After spending 50 years in the private sector where cost reduction opportunities are near infinite in number, I believe the $2 trillion in savings currently being considered by the Administration and Congress is both necessary and achievable. While workforce reduction is always an opportunity, the vast majority of savings will come from which services we continue to ask the government to provide and finding more efficient ways to provide them.
Nowhere is the opportunity greater than in healthcare, where federal costs and patient expenses can be reduced, while still improving care. Having spent the better part of the last two decades reinventing how healthcare services are provided, I have identified five areas of “low hanging fruit” with a combined annual savings of nearly $300 billion: (1) Drug Costs for both Medicare and Medicaid, (2) Royalty Payments to the National Institute of Health (NIH), (3) Cancer Services, (4) Wellness Services and (5) Fraud and Abuse.
Drug Costs. The U.S. currently pays 4 times what other developed nations pay for the identical branded drugs. If we paid the same as other developed nations, including nations whose population are less than 8% of the U.S., the federal drug spend would fall by $125 billion per year. These other nations pay significantly less because they negotiate with pharmaceutical companies on behalf of their country. By contrast, until recently, Medicare has been precluded by law from negotiating prices directly with drug companies. Even now the recent permission to negotiate involves only 25 drugs, representing 10% of the total drug spend, with some implementation as late as 2030.
Congress should immediately change the law to allow Medicare to negotiate all government funded drug prices, require Medicare to use a full pass-through pharmacy benefit manager (PBM) and permit all U.S. companies to benefit from these negotiated prices or bargain on their own. It is a false narrative to suggest that drug development and medical research will suffer. Drug manufacturers simply need to have other developed nations pay more.
Royalty Payments to NIH. Our federal government spends $50 billion per year on medical research (4 times that of the second largest nation) most of which supports private sector drug development. In fact, from 2010 through 2019, NIH played a significant role in the development of 354 of the 356 drugs that were approved by the FDA. For each of the 354 drugs brought to market, the drug manufacturers had an average investment of $1.3 billion and NIH had an average investment of $1.4 billion. While NIH receives royalty fees, they are well below market, and a far cry from what a private sector entity would require. If this fee were moderately increased, in less than 10 years, NIH would be self-funded at $50+ billion per year into perpetuity …saving the federal government $50 billion in tax payor money. Just to be clear, I am a huge fan of the federal role in medical research, but the government royalty is currently well below its added value.
Cancer Services. We have an opportunity to reduce cancer deaths by 37% and federal cancer spending by $50 billion per year. The science already exists. But for a small handful of reasons, all of which are correctable, execution is badly lacking. The two biggest reasons: (1) on time screening rates for the 5 screenable cancers, representing 50% of all cancers are only 35%, and (2) either the diagnosis is incorrect or the treatment plan suboptimal 40% of the time. By employing digital technology to support the physician community, we can increase on-time screening to 85+% and eliminate the vast majority of incorrect diagnoses or suboptimal treatment plans by requiring a second opinion from a top cancer center.
Wellness Services. Medicare and Medicaid should require mandatory wellness services and insert enough transparency to guide consumer choices for both Medicare and Medicaid. When Safeway Inc. Incorporated these features into its health plans, Safeway reduced its total health benefit costs by 50% in less than eight years, while increasing the level of benefits. This should generate another $30 billion in federal savings.
Fraud and Abuse. While fraud and abuse will never disappear, we should be able to focus on the largest elements and deploy technology to catch fraud early. If my credit card company can text me and ask if I just made a $19.00 purchase in Bentonville, Arkansas in real time, we can deploy technology to catch fraud much earlier and raise the penalty to further discourage this behavior. This should be worth an easy $40 billion per year.
I have been around long enough to know that ideas are cheap, and that execution can be difficult. Successful execution requires a unique set of skills, experience, and world class determination. Bringing laser-focused leadership and private-sector discipline to the public-sector will not only curb runaway federal spending but also create a healthcare system that works better for patients and taxpayers alike. This is a $300 billion annual healthcare fix Washington simply can’t afford to ignore.
