Time USA – 19 January 2015

competition in the market, Romoff could sell me health insurance, which would cover me when I used Romoff’s hospitals, clinics, doctors and labs.

3. Cutting Out the Middleman

there would be no middleman. no third-party insurance company.

To me this was a hugely appealing idea, despite UPMC’s record of high prices and its take-no-prisoners approach to competition. Why? Because it was the structure that made sense, not the particulars of Romoff and UPMC.

The insurance company would have not only every incentive to control the doctors’ and hospitals’ costs but also the means to do so. It would be under the same roof, controlled by Romoff. Conversely, the hospitals and doctors would have no incentive to inflate costs or overtreat, because their ultimate boss, Romoff, would get the bill when those extra costs hit his insurance company.

As Romoff put it, “All the incentives are aligned the right way. It’s the beauty of being the payer and provider at the same time. The alignments of interest are just so pure.”

“When the incentives are not aligned,” he added, supplying a quote that could easily be read the wrong way, “it’s why seniors dying of cancer get chemo when they should just get hospice care.”

Maybe, but how could we know that those cancer patients—who would have no place to go in and around Pittsburgh except to UPMC if Romoff had anything to say about it—wouldn’t be denied chemotherapy that they actually needed if Romoff-employed doctors were the ones holding the prescription pads?

Wasn’t Romoff’s interest the one that was the most purely aligned of all?

That’s where doctor-leaders like Corwin and Cosgrove come in—along with strong oversight and regulation.

Hospitals are already consolidating. It is happening all over the country, including in Corwin’s New York City and Cosgrove’s Cleveland.

Let’s let them continue. More important, as they continue, let’s encourage them to become their own insurance companies, à la Romoff, so they can cut out the middleman and align those incentives.

Let’s harness their ambition to expand, rather than try to figure how and when to contain their ambition.

Why shouldn’t I be able to buy Cosgrove’s Cleveland Clinic health insurance? What a great brand! I would know that I could use all his facilities and doctors, and he would know that his incentive—which, he says, has always been the same—was to provide good care, not expensive care full of unnecessary and overpriced CT scans and blood tests. And I would know that doctors whom I could hold accountable would determine the nature of that care, not insurance companies.

But let’s ensure that accountability by insisting on tight regulation, mostly through the smarter use of federal antitrust law and state regulatory authority, in return for giving doctor-leaders the freedom to expand and also the freedom to become their patients’ insurance companies.

The first regulation would require that any market have at least two of these big, fully integrated provider–insurance

companyplayers.Therecouldbenomonopolies,onlyoligopolies,asantitrustlawyerswouldcallthem.Thelargermarkets, such as New York City, Los Angeles and Chicago, might have to have four, five or even more players to make the competition real and to make sure that, with accompanying regulatoryrequirements,theirfootprintswerebigenoughandtheir marketing plans robust enough to serve patients throughout their regions, not just in the wealthier areas.

That would mean the hospital and all the doctors it controlled would be subject to pricing and service-delivery standards that liberal reformers have sought since the mid– 20th century. Health care in the U.S. would finally be treated as a public good, not a free-market product. However, the change would have come jujitsu-style, not by a government takeover. It would have come because the private players had driven it to that state.

These fully integrated brands could pursue recent innovations that offer less expensive, more consumer-friendly health care, such as storefront urgent-care centers that are smart alternatives to expensive, time-wasting hospital emer- gencyrooms.Theseurgent-carecentersarenowbeingopened piecemeal by for-profit and often lightly regulated companies. Why not put them under the banner and branded accountability of the big hospital systems? In fact, Cosgrove’s Cleveland Clinic has already opened a dozen urgent-care and express-care (for more routine needs) centers. I’d rather pay him to care for me than pay a walk-in center owned by a private-equity fund.

The second regulation would cap the operating profits of whatwouldbethesenow-alloweddominantmarketplayers, or oligopolies, at, say, 8% a year, compared with the current average of about 12%. That would force prices down. Better yet, an excess-profits pool would be created. Those making higher profits would have to contribute the difference to struggling hospitals in small markets.

A third regulation—which, again, the hospital systems would have to agree to in return for their being allowed to achieve oligopoly or even monopoly status—would prevent hospital finance people from playing games with that profit limit by raising salaries and bonuses for themselves and their colleagues (thereby raising costs and lowering profits). There would be a cap on the total salary and bonus paid to any hospital employee who did not practice medicine full time of 60 times the amount paid to the lowest salaried full-time doctor, typically a first-year resident. (Under that formula, Corwin’s and Cosgrove’s salaries would stay about the same but Romoff in Pittsburgh would take a big cut.)

A fourth regulation would require a streamlined appeals process, staffed by advocates and ombudsmen, for patients who believed they were denied adequate care or for doctors who claimed they were being unduly pressured to skimp on care.

A fifth regulation would require that any governmentsanctioned, oligopoly-designated integrated system have as its actual chief executive (not just in title) a licensed physician who had practiced medicine for a minimum number of years. Sorry, Mr. Romoff. The culture of these organizations needs to be ensured, even if that means choosing leaders based on something in addition to their business acumen and stated good intentions.

Sixth, any sanctioned integrated oligopoly provider would be required to insure a certain percentage of Medicaid patients at a stipulated discount.

Wait a minute, I can hear my readers thinking. These guys generate thousands of those obscene chargemaster bills a year. Now you’re going to put them in charge?

Which brings me to my final regulation: These regulated oligopolies would be required to charge uninsured patients no more than what they would charge competing insurance companies whose insurance they accepted, or else a price based on their regulated profit margin if they didn’t accept other insurance. In other words, no more chargemaster.

All of this may seem complicated, but the rules required to set up this structure would be a drop in the bucket compared with the thousands of pages of laws and millions of pages of rules and regulations that are now on the books. And it is certainly more realistic than pining for a public single-payer system that is never going to happen.

Combining the work that the Corwins and Cosgroves of the world do with Romoff’s plan boils down to this: Allow doctor-leaders to create great brands that both insure consumers for their medical costs and provide medical care.

Let them act on their ambitions. Let them compete with other legitimate players in their markets, or even with one another if they want to expand.

That kind of competition is already happening. But as things stand now, an employer who wants to get health care for his workers, or an individual who is shopping on the Obamacare exchanges, has to figure out which insurance company has which hospitals and doctors in its network and what discounts it has negotiated. This change would create a new, clearer competitive process.

Instead of hoping for the best with UnitedHealthcare, I could just go on the exchange and pay Corwin to use all of his New York–Presbyterian doctors and facilities to keep me healthy. Period. Full stop. There would be total clarity about which facilities and doctors are in my network.

Or my employer could pay him after negotiating the price.

It would be insurance the way it’s supposed to work— the risk associated with the cost of my heart surgery would be spread across a pool of premiums that Corwin collected from tens or hundreds of thousands of New Yorkers, most of whom won’t have the kind of medical mishap I had.

If Corwin and his integrated system charged too much or didn’t do a good job, either my employer or I (if I were in the individual market) could switch to another competitive New York City brand like Mount Sinai Hospital or NYU Langone Medical Center. And all that competition would be fortified by advances in data transparency that would make each competitor’s quality ratings for various types of care readily available.

Corwin’s high price for my open-heart surgery would truly be tested in the market, because he would be competing with other high-quality health systems to capture all of my business or my employer’s business. He and his network of hospitals, clinics and doctors would insure me not only against heart surgery but for routine treatment and X-rays in case I twisted my ankle or got the flu.

4. Hundreds of Billions in Savings

i bet that with this plan, we could cut 20% off the two-thirds of our health care bill not paid by Medicare or Medicaid. Here’s a sketch of how the math could work:

First, administrative costs for insurance—including vetting claims, paying bills, paying managers and executives and distributing profits to shareholders—account for 15% to 20% of private health care costs. Couldn’t half or more be saved by cutting out middleman insurance companies? Corwin or Cosgrove would still have to employ managers, actuaries, accountants and salespeople on the insurance side of their integrated operations, but surely not to the extent that an insurance company responsible for paying bills from multiple third-party hospitals and other providers would. Nor would they have to deliver profits to shareholders.

Let’s say we could save 10% by eliminating middlemen. Second, on the provider side of the equation, the main

culprit in driving costs up—the incentive for overtreating and overtesting that comes with billing for each patient encounter and procedure instead of billing for overall treatment—would be eliminated. And the general incentive to maximize revenue would be tamped down by the new regulation capping operating profit at 8%.

That could likely save another 10%.

The total, then, could be 20% of nongovernment health care costs, or $400 billion a year, and maybe $100 billion more saved by allowing Medicare and Medicaid to pay those integrated providers this way.

That would go a long way toward bringing American health care costs as a percent of our gross domestic product closer to those of the countries we compete with.

One of Corwin’s competitors, the giant North Shore–LIJ Health System, is now selling its own insurance. Corwin told me that although he is more comfortable being on the provider side of the street, he would consider doing the same if he thought his hospital system were big enough to provide that full spectrum of quality care and if he needed to do it in order to be competitive.

“The first thing we can agree on about the health care system in the United States,” the Cleveland Clinic’s Cosgrove said, “is that it is not a system at all. It’s just a collection of disparate providers. So, yes, we are consolidating,” he continued, noting that although the number of hospital beds in the U.S. had declined in recent years from 1 million to 800,000, “there is still only 65% occupancy.”

Doctors, said Cosgrove, have consolidated their practices, often under the umbrella of hospital systems like his, “because medical knowledge doubles every two years. So you continually need to specialize still more to keep up. And the more you consolidate, the more you can specialize. The more you specialize and do a lot of just one or two things, the better you are at them and the more cost-effective you are. That’s why they call it ‘practicing’ medicine.”

Would integrating insurance into that system be the next logical step beyond consolidation? “That seems right,” Cosgrove said. In fact, he added, “we recently applied for an insurance license.”

The momentum for the consolidation I have in mind is clearly there. We just need to seize it rather than resist it, and then control it and push it in the right direction. ■

On may 26, 2014, an unprecedented public conversation took place in Brussels. Two former high-ranking spymasters of Israel and Saudi

Arabia—Amos Yadlin and Prince Turki al-Faisal—sat together for more than an hour, talking regional politics in a conversation moderated by the Washington Post’s David Ignatius. They disagreed on some things, like the exact nature of an Israel-Palestine peace settlement, and agreed on others: the severity of the Iranian nuclear threat, the need to support the new military government in Egypt, the demand for concerted international action in Syria. The most striking statement came from Prince Turki. He said the Arabs had “crossed the Rubicon” and “don’t want to fight Israel anymore.”

The Turki-Yadlin dialogue was not “official,” but it sent a clear message. Saudi Arabia’s King Abdullah had personally approved the meeting, intending it as an olive branch to the Israelis. But Israeli Prime Minister Benjamin Netanyahu decided not to reciprocate—at least not openly. It was too dangerous politically. Crucial components of Netanyahu’s coalition, especially his supporters among right-wing Jewish settlers in the West Bank, oppose any deal with Palestinians.

And yet, in the months after he decided against a public gesture to the Saudis, Netanyahu was suggesting at private meals with editors and influential figures at the U.N. General Assembly meetings last September that an alliance with the Arabs was not only possible but perhaps the best way to resolve the Palestinian problem.

Other odd things have been happening recently in the gridlocked Middle East. On New Year’s Day, Egyptian President Abdul Fattah al-Sisi made an interesting speech, challenging Islamic radicalism and calling for a Muslim reformation. “It’s inconceivable that the thinking that we hold most sacred,” he said, “should cause the entire umma [Islamic world] to be a source of anxiety, danger, killing and destruction for the rest of the world. Impossible!” The sentiments were not unexpected, since al-Sisi had come to power by overthrowing the country’s democratically elected Muslim

Armed and anonymous A Hizballah fighter, left, in Beirut. An image of ISIS militants in Syria, right, that was put on an extremist site

Brotherhood leaders in 2013. (Al-Sisi won a largely uncontested presidential election last year.) But these are not sentiments that have often been uttered publicly by Arab leaders before.

And then, the very next day, the Times of Israel reported that Israeli Foreign Minister Avigdor Lieberman and exiled Palestinian leader Mohammed Dahlan had met privately in Paris. Dahlan has made no secret of his desire to replace Palestinian Authority President Mahmoud Abbas; Lieberman is a conservative who has fallen out with Netanyahu and wants to be part of a coalition to replace him. So what on earth were Dahlan and Lieberman talking about?

All of this may add up to nothing. But there seems to be a growing impatience withtheperpetualstatusquointheregion. There is a new generation of leaders pushing for power in Israel and Palestine. There are dangerous new threats like ISIS. There is concern about the U.S.—the possibility of a nuclear deal with Iran, the waning need for Middle East oil. There is the memory of the Arab Spring, which ultimately produced chaos instead of democracy.

The established powers in the region, like Israel, Saudi Arabia and Egypt, have found in recent years that they have increasingly aligned foreign policy interests. The Israelis and Saudis have been sharing intelligence for the past few years, according to regional sources. The Israelis and Egyptians are cooperating on security efforts in Sinai and in Gaza, where Hamas— the Palestinian branch of the Muslim Brotherhood—is a common enemy. There are private talks going on between Israeli and Saudi Arabian officials. “It might be called mushroom diplomacy,” an Israeli told me. “It can only grow in the dark.”

Most Israeli and Arab officials I spoke with during a December tour of the region acknowledge the mushrooms and hope that the burgeoning relationships—especially the acceptance of Israel as a de facto ally—can be brought to light in time. There are, of course, all the usual roadblocks, including the eternal one: nothing can happen publicly without an Israeli-Palestinian peace settlement. The Saudis and the Arab League promised to recognize Israel in 2002 if such a deal were made, but the Arab terms—a return to 1967 borders, with Palestinians’ right of return to their former lands in Israel— were unacceptable to the Israelis. Now those terms may be changing. Prince

P A S; O T O H P M U N G A M — N A M A S S E S I O M T: F E L M O R F , S E G PA E S E H T S; O T O H P M U N G A M S: E G PA S U O I V E R P

Turki described the proposal as a “framework,” which implies room to maneuver.

Is it possible that the Middle East has become so unstable that an Arab-Israeli peace is no longer unthinkable?

The ISIS Effect

as 2015 begins, the middle east seems to be a greater mess than it ever was— especially when it comes to the conflict between Israel and the Palestinians. The deterioration began with Israel’s 50-day war in Gaza last summer, which increased the popularity of Hamas in the West Bank and has led Abbas to take a series of steps toward the unilateral declaration of Palestinian statehood. In recent weeks, the Palestinian Authority applied for membership in the International Criminal Court—a red flag to the Israelis because the Palestinians would presumably use membership to bring war-crimes charges against Israel. In return, the Israelis have cut off the monthly payment of taxes they collect for the PA, which represent almost 80% of the government’s $160 million monthly budget. It is possible that the Palestinians could retaliate by suspending government operations in the West Bank—schools, health care and, especially, security. Chaos would be the likely result.

time January 19, 2015

In the rest of the region, the sectarian split between Sunni and Shi‘ite has become more dangerous, even as it has become more confusing. The Sunni Arab nations—which include Saudi Arabia, Egypt, Jordan and the Gulf states—have worried for a decade that the U.S. demolition of Saddam Hussein’s ugly but stable dictatorship in Iraq has created a power vacuum in a broad swath of the region that the Iranians are exploiting. They call it the “Shi‘ite crescent,” a sphere of influence stretching from Hizballah-controlled southern Lebanon and President Bashar Assad’s Alawite regime in Syria, to Iraq and Iran, right up to the border of the Eastern province of Saudi Arabia, a majorityShi‘ite area where most of the country’s oil is produced.

But the old Sunni-Shi‘ite conflict has been complicated by a new threat in the region: ISIS, a Sunni radical military force vastly more competent and frightening than al-Qaeda. ISIS began in Iraq but made its mark in the rebellion against Assad’s government in Syria. Assad isn’t well liked by his Sunni neighbors—and some of them, like Qatar and perhaps private sources in Saudi Arabia, gave surreptitious support to ISIS and other Sunni militias in the early days of the rebellion.

The lightning march ISIS made

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through Iraq last year changed the equation. An ISIS-controlled Iraq would be a threat not only to Iran but also to some of the Sunni royal families in the region, as well as Egypt. The Jordanians—already overwhelmed by refugees from Iraq, Syria and Palestine—are vulnerable. The Saudis, governed by an increasingly feeble gerontocracy—the 90-year-old Abdullah was hospitalized with pneumonia at the start of the new year—are worried too. The Egyptians are fighting ISIS-style terrorists in Sinai and are threatened by Libyan militias, which may also be loosely affiliated with ISIS.

In response, a heterodox alliance has gathered to make war with ISIS. Iranianbacked militias, like Hizballah, are the most ardent fighters in this war, along with the Kurds. But they are now joined by U.S. airpower—as well as pilots from Sunni powers like Saudi Arabia and Jordan.

Another potentially major change in the region: the Israelis, Iranians, Saudis and Egyptians are increasingly concerned about Turkey, which sees the ISIS threat somewhat differently from its neighbors. Turkey has allegedly allowed thousands of militants to cross its border and join ISIS because the group is fighting Assad and militant Kurdish groups like the Kurdistan Workers’ Party (PKK), which the Turks see as a permanent threat in the south and east of their country. (Turkey has acknowledged that its border with Syria is porous but has denied accusations that it purposefully allows militants to cross.) “Why aren’t you Americans making more of a fuss about Turkey’s support for ISIS?” a prominent Egyptian official asked me. “I read a lot more about our humanitarian problems in the American press than I do about the Turks who are allowing terrorists to cross their border and behead Americans.”

Of course, the “humanitarian problems” in Egypt are very real, as al-Sisi’s forces have led a brutal suppression of the Muslim Brotherhood. But the Egyptians have become sensitive to the point of paranoia about the changing U.S. role in the region. I had dinner in Cairo with a group of prominent leaders. One of them, a banker, asked seriously, “Is it true that there is a secret alliance between Obama and the

47

Israel a “Jewish” state—with the implication of second-class citizenship for its 1.7million Arab citizens. His insistence on pushing that law resulted in the collapse of his government, as moderate parties led by Tzipi Livni and Yair Lapid refused to support the legislation.

Netanyahu is no longer very popular in Israel, but no one is betting against him in the March election. Given his political skills, the absence of a charismatic mainstream challenger and the steady tattoo of terrorist incidents—stabbings, shootings, cars running over pedestrians—most observers assume that Netanyahu will prevail somehow, though he might even struggle to maintain control of his Likud Party. The rising tide seems to be with the settler-movement leader Naftali Bennett, whose party might well outpoll Likud in March. It is also possible that the moderate-liberal coalition of the Labor Party and the splinter party of Livni’s supporters will challenge Likud for first place in the March election and the right to attempt to form a government of its own.

The real negotiations begin after the election. Netanyahu will try again to cobble together a centrist coalition. The big question is whether he will have to include Bennett in a government; if so, there will be no hope of Israel’s negotiating a deal with the Palestinians—and no hope of closer public ties with its Sunni Arab neighbors.

But there are other possibilities as well. If Labor-Livni polls strongly and is joined by Lapid’s centrist party, they may find a partner in Avigdor Lieberman. The Foreign Minister and leader of the Israel Beitenu party ran a crass, anti-Arab campaign last time. “But Lieberman plays a different game inside the government than he does outside,” says Shai Feldman, director of Brandeis University’s Crown Center for Middle East Studies. “As Foreign Minister, he’s had to deal with the leaders of other countries. He’s more of a realist now.” But he’s also less of a political force, as recent polls show support for his party waning dramatically because of renewed corruption charges against Lieberman. “It is absolutely impossible to predict how this election is going to turn out,” Feldman says.

time January 19, 2015

What Investors Should Worry About

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New York Times bestsellers

WORLD | MIDDLE EAST

The New Generation

netanyahu has been at the center of

Israeli politics for nearly 25 years. Abbas has been a force in Palestinian politics even longer. But a new generation of leaders is rising, which is why the LiebermanDahlan meeting in Paris was noteworthy, at the very least. One thing the two men have in common, despite their wildly divergent politics, is that both believe the Netanyahu-Abbas era is coming to a close.

Dahlan is perhaps the most skilled of the next generation of Palestinian leaders, although he developed a well-deserved reputation as a thug when he led the Palestinian security services in Gaza. He is a young-looking 53, a protégé of Yasser Arafat’s and a native Gazan. He’s also the sworn enemy of Abbas, who accused Dahlan of corruption and convicted him in a show trial; Dahlan has been living in Abu Dhabi since 2011. He has already announced that he will run for President of the PA against Abbas—who is supremely unpopular—should Abbas ever call the Palestinian election that has been long delayed. But Dahlan’s strategy is more expansive than a one-on-one fight with Abbas. His hope is to create a new coalition that would appeal to people across the Palestinian political spectrum, from Hamas to Fatah.

Howcouldhemanagethat?Byforming

50

The last stand Kurds in Turkey watch air strikes in Kobani. The Syrian town is a symbol of Kurdish resistance against ISIS

an alliance with a Palestinian leader currently sitting in an Israeli prison. Marwan Barghouti, 55, is considered a folk hero by both Hamas and Fatah. He was a prominent leader of the first and second intifadehs before he was arrested by the Israelis in 2002 and sentenced to five continuous life terms for murder. Barghouti’s wife has already announced her support for a movement to draft him for President. Dahlan’s vision is that Barghouti would be the titular head of the PA from inside prison and Dahlan himself would be the handson guy, running the show from Ramallah, while former Palestinian Prime Minister Salam Fayyad, widely considered Palestine’s most effective bureaucrat, would administer the West Bank.

Netanyahu has long lamented the fact that he doesn’t have a “strong” partner on the Palestinian side. Abbas has never had the support among his people to cut a deal, and his predecessor Arafat had little desire to do so. But a government led by Barghouti or Dahlan could hardly be considered weak, and a Barghouti-Dahlan coalition would be formidable. The question

of what to do with Barghouti—whether

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to release him or not—has been discussed by Netanyahu’s inner circle. At this point, Barghouti’s political views are a mystery; he has been described as “Mandela-esque” and utterly unrepentant.

Dahlan has been meeting with Arab leaders across the region. He is close to Sheikh Mohamed bin Zayed Al Nahyan, the crown prince of Abu Dhabi, and also to Egypt’s al-Sisi. His aspirations parallel Netanyahu’s: that the Arab states could be brought into the talks as intermediaries. Dahlan hopes the Arabs will nudge the Israelis to make concessions; Netanyahu hopes that the Arabs will nudge the Palestinians to make concessions. But the bottom line is the same: visions of commercial cooperation that transforms ports in Gaza and Haifa into Middle Eastern Singapores; visions of a security alliance strong enough to fend off Islamic radicalism, both Shi‘ite and Sunni.

The only thing preventing all this is what usually gets in the way in the Middle East—reality. Here is what might also happen in 2015: Israel might elect a rightwing government that wants nothing to do with the Arabs. The West Bank may fall into chaos as the PA struggles without the funds necessary to keep its security forces in operation. The U.S. might make a nuclear deal with Iran, with unforeseen consequences for the region. The U.S. might not make a nuclear deal with Iran, with unforeseen consequences for the region. King Abdullah might pass away in Saudi Arabia. The moderate Jordanian government might be overwhelmed by the tide of Syrian, Iraqi and Palestinian refugees. Bashar Assad might fall, or survive, with consequences for the Kurds, the Turks and the Lebanese. Libyan militias might find common cause with ISIS. The rickety new government in Iraq might collapse.

Any of these events is more likely to occur than a peace deal between the Israelis and Palestinians, brokered by the Arabs. But the fact that the conversation is taking place—between Prince Turki and Amos Yadlin, between Mohammed Dahlan and Avigdor Lieberman, secretly at the U.N. and in capitals across the region—means that peace, the most unlikely Middle East result, is no longer off the table. ■

time January 19, 2015

S O T O H P M U N G A M —L E A M T G A N VA R E T E P