Affordable Care Act 2.0: Prepare to Redirect the Supply-Value-Care Chain

Americans may have been divided last fall on their choice for president, but they were united on one front, at least—the need for healthcare reform. The only polls that were correct were the ones that showed voters’ dissatisfaction with the U.S. healthcare environment. Skyrocketing healthcare premiums steadily depleted constituents’ pocket books, and those electors—from all socio-economic backgrounds—voted for change. It’s no surprise that the Trump administration is working to repeal the Affordable Care Act (ACA), which ironically, wasn’t very affordable. Pundits agree the ACA, otherwise known as Obamacare, was a political failure. What few understand, however, is that it was the supply-value-care (SVC) chain failure that led to its downfall. Indeed, Monday morning quarterbacking is relatively easy, but the flaws in the ACA is something I highlighted last year in my Medical Product Outsourcing columns. If the Trump administration isn’t careful, it will experience déjà vu, leaving politicians to work on the Affordable Care Act 3.0 with potentially another president.

I have been asked many times (from a non-political standpoint, of course) why the ACA failed or imploded under its own weight. The reasons are long and complicated but it basically boils down to this: the healthcare system’s reconfiguration was a textbook failure of supply chain 101. The revamp did not allow for all elements of the SVC chain and was plagued by business direction misalignment. Simply stated, the ACA’s failure was a classic example of bureaucrats trying to be SVC chain experts rather than getting help from experts. I’ve often wondered why a superpower like the United States wouldn’t gather some of the world’s best SVC chain minds and design a workable configuration. While I’m not looking for a new job, I’d certainly agree (if asked) to be part of a non-political SVC chain consortium that would help devise a replacement for the troubled ACA. And I believe many readers would too. President Donald Trump is a master at surrounding himself with experts. He should apply this practice to the ACA and exploit the talents of SVC chain experts.

As I mentioned in my MPO article from September 2016, a group of people at PRTM and AMR assembled some of the best minds globally to create the Supply Chain Operations Reference (SCOR) model. That model changed the way SVC chains have operated worldwide for the past 20 years and likely for the next 20 (and beyond). This same strategy could be used again to help the Trump administration avoid making the same healthcare reform mistakes as its predecessor.

As I did last year, I’ll help you navigate (configure) your SVC chain as the ACA 2.0 unfolds. But first, a question—is your organization’s supply-value-care chain ready for the many gyrations that are likely to take place? Are you ready for the ramifications of what is about to transpire regardless of what might be thrown your way? Right now, you and/or your organization should be color-code mapping your SVC chains so you will know how to respond to changes. Reference my April 2016 MPO article for details on mapping your SVC chains. Once you map out those chains, you will know how to reconfigure them where necessary.

Properly mapping out SVC chains can be challenging, particularly when these chains involve offshore locations like Mexico and China. I have worked in virtually every part of the world and while I support a correctly reconfigured ACA 2.0, if the Trump administration acts rashly and makes Mexico, China, Costa Rica, Puerto Rico, and other areas difficult to import and export from, the ACA 2.0 will surely fail. Don’t get me wrong, I bleed red, white, and blue. But more importantly, I am a pragmatic SVC chain configuration expert who can confidently say that all parts of the world must work together in harmony in order for ACA 2.0 to be successful. 

Let me demonstrate this point with a graphic and an example.

My series of articles in MPO last year were designed to provide helpful suggestions on various supply-chain-related activities. I pointed out early in my series that the supply chain is only a small portion of the healthcare ecosystem, which is better referred to as the care chain. The supply chain is a segment of the value chain, which in turn, is a segment of the care chain. I noted that most all supply-chain-related mishaps are directly tied to the notion that supply chain professionals do not think big enough to account for the many surrounding elements that encompass the care chain. It is worth rerunning the graphic I used last year, as it nicely sets the stage for 2017. Notice the differences between the supply chain, the value chain, and the care chains (SVC chains). 

Obviously, I did not agree with the configuration steps within the original ACA, since much of it was misaligned. The main culprit? “Miss Alignment,” who failed simply by wrongly executing the right idea. Creating an environment where affordable healthcare is available to all as well as ensuring coverage to those with pre-existing conditions is necessary in the United States. But, that effort ultimately failed because the Obama administration did not configure the SVC chain to support such a business direction. Put more politely, it was a “noble and acceptable business direction, beset by failed configuration and actions.”  

Allow me to provide some additional perspective: providing healthcare coverage to roughly 20 million previously uninsured individuals and those with pre-existing conditions will impose a shocking cost to the United States if that cost is not accommodated (configured) elsewhere.  The Obama administration’s attempt to configure that cost failed in various ways. Rather than looking to trim costs from excessively inflated programs, lawmakers chose to take dollars from the pockets of healthcare providers, medical device companies, suppliers, and subcontractors.  Many healthcare providers are non-profit organizations that rely on donations to stay in business while for-profit institutions have investors demanding that administrators “find the money.”

The ACA’s misconfiguration of funding may seem like a minor misstep. But in wearing many hats over the past eight years—including those of a consultant, the president of a leading contract manufacturing company with facilities in both the United States and Mexico, and medical device company owner—I wear a unique set of lenses. I can sit across the entire ecosystem SVC chain and confirm that the “eat or be eaten” mentality detailed in last winter’s column is alive and well. The “I win, you lose” mentality that dominated 2016 continues its reign. The “eat or be eaten” snowball is rolling swiftly downhill, enmeshing everyone from payers, healthcare providers, and medical device companies to suppliers and their subcontractors. If it’s not stopped soon, it will destroy the U.S. healthcare system.

A perfect example of this “eat or be eaten” mentality is device companies’ mandate that downstream suppliers give them 90-120 day payables and provide a 5 percent year-over-year cost reduction to retain their business. Think about this for a moment. Through this payable cycle, a large medical device company that could have billions of dollars sitting on its balance sheet is borrowing money from a downstream supplier that experiences 10 percent of the margin the OEM achieves while compressing downstream margins further. How long is that sustainable? (Ask General Motors circa mid-2000s). It’s not uncommon to see healthcare organizations filing for bankruptcy protection across the nation as their reserves or donors dry up. My company has experienced this phenomena, with some customers saying, “I need your product Chris, but we’re filing for bankruptcy.” Maybe you sit in the SVC chain where your company has likely experienced this too, or is taking drastic measures just to bail water and stay afloat.

Here’s something truly mind-blowing: it’s not uncommon now to see an organization secure funding to buy shrubs for their building but fail to obtain money for medical therapies. I’ve heard firefighters, for example, remark about a reduction in funding that prevents them from using proper medical therapies in emergencies. My hunch is that patients being treated for breathing problems on the way to the hospital are not thinking about shrubs or trees at City Hall.

Not all hope is lost, however. There have been some positives to come from the ACA. For starters, it forced politicians and business folk alike to examine every nook and cranny for unnecessary spending. Waste has been ripped from numerous SVC chains and for good reason.  More people than ever before have healthcare, including those with pre-existing conditions. Those are all good things. But, like the spaghetti western of the same name, along with the ACA’s good came the bad and the ugly. To avoid the same pitfalls (and keep the bad and the ugly at bay), perhaps Congress should follow Kevin Kline’s lead in the 1993 film “Dave” and scrutinize every single U.S. expense as if it was a small company budget. I’ve done that with my teams and it works. I’m sure President Trump has done the same during his many years in business. 

So, as the new presidential administration prepares to gut the ACA, get your SVC chains ready and prepare to change both your configurations and possibly your business directions. Arrange to hold SVC chain readiness discussions within your organization so you are ready for whatever turn of events unfolds. And, if any of you personally know President Trump or House Speaker Paul Ryan, tell them to call me. I am in favor of making medical products in the United States or the best, most landed cost-effective location in the world (including Mexico, Costa Rica, Puerto Rico, China, Europe, etc.) that ensures quality, cost, and delivery that improves the inclusive supply-value-care chain. Designers of healthcare reform must be careful to avoid knee-jerk reactions that will lead to a failed ACA 2.0 and a confrontational international trading environment that will trump what currently is taking place across the healthcare environment. This time around, instead of rushing to throw out the baby with the bath water, let’s pull some SVC chain experts into a room to discuss the options at hand. I promise to bring the movie “Dave” as long as the White House chefs supply the gourmet popcorn. 

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Chris Oleksy is founder and CEO of Oleksy Enterprises and Next Life Medical. He can be reached at [email protected] or [email protected].