Daniel McLaughlin – High Performance Health Care
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Daniel McLaughlin

Health Policy

Why is Health Policy Failing?

Is the failure in framing health policy due solely to the incompetence of our policy makers or are there other systemic factor in play?    In past posts we have attributed policy failure to the lack of understanding on the part of policy makers of the business models affecting healthcare; their adherence to political ideologies as if they were sacred religions; their fostering misinformation to support a political position; and their failure to engage in bipartisan deliberation.

Tyler Cower in Bloomberg (July 20, 217) offers an interesting insight on the issue.  He posits that American healthcare spending is typical of our nation’s habits and mores.  Household savings rates have been falling since 1980s as annual individual consumption per capita continues to rise.  Americans consume a lot more of everything than Europeans and our healthcare spending is another example of that tendency.  We spend a lot on health care because we spend a lot period.  In addition, we look on better health care as an investment in longevity, comfort, and lifetime earnings.

Americans are impatient and, as a result, we will pay for superior service.  We are relatively intolerant of long waits and we are not sufficiently focused on the long-term solutions of exercise and good diet.  We are willing to go to extreme lengths to keep medical patients alive, rather than giving up hope, even when less intervention might be the more rational medical decision.

This is an interesting concept that challenges the cost-control goal of health policy.  It does not let our policy makers off the hook.  Let us follow the money.

U.S. GDP is roughly $18.5 trillion. The federal government has a unified expenditure budget (including social security expenditures) of $4.7 trillion. State expenditures are $2.2 trillion, so between the federal and state governments, one-third of our annual income is taxed and spent by government.  Social Security and Medicare account for $1.6 trillion dollars of federal spending, roughly one-third of our total expenditures. Social security has its own revenue stream and trust fund; Medicare is paid for out of the federal budget. Social security is projected to only be able to pay 75% of benefits by the year 2035 without some adjustment. Simple: increase taxes, reduce benefits, or some combination of the two. Medicaid spending is $545 billion, growing at 9.7% annually. Same solution: increase taxes, reduce benefits, or some combination of the two. The interest on our debt is $225B.  Out of a total of roughly $4.7 trillion, these non-discretionary expenditures represent 56% of our total spending. Add to that another $362 billion for safety net programs, and two-thirds of our federal budget is either non-discretionary or politically untouchable.

This numbers indicate that government will find it increasing difficult to join in on America’s spending spree.  If we do not want to go broke, and we do not want to leave people hanging out on a limb, then we need to set a course that everyone can commit to over a longer period, like a decade or more. Well, that is a non-starter because no one can be assured they will be in office ten years from now except the President, who knows for sure that he/she will not be. But these types of complex problems defy simple solutions; they require reasonable people to point us in the right direction and have the leadership courage to not only stick with the program but to make the adjustments necessary along the way to make it work.


Jack Militello and John McCall

University of St. Thomas Center for Innovation in the Business of Health Care.

Health Policy

Assessing Health Care Policy – Again

Americans want the best possible health care for the greatest number of people at the most reasonable cost.  I do not think we are going to get it for a long while.  The ACA has been good for the country.  Medical coverage has been provided to many who had no access to insurance previously.  The language of “pre-existing conditions” has sensitized us to the plight of the critically ill.  The coverage mandate has made contributing to health care a part of the common good.  Yet, the ACA has not reduced the costs of coverage.  Exchanges are failing nationwide and the stress of health care inflation is a growing burden on all levels of government and health care administration.

Yes, health care is a messy system, loosely understood, but generating a great deal of cash that is spread-out globally.  We are looking to our Federal legislators to reduce the messiness and to have the money generated within the system make health care operationally and financially workable for all of us.  Our legislators do not seem to be doing the job.  These legislators seem to be locked into three worldviews that are exercised at the level of sacred religions.  The first is the Market World View with Rand Paul as its major proponent.  He is vehemently against any stabilization funding for the insurance industry.  For him, the markets will dictate the proper outcomes.

The second is the Subsidized System World View held by the unified Democratic Party.  Build on the Medicaid entitlements through Federal funding and make sure all citizens are covered fairly, all the time, for all conditions.  These are over-simplifications and, no doubt, lacking in correctness.  Nonetheless, they are treated in many ways as sacred religions without the depth of understanding of the business models driving the finances of health care policy.  American policy for most industries is a combination of market forces and government intervention.  Broadcasting, air transportation, global shipping, etc. each has to deal with the same balancing act facing health care.  What our health care legislators fail to realize is that every worldview is restricted and in need of a negotiated order.

The third is the Keep Your Customer Satisfied World View.  Legislators want to serve their constituents and be re-elected.  This might be the most powerful of the three world views and the most dangerous.  The patient/constituent has real skin in the health care game and needs knowledgeable, responsive leadership from legislators.  Yet can legislators who are locked into a scared religion worldview truly serve its “customers”?  Probably the best way to serve is to have the customers better understand options that would allow for better decision making.  Rather they are presented with the sacred religion worldviews the context of emotion, not in the logic of causation that would lead to the best possible health care for the greatest number of people at the most reasonable cost.  This type of education would give our legislators real skin in the game.


Jack Militello,

University of St. Thomas Center for Innovation in the Business of Health Care.

Health Policy

Health Care and the Fourth Industrial Revolution

The Fourth Industrial Revolution (4IR) is upon us and is marked by cyber networks coming together with physical networks to create new autonomous systems.  Sensors will create more usable data and personalized products.  Eric Topol brings 4IR to health care in a recent essay (WSJ 6/6/17).

Topol offers a grim view of rising health care costs.  He goes beyond the current focus of insurance coverage and access by stating that real progress in containing costs and improving care will require transforming the practice of medicine itself – how we diagnose and treat patients and how patients interact with medical professionals.  He anchors his essay in a case of study of a patient who used his smartphone-connected wristband to monitor spikes in his blood pressure.  He continued to monitor atrial fibrillation episodes through a credit-card-size electrocardiogram senor attached to his smartphone.  Self-monitoring lead to enhanced communications with his physician; positive changes in his behavior; and over-all better health.

The data generated from sensor screening is personal and understandable in the context of an individual’s own health management activities.  It is not clouded by big data or population health norms, even those may fuel the overall analysis behind the sensor reports.  What is most important to me is that this type of information belongs to the patient.  The patient can now be an active part of his/her community of caregivers as a more knowledgeable participant in care management.  Medical and analytical jargon need not interfere with understanding or in the ability for one to adjust behaviors in light of regular sensor feedback.  The patient has gained control of his/her care through practical data and through a further understanding of how behaviors affect that data.

Topol believes that the 4IR in personal data will empower doctors as artificial intelligence matures into practical technologies.  The costs of diagnosis and treatment should drop significantly.  Yet, he states, medicine is hard to change, especially when reforms threaten establish modes of payment and the customary control of patients.

Jack Militello,

University of St. Thomas Center for Innovation in the Business of Health Care.

Health Policy

How can we assess health care policy?

As health care policy evolved from the ACA through the AHCA and on to its next iteration, I continue wonder how to make sense of the process and the value of the outcome.  It is understood that there is a Washington-process of committees; “mark-ups”; votes; etc.  It is also understood that there are two political parties deadlocked in their ideologies.  Parallel to the Washington process is a relentless proliferation of data from think tanks, lobbyists, and academics that supports positions as it confuses us.

With that said, the following is an outline of how I would like to see heath policy assessed.

  1. Analyze the health care business model

Health care is a $3.5 trillion business domestically, assuming 19% of our GPD, and approximately $7 trillion globally.  An overwhelming number of players, each with its own business model, inhabits this system.  Policy makers have to draw boundaries to create a manageable business model.  The business model should spell out 1) who is being served; 2) what value are they receiving; 3) is the appropriate talent and resources available to deliver the service; 4) what is the cost structure at play; and 5) how will the costs be paid?

  1. Examine the reasoning behind the policy

The data explosion leaves us with unexplored talking points.  For example, the Kaiser Family Foundation recently published the average annual cost of health care per citizen and created a country-by-country comparison.  Should information such as this stand at face value or should there be a deeper probe into the numbers themselves and in the causes for those numbers?  Of course, this is too difficult to do, especially in light of all the policy-related data that is generated.  So, what do policy makers really know?  Is data used to support biases or encourage debate?  The later process should temper biases.  Yet, decision-making biases are rarely challenged.

  1. Probe leadership positioning

The leadership role of policy makers must questioned.  The activities we see in Washington seem to be about the exercise of authority, not about leadership.  True leadership is built on mobilizing people to address tough issues.  Health care is one of those tough issues.  Policy makers defend positions but no not engage in deliberation that leads to problem solving.  We need to face the reality of the health care predicament in order to get to the root of the value proposition offered in the health care business model.  It seems to be an impossible task given the poor leadership throughout Washington.  Does it need to be this way?

Jack Militello,

University of St. Thomas Center for Innovation in the Business of Health Care.


Health Care Can Learn from Other Business Models


The U.S. health care market, $3.2 trillion in 2015 (17.8% of GDP), is so complex and encumbered by multitudes of regulations, standards, payers, providers, and programs that it begs the question, can it learn something from other markets and businesses? Conventional wisdom on the part of health care leaders is that it likely would not.  People may be exhausted with the failure of the health care debate to move forward.  The frustration may be accompanied with the hope that health care’s 100-year-old business model will soon be positively disrupted by some emerging technology.  This denotes the failure of consensus building by our elected officials and leaders of our health care institutions.  Is it worth re-trying the dialogue, perhaps under different conditions?  Following are some thoughts built on the reopening the health care policy discussion.

  1. Domain development – The Twin Cities is renowned for the development of domains, i.e. organizational initiatives, which assist its citizens, corporations, and government to facilitate decision making across a spectrum of interests not readily addressed by traditional groups. The Citizens League, the Keystone Club, and the Downtown Council are examples of domains that influence decision-making that affects our local community by providing insight and perspective.  Is it possible to have a health care council that focuses on our local and regional needs, and common good?  Would such a council bring perspective to the needs of patients of all types and resources relative to the range of services available?  This council would not be a policy making body.  Rather it would provide a non-partisan, non-political format to provide thought leadership on health care issues.
  2. Participation – We have a number of programs that require participation such as drivers licensing, social security, property taxes, etc. Why is participation in the funding of health care (the mandate) considered such an intrusion by the government? How can a market function if its customers can elect not to participate until they need services and their expectation is that the cost will be as if they contributed all along? What is the role of government as a primary insurer of those most vulnerable to health care access problems? Minnesota’s health care insured market is in sharp decline, dropping from 293,000 enrolled in 2014 to 190,000 enrolled in 2017.  Are there any new models that address the participation issue?
  3. Market Focus – Is it possible to be successful in health care without serving an entire market? Conversely, is it possible to be successful if one provider can selectively choose its patients while another is required to care for all? Does it make sense to take a broader view of the range of patients across our community and the array of service providers, with a goal of aligning patient segments in the most cost-effective manner? Is there a community benefit to the intense competition for commercially-insured patients among our providers or does this result in needless and redundant investments at a high cost to patients? This is not a proposal to regulate the market, but rather one to level the playing field for providers and to create a true market.
  4. Create shared centers of excellence Can we find mechanisms to encourage the creation of specialty health care services that support all providers, improve access, and reduce or eliminate unneeded investment, without corrupting the marketplace? Can markets be created among health care service providers that optimize the sub-systems of health care, such as emergency care, coding, pharmacy, etc.
  5. Catalyze market strategy – Current health care strategy in our community appears to be singularly focused on the acquisition of patients, generating volume to offset the fixed costs of delivering health care; it is an evolving form of cannibalization that pits providers against each other without necessarily providing better access or more cost efficient operations. Are there strategic options appropriate to a competitive environment that make better use of resources and talent?

Health care management is continually seeking innovative solutions to care delivery processes.  The past few years have seen innovation focused on data technology.  We are proposing to insert the innovation process into the health care management system where systems’ constraints are addressed openly in light of possible trade-off and solutions.


Jack Militello and John McCall
St. Thomas Center for Innovation in the Business of Health Care

Health Policy

Health Care: A Mess or New Direction?

A recent New York Times article (3/28/17) noted that Medicaid is becoming the driving force in health care reform.  It has surpassed Medicare in the numbers of Americans covered and provides for the medical needs for one in five Americans, approximately 74 million people of all ages.  This includes 40% of American children.  The proposed Republican health care legislation would reduce Medicaid expansion in light of its growing coverage and end the federal government’s open-ended commitment to pay a significant share of the states’ Medicaid costs.

The Times points out the reluctance of even Republican legislators to place their constituents in jeopardy of losing Medicaid coverage.  These constituents are categorized by the Times as mostly lower-wage workers with incomes up to 138% of the poverty level ($16,400 for a single person).  Legislators are worried about losing treatment for people addicted to opioids, children, people with disabilities, and the elderly in nursing homes.

The picture painted in the Times has led us to reflect on who are the recipients of the benefits of federal health policy.  This, in turn, leads to concerns about economic earning disparities throughout the country.  A Pew Research Center study (5/11/16) reports that from 2000 to 2014, the share of adults living in middle-income households fell in 203 of the 229 metropolitan statistical areas studied, while upper-income rose in 172 and lower-income increased in 160. These areas accounted for 76% of the nation’s population in 2014. With the apparent decline of the middle class comes a decline in employer-based health insurance.  56% of the non-elderly U.S. population obtained insurance via employer-paid plans in 2014, according to the Kaiser Family Foundation.  Kaiser also notes that 77% of Medicaid beneficiaries are in households with an employed worker.  The United Health Group states that of the 324 million people in the U.S, employer-sponsored insurance covers 174 million, Medicaid and related state-based health programs cover 75 million, Medicare covers 56 million, and exchanges cover approximately 10 million. Approximately 28 million people remain uninsured.

The middle-class is shrinking, the Medicaid eligible population in increasing, workers are losing employer coverage or having it reduced, and a sizable portion of the population elects not to join the health care insurance pool.

These conditions demand a change in public policy, not just health care policy.  Recognizing systemic interaction with health care and society makes change all the more difficult.

  1. While household income is rising, it is not keeping pace with the rise in health care costs, including those directly incurred by consumers as out-of-pocket expenses, increased employee contributions, increased employer contributions, and increased government spending on behalf of consumers.
  2. Growing income disparities are a potential issue but difficult to assess. We might be experiencing an increase of both wealthy and poor people at the expense of the middle class, but the two phenomena may not be directly related. The implication for health care is both the unaffordability of health care and the low participation rate of employer-paid insurance for a growing segment of our population.
  3. In addition, there is a growing disparity between the tax-subsidized/employer-insured and the uninsured employed. More employers are limiting or eliminating health care coverage as part of compensation packages.
  4. Our population is aging and consuming more health care. At the same time, fewer numbers of people are working and paying taxes.
  5. Health care technology is proliferating but unlike in other industries, health care technologies tend to increase health care costs. We are not experiencing a Moore’s Law effect in health care.

These are demographics and economic phenomena that should be affecting public policy in relationship to health care.  The ACA/AHCA dilemma seems to be two sides of the same coin, and at best, partial solutions to the problem, and at worst, further corruptions to a complicated, unstable marketplace. The political process is stalemated by partisan anger and ideological rigidity. Health care legislation and public policy are limited focus efforts to deal with only those actions in the reach of legislation while ignoring other major forces in the market, leading to uncertainty about outcomes and higher risk.

Health care is a mess and it appears we are unable to meaningfully address it until it becomes a national crisis with people being hurt along the way.  Smart people are trying to solve parts of the systems and failing.  We have to reflect on Friedrich Hayek’s statement, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

Health care is a mess but not hopeless.  However, a new direction is necessary.  We need a new model for health care for the entire country, not because it’s the best way to resolve the issue, but likely the only way.  How do we move from the status quo to something better?  In the simplest terms, it takes vision and leadership. Someone has to envision what a better, more successful, more fulfilling health care future looks like and lead the way.  There are too many legacy-system actors driving health care systems design with special attention to protecting their own interests. Health care providers are working under a hundred year-old business model that suffers from an entrenched bureaucracy, uncertain revenue streams, misguided strategies, bloated infrastructure, and poor business practices.  Commercial insurance has been very selective in who they insure, which has earned them billions of dollars.  Product and service providers in pharmaceutical and device industries have made significant profitable investments in the current health care structure.  All are thoroughly invested in their legacy positions.  Lawmakers are no longer able to come together to represent the common good.  These groups are unable to discuss systemic change, let alone make the necessary changes we need to have a functioning health care system that takes care of everyone.

A new direction has to be established.  Steve Hilton in More Human suggests that a system based on the broad principle of ‘single-payer, market provider’ with real consumer sovereignty, could move health care in a more humane direction.  Nassim Talib in Antifragile highlights the danger and costs caused by treatments that result from our deeply rooted desire to intervene.  Elisabeth Rosenthal in An American Sickness provides a list of shopping tools for consumers to provide control of treatment.  However, how do we get there?  The parameters of the discussion have to be changed.  There needs to be a path that better defines policy alternatives that are understandable to all of us.  Markets in both insurance and health care delivery have to be structured so the consumer can understand differences and make educated choices that serve their needs.  Innovation needs to fuel not just quality of care but cost effectiveness and productivity.

Let’s begin by agreeing on principles, such as who gets coverage. Should be everybody, right? Then we figure out how much it is going to cost. The insurance companies can tell you in days how much it would cost to insure the entire U.S. pool. Then figure out a policy for who needs to pay for it, but do not allow anyone to opt out when they’re healthy and opt back in when they are not. If you opt out of social security, you do not get it later. We pay for many things that are “public goods”, like defense, and do not have an option. Then figure out a way to dismantle the artificial bureaucratic barriers in order to inspire the private sector to compete aggressively for a share of the world’s largest health care market. Finally, make it all effective now, not later, and set up points in time where we can make corrections and course adjustments, because we won’t get this right the first time.

As long as this is a Democrat/Republican, Liberal/Conservative issue, we run the risk of destroying a major part of our economy and quality of life, all for the sake of not being able to work together for a common purpose.


Jack Militello and John McCall
University of St. Thomas
Center for Innovation in the Business of Health Care

Health Policy

Trump Care 8 minute videos

The Opus College of Business health care programs is tracking the current activities of Congress and President Trump to “Repeal and Replace” the Affordable Care Act.  OCB faculty and community experts provide a short video discussion about pending issues and progress every few weeks.  The most current videos are provided below:

Week 1

Week 2

Week 3 


Health Policy

Medicare Payment for Physicians Comes of Age

Copyright Health Administration Press Jan/Feb 2016, Used with Permission

Financing, Health Policy, Leadership, Operations Improvement

Optum’s strategy for ACO development

docsMinnesota is proud to be the home town of UnitedHealth Group (UHG), the largest health insurance and health services company in the United States. UHG provides services to over 97 million Americans.

On January 31, 2013, Chris Pricco, senior vice president of accountable care solutions at Optum, presented the UHG perspective on accountable care organization (ACO) development over the next 5 years. This event was co-sponsored by the Minnesota Chapter of the American College of Healthcare Executives.

If you were to attend one event that would encapsulate the future of the American health care system – this was the event. Here are some key points from Mr. Pricco’s presentation.

The most important trends in health care delivery today:

  • Providers are under market share, profitability and consolidations pressures
  • Cost shifting is rising to unsustainable levels
  • CMS is radically revising its payment methodologies
  • Commercial providers are implementing aggressive pay for performance systems
  • Providers are beginning to take and manage risk

As providers move into the ACO and quality payment environment, several key strategies must be effectively executed:

  • Redesign the organization’s care delivery model to be attractive to the market
  • Develop methods to manage risk
  • Optimize contracts with payers and providers in the system
  • Effectively integrate all providers into the system
  • Measure and improved consumer engagement
  • Increase effective branding and marketing at the retail level

The need to move from a fee-for-service environment to a value-based payment system is challenging for most delivery systems. However, Optum’s experience is that this shift is happening to all systems today.  Continue Reading


The Challenge and Opportunity with Big Data in Health Care

By: Daniel McLaughlin, M.H.A.

The expansion of Electronic Health Records is presenting an unprecedented opportunity to make significant improvements in the American health care system. However, for this opportunity to be realized, new methods of data management and analysis that are uncommon in health care will need to be deployed.

Organizations that have mature electronic health records have conquered the challenge of moving data from operating systems into data warehouses and are using them for substantial improvements. For example, a question that had challenged researchers for many years was whether traditional low-priced blood pressure control was as effective as newer, more expensive drugs. To answer this question, NIH conducted an extensive trial that took eight years and cost $120 million. The results indicated that: the oldest and cheapest of the drugs, known as thiazide-type diuretics, were more effective at reducing hypertension than the newer, more expensive ones.

However, some patients did not respond to these drugs and needed to use the newer drugs – but which ones? Unfortunately, NIH did not have the funds to conduct a follow up study. By the time the NIH study was complete, however, Kaiser Permanente had an extensive electronic health record and data warehouse. By using real patient data in their warehouse and traditional statistical methods, the researchers had the answer in 18 months for $200,000.

Although traditional scientific methods and statistical tools work well for some health care questions, they cannot be easily applied to many interesting questions such as:


  • Which doctors have the most cost effective risk adjusted care patterns based on actual cost of care – not charges?
  • What are the characteristics of patients that can predict the level of non-compliance with discharge orders and the probability of re-admissions?

The challenge of answering these questions is best illustrated by the complexity of the data bases. A standard electronic health record for a patient will have over 2,700 fields. A charge master for a hospital can easily contain 20,000 separate services and prices. Traditional statistical methods flounder in this environment.

Fortunately, data mining professionals (particularly in retail) have developed new tools such as market basket analysis, classification algorithms, association rules, cluster analysis and neural networks to understand these massive data bases. Hopefully, these techniques will soon migrate to health care to support substantial improvements in care delivery.

To learn more about how the new tools of data mining and other technologies are changing the business of health care, attend the UST Executive Conference on the Future of Health Care on Friday, November 9, 2012 at the University of St. Thomas Minneapolis campus.