Ignoring Corporate America Yet Again

For the past 25 years I have dedicated my career to the healthcare profession as a physician at Johns Hopkins, as well as, in more recent years, an entrepreneur and business executive in the health information technology arena.  My MBA  featured at Johns Hopkins ten years ago was based on the notion that the cost and quality of healthcare delivery could be improved using technology to empower the purchaser, being  the employers across corporate America, and their employees, to become more sophisticated consumers.  The idea being that the technology would become the enabler for these purchasers to gain greater transparency through information that enables them to analyze cost and quality of services, and ultimately hold insurance carriers and others in the market more accountable.   I have had the privilege working with many companies such as McDonalds, Kodak, Microsoft, Pactiv, and many others that have been able to leverage this principle to improve the cost and quality of healthcare delivery for their workforce.

The President’s message from the beginning was that we must provide access to healthcare and coverage to those who don’t have it, reduce costs of healthcare delivery, and ultimately hold insurance companies more accountable.  Now that the new legislation has passed it is very unfortunate to see that, despite all that has been written and all that has been demonstrated, key constituents in the market from whom most of our healthcare dollars begin find themselves backed into a corner yet again, with no control over rising costs and the impact of this to their profitability.

Companies such as Caterpillar, John Deere, Verizon, Boeing and many others have announced that because of the “tax” exemptions around Medicare benefits they will be required to take significant charges to their balance sheet that will ultimately impact shareholders.  The current law fundamentally ignores the economic dynamic of how healthcare is subsidized in the United States and has been for decades.  In all of the negotiations there has been virtually no mention of the importance of including employers as an important constituent who should have been represented.   If they had been, we would not be hearing about these charges across corporate America today.  In my conversations with Senator Max Bacchus over a year ago in his proposed legislation I asked him why there was no mention of the work employer or the work plan sponsor in any of his proposals.   His remark was “this was probably an oversight”.

For decades corporate executives have struggled with how to balance two key objectives in order to sustain profitability as it pertains to healthcare costs.   They are:

1.  The cost and quality of healthcare benefits to ensure that the right coverage is put in place to optimize the healthcare of the workforce that enables them to be at work and productive.

2.  The financial accountability of how benefits will be paid for, and its impact to shareholder value.

The charges that have been stated today that have material impact to corporate balance sheets may not be a one-time hit.  We must not forget that the reason Detroit collapsed was because of the unfunded liability around retiree benefits and its impact to corporate profitability.  The reason that the SEC intervened a few years ago to examine the method by which the retiree benefit liability was calculated by actuaries was because any variation in the number would have material impact to corporate earnings and shareholder value.  Many companies were at that time accused of underestimating the magnitude of the liability because of calculations created by actuaries that compelled the SEC to look further.

The irony is that on April 21st  the CEO’s several companies have been  asked to testify to Congress on the methods used to calculated the charges they reported. Why is this ironic- the methodology used is the same as what the CBO used to score the health care bills- actuarial (life) tables to estimate future cost.T

he impact to employers as it pertains to increasing coverage for dependants under the age of 26, accounting for the changes to the Medicare retiree drug benefit, and the implications for penalties for employees that participate in subsidized care, will cause further challenges to corporate America and their ability to sustain global competitiveness.

In an economy where we are trying to stimulate jobs and enable corporations to regain their footing, the fact that the responsibility and burden that remains with corporate America will be a significant detriment to our economic recovery.  For decades employers have tried numerous means of controlling costs – in fact isn’t that why we had managed care?  Yet, despite all of these failed attempts, the history of reform that has been attempted in the United States continues to ignore the basic economics of healthcare funding.  While we may have taken an important first step in breaking down doors towards change, we continue to seek opportunities that are contrary to how we have effectively improved a cost and quality of services in every other part of our economy.

About The Author

Dr. Sreedhar Potarazu is an acclaimed ophthalmologist and entrepreneur who
has been recognized as an international visionary in the business of medicine.
He is the founder and CEO of VitalSpring Technologies Inc., a privately held
enterprise software company focused on providing employers with
applications to empower them to become more sophisticated purchasers of
health care.  Dr. Potarazu received his medical degree from The George
Washington University and subsequently completed his internship in surgery
and residency there as well.  He completed fellowships in neuroophthalmology
and glaucoma at the esteemed Bascom Palmer Eye Institute at the University of
Miami in Florida.  Dr. Potarazu practiced seven years in the Washington, D.C.
area, during which time he was on the faculty of the Wilmer Eye Institute at
Johns Hopkins University.  While practicing, he earned an MBA at Johns
Hopkins with a focus on health information technology.  It was his thesis that
ultimately served as the basis for the original business plan of VitalSpring.  Dr.
Potarazu is widely recognized as an industry leader in health care and healthcare
technology and is a sought-after speaker on the topic.  He currently resides
in Maryland with his wife and two daughters.  Dr. Potarazu is also involved in
the promotion of fine arts and education to the underprivileged.  He is
the author of a well-publicized book “Get Off The Dime” The Secret of
Changing Who Pays For Your Health Care.  Dr. Potarazu, has raised over 30
million dollars for VitalSpring, without the help of any institutional or
venture capital investors.  Dr. Potarazu is a regular contributor to the Fox News
Channel and The Washington Post.