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Management in Practice

How will Obamacare change healthcare?

A recent spate of news gives hints about whether the Affordable Care Act is likely to be successful in improving healthcare coverage and quality. Robert Galvin, CEO of Equity Healthcare, a firm that manages health insurance for more than 300,000 people, talks about how he sees the law changing the health insurance market—and the importance of continuing to innovate on all levels.

  • Robert Galvin, MD
    CEO, Equity Healthcare; Professor Adjunct of Medicine and Health Policy, Yale School of Medicine

When it first passed, those analyzing the Affordable Care Act pointed to 2014 as the year when the law would become real to most Americans. This is when the exchanges, the mechanisms to allow individuals to band together and lower premiums, will be fully up and running. It’s also when the Medicaid expansion begins, a move that could bring health insurance to tens of millions of people.

There have been a number of recent signs that the law could deliver on some of its biggest promises—making insurance more available and affordable, and lowering overall spending on healthcare.

Reports out of California’s effort to build its exchange have been encouraging. The costs of plans in the exchange are turning out to be cheaper than expected. On average, residents can expect to pay $276 per month for the most affordable “silver” plan, which covers 70 percent of health costs. The out-of-pocket cost drops significantly for the 2.6 million people who will receive subsidies.

Another piece of good news for Obamacare came with the release of the annual report by Medicare’s trustees. In it, the board extended the life of the Medicare trust fund from 2024 to 2026, a change Medicare’s chief credited to reforms in the Affordable Care Act. This came after the Congressional Budget Office reported that healthcare spending now looks to be significantly lower than predicted. The CBO’s director said the change is partly due to structural changes in the healthcare system.

However, a study of health outcomes for people who received expanded Medicaid coverage in Oregon provided at best ambiguous results, allowing some to argue that this aspect of Obamacare will not improve the healthcare system.

As we move toward the critical year, the exact effects of the law remain uncertain, but there is no doubt that it will have a huge impact on the healthcare sector.

Robert Galvin, MD, CEO of Equity Healthcare, sees the law as a major opportunity for private companies to innovate in how they provide healthcare to employees. Equity Healthcare, formed by the Blackstone Group in 2008, purchases healthcare for the 300,000 employees of portfolio companies for several private equity firms. Galvin says he constantly speaks to the CEOs of those companies about the impacts of Obamacare, which he calls the biggest healthcare change for the private sector in 40 years. “I tell them now’s the time, in 2013, to get really innovative and aggressive in what you do,” he said, “so that in 2014, 2015, and 2016 you lower your costs enough and save yourself money.”


Q: What levers does Equity Healthcare use to achieve lower cost and better results?

Robert Galvin: First of all, let me tell you what Equity in Healthcare is. So, Equity in Healthcare is a purchasing coalition and it works with employers who have been purchased by private equity firms. So, a firm like Blackstone, Bain Capital, TPG, Vestar, etc., will buy a company. The company could be a Neiman-Marcus. It could be a Sea World. And my company, Equity Healthcare, will go in and manage their health benefits and healthcare costs.

So, I have 40 companies and about $1.5 billion worth of spending. And what I'm able to do is use that purchasing volume to go out to the market and get services that a smaller company wouldn't. For example, Neiman-Marcus, 3,000 or 4,000-employee company now goes to the market as 150,000-employee entity.

We're then able to do these RFPs and choose national vendors that are willing to do things the Equity Healthcare way. And what I mean by that is we're not buying an Aetna or a United Healthcare off-the-shelf product at a discount. What we do is at a discount, we ask them to customize care, using their employees and their systems, in a way that they haven't done before.

We think there's a lot of opportunity to save money out there, but insurers in general don't have a lot of demand from employers to innovate, but we're very innovative.

Q: Is the relative influence of the private sector and public sector in healthcare changing?

Galvin: Well, it's changing really rapidly, obviously, with the passage of the healthcare reform bill three years ago. I think the government really took a very dominant role about setting themes and aims and goals for the system. And so, really, we haven't seen that, certainly in my several decades.

So, I think the public sector has taken a much bigger role. Now understand, the way they did the reform was still working through the private sector. So, they're not government hospitals. They're not government insurance. They're working through the private sector, but they've taken a bigger role.

I think that's a good thing. I think to the extent that they set the rules for the marketplace, set the rules that it's a level playing field, and let the private sector innovate, I think that's good.

On the private-sector side, let me talk about employers, which is where I work. It's been the biggest change probably since the passage of ERISA back in the early ’70s. That's like 40 years, and it's a big change really for two reasons. The first is it says to employers that you no longer are free to not cover employees. You must either cover them or pay a fine. That's unprecedented.

And the second thing is that it offers employers a way out. So, these health insurance exchanges or marketplaces are going to be set up so employers who maybe didn't want to offer health benefits but didn't want to throw their employees to the wolves of a non-functioning private market, can now say, "Listen employee. This isn't what we do. You're going to go to the marketplace and buy your insurance there." So, it's really the biggest change in 40 years in the private employer side.

Q: How is the rollout of healthcare reform affecting what you do?

Galvin: Asking me as someone who runs a company on the employer side, it's really in a sense taken the oxygen out of the room. So, I'm very intent on innovating and driving quality and all sorts of different approaches to managing healthcare. And I meet with the CEOs of all these companies, and what they want to know about is health reform. What do I do? What does this mandate mean? Should I stay in? Should I go out?

So, it really has taken center stage. It's been around for a few years, but most CEOs are busy. And so, it wasn't until they finally had to make decisions that they faced it. So, it really is issue one.

I think the good news for my company is they're almost all going to stay in the system and not bail. But it's a good opportunity to use it as a way to be innovative, to basically say, "Look. Healthcare costs are not going to magically disappear. You don't have a magical exit strategy. You have this Cadillac excise tax coming up that you're going to be judged in how you do in 2017. So, now is the time, in 2013, to get really innovative and aggressive about what you do, so that over 2014, 2015, 2016, 2017, you lower your costs enough and save yourself money."

So, you spend the first 40 minutes of the hour talking them down from the ledge about health reform, and then the next 20 minutes, they get very intent and very interested in driving innovation.

Q: Which parts of the healthcare industry need standardization, and which need local innovation?

Galvin: The healthcare system is so vast and so complicated that there's always this tendency: why don't we centralize everything and make things simpler like a Canadian system? And there actually is a lot to be said for that in terms of decreasing administrative complexity. It is so complicated for patients and individuals to figure out what's happening with their benefit design.

The problem is, when you do that, you really stifle innovation. The other side of the curve, of course, is you let a—I guess in the case of healthcare, a trillion flowers bloom and it just becomes chaos. We saw this in the quality measurement movement probably 10 or 15 years ago where finally, the system decided it was going to measure quality. It was going to make it transparent. And literally, hundreds of different methodologies to measure quality rose up.

It drove the hospitals and doctors crazy because there was no coordination or unanimity. So, that doesn't work either. So, it really is almost that you need centralization and decentralization. My bias is I believe that the market makes a big difference, but the market needs rules.

So, IT, we need rules. We still don't have interoperability because we can't decide on basic rules about language, fields, etc. That needs that. I think the government has done a good thing in making those precious metals in exchanges, the bronze, platinum, gold, and silver plans.

So, I think setting a level playing field in the market and setting rules that allows the market to work, that needs to be centralized. I think at that point, you ought to let the market work and be decentralized, decentralized around service innovation, around all sorts of payment reform innovation.

So, I think we don't know how to do this. This is a vast sector, so to say you should have centralization and decentralization and figure it out—pretty easy to roll off your tongue. Pretty hard to do and all of us in healthcare will spend the rest of our careers trying to figure out the balance.