This document discusses policy making in the era of health reform. It notes that while Americans are living longer due to medical advances, health care spending as a percentage of GDP has risen dramatically. This rising cost has significant impacts on other national priorities for both the government and private sector. The document then examines how the US health system developed and the issues with the current fee-for-service model. It argues the health reform bill appears to increase access and coverage while reducing payments from certain groups to help control costs.

1. Policy Making in The Era of Health Reform Robert Bond, MBA bond@alumni.upenn.edu

2. Part I: The miracle Part II: What’s the problem? Part III: How did we get here? Part IV: Decision-making in a democracy

3. The miracle: Americans are living longer… Life Expectancy at Birth & Leading Causes of Death United States, 1900-2010 2010 78 yrs 1900 48 yrs Source: Bureau of the Census, Historical Statistics of the United States.

4. …and technology has driven much of this increase in life expectancy Joint Replacement Neonatal Intensive Care Examples of Advances in Medical Science Renal Dialysis Stem Cell Transplantation Diagnostic Imaging

5. Part I: The miracle Part II: What’s the problem? Part III: How did we get here? Part IV: Decision-making in a democracy

6. Spending on health care as a percentage of GDP has risen dramatically over the past 40 years… Total Spending on Health Care United States 1965 to 2005 Percent Source: Congressional Budget Office based on data on spending on health services and supplies, as defined in the national health expenditure accounts, maintained by the Centers for Medicare and Medicaid Services.

7. Rising healthcare costs means fewer resources for other national priorities… US Federal Government Budget Historical and Forecast (1970 – 2080)

8. …with significant impact on military capabilities and corporate competitiveness “Healthcare costs are eating the Defense Department alive.” ~ Robert Gates, US Secretary of Defense1 “[rising healthcare cost] is the tapeworm…eating at American competitiveness.” ~ Warren Buffet, CEO of Berkshire Hathaway2 (1) "Fenn, Peter. "Robert Gates Says Healthcare Costs Hurt Defense Budget." US News & World Reports. USN, 24 Feb 2011. Web. 27 Feb 2011. <http://www.usnews.com/opinion/blogs/Peter-Fenn/2011/02/24/robert-gates-says-healthcare-costs-hurt-defense-budget>. (2) "Warren Buffet Watch." CNBC. CNBC, 01 Jan 2008. Web. 9 Jun 2010. <http://www.cnbc.com/id/35643967/>.

9. Part I: The miracle Part II: What’s the problem? Part III: How did we get here? Part IV: Decision-making in a democracy

10. Health insurance evolved as a way for employers to attract and retain talent Medicare / Medicaid are established around fee for service payments IRS Act makes employer contributions to employee health plans tax deductible Many employers revert back to traditional fee-for-service insurance model. Current strategy cost shifting to employees Blue Cross begins selling prepaid insurance 2010 1920 1930 1940 1950 1960 1970 1980 1990 2000 Employer sponsored health insurance starts wide spread adoption Employers and health plans promote “comprehensive” coverage Non-integrated health plans offer HMO type plans as a means for controlling costs

11. A business model framework can help us understand fee for service model… Key Components of a Business Model Profit Formula Assets & Fixed Cost Structure, and the margins and velocity required to cover them Processes Ways of working together to address recurrent tasks in a consistent way: training, development, manufacturing, budgeting, planning, etc Value Proposition A product that helps customers do more effectively, conveniently, & affordably a job they’ve been trying to do Resources People, technology, products, facilities, equipment, brands, and cash that are required to deliver this value proposition to the targeted customers

13. Reimbursement

14. Medical education

16. Buildings

17. Equipment

18. Medications

19. Devices

20. EtcTrouble-shoot and fix health issue

21. Market for healthcare goods & services suffers from severe structural issues Market Structure – Healthcare Simplified flow of goods/services Key Structural Issues Causes and Results Providers Goods/Services $ ($) Reimbursement Payers $ ($) Premiums Employers $ ($) Premiums Beneficiaries

22. Current solution is poorly aligned with job consumers have to fill Complete Health Solution Key Elements of the Entire Solution Diet Financing “Help me stay Healthy” Exercise Education Diagnosis Treatment Legend = Payment Challenge

23. Part I: The miracle Part II: What’s the problem? Part III: How did we get here? Part IV: Decision-making in a democracy

25. Together, their business models determine their perceptions of the economic value of various innovations Electronics Manufacturing Value Network Retailer Sony Component Suppliers

27. Politicians influence each other to effect national legislation

28. Voter influence is driven by demographics, organization, and economics $ $ Politicians influence each other $ $ Advocacy Group Advocacy Group $ Special Interests $ Special Interests $ Lawmaker Lawmaker President Influence Group (“lobbyist”) Influence Group (“lobbyist”) $ $ Voters Voters Legend Influence $ Money $ Votes

29. Obama campaign focused on cost and access…

32. Who this affects: Insurance companies, physicians, drug companies, medical device firms, and othersExpand Coverage Expand Access to Coverage New Fees on Drug Companies, Health Plans, & Others Changes to Medicare / Medicaid Payments Source: Analysis of "Letter to Nancy Pelosi." Congressional Budget Office. Congressional Budget Office, 20 Mar 2010. Web. 22 Jun 2010. <http://www.cbo.gov/ftpdocs/113xx/doc11379/AmendReconProp.pdf

33. bond@alumni.upenn.edu 484.431.3015 (cell) Robert Bond