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Why We Should Be Thankful for Healthcare Reform

The Affordable Care Act – like it or not – is a mess. So, why am I expressing thanks for the new law this holiday season? Because it forces us to examine why it is not working. 

To understand why, consider this simple equation: Price  X  Utilization = Cost

There is plenty of work to do in making American's healthier. But until then, we need to face up to this formula.  For decades, the healthcare marketplace has used price to try and control cost. By focusing on negotiated network discounts, variability in hospital charge masters, or a thousand other price issues, we only address half of the equation. My former business partner, Den Bishop used to call this pricing "wack-a-mole." Prices go down one place and up someplace else.

Largely ignored out of frustration, attempts to influence utilization have ended in failure or market rejection. We know it failed because healthcare costs have risen 700% over the past 30 years.

Healthcare climate snapshot

But now the pain has become so great that the media is paying attention. Elisabeth Rosenthal of the New York Times reports on the high cost of U.S. medical care in her series "Paying Till it Hurts." So far in the growing series, Rosenthal has examined multiple aspects of what is broken in our system today. She observes:

"Every part of the system needs to rethink the way it's working. Or maybe what I'm really saying is we need a system instead of 20, 40 components, each one having its own financial model, and each one making a profit."

In part, Ms. Rosenthal is correct. Most of the healthcare industry is set up in silos, each focused on growing its business. Insurance companies, hospitals, pharmaceutical companies, imaging centers, labs, home health agencies – and so many more – are all trying to increase their share of the market with one of two messages: "you need more" or "use us and you won't need them." If you do not believe it – pay attention to how much consumer advertising is utilization based. Since most patients are detached from real cost and because the healthcare "sandbox" is $3 trillion, these silos have flourished. Price alone will not change this. We have to address the second half of the equation: utilization.

But here is the greatest joy of this holiday season: It doesn't have to be that way. If we merge the silos with collaborative technology, integrate data, and improve transparency so that outcomes improve while costs drop, we will work smarter and curb utilization. Patients will win, and so will payers, and so will the high performing medical providers. And if that system is non-disruptive to employer healthcare plans and physician practices ... icing on the cake. Costs roll back and outcomes improve. 

Oh wait, that is what we built at revelationMD. Now it must be Christmas!

For Elisabeth Rosenthal's New York Times series "Paying Till it Hurts," visit: http://www.nytimes.com/2013/10/13/us/the-soaring-cost-of-a-simple-breath.html