Matthew Holt: Internet Pundit Thrives on the Biggest Issues

Integrated health care systems are seizing the momentum in care coordination from HMOs, says the author of the well-read Internet Healthcare Blog.

Health care researcher, consultant, and blogger Matthew Holt says his role “is to support those in the industry trying to look to the near horizon or to those outside health care who want to find out more about how $1 in every $7 gets spent.”

Apart from his general analysis of the whole health care system, his focus on new technologies and pharmaceuticals flows partly from his stint — which he terms a “genius idea or disastrous idea, depending on how you look at it” — from 2000 to 2002 at an Internet startup, The company had two product lines: Web-based consumer health records and data tools that evaluated the effectiveness of direct-to-consumer pharmaceutical advertising. After the company went under in 2002, Holt traveled the world and returned to his adopted home of San Francisco, where for the last year, he has run the Healthcare Blog, at A blog is a contraction of Web log, and a blogger is essentially a commentator. Anyone can establish a blog without knowing the intricacies of Web page design. On a blog, it’s the content that counts. Holt’s Web log focuses on the business of health care, and for many in the health care industry, it is a rewarding, or at least stimulating, place to visit.

Holt’s earlier work at the Institute for the Future, where he ran the health care information technology practice, involved forecasting the health care system. At Harris Interactive, he was involved in gauging current public opinion on issues related to health care. He led research studies on Computing in the Physician’s Practice and The 10,000 Patients Study — the largest ever online study of the chronically ill.

A native of England, Holt holds two master’s degrees from Stanford University, in health services research and political science, and a bachelor’s degree in social and political science from Cambridge University.

While at Stanford, Holt took health care economics courses taught by Alain Enthoven and Victor Fuchs. At the time, Holt had never heard of the professors he would come to see as his greatest influences. Holt spoke recently with Senior Contributing Editor Patrick Mullen.

MANAGED CARE: Three aspects of health care everyone always talks about are cost, quality, and access. At times one gets more attention than the others.

MATTHEW HOLT: For employers and others outside of the health care industry, the focus is on cost, and cost as it affects access. We have had four or five years of significant cost increases, several times the rate of inflation. Employers have reacted by shifting more costs onto employees. If you look at the significant grocery worker strike in California, all the ongoing rumbling between SBC, the biggest telecom company, and its employees over health care costs, it’s clear that this will continue to be an issue. Senator Kerry is talking about the impact of health care costs on real wages and on the overall economic situation. Regarding access? Other than as grist for a bit of political rhetoric, it doesn’t seem that anyone cares dramatically about the 42 or 43 million uninsured. Inside health care, over the last five years, but particularly in the last three years, the impact of the Institute of Medicine reports and the amount of play they’ve received have changed the way people look at quality issues. The conversation has shifted from whether physicians need to track and change practice patterns to how to go about doing it. The Wennberg studies out of Dartmouth show that if you go to Florida for the last six months of your life, your care will cost three times as much as in Minnesota, with no demonstrable improvement in outcomes. You’re still going to die. So, the conversation around differences in practice patterns and rates of surgery in different areas of the country is getting loud within the industry. That will continue as organizations finish putting in systems such as computerized physician order entry and start tracking the information produced by those systems. That’s when we’ll see practice protocols start to become meaningful. The action is just getting under way. The big non-profit health delivery systems are spending considerable sums on these efforts. They’ve realized that they’re going to have to take control of the information flow. They don’t see anybody else doing it. I was wrong a few years back when I thought the health plans would take the lead.

MC: What happened?

HOLT: Some plans started to step up. In 1995, Humphrey Taylor, the chairman of Harris Interactive, told me, “We’ve got this new project out which we’re selling to health plans called ‘The Demonization of Managed Care,’ a survey of public attitudes about managed care.” My reaction was that even if people had negative views of health plans, the noise would get worse but it wouldn’t stop the emphasis of employers on reducing costs using managed care or stop managed care plans from doing what they were doing. It was the only game in town. As we tracked attitudes over time, the demonization of managed care grew dramatically, massively helped — and simplified — in 1997 by Helen Hunt in As Good As It Gets. So HMOs became a big political issue. Eventually, managed care plans that attempted to create systems to track physician behavior, track patients, and put patients in early disease management systems got beaten to death in the press and then beaten to death politically.

MC: Health plans knew they were in trouble when “stopping evil HMOs and their bean counters” became an applause line for politicians of all stripes.

HOLT: Exactly. Unfortunately, the baby of actually managing care was thrown out with the bath water of managed care. Another thing well worth noting is that the original managed care plans promised to do more with the same or less money than fee-for-service. Somewhere along the line, they began to notice that they could get away with putting their prices back up after the downtrend of the mid-’90s. They could actually pay physicians more, stop hassling their medical judgment, and get them off their backs, and they could go back to the old job of being insurance companies rather than being care management companies. They could figure out which of their members were costing more money, get rid of them, still raise their rates 10 percent every year, and become much more profitable. That’s exactly what Aetna did. It basically dumped a significant portion of their book of business. It had around 20 million lives, and it now has something under 13 million. It went from losing a ton of money to making a ton of money by playing the old game of selecting better risks. Health plans had more incentives, when they were actually managing care, to put in systems to do the kind of tracking and management of patient care that people have been talking about for 40 years.

MC: Looking at the political landscape, John Kerry is talking about a reinsurance pool for catastrophic care in exchange for employers covering all employees. President Bush is focusing on patient choice and Medicare drug coverage. How do you see the politics of health care playing out this year?

HOLT: We’re about to have a very close presidential election. Unless I’m really missing something, we’re not going to see a change in the Senate or the House. We’ve got a very right wing Republican-led House. That’s not so much the case with the Senate. Congress recently passed what some conservative members considered radical legislation on Medicare prescription drug coverage. Many conservatives were pretty unhappy about that because they were spending more money. The only real ideological policy interest in health care among House conservatives is to promote health savings accounts, which addresses exactly the wrong side of the problem. They’re about making people be careful about the first $1,000 a year they’re spending. I’m all for people being careful about money that’s going to health care but the big money that’s spent on health care is not the first $1,000. The real issue is the big money spent on very sick people.

MC: But nobody’s talking about that issue this year.

HOLT: Right. I don’t see any big change coming this year. I think we’ll see change not in the next four years but sometime after that, for a simple reason: the demographics of the baby boom. The first baby boomers become eligible for Medicare in 2010, just six years from now, and half of the boomers age into Medicare between 2010 and 2020. What happens when NASCAR dads or other groups who are currently Republican voters start aging into the pre-Medicare and Medicare age range? First, there’s the period between ages 55 and 65 when there’s no real program to make sure health care is available. At that point, if I’m a 55- or 60-year-old Republican male in the South, I might start wanting more government. This somewhat depends on how the economy goes, but my guess is that health care will become a real issue again around 2008 to 2012.

MC: Moving back to the present, what’s your view of consumer-directed health plans? Is there much there beyond a new way to shift costs to patients?

HOLT: You’re a deeply cynical man.

MC: I am. Am I missing something? Are they really about empowering consumers with choice?

HOLT: There is a strong ideological belief among those with a free-market economic bent that you can actually cure the health care insurance problem through a combination of tax credits and health savings accounts. From the health plan’s point of view, it’s not ideological; it’s just a matter of having new products to sell. My issue with consumer-directed health plans is the problems that the numbers may not work if you do them on a global scale, particularly with health savings accounts where the employer gives employees real money that they can take away with them. I wrote about this on the Healthcare Blog not long ago. Let’s assume that a 1,000-employee company spends $6,000 per employee on health care, with 80 percent of that $6 million going to 20 percent of the people. That’s $24,000 each on those people and $1,500 each on the rest. If the company gives $1,500 each to the employees’ health savings accounts, it should more or less balance out. If they give $2,000, then potentially the employer is risking $400,000 “leaving” its pool and being rolled over by individuals into next year’s HSA. But, and this appears to be the kicker, if the consumer-directed health plan can reduce spending inflation by a big amount — if, for example, it would have been up 14 percent, but climbed only 4 percent instead — then $600,000 is “saved.” This suggests that the math behind consumer-directed plans only works if it really cuts health care costs.

MC: What if these plans don’t cut costs?

HOLT: Well the jury will be out for a while, but if they don’t then there are some obvious next steps. First, employers will reduce the amount they put into the HSAs, potentially down to close to zero and put the onus on employees to spend their own rather than the company’s money. Second, employers will increase the bridge amount that has to be paid after the HSA amount expires before catastrophic coverage kicks in. So if consumer-directed plans take off, they had better work, or else it will really turbocharge cost shifting and maybe even get employers out of the business of insurance totally. My sense is that it will remain essentially a sideshow in the context of the overall market. I come back to the fact that it’s aimed at the wrong problem. The problem we’ve got is managing the care of the very sick, not necessarily managing the care of people who only spend $1,000 a year.

MC: A number of plans have developed sophisticated disease management programs to care for the chronically ill in a long-term focused way.

HOLT: True, there are people who have been doing the right thing in the whole disease management world for a long time. The problem is that the average health plan member stays in a health plan for less than three years. I’ve had conversations with CEOs and senior VPs of health plans who have said, “This stuff looks great, but we’re going to be saving money for the next plan that takes on a patient, so there’s no point.” When you’re being judged on a quarter-by-quarter basis as these executives are, I understand the logic. It’s the current rules of the game.

MC: How can the rules be changed?

HOLT: The one potential for changing the rules of the game is in the hands of the most important and biggest health care purchaser in America, the federal government, particularly through Medicare. It’s well worth watching the whole pay-for-performance experimentation that’s happening with Medicare.

MC: As drug-development technology evolves thanks to genomics, are we nearing the end of the era of the blockbuster drug?

HOLT: I don’t know, but I do know there is a certain amount of trepidation in the pharmaceutical community that we are. That is changing a lot of what they’ve done and will have to do. We’ve known for a long time that many drugs don’t work for certain people, although we don’t know exactly why. That’s why you have four of five drugs in a particular therapeutic class. Over the next ten to fifteen to twenty years, we’ll find out much more about why. Then a particular drug may only be applicable for a smaller number of people. Lipitor is a $12 billion going on $16 billion drug worldwide. If in fact there should be five versions of Lipitor for five genetically different types of patients, how much tweaking to Lipitor does that require? Does it cost $20 million, $50 million, or $800 million? That’s the key issue for drug companies. If it’s a big number, that really changes the economics. Of course, if you have effective medical interventions that cost more money, which means down the road, people live longer, then they’ll get sick from something else, and then it will cost even more money.

MC: You were part of the Internet startup boom of 2000. Care to share some of the gory details?

HOLT: I went to work for a startup called i-Beacon that had a consumer Web record that it sold to a couple health plans and PBMs. In 1999 and 2000, several companies were trying to market an online-only independent health record. Dr. started with that idea. WebMD had a pretty poor product for many years. A company called WellMed got some traction creating consumer electronic medical records independent of any health care organization. Our theory was that this would be a short-term market until health care organizations caught up. In order to catch up, health plans would want to use a customer relationship management product to provide more information to consumers and members on their sites. We designed one that could take in information from a health claim system or a pharmacy system so it could pre-populate the health record with some information that the health plan already had. We had a couple of sales, but it just took a long time to take off. The other side of the business, which we thought would be the long-term winner, involved data integration for pharmaceutical companies. The idea was to pull together information about consumers from various databases and use it in a clever way that didn’t violate privacy to help determine the effectiveness of direct-to-consumer advertising. Drug companies are spending more than $3 billion marketing to consumers, so somebody will end up doing that.

MC: The company ran out of money?

HOLT: Yeah, we ran out of rope. Raising money got harder in 2001, especially after September, and by the middle of 2002 it came to an end. Meanwhile, WebMD bought WellMed for $20 million bucks, after WellMed had spent $50 million in venture capital. They could have had i-Beacon lock, stock, and barrel for a lot less. At which point, I’d have been on my yacht. Instead, I’m talking to you, sir.

MC: Such is life. Thank you.

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