2 Points of View on How to Solve the Healthcare Crisis in the US


By Joyce Hays, CEO, Jules T. Mitchel, President, Mark L Horn, Chief Medical Officer, all of Target Health Inc.


The cost of healthcare is out of control, resulting in an estimated 45,000 premature deaths and a million people filing for bankruptcy each year. While the emerging health reform package establishes insurance exchanges, mandates, tax credits, and the guarantee that at least 94% of Americans have medical coverage, there is no master plan for dealing with the problem of soaring medical costs which now absorb 18% of every earned dollar. And as those of us who run businesses know, between 1999 and 2009, the annual premiums for employer-sponsored family insurance coverage have almost tripled. This year, the increase for Target Health and its employees was 20% and last year it was 30%.


While we all pay much more for medical care as we did a decade ago, there have been no great strides in service. Some of the reasons are that the system is fragmented, disorganized, and inconsistent. In addition, the system does not properly address government funded medical research, mental-health, geriatrics, primary and end-of-life medical care, for example. The system also overuses high-cost technologies such as radiology imaging, and many elective procedures.


In 2007, an article entitled “Overdose,“ Shannon Brownlee stated that over the next 8 years, medical schools are aiming to boost enrollment by as much as 30% above 2002 levels. This expansion represents a policy reversal by the Association of American Medical Colleges (AAMC) and the Council on Graduate Medical Education, which advised the federal government over the past 15 years that we would see a glut of physicians. Now the AAMC is warning that we’ll be at least 100,000 doctors short by 2025 unless we step up training.


The following two articles present very different perspectives on how to address healthcare delivery in the US and probably the rest of the world as well. In addition to many references regarding huge savings by increasing efficiency in many areas, Atul Gawande, MD, MPH, a surgeon with staff positions at Brigham and Women’s Hospital, the Harvard Medical School, Harvard School of Public Health and the Dana Farber Cancer Institute, presents an empirical approach, to optimize healthcare delivery similar to agricultural experiments performed in the early 1900’s supported by US Department of Agriculture (U.S.D.A.).


Mark V. Pauly, PhD, the Bendheim Professor in the Department of Health Care Management at the Wharton School, University of Pennsylvania, Philadelphia, presents more of a market-driven approach arguing that people may be willing to accept lower quality healthcare as long as it is offset by lower premiums.


We look forward to feedback from our readers.

How a Few Agriculture Experiments in 1900 Changed Our World



The following is based on an article entitled “Testing, Testing – The health-care bill has no master plan for curbing costs. Is that a bad thing?“ written by Dr. Atul Gawande and published in The New Yorker Magazine on December 14, 2009.



At the start of the 20th century, agriculture was strangling the country as more than 40% of a family’s income went to paying for food. At the same time, farming was hugely labor-intensive, tying up almost half the American workforce. Only by improving the productivity of farming could America raise its standard of living and emerge as an industrial power. It was clear that if food costs could be reduced, families could spend money on other goods, and thus resources could flow to other economic sectors.


To address the problem, the government was enlisted to help millions of farmers change the way they worked, and, as the agricultural historian Roy V. Scott recounted, four decades ago, in his study “The Reluctant Farmer,“ it all started with a pilot program. In February, 1903, a man named Seaman Knapp arrived in the East Texas town of Terrell to talk to the local farmers. Knapp was had the position of “agricultural explorer“ for U.S.D.A., and as such travelled across Asia collecting seeds for everything from alfalfa to persimmons, as well as a variety of rice that proved more productive than any in America.


Knapp knew that the local farmers were not going to trust some outsider who told them to adopt a “better“ way of doing their jobs. So he asked city leaders to find just one farmer who would be willing to try some “scientific“ methods and see what happened. The group chose Walter C. Porter, who volunteered 70 acres of land where 1) he had grown only cotton or corn for 28 years, 2) applied no fertilizer, and 3) almost completely depleted the humus layer. Knapp gave him a list of simple innovations to follow things like deeper plowing and better soil preparation, the use of only the best seed, the liberal application of fertilizer, and more thorough cultivation to remove weeds and aerate the soil around the plants.


By chance, because of the spread of the boll weevil, 1903 proved to be the most disastrous for cotton in a quarter century. Nonetheless, at the end of the season Porter reported a substantial increase in profit, clearing an extra $700. He then announced that he would apply the lessons he had learned to his entire, 800 acre property, and many other farmers did the same.


Knapp had discovered a simple but critical rule for gaining cooperation: “What a man hears he may doubt; what he sees he may possibly doubt; but what he does himself he cannot doubt.“ We love the quote and it is consistent with another quote for Arthur Schopenhauer: “Every truth passes through three stages before it is recognized: In the first it is ridiculed; in the second it is opposed; in the third it is regarded as self-evident“


The following year Knapp was funded to appoint 33 “extension agents“ to set up similar demonstration farms across Texas and Louisiana. As experience accrued, Knapp revised and refined his list of recommended practices for an expanding range of crops and livestock. The approach proved just as successful on a larger scale. The program had no shortage of critics. Southern Farm Magazine denounced it as government control of agriculture. Nevertheless, in 1914 Congress passed the Smith-Lever Act, establishing the U.S.D.A. Cooperative Extension Service. By 1920, there were 7,000 federal extension agents, working in almost every county in the nation, and by 1930 they had set up more than 750,000 demonstration farms. The demonstration-farm program was just one of a series of successful U.S.D.A. initiatives that began as pilots. Another pilot program was devoted to comparative-effectiveness research: experimental stations were established eventually in every state that set about determining the most productive methods for growing plants and raising livestock. There was a pilot investigation program, which, among other things, traced a 1904 fruit-decay crisis in California to cuts in the fruit from stem clippers and the fingernails of handlers. The U.S.D.A.’s scientific capabilities grew into the world’s greatest biological-discovery machine of the time. The department invested heavily in providing timely data to farmers, so that they could make more rational planting decisions. It ran the country’s weather-forecasting system. In 1927, for political reasons, the U.S.D.A. stopped releasing the forecasts; the program was reinstituted three years later, following an outcry from farmers.


What seemed like a hodgepodge eventually cohered into a whole. The government never took over agriculture, but the government didn’t leave it alone, either. It shaped a feedback loop of experiment and learning and encouragement for farmers across the country. The results were beyond what anyone could have imagined. Productivity went way up, outpacing that of other Western countries. Prices fell by half. By 1930, food absorbed just 24% of family spending and 20%of the workforce. Today, food accounts for just 8% of household income and 2% of the labor force. It is produced on no more land than was devoted to it 100 years ago, and with far greater variety and abundance than ever before in history. There were compromises and concessions and wrong turns. But the strategy worked, because US agencies were allowed to proceed by trial and error, continually adjusting their policies over time in response not to ideology but to hard measurement of the results against societal goals.


Much like farming, medicine involves hundreds of thousands of local entities across the country hospitals, clinics, pharmacies, home-health agencies, drug and device suppliers. They want to provide good care, but they also measure their success by the amount of revenue they take in, and, as each pursues its individual interests, the net result has not been in the best interest of the populace. Our fee-for-service system, doling out separate payments for everything and everyone involved in a patient’s care, has all the wrong incentives: it rewards doing more over doing right, it increases paperwork and the duplication of efforts, and it discourages clinicians from working together for the best possible results.


The history of American agriculture suggests that you can have transformation without a master plan, without knowing all the answers up front. Government has a crucial role to play here – not running the system but guiding it, by looking for the best strategies and practices and finding ways to get them adopted, county by county.


One of the beauties of the history of American agriculture, as pointed out by Dr. Gawande, is that this experimental system, could not have taken place anywhere other than a true Democracy.  Americans should feel great pride in a Democratic system, that allows experiments to flow through It, becoming transformed as they move forward.  This flexibility, allows for the people to “speak.“


Transforming health care everywhere starts with transforming it somewhere. But how? We have our models, to be sure. There are places like the Mayo Clinic, in Minnesota; Intermountain Healthcare, in Utah; the Kaiser Permanente health-care system in California; and Scott & White Healthcare, in Texas, that reliably deliver higher quality for lower costs than elsewhere. Yet they have had years to develop their organizations and institutional cultures. Other experiments are to try moving medicine away from fee-for-service payment altogether. A bundled-payment provision would pay medical teams just one 30 day fee for all the outpatient and inpatient services related to, say, an operation. This would give clinicians an incentive to work together to smooth care and reduce complications. One pilot would go even further, encouraging clinicians to band together into “Accountable Care Organizations“ that take responsibility for all their patients’ needs, including prevention – so that fewer patients need operations in the first place. These groups would be permitted to keep part of the savings they generate, as long as they meet quality and service thresholds.

How Market Forces May Improve Healthcare


The following is based on an article written by Dr. Mark V. Pauly, entitled “The Trade-Off Among Quality, Quantity, And Cost: How To Make It–If We Must,“ Health Affairs (2011;30:574-580).



According to Pauly, the current Affordable Healthcare Act uses regulations and a strong combination of externally imposed rewards and penalties as the way to move towards the highest possible quality of healthcare. In his article, Pauly discusses alternative market based arrangements as incentives for attaining a level of quality that balances benefits and costs. Pauly questions whether improved quality at any cost should always be the only, or even the ideal goal.


Pauly compares healthcare with a restaurant meal as an illustration of the range of factors that go into understanding quality, and how markets contribute to “things working out“ in terms of adjusting quality and price to suit a range of preferences. He states that there is no uniform “restaurant meal.“ Instead, there is a wide variety of both quality and the features and characteristics that contribute to that quality, and there is likely to be disagreement about exactly how those characteristics contribute to quality.


What then distinguishes the case of medical services from the restaurant example? First is the willingness and ability of consumers to “vote with their feet,“ meaning that consumers of medical care don’t always respond to variations in price or quality in the way that one would expect. This may be because often there are only a few options (just one hospital in town) and perhaps because buyers are poorly informed and passive. Moreover, insurance confuses the process by which price influences consumers’ behavior in health care. The presence of insurance shields the consumer from the full effect of prices, which means that the party who decides what service to use (the patient) is not responsible for paying its full price.


Here is where the painful but crucial trade-off comes in according to Pauly. There is no doubt that if it were feasible to improve quality without using more resources, efforts should be made to do so, assuming that the efforts themselves do not cost too much. There is equally no doubt that health improvement has come at the cost of a higher level of total spending. These higher prices have served to limit many Americans’ access to high quality care and even to insurance itself.


Pauly’s premise is that, perhaps for most consumers and taxpayers, a little less quality at a much lower cost, might be both a better balance and a necessary alternative to a future in which medical spending crowds out paying for other needs. But how might a transition to that approach occur? According to Pauly, for other societal services, people accept lower quality at lower prices if their incomes are low or their desire for quality is not strong. But few people are willing to accept, or even discuss having, anything but the best in healthcare.


According to Pauly, in spite of the reluctance of politicians and policy makers to explicitly offer products with slight reductions in quality in medical care, disruptive innovation might have a real chance if it were pursued with sufficient vigor and grace. One approach involves the use of retail clinics to provide limited services by non-physician professionals in a more convenient and lower-cost setting. A larger impact on cost could come from increased use of specially trained nurses and other professionals as providers of the full range of primary care services. In any case, the physician alternatives have one unequivocal advantage: their lower cost. And even when the care they provide is of technically equivalent quality to the care provided by a physician, the “disruptive innovation” model suggests that care by a physician alternative should enter the market at a lower price.


One policy question is whether health care markets and their regulation are set up to try this kind of model. At the level of the individual consumer or patient, the answer is clearly negative, given the structure of most insurance plans. In the current health care environment, there is no ready-to-use market model that would permit disruptive innovation through lower prices with modestly reduced quality. Pauly’s answer is to “encourage competition.“ The challenge in health care is to develop quality measures that motivate consumers to make proper tradeoffs. However, even to imply that quality could be lower in some aspects and that lower quality at lower price could be desirable, is challenging in healthcare because that idea has been taboo for so long.


Some people already prefer the more restrictive and lower cost health maintenance organizations (the type of plan that Kaiser Permanente offers, for instance), but many do not, even when they are well informed about what access they give up and what they could save. These may be true low values, reflecting the fact that a family with a very limited budget may have more important needs than high-quality primary care, say, or hospitals that make almost no errors.


Pauly states that there is also evidence that the public sector behaves in the same heterogeneous way: Medicare is willing to pay more for quality for its beneficiaries than are many state Medicaid programs. There is no point in imagining that a health care system that provided care for everyone based on the quality desired by upper middle class people who can afford the best, would be economically feasible.


One pragmatic approach to U.S. Healthcare occurs when excellent healthcare is available to everyone; (like clean air), all Americans stand to benefit. The healthier we are as a country, the fewer contagious diseases will be spread. The savings in this one area alone, would be staggering.  And the other obvious point, which everyone understands, is that when the agency responsible for purchasing drugs and devices for American Healthcare, buying for 330,000,000 million people, rather than for a much smaller group, the discount rate is considerable and again the savings will great.


With its array of subsidies, demonstration projects, commissions, and study groups, the Affordable Care Act includes a considerable amount of regulatory and policy pressure on the healthcare market in an attempt to improve quality.


Pauly concludes that if we make an effort to foster reasonable alternatives with different combinations of quality levels and costs, combined with as good information as we can muster about how they compare to established services and providers, the outcome may be acceptable.

Target Health (www.targethealth.com) is a full service eCRO with full-time staff dedicated to all aspects of drug and device development. Areas of expertise include Regulatory Affairs, comprising, but not limited to, IND (eCTD), IDE, NDA (eCTD), BLA (eCTD), PMA (eCopy) and 510(k) submissions, execution of Clinical Trials, Project Management, Biostatistics and Data Management, EDC utilizing Target e*CRF®, and Medical Writing.



Target Health has developed a full suite of eClinical Trial software including:


1) Target e*CRF® (EDC plus randomization and batch edit checks

2) Target e*CTMS™

3) Target Document®

4) Target Encoder®

5) Target Newsletter®

6) Target e*CTR™ (electronic medical record for clinical trials).


Target Health’s Pharmaceutical Advisory Dream Team assists companies in strategic planning from Discovery to Market Launch. Let us help you on your next project.




261 Madison Avenue
24th Floor
New York, NY 10016
Phone: (212) 681-2100; Fax (212) 681-2105


Ms Joyce Hays, CEO
Dr. Jules T. Mitchel, President


©2011 Target Health Inc. All rights reserved