New Thinking

The U.S. health sector needs all the competition it can get, with innovation and entrepreneurial, outside-the-box thinking at a premium.

Enter AOL Founder Steve Case, who is moving into the health care space with an exciting new company he’s creating called, appropriately, “Revolution.”

Business Week broke the story about Case’s new company in its current issue, saying that he sees the move toward consumerism in the health sector as a major opportunity. “Health care is monumentally complex, confusing, inefficient, and inconvenient,” he says. “Meanwhile, it’s the biggest industry in the country, and everybody hates it.”

Clearly, there are major opportunities here for a visionary entrepreneur.

My colleague Greg Scandlen and I met with Steve and his top-notch team early this year to talk about his plans. And the Galen Institute subsequently organized a forum in February with Steve and about 25 health care entrepreneurs from around the country to talk about the changes and challenges taking place in the health sector.

The forum was mind expanding, giving people who are on the cutting edge of change a chance to exchange information and ideas and to hear about Steve’s plans for Revolution. He sees a health system emerging with consumers in the center, empowered by useful and easily accessible information to help them become smarter patients and consumers.

Steve and his team are looking at a number of possible companies to buy, and the magazine reports that he plans to invest $500 million in building the new company.

Keep an eye on this. This is going to shake things up, which is exactly what the health sector needs!


Another health care mover-and-shaker spoke to an American Enterprise Institute audience last Friday during AEI’s annual forum on Medicare and Social Security. Medicare Administrator Mark McClellan, M.D., outlined the major changes he’s leading to “bring Medicare into the 21st century.”

I have a message for all of you who are still so unhappy about passage of the Medicare bill in 2003: You should have heard this speech.

Passage of the Medicare law, for the first time in history, has given supporters of free markets a chance to inject market forces into a huge government entitlement program. These changes would not have happened without passage of this bill, and Mark is the perfect person to be leading these changes.

A few samples from Mark’s talk:

  • We can’t solve Medicare’s problems “by imposing arbitrary government controls on prices and access to care” or “by leaving Medicare’s benefits out of date?paying a lot of money for inefficient, ineffective care.

    “High quality care is the only kind of care we can afford.”

  • He listed three areas of reform: First, “we’re shifting Medicare’s focus toward prevention?When I started this job, about 95% of Medicare’s spending went to treating health problems after they happen?Dealing with health problems after they happen means that hundreds of thousands of Americans die prematurely each year.”

    McClellan said that “pharmaceuticals are an essential part of modern health care?so instead of paying for surgery for bleeding ulcers?Medicare will pay for the prescription drugs to avoid these costly, intensive procedures.” He stressed that Medicare will use competition, not price controls, to keep costs down.

  • Second, he’s encouraged by the flood of interest in Medicare Advantage health plans. He said that 47 states have Medicare Advantage plans this year, giving more than 90% of Medicare beneficiaries access to these full-service plans.

  • Finally, the old Medicare paid for “more visits, more procedures, more hospitalizations, and more tests,” without regard for quality. Mark described several new programs, enabled by the legislation, that will reward physicians for improving quality and costs. “The key to solvency is up-to-date care delivered at the lowest possible cost,” he concluded.

Hello? Isn’t this what all of us have been working for all along? Can we start focusing on the positive?

Grace-Marie Turner


  • State Medicaid disease management: Lessons learned from Florida
  • U.S. spending for mental health and substance abuse treatment, 1991-2001
  • Congress should get serious about Medicaid
  • Tough lessons from TennCare
  • Uncle Sam is no doctor
  • Noble vision

Authors: Chiquita White, Caroline Fisher, Dan Mendelson, Kevin A. Schulman, MD
Source: Health Strategies Consultancy and Duke University, March 2005

Duke University has published a review of a joint program sponsored by Pfizer Inc and the State of Florida designed to improve health care management for Medicaid populations. The program, called Florida: A Healthy State, began in 2001, enrolled more than 150,000 Medicaid enrollees, improved the quality of care, and saved the state an estimated $42 million over 27 months. But interviews with people involved in the program said that, despite the value of this program, integrating Medicaid beneficiaries into disease management programs can be difficult because the beneficiaries “tend to be more mobile, be less trusting of outsiders, have lower literacy, and have poorer health than their counterparts in private health care,” the study reports. The program successfully worked to address many of these problems by focusing on the individual needs of each beneficiary, giving care managers the flexibility to assist beneficiaries with non-health related crises that take attention away from their illnesses, and developing educational materials better targeted at the Medicaid population.
Full text (pdf):

Authors: Tami L. Mark, Rosanna M. Coffey, Rita Vandivort-Warren, Hendrick J. Harwood, Edward C. King, and the MHSA Spending Estimates Team
Source: Health Affairs Web Exclusive, 03/29/05

Spending for mental health and substance abuse treatment in the United States totaled $104 billion in 2001, with 35% of the total covered by private payers and 65% covered by public payers, write the authors of a new paper for the Health Affairs web site. “In 2001, Medicaid was the single largest payer of mental health care, totaling $27 billion or more than one-quarter of all mental health spending,” write the authors. They write that approximately 28 to 30% of adults in the U.S. suffer from a mental or substance abuse disorder each year. The paper highlights a decline in inpatient spending and an increase in spending on prescription drugs, including antidepressants and antipsychotics.
Full text:

Author: Nina Owcharenko
Source: The Heritage Foundation, 03/30/05

President Bush’s proposed Medicaid reforms, put forth in the FY 2006 budget, aim to restore accountability and efficiency to the struggling program, writes Nina Owcharenko of The Heritage Foundation. The package of reforms, which includes features that would reduce financing gimmicks and tighten enforcement rules for asset transfers, would save Medicaid $12.8 billion by FY 2010 and $44.6 billion by FY 2015. “Congress should go far beyond the President’s modest proposals,” writes Owcharenko. Yet Medicaid promises to be “a contentious issue” for both the House and Senate, as both “have passed budgets that differ significantly with respect to Medicaid funding.” Owcharenko writes that Congress must “begin to address entitlement spending” and recommends that lawmakers work with the states “to create consumer-based structural reforms in the program ?This could be done with refundable tax credits and by bringing consumer-directed and innovative care management to populations that must depend on Medicaid.”
Full text:

Author: Victoria Craig Bunce
Source: Council for Affordable Health Insurance, 03/05

As several states consider ways to revamp Medicaid, legislators would be wise to learn from the mistakes of TennCare, Tennessee’s managed care program which expanded and replaced Medicaid, writes Victoria Craig Bunce of the Council for Affordable Health Insurance. TennCare has been a fiscal nightmare from its inception and now consumes nearly a third of the state’s budget. In response, Gov. Phil Bresden recently announced that the state “will revert to a Medicaid managed care program and drop 323,000 people.” Bunce writes that Tennessee’s experience offers proof that managed care is not a universal solution and that government-run systems invite widespread fraud, limit quality of care, and are not cost-effective. Better and less expensive ways to cover the uninsured include refundable tax credits, consumer-driven health plans, eliminating state mandates and regulations, and creating a fully funded high-risk pool for the uninsured, she writes.
Full text (pdf):

Author: Regina E. Herzlinger
Source: USA Today, 03/29/05

“Americans want to know how good their doctors and hospitals are,” writes Harvard Business School Professor Regina Herzlinger. “But the government does not reward good performance?It rewards only good conformance – for medical providers who follow its recipes.” Herzlinger provides the opposing view to a USA Today editorial on the benefits of new guidelines that measure and pay hospitals based on performance. Herzlinger argues that the science of medicine changes often and medical treatments should be personalized to each patient. “Government’s appropriate role is to measure outcomes – the real performance of doctors and hospitals,” concludes Herzlinger
Herzlinger Commentary:
USA Today Editorial:

Author: Gen LaGreca
Source: Winged Victory Press

A remarkable first novel by former medical researcher Genevieve LaGreca describes a neurosurgeon’s fight against the state medical bureaucracy. “Instead of deciding what are the best tests to run?I have to ask: What tests am I allowed to run?” the fictional doctor laments. He says medical decisions are actually driven by “political decisions and statistical averages?with a faceless bureaucracy superseding the individual doctor and patient.” The novel’s dilemma: “A state’s managed care system is trapping an innovative surgeon and a tragically injured ballerina in its maze of rules. If he obeys the law, she is doomed: if he defies it, he is.” This chilling work of fiction shows “what can happen to medical breakthroughs if Big Government claws even deeper into our health care system,” Steve Forbes says in a tribute to the novel.
Full text:


Short vs. Long Term Thinking: Incorporating the Long-Term Fiscal Outlook into the Myopic Budget Process
Cato Institute Capitol Hill Conference
Wednesday, April 6, 2005, 8:30 a.m. – 12:30 p.m.
Washington, DC
For additional details and registration information, go to:

9 Million Fewer Uninsured?
AEI Health Policy Seminar
Friday, April 8, 2005, 9:00 a.m. – 11:15 a.m.
Washington, DC
For additional details and registration information, go to:

Health Policy Matters is a weekly newsletter containing summaries of timely and informative studies and articles on free-market health reform. It features research and writings by participants in the Health Policy Consensus Group, articles of interest from the health policy world, and announcements of coming events. Health Policy Matters is published by the Galen Institute, a not-for-profit public policy organization specializing in information and education on health policy. For more information about the newsletter and our organization, please visit our website at

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Elizabeth Lamirand, editor