Healthcare Dx Rx

I have not previously discussed my interest in the healthcare world on this blog. Since my days as a founder at Phase Forward (NASDAQ: PFWD) I have had an interest in this area. At Sigma Partners I am involved in two healthcare IT investments: Silverlink and CaseNET. Each of them expose and exploit specific characteristics of the US healthcare system. Each are relevant to government health plans (Medicare and Medicaid), but each would find it hard to succeed (especially as startups) if they did not have commercial healthplans as customers.

Although I wish for the success of our investments, my personal opinion is that the US healthcare system would be much better served by a single payor system. This is based on two thoughts: first that the employment based insurance system is clearly flawed, and second that the profit margins of insurance companies take funds away from better care (or better administration). Clearly the outcome is terrible: the US spends a higher proportion of our economic output on healthcare than other developed countries for much poorer results measured in many ways.

Thus it was with interest that I read today a recent post by David Harlow at his HealthBlawg in which he headlines the Medicare For All bill filed by Sen Kennedy and Rep Dingell. This seems to me to be a very sensible approach, and I hope it succeeds. I think, overall, the flaws of a single payor system are less than the current system. I used to be persuaded that a single provider (like the UK's National Health System) is the best arrangement, but I am no longer sure of that.

David Harlow's post refers on to another article which provides further clarity about the relative value of the private sector compared government in administration of the healthcare system. In it the author reasonably contends that the private sector's pursuit of profits is a good driver towards the most efficient utilization of capital in the administrative process. This is consistent with the idea of outsourcing administrative work to more efficient providers. However, this does not address the issue of profiting from the insurance of healthcare. Treating healthcare from an insurance view is itself questionable. Is education treated as insurance? Yes, the analogy is a stretch, but much less so for readers in the Europe, I guess. Dividing the healthcare risk pool (rather than having a single risk pool) and attempting to profit from it leads to a variety of behaviors, none of which relate to better care.

For those of us living in the US, I recommend we all start to learn more about the economics of the healthcare system. I predict many attempts at changes to the sytems of healthcare over the next few years, some of which will succeed, but not all of which will be in our best interests. If you are so inclined, I recommend you read Paul Levy as well as David Harlow.

Dx: Diagnosis
Rx: Prescription
Prognosis? ... no shortcut for this, it seems


Bill said...

This is rather ironic - a venture capitalist in favor of socialized medicine. Before formulating your opinion have you researched alternative approaches that involve competition?

Have you researched the sorry state of healthcare in Canada?

Richard Dale said...

Hi Bill

Not sure what your background and interests are, so I can't be too specific in shaping my response here. First, socialized medicine ... never mentioned that. It is a favorite way to shoot down any change to the healthcare system. I said we need a single payor and a single risk pool. I specifically said I am no longer sure about a single provider. However, note that even the USA has a SINGLE PAYER, SINGLE PROVIDER, "SOCIALIZED" system for our most valued citizens, our veterans (the VA system). You mention Canada ... check out - I would rather spend less than the US and get a longer lifespan (see Canada in the 2nd chart)... wouldn't you?