Wal-Mart will see you now
By Dave Chase
The views expressed are his own.
“We don’t have a debt problem. We have a healthcare problem.” Those are the words of Laura Tyson, one of the most respected economists in the world. In Bill Gates’ recent TED talk, he described healthcare as the factor that is devastating state budgets leading to education cuts. Clearly something must to be done now to address this crisis.
With the possible exception of the federal government, no organization is in a better position to reverse healthcare’s hyperinflation than Wal-Mart.
If that sounds crazy, let me explain. As Ezra Klein recently pointed out in a Washington Post graphic, it’s not the age or obesity of the population that is driving healthcare costs. Nor does it have much to do with alcohol or even malpractice costs. Rather, as the many cost comparisons in the presentation below show, we simply pay more for the same items when compared to other countries.
No organization in the world has more prowess than Wal-Mart at negotiating costs with suppliers of products and services. With 1.4 million employees and hundreds of millions of customer visits every month, Wal-Mart’s impact is without parallel. It’s one reason that the Sierra Club partnered with Wal-Mart on its Sustainability Program. In healthcare, Wal-Mart’s $4 prescriptions program has saved their customers billions since the program’s introduction.
With a buying power that rivals the entire country of Canada, Wal-Mart has the power to drive costs down. Even if we didn’t do anything to affect the number of surgeries, hospitals stays and volume of procedures, if Americans paid the same as Canadians, it would cut what the U.S. spends on healthcare by 50%. Nothing would have a bigger impact on stimulating consumer spending. We could call this Sam’s Stimulus (Sam Walton, not Uncle Sam).
To tap their impact, I propose the following 5-point plan that could finally slay the healthcare cost beast:
Make primary care more accessible
IBM and other large employers have studied healthcare costs around the world. IBM alone spends roughly $2 billion per year on healthcare. The findings of their studies came to a surprisingly simple conclusion where countries were getting the best bang for the buck from their healthcare spend: More primary care access led to a healthier population which, in turn, led to less money spent. MedLion, profiled as The Most Important Organization in Silicon Valley No One Has Heard About, has shown they can deliver high quality care with prices that are affordable for low-income workers. This model is referred to as Direct Primary Care (DPC) or Direct Patient Centered Medical Homes (D-PCMH).
Imagine if Wal-Mart took the DPC model and scaled it nationally. It would be a boon for primary care providers who want to operate free of insurance, as it validates a model that has proven to yield better health outcomes while lowering costs dramatically. Fortunately, one of the least known elements of the new health law may be the most important. It’s the DPC provision allowing the separation of insurance from day-to-day healthcare to save 40% off the cost of primary care. See Health Insurance’s Bunker Buster for more. Showing the support for this element of the health reform, a GOP Representative who fought against reform and is an MD has proposed a bill to utilize the DPC model with Medicare recipients. This leads into the next item.
Demand a standard wrap-around insurance policy
For Direct Primary Care (DPC) to work, it is best paired with a wrap-around insurance policy to cover non-primary care items. If Wal-Mart supports a DPC standard (see details here) this gives insurance companies something that can allow them to underwrite a wrap-around policy to complement what is being delivered via the DPC package. This would accelerate the development of independent DPC practices as long as they offered the same baseline services (they are free to add things above that to differentiate their service). Wal-Mart’s national scale is critical, as insurance companies can’t underwrite for something that is wildly variant. This gets health insurance back to its roots and what insurance is so good for – rare stuff you hope never happens vs. insuring the equivalent of a car tune-up.
Drive savings for scans and surgeries
The best way to save is to avoid the need for that item. However, there are still plenty of instances where scans and surgeries are appropriate. In a piece entitled Hotwire for Surgery, I laid out how extra capacity in “beds” and “suites” creates an opportunity for both buyers of hotel rooms and surgeries to drive savings of 50% or more without any degradation of quality. Similarly, there is a massive overcapacity in scanning equipment (CT, MRI, etc.) since healthcare in a “do more, bill more” reimbursement model has incentivized a huge overcapacity in scanning equipment. Like hotel rooms, the marginal cost to deliver another scan when they would otherwise be idle is nominal. Some of the Direct Primary Care providers, without any national buying power, have negotiated up to 90% discounts off of scans from top facilities.
Remove administrative inefficiencies
One of the big contributors to excessive American health expenses is administrative overhead. Wal-Mart has used information technology to make their supply chain efficiency a competitive advantage. They can do the same for the healthcare value chain. My 78-year-old dad buys his plane tickets and checks-in online. Surely, every patient ought to be able to schedule and check-in for appointments. There’s a staggering inefficiency in how this is typically done today. There are many other items like this.
Share the healthcare cost innovation learnings
Baked into every product or service Wal-Mart sells are the healthcare costs of their suppliers who are also facing ever-increasing healthcare costs. With their scope of vendor relationships, Wal-Mart touches thousands of businesses. The fact is, healthcare costs are a competitive disadvantage for Wal-Mart today. As the nation’s largest employer, anytime they increase healthcare costs to their employees, they get negative press. By gathering with other corporations and discussing how to get more value from each healthcare dollar spent, they can turn their huge healthcare spend into something that could generate positive press as they help many organizations reign in healthcare hyperinflation by sharing best practices, combine buying power and more.
In summary, whether we call this Sam’s Stimulus or the Walton Wallop on healthcare hyperinflation, Wal-Mart has a unique opportunity to revive the U.S. economy. The only downside to this plan is some healthcare providers aren’t well positioned to deliver high quality healthcare at a lower price, but this is a small price to pay for reviving the economy and putting the country on a path where healthcare costs won’t bankrupt the nation. Few corporations have ever had a bigger opportunity to help themselves while helping the country. To turn a phrase, what’s good for Wal-Mart is good for the country.
Editor’s note: Dave Chase is the CEO of Avado, a healthcare technology firm. Some of the companies mentioned in this essay (not Wal-Mart) are customers of Avado.
PHOTO: Re-useable Walmart bags are seen in a newly opened Walmart Neighborhood Market in Chicago September 21, 2011. REUTERS/Jim Young