient’s primary-care physician in an electronic health record that is reliable, secure, and easy to use. Doctors who are now overwhelmed and underpaid will opt out of insurance for most basic services in return for prepaid primary-care agreements that offer patients more convenience and better care at affordable prices. Waiting at a doctor’s office or an emergency room for basic care will decline, replaced by access to your primary-care physician through e-mail and even cell phone.

Entrepreneurs will mine reams of information to help devise state-of-the-art patient-care regimens for complex diseases like cancer, helping patients in small Iowa towns get the quality of care currently available only at academic hospitals in Boston or New York. Patients will pay for many more basic services out of tax-exempt health savings accounts (HSAs), driving continuous competition and innovation. Finally, advances in genetics will enable doctors to match patients with treatment regimens that give them the best chance of avoiding unwanted side effects and maximizing good outcomes.

In short, from HSAs to DNA, we’ll be matching the right treatment to the right patient at the right price, and we’ll be restoring patients to the center of medical decisions—which is where they belong.

Paul Howard is the director of the Manhattan Institute’s Center for Medical Progress and the managing editor of its web-based journal, Medical Progress Today.

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