Back in the day – I had the opportunity to do a fellowship that took me to the Ames Research Center of NASA. There, tucked in a small corner office, off of a typically bureaucratic hall was the cluttered office of an aging gentle man, who toiled in near obscurity, surrounded by small mementoes of his life – autographed pictures of he and President Johnson, personalized memorabilia from Neil Armstrong and Buzz Aldrin, and memorial tokens of the Gus Grissom – who was a personal friend, lost in the tragic fire aboard Apollo 1.
In short, this quiet, gentle man had been around. He had been there when NASA was where the elite of the elite strode down its halls and catapulted American pride and technological innovation to new highs.
I didn’t know this man directly, and my project didn’t put me in direct touch with him – but I was fascinated. Fascinated in what his perspective would be on how NASA went from a world class organization to what is perceived as a bungling bureaucracy. How did it happen and what lessons can be learned?
Over time I developed a relationship with this man and the lessons he taught me about leading in organizations are priceless:
1. “We were great when we didn’t know what we couldn’t accomplish. We got bad when we managed to our limits.”
He went on to explain that in the halcyon days of NASA, the common vision had no limits on what could be developed – on what could be done. There were no constraints on the thinking of the approach to problems and often what was found that the question at hand was really a 3rd tier issue that required the development of solutions to the 1st and 2nd tier first. It was in this “open sky” vision that NASA found most of its magic.
After the moon landing, NASA started ‘managing to the budget’ rather than to the vision. Constraints replaced energy as the guiding framework of the organization. “If you know how far you can go – then that’s as far as you will go” he told me. Of course, the magic is in defining the “can.”
2. “A common enemy helps...”
“You have to remember,” he said, “that originally NASA was created and evolved out of a fear that the Soviet Union would militarize space.” “Whether its fear or some other catalyst, there has to be a strong emotional driver shared throughout the organization.” “The worst thing that happened to the space program,” he said, “was when we lost our common enemy.”
3. “Leaps in vision need to get geometrically bigger...”
The final nail in NASA’s coffin was the inability to expand the vision beyond the moon. “In current technology, you have Moore’s Law,” he stated matter of factly. In computing you double processing power every two years. “I’ve come to believe that Moore’s Law is not so much a function of technology as a basic need in the human animal.” “As a people we have always naturally tended to do things better, faster, more efficiently – but in order to feel we have control we create systems – governments, bureaucracies, whatever – that provide obstacles to our natural tendency to grow.” “My experience,” he said, “is that organized collections of people – project teams, organizations, agencies – will wilt and die if they can’t keep setting the bar geometrically higher.”
“Once we reached the moon – it was almost incomprehensible to set the bar to Mars – very few understand the magnitude of the effort, and it seems like the same thing. We did a very poor job of evolving the dream.”
I’ve spent a lot of time studying people and organizations – I read a lot and done a fair amount of research. But the sad wisdom of an aging warrior provides a simple, but bountiful Rosetta stone for managing in our organizations.
I wish you well, old warrior, and thank you!
Thursday, September 17, 2009
Thursday, September 10, 2009
Crib Notes Cram on Health Care Reform
In our current world, political realities require a simple, 3-second sound bite solution for even the most complex problems. I consistently talk of the need for an 8th Grade solution to a graduate school problem if a solution is to be politically viable.
If it were not for the potential damage that it could do to our health, our lives, our economy and our way of life, the current discussion about health care reform has taken turns that would be laughable. Even though the emotional debate has reached a fevered pitch, the most basic elements are ignored, lost in the haze of social agendas and political power.
Here then are the fundamental issues that have been completely lost:
1. Insurance is not a payment scheme – It is a Risk Mitigation measure.
By definition, insurance is a means of indemnity against occurrence of an uncertain event. Insurance is designed to limit the losses incurred by a hazard that that is “uncertain”. It is that uncertainty that makes insurance work.
Imagine that your congressman came to you and said, “Every American is entitled to government funded life insurance.” Well, it’s pretty certain that the hazard here (death) is not uncertain. Every American will certainly, at some time, die. The only way to make that system work would be to ensure that the amount of money coming in (premiums and use of that money) exceeded the certain amount of money expended. That is not insurance, that is wealth re-distribution. The only reason life insurance works is that relatively low risk populations, make payments in advance to mitigate a hazard that they hopefully will never experience. Ergo, the benefits paid out will be less than the premiums received in. That is the very nature of insurance.
Since it is both economical, common-sensical, and appropriate that people receive health care, both in an effort to promote wellness and mitigate disease, health care does not meet the basic premise required of an insurable (variable risk) condition. So how do we introduce variable risk back into the equation? We recognize that the expenses related to our health are legitimate personal issues of responsibility up to some point.
If you buy a new car with a manufacturers warranty, the warranty becomes void if you fail to properly maintain your car – do your oil changes, appropriate tune-ups, etc. Yet, we have come to expect dollar one of our wellness or health care be paid by someone else – either our employer or our insurance company. We in essence can take our car to the dealer and demand he pay for our service whether we have met our responsibilities or not.
This issue can be resolved by making personal expenditures on health care, health insurance and wellness fully tax deductable (or as a direct tax credit) and transferring the responsibility for wellness back to the individual through these type of incentives.
No person in America should go broke because they are sick – everyone agrees. Then let’s return to a model of insurance that provides protection for the catastrophic uncertain events and not pretend that we have a workable full payment system.
2. The cost to the Government is not the total cost of the program.
In the effort to dumb down the discussion to a tolerable level, our politicians avoid and evade one basic fact. You can’t suspend the laws of economics.
Here’s the deal. Insurance companies make profits. They have to. If they don’t, investors don’t invest in the stock, don’t buy their bonds, and the insurance companies are unable to leverage the money they receive from premiums to pay claims. Again, that is the nature of insurance.
There are primarily two segments of the risk faced by insurance companies, premium setting and population risk.
Premiums are the engine of the insurance company’s revenues. They are set by actuarial determinations of risk (here we go with that concept of an uncertain event again). These determinations have a variety of factors that are utilized to set rates – included in these are past medical history and current medical condition.
Population risk is provided by a company’s exposure to a certain population. We don’t ask the rate payers of an insurance plan to accept the costs associated with certain populations – such as the risks posed by individuals in the military because the cost of this risk would be prohibitively expensive to the rate payers.
It sounds really good to state that “no one can be denied insurance because of pre-existing conditions or change in employment”, or whatever – but the practical result of limiting these variables in the setting of rates means that EVERYONES (that’s you and me) EXPENSES WILL GO UP. This is a totally hidden “tax” that is not even on the government’s books and will actually increase the cost of care – not reduce it.
If we are really interested in meaningful reform, the government can provide some form of risk limitation by providing subsidies for those at risk populations and providing a safety net for those who fall out. But defining levels of care and determining actuarial rules will only burden our, and future, generations with ever escalating costs.
3. Savings from Fraud, Abuse and Efficiencies – The Medicare Conundrum
I guess there will always be a segment of any population that will seek to exploit the system and utilize fraud to their economic gain. My experience though, is that more money, time and effort are spent on trying to ensure that byzantine rules for our Medicare reimbursement system are followed than are spent in outright fraud and abuse. The poorly constructed language of the re-imbursement rules and legislation create its own bureaucracy and all manner of interpretation and confusion.
This bureaucracy provides a gigantic obstacle to innovation and improvement our processes of delivery. Many clients I work with on a daily basis have avoided, or cannot fully implement, Electronic Health Records because of their concerns about how technology bills for services and feel it necessary to provide adequate checks and balances (human review) for the unreasonable level of scrutiny – and ultimate delay in payment, or bad public relations - they will receive if they are subject to a Medicare Audit.
More importantly, nobody is mentioning that Medicare is responsible for about $520 billion a year in cost shifting which directly results in increased costs to the system. Cost shifting occurs because Medicare reimbursement is not based on the actual cost of doing anything – it is based on the ability of the government to pay. Thus an aspirin, which may have a legitimate cost of two dollars, is re-imbursed by Medicare at 40-cents. As the population covered by Medicare increases, a smaller and smaller number of people are left to pay the difference between that 40-cents and the real cost of two-dollars. This means that practitioners must bill seven-dollars from those remaining, non-Medicare patients to recoup their legitimate costs of doing business.
It is ironic, at one level, and intolerable on another, that Medicare is responsible for such a large portion of the escalation in our health care costs yet no one is talking about this Medicare Effect. At the same time Medicare that is held out as an example of how the government can effectively run a health insurance program.
Oh – and by the way. The week after whatever reform is, or is not passed, we will get hit with the insolvency of the social security system. Despite the rhetoric – these are not the same issue and they are not the same balance sheet. The social security debacle will dwarf the impacts of this debate – so stand by.
If it were not for the potential damage that it could do to our health, our lives, our economy and our way of life, the current discussion about health care reform has taken turns that would be laughable. Even though the emotional debate has reached a fevered pitch, the most basic elements are ignored, lost in the haze of social agendas and political power.
Here then are the fundamental issues that have been completely lost:
1. Insurance is not a payment scheme – It is a Risk Mitigation measure.
By definition, insurance is a means of indemnity against occurrence of an uncertain event. Insurance is designed to limit the losses incurred by a hazard that that is “uncertain”. It is that uncertainty that makes insurance work.
Imagine that your congressman came to you and said, “Every American is entitled to government funded life insurance.” Well, it’s pretty certain that the hazard here (death) is not uncertain. Every American will certainly, at some time, die. The only way to make that system work would be to ensure that the amount of money coming in (premiums and use of that money) exceeded the certain amount of money expended. That is not insurance, that is wealth re-distribution. The only reason life insurance works is that relatively low risk populations, make payments in advance to mitigate a hazard that they hopefully will never experience. Ergo, the benefits paid out will be less than the premiums received in. That is the very nature of insurance.
Since it is both economical, common-sensical, and appropriate that people receive health care, both in an effort to promote wellness and mitigate disease, health care does not meet the basic premise required of an insurable (variable risk) condition. So how do we introduce variable risk back into the equation? We recognize that the expenses related to our health are legitimate personal issues of responsibility up to some point.
If you buy a new car with a manufacturers warranty, the warranty becomes void if you fail to properly maintain your car – do your oil changes, appropriate tune-ups, etc. Yet, we have come to expect dollar one of our wellness or health care be paid by someone else – either our employer or our insurance company. We in essence can take our car to the dealer and demand he pay for our service whether we have met our responsibilities or not.
This issue can be resolved by making personal expenditures on health care, health insurance and wellness fully tax deductable (or as a direct tax credit) and transferring the responsibility for wellness back to the individual through these type of incentives.
No person in America should go broke because they are sick – everyone agrees. Then let’s return to a model of insurance that provides protection for the catastrophic uncertain events and not pretend that we have a workable full payment system.
2. The cost to the Government is not the total cost of the program.
In the effort to dumb down the discussion to a tolerable level, our politicians avoid and evade one basic fact. You can’t suspend the laws of economics.
Here’s the deal. Insurance companies make profits. They have to. If they don’t, investors don’t invest in the stock, don’t buy their bonds, and the insurance companies are unable to leverage the money they receive from premiums to pay claims. Again, that is the nature of insurance.
There are primarily two segments of the risk faced by insurance companies, premium setting and population risk.
Premiums are the engine of the insurance company’s revenues. They are set by actuarial determinations of risk (here we go with that concept of an uncertain event again). These determinations have a variety of factors that are utilized to set rates – included in these are past medical history and current medical condition.
Population risk is provided by a company’s exposure to a certain population. We don’t ask the rate payers of an insurance plan to accept the costs associated with certain populations – such as the risks posed by individuals in the military because the cost of this risk would be prohibitively expensive to the rate payers.
It sounds really good to state that “no one can be denied insurance because of pre-existing conditions or change in employment”, or whatever – but the practical result of limiting these variables in the setting of rates means that EVERYONES (that’s you and me) EXPENSES WILL GO UP. This is a totally hidden “tax” that is not even on the government’s books and will actually increase the cost of care – not reduce it.
If we are really interested in meaningful reform, the government can provide some form of risk limitation by providing subsidies for those at risk populations and providing a safety net for those who fall out. But defining levels of care and determining actuarial rules will only burden our, and future, generations with ever escalating costs.
3. Savings from Fraud, Abuse and Efficiencies – The Medicare Conundrum
I guess there will always be a segment of any population that will seek to exploit the system and utilize fraud to their economic gain. My experience though, is that more money, time and effort are spent on trying to ensure that byzantine rules for our Medicare reimbursement system are followed than are spent in outright fraud and abuse. The poorly constructed language of the re-imbursement rules and legislation create its own bureaucracy and all manner of interpretation and confusion.
This bureaucracy provides a gigantic obstacle to innovation and improvement our processes of delivery. Many clients I work with on a daily basis have avoided, or cannot fully implement, Electronic Health Records because of their concerns about how technology bills for services and feel it necessary to provide adequate checks and balances (human review) for the unreasonable level of scrutiny – and ultimate delay in payment, or bad public relations - they will receive if they are subject to a Medicare Audit.
More importantly, nobody is mentioning that Medicare is responsible for about $520 billion a year in cost shifting which directly results in increased costs to the system. Cost shifting occurs because Medicare reimbursement is not based on the actual cost of doing anything – it is based on the ability of the government to pay. Thus an aspirin, which may have a legitimate cost of two dollars, is re-imbursed by Medicare at 40-cents. As the population covered by Medicare increases, a smaller and smaller number of people are left to pay the difference between that 40-cents and the real cost of two-dollars. This means that practitioners must bill seven-dollars from those remaining, non-Medicare patients to recoup their legitimate costs of doing business.
It is ironic, at one level, and intolerable on another, that Medicare is responsible for such a large portion of the escalation in our health care costs yet no one is talking about this Medicare Effect. At the same time Medicare that is held out as an example of how the government can effectively run a health insurance program.
Oh – and by the way. The week after whatever reform is, or is not passed, we will get hit with the insolvency of the social security system. Despite the rhetoric – these are not the same issue and they are not the same balance sheet. The social security debacle will dwarf the impacts of this debate – so stand by.
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