Health Care: A Road Map to Innovation

By Ross Mason

The United States spent $2.4 trillion on health care in 2011. If that represented a country, it would be the world’s sixth-largest economy. Health care accounted for more than 17.3 percent of the U.S. gross domestic product (GDP) in 2010, a larger share of GDP than any other developed nation.

“Moore’s Law,” which states that “computing capacity will double every 18 months” on smaller, cheaper processing platforms for larger and larger markets, was the driving force behind U.S. global IT dominance. By contrast, health care seems to be driven by “Moron’s Law.” Costs have been increasing over 18 percent each year – year after year – without corresponding improvements in quality, access or outcomes.

To remain globally competitive, it is widely agreed, the United States must reduce the growth in health care spending. Applying innovative solutions to health care costs is the best solution; This will grow the economy while reducing spending and the nation’s debt.

Georgia is well positioned to be a leader in global health innovation. Georgia has a competitive advantage in many areas that can drive early-stage job creation. These include:

Georgia has the strongest health-care information technology (IT) industry in the country
Georgia ranks second in the nation in bio-medical engineering (behind Maryland’s Johns Hopkins University)
Georgia ranks third in the nation in regenerative medical research
Georgia is a leader in robotics, nanotechnology and neuroscience
Georgia ranks in the top five in the nation in medical device manufacturing and sales
Georgia is home to the Centers for Disease Control and Prevention, the Task Force on Global Health and the National Health Museum

Creating a Brand

For Georgia to be a national leader in new job creation, it must focus and take advantage of its unique, competitive resources, particularly in health care. The state needs to create a brand that focuses these resources by encouraging early-stage investment, partnering with the military, coordinating research programs, attracting venture philanthropy and promoting strategic public policy.

Encouraging Early-Stage Investment

A recent study by the Kaufman Foundation found that between 1977 and 2005 there were 3 million net new jobs created in the United States from start-ups and 1 million net job losses in Fortune 500 companies[1]. The IT industry has fueled much of this growth. The industry’s innovation has reduced costs and made new products and services available to larger markets, in turn establishing the United States as a global leader in technology.

Jim Clifton, chairman and CEO of Gallup, was recently asked how many innovative entrepreneurs it takes to drive the U.S. economy. His answer was 3,000. To be a national and international leader in health innovation, Georgia must develop a strategy to retain and attract the greatest possible number of these entrepreneurial leaders, creating a multidimensional epicenter in which they can thrive.

Partnering with the U.S. military

Historically, innovative leaps in health care have most often occurred during times of war. Modern general surgery was created as a result of orthopedic injuries during the Civil War. World War II and the government care of 13 million soldiers led to life-saving battlefield treatments such as blood transfusions and an antibiotic revolution in medicine (e.g. penicillin).

There is much to learn from the U.S. military. Today, 96 percent of soldiers who reach a field hospital alive survive their injuries. This has resulted in a new focus in the military on rehabilitation and long-term care for chronic conditions. This nation has spent hundreds of billions of dollars on war in the last decade and will spend tens of billions on health care for the young men and women who have been injured in battle protecting Americans’ freedom and liberty around the world.

The military controls a massive health-care research budget, has already mandated lifetime electronic medical records and is able to expedite or circumvent approval by the Food and Drug Administration (FDA) on testing and clinical trials. The military will continue to be the major driver of health innovation in the nation and can be an important partner in cost reduction and creating innovative solutions, new technologies, treatments and cures.

The biggest health care issues for the U.S. military today are mental/emotional health, burns, neuro-trauma and orthopedic injuries. Georgia leads the nation in the treatment of burns, neuro-trauma and programs and services for mental and emotional health for veterans and their families.

This year my nonprofit, HINRI with a number of other non-profit partners, created the Georgia Warrior Alliance, a nonprofit organization, to address these issues. Our mission is to make Georgia the No. 1 state in the country for programs and services for military men, women and their families.

Recently, the federal government invested $3.6 billion in infrastructure at Fort Benning, near Columbus, Ga., and more than $1 billion to track global terror at Fort Gordon in Augusta. It is considering investing $590 million at the port in Savannah. The Columbus area has 23,000 acres of gardens and parks that are the home of Callaway Gardens, FDR State Park, Warm Springs and the March of Dimes-funded vaccine for polio. The Columbus community is committed to becoming a national center for extreme sports training and activities, which they hope to make available to give soldiers an adrenaline release after coming home from battle. Augusta has the nation’s largest burn center, warrior transition battalion and active-duty spinal cord injury population. Atlanta leads the nation in health care IT and is becoming the nation’s leading center for neuro-trauma research and rehabilitation. Atlanta is also home to the nation’s leading human clinical trial centers in multiple sclerosis, spinal cord injury and traumatic brain injury.

A partnership among Atlanta, Augusta, Columbus and Savannah can address the major health issues confronting today’s military: neuro-trauma, orthopedic injuries, burns, chronic disease, post-traumatic stress disorder, anxiety, depression and suicide.

The greatest need for Georgia military families is a safe environment to decompress from the stress of combat. Every day, there are 58 suicide attempts by veterans and U.S. military personnel. Nineteen of those are successful. Georgia is the only state to have had no military suicides over the last three-and-a-half years thanks to an innovative statewide counseling program. There are currently plans to establish a retreat center for spiritual, mental and emotional health at Callaway Gardens, near Pine Mountain, Ga., for more than 25,000 Georgia service members and their families. In 2011, the Georgia Warrior Alliance sponsored six camps with more than 300 military families at Warm Springs Camp Dream hosted by The Scott Rigsby Foundation and Camp Twin Lakes.

Also in Atlanta, a neuro-trauma rehabilitation center that is working with 25 centers in China and the largest hospital system in India will provide the latest neuro-rehabilitation and regenerative medical treatments to wounded warriors. Finally, Augusta has raised $100 million to coordinate the community’s non-profit programs in the Kroc Salvation Army Center. Many of these programs are focused on serving military personnel and their families.

Georgia’s partnership with the military is not only the right thing to do, it is also a critical step in making Georgia a leader in health innovation.

Coordinating research

The state’s strongest area of competitive advantage in research is regenerative medicine, beginning in the area of neuro-trauma. The purpose of neuroscience research is to understand human cognition, and to find better treatments for the more than 1,000 nervous system disorders that trouble humanity at all ages of life. These disorders include cerebral palsy, epilepsy, learning disorders and autism in young life; depression, schizophrenia, addiction, obesity and chronic pain in mid-adult life; and Alzheimer’s disease, Parkinson’s disease, sleep disorders and stroke in later life. Taken together, these disorders affect almost every American, at least at one time or other, and cost Americans more than $500 billion annually.

Home Depot co-founder and philanthropist Bernie Marcus alone has donated more than $130 million for neurologically related research, treatment and rehabilitation. Georgia Tech and Emory University will receive $150 million in research grants in this area over the next five years. The Armed Forces Institute for Regenerative Medicine (AFIRM) is considering research grants totaling $100 million for regenerative medicine focused on neuro-trauma in Georgia.

Georgia can focus research, philanthropic and commercial resources to own the military solutions for mental health, burns and neuro-trauma and take advantage of the government and national philanthropic investment that will follow wounded veterans. Collaboration in research will be the key to success.

Georgia is recognized as a national leader in neuro-trauma and regenerative medicine because the state has made many important investments in strategic areas:

The Georgia Tech Emory Collaboration in Regenerative Medicine (GTEC) brought in $30 million in grants and has had a $160 million impact on the Georgia economy, according to the Georgia Research Alliance.
The Center for Behavioral Neuroscience at Georgia State University has received $40 million in federal funding over the last decade and linked 150 Georgia neuroscientists in their research.
The Atlanta Clinical & Translational Science Institute, a partnership of leading institutions including Emory, Georgia Tech, Morehouse School of Medicine and Children’s Healthcare of Atlanta, was recently awarded $31 million. The focus of this research grant is in four key areas: neuro-trauma, diabetes, cancer and vaccines, all centered on regenerative medicine.
Georgia Tech and Emory’s biomedical engineering (BME) programs are currently ranked second in the nation.

These collaborations uniquely position Georgia to take advantage of future breakthroughs in regenerative medicine, which will address cancer and organ repair, orthopedic and neural trauma, burns and chronic wound care, and congestive heart failure and diabetes. Breakthroughs in any of these areas would save lives, save significant amounts of money and dramatically improve quality of life.

To compete nationally and globally, Georgia should devote more research dollars to regenerative medicine, particularly in burns, neuro-trauma, orthopedic injuries and chronic disease. The appropriate place to begin is by bringing together the initiatives listed above and create a Georgia Partnership for Neural Recovery modeled after, but broader than, the Stanford Partnership for Spinal Cord Repair. The state of California has made a $3 billion commitment to research and regenerative medicine, beginning with the Stanford Partnership.

Attracting venture philanthropy

The Rockefeller family changed the culture and economy of New York City by creating the concept, donating the land and/or providing the initial capital for Rockefeller Center, the World Trade Center Twin Towers and the United Nations headquarters. These efforts were the nation’s first examples of venture philanthropy. Today, Bill Gates and Warren Buffet have issued a $600 billion challenge to U.S. billionaires to give away one-half of their net worth during their lifetimes.

Venture philanthropy applies venture capital strategies to charitable organizations and philanthropic efforts; 30 percent of this capital is currently invested in the life sciences arena (biotechnology, medical devices and health care services). The vast majority of these philanthropic investments focused on health care are focused on specific diseases.

Foundations and nonprofit organizations can create alliances that typically would not be supported through public investments or for-profit companies. They can quickly bridge disciplines, institutions and ideas when the opportunity arises. With the appropriate incentives, nonprofit organizations can change the culture and structure of research, develop new areas of economic focus and drive innovation.

One way to draw attention to Georgia’s role would be by hosting an annual, international summit on venture philanthropy in regenerative medicine to showcase the most exciting new health care solutions, by disease state, to this audience of donors. This summit can also bring together the world’s most promising research, technologies and cures and secure funding to implement the next generation of solutions in Georgia.

Implementing Public Policy Reform

Georgia must embrace five critical policy changes as the next steps in this process:

Creating a statewide telemedicine infrastructure that can be used as a clinical trial platform, stroke and trauma network, and provide access to care for citizens in our 57 counties that do not have a physician.
Changing our pension laws so that it is legal to invest in venture capital and private equity.
Standardizing the technology transfer process across the University System.
Reducing and eventually eliminating the state income tax.
Reforming our medical malpractice system to swiftly and fairly compensate victims and eliminate the tremendous cost of defensive medicine.

Creating a statewide telemedicine infrastructure

Georgia is one of just two states that have been funded by the Paul Coverdell National Acute Stroke Registry at the national level since its establishment in 2001. It was named after U.S. Senator Paul Coverdell of Georgia, who suffered a fatal stroke in 2000 while serving in Congress. As a result, 60 Georgia hospitals have been linked together in a telemedicine trauma network.

In 2008, Georgia’s Coverdell Murphy Act established telemedicine as a health care delivery system to enable a true statewide stroke solution. Strokes are the No. 2 cause of death in the world and the No. 3 cause of death in the United States. Strokes cost this nation seven times more than breast cancer and HIV/AIDS combined. The funding for a stroke network can be used to link all Georgia hospitals statewide and allow Georgia providers to serve patients around the world in all areas of health care.

Eighty percent of battlefield injuries are orthopedic in nature, but there are just 280 active duty orthopedic surgeons in the U.S. Army. The U.S. military will need to use telemedicine solutions to reach wounded warriors at the point of injury, and Fort Gordon is the military’s largest communications hub worldwide.

This telemedicine network will also be critically important in providing access to care, 57 of Georgia’s 159 counties do not have a practicing physician and 67 have no primary care physician.

Once funded, the Coverdell Murphy Act will allow Georgia to be the first state in the country to link all hospitals statewide. Georgia could be in a unique position to recruit some of the nation’s leading doctors, researchers and specialists to work with Fort Gordon and provide care to troops on battlefields around the world.

Changing pension laws

Georgia stands alone in the nation in not allowing the state’s two largest pensions (the teachers’ retirement system and the employee retirement system) to invest in venture capital and private equity. As a result, 90 percent of the public pensions in America have outperformed these two plans over the 10 years ending in 2008.[2]These are defined benefits in Georgia, which means the state has to make up for any shortfall created by this imprudent investment strategy out of the state budget. The state must either change investment strategy to do what leading university endowments, corporate pensions and 49 other states are doing or let the teachers and state employees manage their pensions in whatever manner they please but eliminate the defined benefit.

The best approach is to allow investment only in top decile private equity and venture capital funds. Other states have attempted to use pension funds as an economic development tool and made poor investments in early-stage companies and local funds. This violates the fiduciary duty of investment managers and does not help with economic development.

The state should identify Georgia’s brand and select the best venture capital and private equity funds in the world and invest in those funds. However, we should make an effort to negotiate with these investment firms to open an office in Georgia to invest funds in our best companies and help us recruit the best new companies that are consistent with our brand.

Standardize technology transfer process across the University System

Stanford and MIT have standardized technology transfer agreements that allow them to execute contracts within 24 to 48 hours. If universities accept federal research dollars it is unethical and immoral to view the resulting technology as university property. The best universities realize that donations from entrepreneurs and corporations benefiting from research will far exceed capital from royalties and license agreements. Georgia must standardize the technology transfer process; entrepreneurs and investors will not negotiate for months and years to secure license agreements. Stanford gets 5 percent equity as a license fee with a 2 percent royalty payment on almost every deal. This is a good model for the Georgia University System.

Cut and eliminate state income tax

Georgia needs to eliminate the state income tax or face losing to states that have no income tax – such as Florida, Texas and Tennessee – in recruiting and retaining entrepreneurs. Reducing the tax rate from 6 percent to 4.5 percent during this legislative session would have been a promising start.

Tort reform

Civilian hospitals in the United States see more than 100,000 deaths due to medical errors every year. That is the equivalent of a Boeing 747 going down every other day and killing everyone on board. It would not take long to reform the airline industry if that occurred. Why should there be a different standard in health care?

The medical liability tort system isn’t working. Surveys estimate that “defensive” medicine – unnecessary tests and procedures ordered by health care providers to protect themselves from lawsuits – is responsible for at least 26 percent of all health care costs each year. Sadly, all of this spending has not reduced the risk of medical injury due to physician negligence, which is at the same level today as it was 30 years ago. Worse, only 20 percent of the victims of malpractice win awards, often leaving the poor without compensation.

Georgia could be a national leader by eliminating defensive medicine costs and improving patient safety by replacing its medical malpractice tort system with a Patients’ Compensation System. The details are in a recent study published by Georgia Public Policy Foundation,[3] but the end result would be that victims would be compensated sooner and reporting of medical errors could incentivize best practices and higher quality care. The General Assembly should appoint a study committee to seriously review this concept before the next session.

Conclusion

U.S. health care solutions are too expensive for most of the rest of the world. Global consumers cannot afford needed U.S. health care solutions because of inadequate competition, lack of focus on low-cost, innovative solutions and massive extravagance and waste.

Georgia is in a unique position. No other state has the Center for Disease Control and Prevention. No other state has a former President of the United States, Speaker of the U.S. House, Secretary of Health and Human Services, U.S. Surgeon General, and Ambassador to the United Nations all focused on state, national and global health care. Georgia, home to some of the world’s largest health care nonprofit organizations, will be the home of the National Health Museum.

There are 6.74 billion global consumers; 5 billion of them have access to cell phones. This provides a promising opportunity for Georgia, because health-care solutions for these consumers will be digitally and IT driven. GE has predicted that in 15 years one-third of all Internet traffic will be health care data and imaging.

If Georgia brands itself as the leader in health innovation, Georgia will become the national and international leader in health care IT, regenerative medicine and consumer digital health.

[1] “Job Growth in U.S. Driven Entirely by Startups, According to Kauffman Foundation Study,” Kauffman Foundation, July 7, 2010, http://www.kauffman.org/newsroom/u-s-job-growth-driven-entirely-by-startups.aspx

[2] 2008 Commission for a New Georgia study (no longer available online)

[3] “Patients’ Compensation System,” October 14, 2011, https://live-gppf.pantheonsite.io/ftp_files/Patientcomp11014.pdf

Ross Mason is Founder and Managing Director of HINRI Labs and a Senior Fellow at the Georgia Public Policy Foundation, an independent think tank that proposes practical, market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.