by Dan Munro

First posted on Forbes on 12/4/2012

This year marked the 100th Anniversary of the sinking of RMS Titanic. I was able to see the Titanic Artifact Exhibition earlier this year and it is both an amazing and sobering experience.

Recent headlines in healthcare combined with seeing the movie again this weekend made me realize that there are some troubling comparisons – and it also made me wonder if the Affordable Care Act (ACA) is even seaworthy.

Not enough lifeboats
Titanic had 20 lifeboats which (at full capacity) could only carry 1,178 people. There were 2,223 on board at the time of her sinking (and the manifest was only at 67% of full capacity). Independent of actual sizing, many boats were set adrift only half full.

Whether it’s a shortage of physicians (expected to hit over 90,000 for all specialties by 2020) or the flood of newly insured (and aging) patients, there’s just not enough healthcare delivery to go around. The supply of physicians will clearly be insufficient at the same time that demand is going up – way up. Medical training is often a 10 year process so there is clearly no short term fix for increasing the number of physicians to meet demand.

Another key component of the ACA – the expansion of Medicaid – is both critical and equally cloudy. The Supreme Court ruling this last summer left the ACA’s Medicaid expansion intact in the law, but the practical effect of the Court’s decision makes the expansion optional for the states. With most state budgets severely constrained, it’s hard to see how this key component will be implemented.

Titanic casualties were disproportionate based on class


Here again the ACA seems to be fostering unintended consequences – often along class lines – as evidenced by this recent Huffington Post headline:Walmart’s New Health Care Policy Shifts Burden To Medicaid, Obamacare

According to the article and effective January 1, Walmart’s policy will be to eliminate healthcare coverage for new employees that work less than 30 hours per week. Walmart also “reserves the right” to withdraw coverage to existing employees that work less than 30 hours per week. From an article I wrote last year titled “A Healthcare List:” #11 from that list was: Ohio spent about $600M in 2009 on Medicaid, Foodstamps and Welfare for employees of that state’s 50 largest employers (including Walmart, McDonalds, Wendy’s and Krogers)

Walmart is far from alone. On a shareholder conference call earlier this year, Pappa John’s Pizza magnate John Schnatter acknowledged the cost shifting tactics he says Papa John’s will use to “shallow out any Obamacare costs,” and “pass that cost onto consumers in order to protect our shareholders’ best interests.” Given his annual compensation (over $2.7M per year) it’s safe to say Mr. Schnatter’s healthcare options won’t be limited.

Limits of Engineering and Technology
All hubris aside – and there was plenty to go around – the conventional wisdom at the time was that with 16 water-tight compartments, Titanic was truly unsinkable.

To date, we’ve spent about $9B on the national effort (under the HITECH Act) to digitize health records and there are over 330 EHR vendors that have at least one customer that has attested under Meaningful Use. Meaningful Use is the key requirement for payment of stimulus funds as outlined by the HITECH Act. Conceptually, the intent was to support the much needed infrastructure investment that would lower costs, and improve both efficiency and patient safety. That made this recent NYT headline – Medicare Bills Rise As Records Turn Electonic – truly unexpected. This, in turn, prompted a stern warning letter on behalf of both Health and Human Services and the Department of Justice that alleges potential abuses of “upcoding” and “record cloning” by hospitals as a way to pad bills submitted to Medicare. Naturally, the American Hospital Association was lightening quick with their rebuttal. Who’s to say what’s actually happening here – but battling bureaucracies at this early stage clearly isn’t the trajectory we were hoping for – or needed.

Free market competition is always healthy
Titanic itself was the product of an “arms race” toward monopolizing the lucrative North Atlantic passenger traffic. Speed was both the competitive advantage – and a contributing factor in Titanic’s inability to maneuver in time to avoid the iceberg.

Payment reform is a key component of the Affordable Care Act. The primary vehicle for accomplishing this is the Accountable Care Organization – or ACO (Section 3022 of the ACA). The ensuing arms race has led one thought leader (Paul Levy – former President and CEO of Beth Israel Deaconess Medical Center in Boston) to conclude that the mechanics around ACO don’t appear to be accountable, caring or organized.

One of the articles Paul references is this one by Steven Purlstein at the Washington Post. The title of Mr. Purlstein’s article is: “Aetna, Coventry And The Arms Race in Health Care.” The money quote?

This arms race has produced repeated waves of consolidation that, rather than having led to lower prices, have led to higher prices, declining quality and less competition.

We all know that the ACA is it’s own kind of “maiden voyage,” and that we’re definitely steaming full speed ahead, but these headlines represent some very serious warnings – from not one, but many different directions. It may well be too early to say with certainty that we’ve hit an iceberg, but it sure feels wet underfoot.