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August 23, 2018

How Efforts to Reduce the Cost of Healthcare in the U.S. May Impact Patients, Payors, and Providers

MHT Partners  | Healthcare Investment Bank

$3,300,000,000,000: That is how much the U.S. spent on healthcare in 2016, and that number is only rising. The price of medical care has grown over 2,000% since 1960—compared to just over 500% for the consumer price index as a whole. In total, Americans’ health care tab represented approximately 18% of GDP, while the OECD average healthcare spending amounted to only 10% of GDP.[1]

 

 

 

 

 

 

 

 

 

Of more concern, the U.S.’s outsized healthcare spending does not yield commensurate results. Life expectancy at birth in the U.S. is 1.8 years lower than the OECD average of 80.6 years, and instances of many chronic diseases, such as diabetes, are meaningfully higher in the U.S.[2] For example, an estimated 7.8% of adults live with diabetes across all OECD countries, while an estimated 10.8% of Americans suffered from the condition as of 2015. Furthermore, a recent study by U.S.A. Today argues that the U.S. is “the most dangerous place in the developed world to give birth” today.[3] Germany, France, England, and Canada, for example, see an average of fewer than 10 maternal deaths per 100,000 births. The U.S., on the other hand, has seen maternal deaths rise from just over 15 to 26.4 per 100,000 births since 1990.

 

 

 

 

 

 

 

 

 

 

Clearly the quality of America’s care is not proportionate to its price, and something needs to change. People and organizations throughout the nation are aware of this asymmetry and working to reform the state of healthcare via a multitude of potential solutions. Many companies, for example, are undertaking initiatives to transform their employee health programs in an attempt to abate costs while ensuring high quality care. High profile examples include Amazon, J.P. Morgan, and Berkshire Hathaway’s recently announced nonprofit joint venture to provide “simplified, high-quality and transparent healthcare” for their collective employees, and General Motors striking employee coverage deals directly with health systems rather than using insurers as intermediaries.[4],[5]

Despite these and other headline-catching initiatives from some of the country’s largest companies, the most meaningful shift in the healthcare landscape is likely healthcare payors’ slow transition to outcomes-based reimbursement models. In contrast to traditional models of care in which physicians are compensated for each procedure performed, payors are increasingly “focused on delivering the highest quality outcomes at the lowest possible costs,” according to a 2013 McKinsey study. [6] In practice, this translates to payors setting explicit expectations of healthcare providers in the form of key performance indicators such as patient readmission rates and relative costs. In the clinic, these manifest in reduced variation in costs per procedure between providers as well as coordinated patient care across specialties and health systems to avoid redundant treatments and incentivize long-term outcomes.

McKinsey estimates that continued advancement in the area of outcomes-based reimbursement could save the country $1 trillion  over the next decade. Ultimately, though, prospective paths to improve the current state of healthcare in the U.S. are diverse, and there is likely no silver bullet. Rather, continued experimentation and iteration upon models that produce promising results will contribute to a slow-but-sure shift away from the status quo.. If instead we choose to stay the course, historical trends suggest the consequences will be continued suppression of both the nation’s economy and its collective health. While nobody is certain what the nation’s healthcare landscape will look like in a decade, providers who deliver high quality care at defensible prices are poised to thrive as a result of the U.S. healthcare system’s paradigm shift. Regardless of the mechanisms employed to change the nation’s healthcare landscape, the characteristics that will differentiate practices in coming years are clear.

[1] https://www.wsj.com/articles/why-americans-spend-so-much-on-health-carein-12-charts-1533047243
[2] https://www.oecd-ilibrary.org/social-issues-migration-health/health-at-a-glance-2017/life-expectancy-gains-and-increased-health-spending-selected-high-income-countries-1995-2015_health_glance-2017-graph5-en
[3] https://www.usatoday.com/in-depth/news/investigations/deadly-deliveries/2018/07/26/maternal-mortality-rates-preeclampsia-postpartum-hemorrhage-safety/546889002/
[4] https://www.reuters.com/article/us-amazon-healthcare/amazon-berkshire-jpm-form-healthcare-company-to-cut-costs-idUSKBN1FJ1NF
[5] https://www.wsj.com/articles/gm-cuts-different-type-of-health-care-deal-1533582121
[6] https://healthcare.mckinsey.com/sites/default/files/the-trillion-dollar-prize.pdf

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