By STEVE ZECOLA

Americans spend about $3 trillion per year on healthcare, or about $10,000 per person per year. Despite these expenditures, Americans are worse off than their international counterparts with respect to infant mortality, life expectancy and the prevalence of chronic conditions.

In policy debates, Republicans mostly prefer to let the marketplace devise the appropriate outcomes, but this approach ignores the market failures that plague the industry.

On the other hand, Democrats propose a variety of solutions such as “Medicare for All” which nationalizes all healthcare insurance or, as a variant, “Medicare as an Option for All” which further extends the federal government into the provision of healthcare insurance. Such approaches could actually result in a less efficient outcome, or worse yet, create a market beset by political ping pong when Administrations change.

This paper proposes a new standards-based approach for fixing the inefficiencies plaguing the healthcare industry in the United States. As described herein, a non-profit standards body would be established by Congress to bring a coordinated approach to healthcare for each of the top ten chronic diseases.

Such an approach would establish consistent priorities and practices across all of the components of the healthcare industry affecting these chronic diseases, including standards of care, areas of research emphasis and insurance guidelines.

Under such an industry structure, patient care would improve and the overall costs for the provision of healthcare would drop significantly.

The U.S. Healthcare Market Doesn’t Function Effectively or Efficiently

Looking at the components of the healthcare industry from standards of care to prices to insurance coverage to potential new treatments, virtually none of the relevant choices are understood by the consumer.  What this means from an economic point of view is that there is no “invisible hand” of the marketplace driving an effective and efficient outcome from the interplay of supply and demand.  In economic terms, imperfect information has led to a market failure.  The lack of readily-available information for consumers is particularly true in the case of chronic diseases.

One of the side effects of this market failure is that none of components of the overall industry work in lock-step.  For example, the FDA could have indirectly required billions of dollars of research to be spent on a drug before it gives its approval, only to find that the organizations that provide guidelines for care don’t promote its use and the insurance carriers don’t contribute towards its charges.

In broad terms, the cost of healthcare in the United States is approximately $3.0 trillion per year, or roughly $10,000/person.  However, averages can be deceiving.  For example, the most-costly 5% of the population spends 50% of the total health care costs, or about $200,000 per person per year.  The second most-costly 5% of the population spends about 16% of total health care costs, or about $64,000 per person per year.

When looking for causation for these healthcare expenditures, there are many large targets including cancer, heart disease, diabetes, asthma, Alzheimer’s, Parkinson’s and Epilepsy.

Taken together, chronic diseases cause 7 of every 10 deaths in America. Moreover, about 25% of people with chronic diseases have some type of activity limitation such as needing help with dressing or bathing or being restricted from work or attending school.

By any measure, chronic diseases take a heavy toll on the nation’s health and wealth. For example, heart disease and stroke are estimated to cost over $430 billion per year. Cancer adds over $200 billion per year. Diabetes costs are estimated to be about $175 billion per year.  Alzheimer’s is estimated to add about $150 billion per year. In total, over 50% of the $3 trillion spent on health care each year is attributable to chronic diseases.

As expected, burden of healthcare costs also varies by age. For example, people over 65 represent about 16% of the U.S. population, but consume 36% of all healthcare costs.

As a general observation, most of us have recognized that the healthcare system, emanating at the physician level, assumes that caregivers want to extend physical life as long as possible.  However, we also know that it’s difficult for caregivers to balance the psychological, spiritual and financial costs of aggressive treatment at such times.

The logical questions for policy-makers to ask are: 1) “what is being done to address this cauldron of thorny issues?”  and 2) “who is in charge”? The answer is that a quite a lot is being done, but certainly not in a coordinated or effective approach.

The first thing that comes to mind when being diagnosed with a disease is a cure. If that is not imminently available, the next issue of concern is the best available treatment.

As it turns out, the FDA has been at the center of the process of new healthcare solutions for over a century.

The FDA has done a good job in achieving its legislative charter of ensuring that drugs and devices are safe and effective.  For example, over the last 50 years, only 2% of all FDA-approved drugs have been taken off the market to due to safety concerns.

In looking at the government website for clinical trials, it lists over 270,000 research studies. However, no one prioritizes this research for any particular objective.  Moreover, there is no coordination on which promising research should be pursued for which illnesses. The sad reality is that most of these studies won’t produce meaningful benefits for people.

One important reason for the lack of progress is that the FDA has defined a process where a drug takes 12 years on average to be approved at an average cost of over $1 billion.  These estimates do not include the FDA’s impact on preclinical research, which can add more than a decade to the process and additional costs.

The impact and cost of delay from the FDA approval process is large, not only from the enormous costs of treatment but from premature death of those losing out on new treatments. For example, in 2012, I filed a Citizen’s Petition with the FDA for it to withdraw support of ACT chemotherapy for BRCA1-related breast cancer and enable women to be treated with a PARP inhibitor and a platinum-based drug.  The Petition was denied.  However, this past year, the FDA approved such an approach.  In the interim period, thousands of women died prematurely from the inferior treatment afforded by an antiquated standard of care.

Announcing a desire for cures is not enough.  For example, it has been more than 50 years since President Nixon declared a “War on Cancer”.  More recently, President Obama announced a major initiative to seek cures through precision medicine.  However, when I subsequently petitioned the FDA to issue a Notice of Proposed Rulemaking seeking input on how best to analyze and approve, as appropriate, new Precision Medicine Initiatives, the FDA responded by saying it “has been unable to reach a decision on your petition due to the need to address other Agency Priorities”.

It is a lack of action on important matters such as this that led the former Director of the National Cancer Institute, Vincent T. DeVita, Jr. M.D., in The Death of Cancer (2015) to recommend that the FDA should not have approval authority over Phase 1 and Phase 2 clinical trials for cancer (and, by inference, should not participate in regulating preclinical cancer research).

After all of its internal efforts to improve its procedures, the FDA’s current processes still leads to only 20 or 30 drug approvals per year, and much fewer blockbuster remedies.

In effect, the FDA acts as a barrier to competitive entry, thereby ensuring excessive profits for the pharmaceutical companies.

For an individual looking for a cure or a better treatment to an illness, the FDA is not a particularly friendly or helpful place.

Where Does All of the Money Come from to Pay for Healthcare?

The current system essentially relies on corporations, healthy people and the government to “subsidize” the care of the least healthy.

For example, 50% of the U.S. population spends less than $1000 per person a year on health care services, but pay almost $6000 per person each year for insurance.  For people who are working, their employers tend to pay about 80% of the insurance costs for a single payer and about 65% for family coverage.

The government also provides over $1 trillion per year in direct subsidies through Medicare, Medicaid and the Children’s Health Insurance Program (CHIP), and veterans’ medical care. Of this amount, approximately two-thirds is collected in federal taxes each year and one-third is debt financed.

Despite these contributions, those entities essentially “paying the bill” often have little influence over the prices of services.

Beacons of Hope

Michael J. Fox was diagnosed with Parkinson’s disease in 1991 at the age of 29.  After observing the progress, or lack thereof, on Parkinson’s disease, he established the Michael J. Fox Foundation for Parkinson’s disease (MJFF) to develop a comprehensive approach to the disease and to find a cure.

Since 2000, MJFF has funded more than $750 million to pursue a cure for Parkinson’s disease.  It is collaborating with literally scores of organizations with respect to funding, in-kind contributions, strategic input and research initiatives. It also provides extensive information to the public at no cost, including weekly video briefings, covering issues such as diagnosis and symptoms, living with Parkinson’s disease, treatment options and promising new research.

Another example of an organization trying to coordinate an approach to a disease is the National Comprehensive Cancer Network^® (NCCN^®), which is a not-for-profit alliance of twenty-eight leading cancer centers devoted to patient care, research, and education. The NCCN® is dedicated to improving and facilitating quality, effective, efficient, and accessible cancer care so patients can live better lives. NCCN® programs offer access to expert physicians, superior treatment, and quality and safety initiatives that continuously improve the effectiveness and efficiency of cancer care globally.

Despite these bright spots, the current healthcare system doesn’t work efficiently because the components generally are not connected or coordinated by the “invisible hand” of the marketplace.  This market failure must be addressed to improve healthcare in the United States.

An Integrated Approach for the Healthcare of Chronic Illnesses

Just as the private market has failed, it is not reasonable to assume that the federal government can somehow orchestrate an efficient and effective outcome for the healthcare industry. At a minimum, any such an approach would be subject to political instability, as witnessed with the Affordable Care Act.

Rather, a better approach would be to build upon successful models in practice today and establish an industry-wide organization with standards-setting responsibilities.  That is, Congress would set up a non-profit quasi-governmental standards body to establish the scope and direction of care for chronic diseases.

The ultimate value of the NHSO and its chapters would be to create a better functioning private market for each of the Top 10 chronic illness markets in the United States.

Setting Standards

Governments worldwide have recognized the importance and impact of standards on their economies. Standards have significant procompetitive effects such as increasing price competition as standard products are more readily compared and solve issues such as product compatibility and consumer safety.

There are thousands of standards organizations around the world. Often, these bodies have agreements to cooperate with each other.

Standards bodies can be governmental, quasi-governmental or non-governmental. Quasi-governmental and non-government standards bodies are often non-profit.  Quasi-governmental organizations are supported by the government but managed privately.

The best-known standards body is the International Organization for Standardization (ISO) which was founded in 1947 and is headquartered in Geneva, Switzerland. Its membership comprises national standards organizations, one from each of 163 countries.

ISO defines a standard as “a document that provides requirements, specifications, guidelines or characteristics that can be used consistently to ensure that materials, products, processes and services are fit for their purpose.” Products and services that follow ISO standards can be deemed to be high quality, safe, and reliable. Businesses that use ISO standards can save money and time.

Since its inception, ISO has published over 19,500 standards. Perhaps the most familiar is the ISO 9000 family of quality management standards. ISO’s standards deal with a wide range of aspects of everyday life, including food, water, health care, cars, climate change, energy efficiency, and sustainability. More than 250 technical committees produce the standards.

In the healthcare industry, we know that the various components of healthcare do not mesh well together, which is an important benefit of standards. There is a need for:

• the consumer’s voice to be heard and a set of objectives to be set to address those voices;
• a consistent, high-quality standard of care to be developed and communicated to the target populations; and
• for all of the components in the industry to address the consumers’ requirements on a coordinated and efficient basis.

The first step for the newly-established NHSO would be to document the current methods of treatment and the associated costs, including the costs in each of the various stages of the disease.

The second step would be to establish standards of care for each of the Top 10 illnesses and to develop short-term and long-term objectives based upon the industry resources dedicated to these illnesses. These objectives could include the avoidance of the illness in the first place from vaccines or other measures.  Similarly, the objectives and standards of care could vary depending the phase of the disease.

Third, the chapters would define the interfaces and best practices for the various components of the industry affecting their relevant patient populations. For example, each chapter would establish the benchmark for the basic level of insurance coverage for various procedures and treatments based on the approved standard of care.  They would also prioritize the efforts for specific research initiatives. Equally important, they would establish the informational, pre-clinical and clinical requirements most appropriate for each chronic illness.

The charter of a non-profit, quasi-government standards organization called the National Healthcare Standards Organization (NHSO) would be to publish guidelines and coordinate the practices of the industry as follows:

1. The NSHO would be created by Congress with separate chapters for each of the Top 10 chronic diseases.
2. Each chapter would have the same charter, namely: 1) to represent the patients afflicted with a specific chronic illness and 2) determine the preferred standard of care in detail for its particular illness. This would include standards for the prevention, diagnosis and management across the continuum of care, including for each phase of the disease.
3. The practices and prescribed treatments of the preferred standard of care would, in turn, be codified as qualifying for mandatory payments to be made by insurance companies.
4. Each chapter would establish short-term and long-term objectives for their patient population based on available industry resources.
5. Each chapter would set the priorities for existing Research and Development projects and identify promising areas for additional funding.
6. Each chapter would determine the appropriate FDA approval process for the informational, device and drug applications in its field. That is, the FDA review process could be streamlined for a particular application without the need for legislation.  Final approval authority for commercial release would continue to rest with the FDA.

The NHSO and each chapter would have five representatives including medical experts in the relevant field and a member of the public. The composition of the Chapter Members should represent the core medical specialties and clinical expertise involved in the specific standard of care (with exclusions for any conflicts of interests).

The NHSO and its chapters would have full-time paid staff providing logistical and content development for all matters before the NHSO. The budget of NHSO would be covered by user fees paid for by industry participants based upon company size.

Summary

The lack of meaningful information to consumers in the healthcare industry, particularly for chronic illnesses, has caused a market failure with gross inefficiencies.  Moreover, as long as practitioners, manufacturers, guidance bodies, insurance carriers and government practices and policies are not moving in the same direction, healthcare services will have excessive costs and the well-being of the overall public will remain inadequate.

The cost and inefficiencies are largest in the area of chronic illnesses.  In the private sector, management science teaches us that there is no better way to solve a problem then by putting the spotlight on it, and then developing, communicating and executing a plan to fix the problem.

This paper shows why the public and its representatives in Congress should endorse a National Healthcare Standards Organization that builds on the seeds that are already blossoming in the fields of Parkinson’s disease and cancer.  The National Health Standards Organization should focus on the Top 10 chronic illnesses to ensure all of the components of the healthcare industry are working in lock step and reflect the best interests of the public regarding these illnesses.

Steven Zecola is the managing director of Competitive Strategies and has held executive positions in large companies and the federal government.