Before I jump into the topic, you might want to know: Why do we, venture investors, care about the debate? Is this another case of financially comfortable people getting in touch with their inner left-winger? I can’t answer for the deeper layers of my psyche, I’ve given up on such explorations. All I can say is: We The VCs don’t like the ever escalating portion of our GDP spent on healthcare, 17.6% in 2009 and expected to rise to 19.5% by 2017.
 More specifically, for our startups, the cost of employer-sponsored health insurance has risen by 119% (!) in the last decade. We’re in the business of financing the dreams of entrepreneurs, not lining the pockets of insurance companies.

(For more on the the GDP threat and other toxic issues see my January 11th, 2009 Monday Note here.) And, on the unproven assumption we have a heart and soul, how could we like the spectacle of close to 50 million (this is likely to be the 2009 number) uninsured people?

With this out of the way, on to the debate.

First, I see a terrible error in reasoning: we can’t keep treating healthcare like a business. We’re not dealing with the financials of Boeing, Walmart or Apple. Once upon a time, an aspiring executive, I wanted to be initiated into the brotherhood of executives. Knowing my pangs and playing on them, McGraw Hill,

 the publishing giant now trying to get rid of Business Week,
 sold me a subscription to management books series. Luckily, these were good books, I fondly remember Robert Townsend’s Up The Organization! and, to today’s point, Peter Drucker’s
 The Practice of Management.

 Take a look at the enthusiastic Amazon reviews. More than thirty-five years later, one idea from the book still sticks to my mind: the difference between businesses and institutions. The Army, Congress and, according to the great management sage, hospitals all are institutions; they shouldn’t be thought of, or managed like businesses. (I won’t get into the “business” of Congress with lobbyists.)
To our now costly regret, we’ve allowed medicine to be run like a business. When doctors mortgage themselves to buy expensive imaging equipment installed right into their office, guess what happens? Medicine leaving, rightly, much to the doctor’s judgement, a doctor now motivated to run expensive diagnostics, just in case.
If you have the time and stamina, read the great New Yorker article on a Texas town, McAllen, featuring the highest per capita medical costs in the entire country. Why? The equipment and a culture of treating medicine as a business, of milking/bilking patients and, in most cases, their insurance companies. The latter always have the solution of raising premiums on customers who can’t go elsewhere for fear of being denied coverage because of a pre-existing condition.
If you want an even more disheartening read on the state of healthcare in the US, versus the rest of the world, grab T.R. Reid’s The Healing of America. 
Again, take a look at the Amazon reviews. The subtitle reads: A Global Quest for Better, Cheaper, and Fairer Health Care; it foretells the awful story inside, not by a left-wing firebrand but by a moderate soft-spoken scholarly but readable writer.
In a nutshell: We, the US, are number one (we always like the sound of that) in per capita spending; but, depending on the way outcomes are measured, we rank something like thirty-seventh on the quality/efficiency of our healthcare.
To quote the author: “You don’t need an advanced degree in yajnopathy to recognize that the stars are aligned and the timing is propitious for the United States to establish a new national healthcare system.”

Yet, we’re mired in heated controversy and ugly lies. See Newsweek’s article here, or CBS’ Katie Couric’s thoughtful “notebook” here. I like our president, I trust him. But, as a growing number of us do, I’m disappointed by his lack of clarity in describing his proposed solution, by his failure to use the “bully pulpit” to rise above the din.
The sorry, expensive and somewhat corrupt state of our healthcare system is easy to document in compact, unarguable ways. The march towards an unbearable GDP burden is well understood.
Our “no-drama-Obama” president is highly intelligent, hard-working, well-surrounded by high-caliber advisers and, above all, he is a Great Communicator of Reaganesque proportions.
How come President Obama let rabid opponents take control of the debate? How come he can’t say simple things like: My program is Medicare For The Rest Of Us? Steve Jobs wouldn’t sue him.
Or: My program is giving you the same benefits as your senators have. No playing rescission or pre-existing condition games.

But he doesn’t. Why?

Here again, the simplest answer is likely to be the real one.
He can’t tell the truth. We’re not ready for it.
This isn’t to say he’s lying, I don’t run with the crowd that call him names and draws Hitler mustaches on his pictures; I just saw a group of such nuts in Harvard Square last week. No, the truth is too ugly to be told, it has to be obfuscated. Or, more likely, introduced in small mithridatizing increments.
As I did in January, let’s use (with license) Mancur Olson’s metaphor in the introduction to his book The Logic of Collective Action. The four of us go to dinner. As we sit down, we agree: Let’s order as we please, we’ll split the check four ways. Decorum prevails: I’m not going to order Dom Perignon and filet mignon if I see you’re inclined to go for beer and a hamburger, that would be gauche. Now, visualize a huge tent, a banquet with 1,000 diners. The MC comes to the microphone and says: Order as you please, we’ll split the check one thousand ways. Care to guess what happens? Not seeing what the other guy hundred tables away is ordering, I’ll make sure to get my filet mignon and my champagne. I don’t want to be “had” ordering Sam Adams and cheeseburger while others are swimming in expensive French bubbly and prime beef cuts.
This is what happens with mutualized systems, there is little incentive for moderation. In other  words, a national healthcare system covering everyone encourages consumption.
Here, our President hasn’t been able to offer much solace to those who fret about escalating healthcare costs.
Going back to the banquet, the MC might have to go back to the microphone and set some limits, no Dom Perignon, only Budweiser and “wine in a box”. In other words, rationing, the terrible accusation. Save for the fact today’s insurance companies game their customers and ration in ugly ways. I don’t know anyone around me who hadn’t to spend hours on the phone fighting insurance company decisions. This month, it cost my spouse 8 hours of her time to fight a rejection, finally reversed as there was no rhyme or reason to the earlier denial. They just try.
A doctor I know had trouble getting payments from the insurance company, they were very, very slow. One day, he gets a call from an expediting firm, they were in the business of accelerating insurance company payments – for a fee. The good doctor did a little bit of digging and discovered the business in question was, in fact, an accomplice to the insurance company, getting target names from it and probably splitting the loot with it. Easily done, just buy a list of doctors from the insurance company. Lovely.
So, yes, there will be rationing of some sort, like today, only more honest. But those words can’t be uttered.
Going back to the banquet and its cost escalation pressure, we’re in a bind: we want universal coverage and we want to put the brakes on the GDP percentage escalation. This gets us into another truth that can’t say its name: doctors, hospitals, drug companies, insurers will have to make less money. Yes, that’s simple arithmetic.
That’s how it’s done in Western Europe, the better outcomes for patients are amply documented.
With Congress largely bought and paid for by industry lobbies, telling the paymasters they’ll have to make less money for The Greater Good is worse than useless, it generates the kind of anger and lies we’ve witnessed this Summer.

Where does this leaves us, the US?

This coming Wednesday, President Obama addresses a joint session of Congress. At one level, his goal is simply stated: refocus, retake control of the debate.
Mark Shields,

 the moderate-Left PBS commentator, called Obama a mountain goat, 
this is no insult, au contraire. Shielded admiringly referred to BHO’s unerring balance while negotiating the most treacherous political terrain. Regrettably, our president hasn’t been so sure-footed this Summer. Fortunately, he hasn’t lost another of his skills, his preternatural “no drama Obama” calm. He knows he’s been wobbly, what can he do now?
Can he tell the Ugly Truth: In order to avoid another American bankruptcy, by way of GDP percentage escalation, in order to cover everyone, in order to become the best healthcare nation in the world, we need to take money from your pockets, you know who you are.
Of course not. This, he knows it, is political suicide.
We can dream all we want of some Arthurian hero, so pure-hearted that He and only He can pull the sword from the stone.
But, in this reality, stone-hearted lobbies have more power than America’s CEO.
So, hypocrisy will prevail, the great lubricant of social intercourse. Moving from nimble feet to deft hands, going back to just the right dose of mithridatizing truth, or soothing untruths, we’ll watch how our president regains his balance.
In other words, being a practical politician, as opposed to a holy fool, he’ll advance an imperfect “universal” system. There will be lots of bugs, he’ll know it and have a plan, hypocritically but safely unsaid, to introduce fixes in future legislative battles/releases.

We, Silicon Valley types, are thoroughly familiar with the pantomime: this is always what we do when we introduce a new product.  —JLG

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