The new CEO has been announced and it is Dr. Atul Gawande, but a name for 'ABC Healthcare' remains to be found. NPR reports Dr. Gawande's first job will be to find a name. In this article, I will examine what Dr. Gawande has to work with and what his real qualifications are, as well as how 'ABC Healthcare' could set the pace. It starts with 1.2 million members in the collective health plans.
Structural healthcare reform begins with companies taking control and becoming self-insured. It also involves a new focus on restoring the value and function of primary care, because that is where a lot of escalation of medical costs can be stopped. For primary care physicians, this entails a welcome change to a new era where they get to practice medicine, instead of just writing prescriptions and making referrals.
Besides such structural and administrative changes to make healthcare more effective and accountable, there is the oncoming lifestyle medicine revolution and a shift towards results-oriented compensation rather than rewards for pills and procedures, as argued by the former President of the American College of Cardiology, Dr. Kim Allan Williams. Lifestyle medicine can substantially eliminate the 85% of healthcare expenditure that is dedicated to 'treatment' of 'incurable' chronic illnesses, which respond to diet, not medication or procedures.
The Healthcare Conundrum
Wasteful health care spending consumes 79 percent of household income growth, leaving just 21 percent for everything else. This, more than nearly anything, is destroying the American dream.
(Dave Chase, CEO's Guide to Restoring the American Dream: How to deliver world class healthcare to your employees at half the cost.)
The above book should be required reading for anybody who wants to invest money in healthcare. It is mind-blowing, and it provides a good insight in how it is through smart procurement that healthcare change is taking place in companies who realize they can do better: provide better care for less money. The good ones are doing as much as 50% better than their peers.
The common assumption which is routinely repeated in such cases as the Aetna (AET)/CVS (CVS) merger, that healthcare costs are only going to go up, because of demographics, is not true. Yet it was repeated once again in a recent SA article, (CVS and Aetna Are Changing The Healthcare Paradigm):
Demand for health care is only going to increase. With increasing drug costs and an aging American population, CVS will have a steadily growing market in years to come. CEO Larry Merlo cited in an investor relations call that 10,000 baby boomers turn retirement age every day. That creates an irreversible stream of participants coming to market and by combining the two companies, it offers a holistic treatment to each customer that also captures revenue at each point in the process.
How wrong could you be? One of the many scary statistics in Dave Chase's book is that a reasonably successful millennial over their lifetime would, on current trends, pay 50% of their lifetime earnings on healthcare - directly or indirectly. No way in the world is that sustainable, nor can we succeed as a country in a global market place with double the healthcare costs and 3rd world health outcomes. Still, the common assumptions is that healthcare is working, and nobody says much if people assume these revenue streams will increase forever. From what money?
That other conversation, about single payer systems, is even more besides the point. What purpose would it serve to make an unmitigated disaster 2-3% more efficient, if it eats up the difference with cost inflation in a year or two? It becomes pointless to pursue those types of hare-brained fixes, given how out of control the system is. In the interim, Amazon (NASDAQ:AMZN) has now made its move into the drug business, with the acquisition of Pillpack, so the pressure is on, just before the real reforms begin.
The revolution in healthcare that Dave Chase is talking about is still only about the administrative end, but it is radical. It proves that a growing number of companies are successfully challenging the existing order by becoming self insured, and making other strategic changes that achieve both better health outcomes and lower cost structures, and still... at that point we have not even started on the impact of the Lifestyle Medicine revolution and how it is going to change healthcare even more profoundly.
Why healthcare spending is due for a break: A thought experiment
Our healthcare system is a predetermined failure with 7 out of 10 of the leading causes of premature death, cases of the chronic diseases of affluence which currently consume 85% of spending, with no result. The standard medical protocols for these chronic diseases amount to symptom suppression and deferred maintenance, so that disease progression continues, covered up with lots of pills and procedures which makes for profitable customers later on.
As a thought experiment, I take one budding heart patient through the process, hypothetically. Today our patient, still in his twenties, goes to see a urologist for ED, and comes home with a prescription for Viagra. Problem solved. Sometime later he's put on cholesterol lowering drugs (like Statins) and baby aspirin, just in case. He has a stroke. More drugs. Finally a stent. Then several stents.
Eventually comes coronary bypass surgery. At the ripe old age of 75, his body finally gives out altogether. Over his lifetime this patient might have cost $5 million in healthcare costs. You and I are paying for $5 million of perfectly preventable sick care costs.
In the alternative universe which is now evolving, his urologist might have shown him this video of David Carter, a former defensive lineman in the NFL, or even this scene from the upcoming movie The Game Changers which shows that even a single plant-based meal improved sexual performance in three college athletes by 300 to 500% compared to when they eat a standard American diet. (Note: the entire film crew went vegan after filming that piece.)
The patient might then have switched to a whole foods, plant-based diet, had his sexual performance restored quickly and reversed his heart disease completely, living happily ever after and dying at the age of 86, or 92. This scenario is the reason Dr. Esselstyn states that cardiovascular disease is a paper tiger and heart operations are unnecessary 95% of the time (except if it is totally critical). Close to the same is starting to happen in diabetes care, as well as RA, and MS and several other conditions. Drugs are out, spinach is in. In the long run, this alternative patient might not like paying for the irresponsible masses who continue to eat junk.
This alternative model is now starting in numerous organizations and I have mentioned in prior articles the two biggest examples are Whole Foods Market and GEICO Insurance. The big question now is how fast will this change come? According to the CEO's Guide, IBM is one of the growing number of companies that are already self-insured for health care and seem to have a better handle administratively than most, but they are nowhere near implementing any measure of the Whole Foods, Plant-Based diet, as WFM and GEICO have started to do. So there is a long way yet to go.
I am currently familiar with two pilot programs in the medical community, one in Manhattan and one in Brooklyn, in collaboration with Plant Pure Communities, called jumpstart programs. They are modeled on the story of the movie PlantPureNation, and such programs are being developed around the country. I am personally also involved in trying to organize such a program in the Bronx. These are 10 day immersion programs for 36 patients at a time, typically Medicaid patients, to teach them about the whole foods, plant-based diet.
Their vital data are taken before and after. The experience shows that typically 10 days makes a bigger difference for a heart patient than 3 to 6 months of Statins, and utterly without any side effects. Similar progress occurs with many conditions. These types of programs usually result in people getting off a handful of medications within a few months, and rapidly improving their quality of life.
While writing this article, I attended a presentation by Michelle McMacken, MD, who is an assistant professor at NYU Langone who reported that Bellevue Hospital is now opening a new program for lifestyle diseases, such as heart disease, diabetes, etc., all focused on getting people onto a plant-based diet and off of meds.
The Health plans of the future
The work of Dave Chase and his organization, Health Rosetta is to provide the tools to create better health plans for the future, with remarkable success in many cases. It is already happening, driven by smarter procurement, à la an educated consumer...The best companies out perform their peers by as much as 50%.
Meanwhile, we now have a CEO for 'ABC Healthcare' - launched by Amazon, Berkshire (BRK.A) (BRK.B) and Chase (JPM) in Dr. Atul Gawande, who certainly has a track record of being able to rethink the medical paradigm and to understand the subtle ways that medicine can be misused to create the very problems it pretends to solve. See here, for a discussion of Gawande's thinking - he does understand that healthcare as we know it prioritizes the profits of the medical industry over the health of the patients. Soon, we will be able to gauge if this venture will indeed be able to make the profound structural reforms that are possible, or not.
'ABC' could have a massive impact on the bottom line for its parent companies, if they are serious about doing what it takes. And it could become a model for real change. Change will not come from Washington, but from the businesses that realize it is a serious opportunity to improve their business results and improve the welfare of their employees at the same time.
Along these lines, it will need to become standard practice for analysts to look at company health plans, for the best companies are providing better healthcare for up to 50% less than their peers. The combo of happier employees and much lower cost structures is bound to become a fierce competitive weapon.
Going in, we know Gawande is taking on 1.2 million members in the health plans across all three organizations, but clearly, there are going to be great variations in the existing plans of those organizations. There is little doubt in my mind that a 50% reduction in healthcare costs and a massive improvement in healthcare quality is feasible within 3 years or so, and probably a 75% reduction compared to today within 10 years, as the shift from treatment to prevention is made. Such a development will put massive pressure on great swaths of industry and eventually on the country as a whole.
Health Rosetta provides the ways to build a health care model that makes sense, purely on the basis of better management. When combined with the emerging plant-based revolution, even more radical improvements in healthcare become feasible, for nutrition and lifestyle is the proverbial 80% of the solution. Better care, better outcomes with lower costs are well within range, and that could include incentives for lifestyle improvements or penalties for the lack thereof. Lifestyle medicine and its corollary of self-management will become the key.
The administrative end of health reform is what Health Rosetta supports, i.e. a structural change in favor of the buying organizations taking control of health insurance, becoming self-insured, restructuring the delivery and focusing on value-based and evidence-based medicine and better controls in order to achieve better health outcomes. The lack of accountability in traditional medicine is unprecedented and would not be tolerated in any other business.
Step two in health reform will be a better focused and evidence based approaches to health, where currently Lifestyle Medicine is the most dramatic change that is taking place. It is a shift towards the consumer of healthcare taking personal responsibility for and control over their own health on the back of the overwhelming evidence supporting a whole foods, plant-based diet and lifestyle, to ultimately wipe out up to 85% of health care expenditures as we know them today.
The arbitrage between these two groups will need to be addressed with appropriate incentives and penalties. The "traditional" group who continue to eat SAD (Standard American Diet) will be expensive health insurance risks and the #WFPB (Whole Foods, Plant-Based) will be a categorically low risk, for they are at vastly reduced risk for all the most expensive chronic diseases from heart disease to diabetes, to RA, MS, various cancers, and many others.
Again, these are the diseases that consume 85% of healthcare dollars, so the cost of care to the #WFPB patient should be at least 50% lower and driven by the actuarial data, now that we are learning more about these different lifestyles.
In the process, what needs to be eliminated over time is the current system of paying for pills and procedures to paying for outcomes, though there will always have to be provision for situations where "managing" is the only option. Those do exist, but on the whole, the distinction is clear and vast. For the chronic diseases of affluence, allopathic medicine as we know it today, is nearly useless and a counter-productive and expensive habit, but Lifestyle Medicine is supremely effective.
Shifting the emphasis towards Lifestyle Medicine goes hand in hand with the lessons of the CEO's guide, i.e. putting primary care in a much more prominent role. Many doctors are eager to start practicing medicine again, instead of being glorified, legal, drug dealers.
Eventually, I believe that the next steps for the Lifestyle Medicine patients should include a personal retainer agreement for primary care, including concierge services to navigate the rest of the medical system, combined with some modified form of catastrophic health insurance and drug benefits. Such a shift would support people taking responsibility for their health and having a personal subject matter expert to deal with the traditional medical system in the minority of cases where it is called for.
The big healthcare insurance providers and drug distribution are going to take a back seat to the supermarket - slowly but surely. The current merger mania in the health field - CVS and Aetna as well as Cigna (CI) and Express Scripts (ESRX) - is purely defensive and in the long term it is much ado about nothing. People are happy to get off of handful of meds within weeks or months of switching to a whole foods, plant-based diet.
That will start eating into the 85% of medical costs that are related to the chronic diseases that cannot be successfully treated with medications and procedures. "You'll have to take this drug for the rest of your life," is a sign of failure. It is a success only for the drug dealers.
In the food business, it should be remembered that there is not a lot of money in broccoli. Nevertheless there are areas of promising growth. There are whole lines of food products coming to market, some were mentioned above and there are many others such as by Dr. McDougall, Engine2 at Whole Foods Market (AMZN) and the frozen entrees from PlantPure Nation - a not for profit. Major companies are on the move but most have not figured out the trend, and I will look into that in more depth at some time.
The fake meat business may be appealing in the short run, but in the long run, I suspect it is meaningless. These are transitional products. There simply is no need for meat or protein alternatives, since the problem is that we eat too much protein and from pure, unprocessed plant-based foods you get the ideal mix and amounts of proteins automatically. People think they will miss meat, but they don't once they taste good plant-based food. I see that demonstrated in restaurants all the time. People often don't even realize they did not eat meat.
In the restaurant business as well as the packaged food business, serious investors should start from a standpoint of understanding the new nutritional paradigm of The China Study, i.e. the whole foods, plant-based diet. The single biggest opportunity in the restaurant sector is for a major chain to adopt a certified plant-based standard for even 20% of their menu, and promptly begin getting referrals from doctors who are putting their clients on a plant-based diet. I have previously mentioned how Chipotle (CMG) would be an ideal candidate for such a move, while many major chains have menus that are not as conducive to making such a change.
In pharmaceuticals and supplements, these emerging trends are going to be life-changing, but it will take a long time before they are large enough to be felt. Again, this is a place where a venture such as 'ABC Healthcare' could speed things up, or slow them down, for their role will be highly visible.
In general, the traditional methods for testing for effectiveness of drugs or supplements are seen to be categorically misleading because they focus on outcomes in a reductionist framework, typically without testing for diet or overall health, effectively assuming that all comers are on the same Standard American Diet, and its attendant nutritional deprivation.
The switch to a Whole Foods, Plant-Based diet has proven again and again to dwarf the effectiveness of hands full of medicines quickly since the diet ensures a nutritional abundance which allows the body to recover far more and more quickly than medicines could ever do and without side effects except for improved quality of life.
This applies to a wide range of medical conditions and the list is growing all the time. Some of the pharmaceuticals and devices that will become largely superfluous is impressive, everything from antacids, to Metamucil, to Statins, to stents, to Viagra, baby Aspirin, acne medications, and various blood pressure medications. The list goes on and on and on, and over time this will become a sea change.
Meanwhile, there will be lots of interesting twists and turns. At GEICO the message is that Coke and burgers are unsuited for human consumption because of their plant-based health plan. Yet, look at the habits (and the investments) of the boss, Warren Buffett. There are bound to be lots of interesting twists and turns.
With 'ABC Healthcare' choosing a very promising CEO, they could take a leadership role, but the world won't wait for them either, the impetus for change is too wide ranging and there are too many initiatives afoot that promise a real breakthrough, both top-down - Health Rosetta - and bottom-up from these various medical programs, driven by doctors who are welcoming the opportunity to practice medicine as it was meant to be - by healing patients, not creating drug addicts.
There are at least four or five major medical conferences on for this year, all about this prevention over pills model, based on the plant-based diet. The main ones are: The Plant-Based Nutrition Summit at Washington University in St. Louis in July, The Lifestyle Medicine Conference, in Indianapolis in October, The PCRM 6th Annual International Conference on Nutrition in Medicine in August, and The 2nd Annual Montefiore Preventive Cardiology Conference in October.
Another major development to watch remains on the movie front, with both The Game Changers and Code Blue due for release this fall. More and more athletes and celebrities speaking out does make a difference, and so does the growing list of clinicians in different areas, such as Dr. Saray Stancic of Code Blue fame.
She is single-handedly responsible for putting multiple sclerosis on the list of illnesses that is susceptible to the dietary approach. She is living proof herself. Allopathic doctors had her on a dozen meds, and ready to file for disability in her thirties, but instead, she found the plant-based diet and is now free of MS and changed her specialty to Lifestyle Medicine.
As far as healthcare is concerned, it will become a major issue in the competitiveness of individual businesses, as well as the country as a whole. Since most health plans are employer-based, business will shape the future of healthcare and it can only be hoped that government becomes a help and not a hindrance as it is now. 'ABC Healthcare' has a spectacular opportunity of taking a leadership role.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.