Outdated & Broken: the U.S. Healthcare System
Language matters. Our choice of words provides a window to the things we find important. “Healthcare heroes”. These are the words – the apt words – many used to describe those within the healthcare system during the COVID-19 pandemic. These words show the importance and value we place on our doctors and nurses as they help guide us through the pandemic.
Language matters for other things, too. Take the example of some of the language used to describe the impact COVID-19 has had on our healthcare system:
“Elective procedures have been delayed or cancelled”
“Hospital volumes are dramatically down”
“Health System revenues have declined sharply”
The key words are “procedures”, “volume” and “revenue”. These are important words because they summarize the framework that makes up the United States healthcare system today. The framework is simple: do more, get paid more. Order more tests, admit more patients, perform more surgeries, sell more pharmaceuticals, etc. and you bring in more money. Simply put, activity generates revenue. This “do more, get paid more” system is known as “fee for service”.
Now, ask yourself, why do we choose to describe the COVID-19 fall-out by focusing on healthcare system activity? Perhaps our choice of words is an indication of what’s really important when it comes to the administration of our healthcare system today. Allow me to use an extreme illustrative example: If I walked into a hospital today and offered the most amazing therapy that reduced hospitalizations by 50%, the hospital would actually have a big financial problem. Of course, they would embrace the therapy, but financially they would need to figure out how to cover all the lost revenue. Rather than being ecstatic, they’d be scrambling to figure out how to survive — much like they are now. That is a perverse incentive system. As we think about this example, there are a few questions to consider: How can activity be so central to how we think about healthcare? Why is activity even a consideration in healthcare?
A Brief History of US Healthcare
To answer those questions, you need to trace the US healthcare system back to the rise of private health insurance in the 1930s and to the formation of Medicare in 1965. These programs were modeled after workman’s compensation and life insurance. This is actually a key point because life insurance pays on a singular event – death. Workman’s compensation is a bit different but is also typically associated with a singular work-related injury or illness. Health insurance, however, may encompass multiple diseases, requiring multiple types of therapies and interventions over many, many years. Attending to one’s health is anything but a singular event. Given these stark differences, trying to model healthcare coverage with the same basic framework and methodology as workman’s compensation and life insurance can create unintended consequences. These consequences are precisely what we are facing today and have resulted in a system that, despite the best of intentions, rewards activity. However, even in the face of these unintended consequences, the system has only relatively recently started to become unsustainable.
If you revisit the dynamics of the 1930s, healthcare — the level of technology, innovation and infrastructure — wasn’t nearly as sophisticated as it is today. Unfortunately, if you became really ill, you likely died. Average life expectancy in 1930 was almost 20 years less than what it is today. By the 1960’s, with more innovation and new technologies, healthcare was getting more sophisticated, however, we had almost half the number of people living in the U.S. as we do now and, at that time, the oldest baby boomers were in their 20s. It was a younger, healthier population. In both of these periods, and for different reasons, an activity-based system was manageable.
Contrast this with 2020. Healthcare is incredibly sophisticated. We have a myriad of alternative diagnostic tests, genetic tests, therapy options, procedures and drugs. On top of this, we have 150 million more people living in the US than in 1960 and, to make matters worse, we have an aging population, with more than 50% of our nation either Generation X, Baby Boomer or older. Today, average life expectancy is almost 80 years old. We are older, with our health deteriorating and with substantially more options for care than we had in either 1930 or 1960. It should be no wonder that our healthcare costs are at 17% of GDP. The activity-based system devised for a world 60-90 years ago is being crushed under the weight of age, declining health and choice.
Value-Based Healthcare
Given our dynamics today, hopefully it’s clear that we need to move away from a system that rewards activity. But if that’s what we need to move away from, what should we move towards? Perhaps it seems obvious, but it seems to me that a healthcare system should be built on a foundation that actually rewards health. In other words, instead of an insurance model that promises to cover a patient’s healthcare costs, we need to create a system that rewards the delivery of a favorable healthcare outcome. Essentially, we need to move from a framework guided by “health insurance” to “health assurance”.
There is a concept, known as Value-Based Healthcare (VBHC), that has been gaining traction. At its core, VBHC is looking to put better health front-and-center. However, it takes the additional step of also looking at cost, which is quite wise. Let’s take a look at why this dual-element methodology makes sense.
As we have discussed, today’s system measures and rewards activity. If we switched to a system that solely measures and rewards health outcomes, we may actually not change the activity-based dynamic that exists today. One can easily envision a situation where, at the first sign of an issue, every lab, every test, etc. is ordered to try to exactly understand what was happening, in order to provide the best chance at identifying and solving the health issue. We may get a great health outcome, but with potentially a lot of waste. Focusing on outcomes alone won’t necessarily solve the existing activity-focus or the runaway cost problem.
Similarly, if we switched to a system that looked to limit waste and solely measured and rewarded cost effectiveness, we may limit activity, but perhaps at the expense of health. In healthcare today there is a concept called “global capitation” which attempts to control healthcare costs. With global capitation, the healthcare system is no longer rewarded for activity. Instead, the system receives a fixed payment for each patient and, if the system can treat the patient for less than the value of the payment, the system makes money. Without the proper controls, the risk with this model is that costs can be managed, and profits maximized, by withholding activities that may be necessary to achieve a favorable health outcome.
VBHC, on the other hand, measures both health outcomes and cost. Value is measured by comparing health outcomes achieved to the costs required to achieve them. If a solution can achieve a great health outcome at a low cost, it has a very high value. The opposite is also true. If a solution produces an inferior health outcome, or if it produces an equivalent health outcome, but at a higher-cost – it has lower relative value. This system allows you to measure and compare just about anything with this value-based equation – drugs, devices, different protocols to treat a disease, hospitals, even physicians. As a result, with this methodology a framework can be established to reward the solutions that produce the highest value.
It’s a sound concept. The challenge with its implementation is that our entire system today is hardwired for an activity-based framework. It’s hard to imagine, but all the insurance contracts, the paperwork, the coding system, what happens when you pick up a drug at your local pharmacy, when you check into a clinic or a hospital – all of it – are based on activity. We therefore can’t go from where we are today to VBHC with one giant leap. We need to step our way into it.
The First Steps Forward
I do believe that in the journey to VBHC there are a few practical things we can do. These are nearer-term solutions that can improve outcomes, while lowering cost – which is aligned with the goal of a value-based approach. Here are three concepts, for example, that could be considered:
Empower patients … today’s healthcare system framework does little to actually encourage a patient to take better care of themselves. 90% of costs in our healthcare system are tied to the management of chronic conditions. What makes chronic conditions different is that they require patient engagement to be successful. A patient with a chronic disease may be prescribed a certain medication, or they may be asked to use a specific device, instructed to follow a certain diet and/or to increase their level of exercise. From that point on, it’s really up to the patient. If a patient takes the necessary steps to prevent the progression of a chronic disease which, in turn, could avoid substantial additional cost for the healthcare system, then why not reward the patient? One such benefit could be to waive the patient’s out-of-pocket costs (or, if you really want to get creative, even lower the taxes they pay). If you really think about it, all of the patient’s out-of-pocket healthcare costs are essentially a financial dis-incentive to achieve better health. With higher co-pays and deductibles, the system is saying to the patient, “In order for you to get better, you need to pay more”. Why not turn that upside down and have the system tell the patient: “If you can get your disease under control and maintain good health, you won’t have to pay”?
Embrace “IntelliMedicine” … it shouldn’t take a pandemic to open our eyes to the power of remote care. Does healthcare really need all the brick-and-mortar infrastructure it has today? Why does a patient with diabetes need to physically see their physician? They can go to the lab and get blood work done. Those results can be sent directly to the physician. If drugs or devices are needed, those can be prescribed and sent directly to the patient and any training or consultation required can occur remotely. As we explained in a prior article, on a regular basis, data like daily glucose values, insulin usage, nutrition information, etc. can be input into an app and also sent directly to the patient’s physician. All this information can be aggregated, processed and analyzed and a set of therapy recommendations can be generated based on the data – all, in fact, with minimal human intervention. The same is true for many other chronic diseases and also for primary care. Within the structure of our existing activity-based system, we can move to prioritize activity that encourages lower cost, home-based intervention and AI-based solutions. We don’t need to add cost to the existing health system for these activities, either. Rather, we can encourage the development and utilization of home and AI-based solutions by allocating more of the existing healthcare dollars to these activities, while allocating less to alternatives that don’t provide the same benefit.
Establish standardized Value Scores … it is mind-boggling that we can compare dishwashers easier than we can compare many elements of our health system. Establishing and tracking value scores can start to change this. For example, a value score could be incorporated as a standard part of the clinical trial process. Over time, this score could be comparative and rank a particular therapy’s value to other similar therapies. Another example is one where a standardized value score can be created for each physician. Outcome metrics like hospitalization rates, hospital length-of-stay, re-admission rates, mortality rates and patient satisfaction scores are known. In addition, health insurers can also provide cost data that could be added to these outcome metrics to enable a value measurement that can be tracked and compared. In fact, Medicare is already doing some of this analysis — focused on outcome metrics — for hospitals and health plans. Why not extend it to include cost and capture other elements of the health system? In the the first steps, this value information could be free and transparent so that consumers of the health system can make more informed choices. The next step would be to create payment models based on the value scores.
There are certainly other areas that could be attacked, but these are a few places worth considering as a starting point. In addition, while working to implement near-term stepping stones, we would also need to put in the work to re-wire our existing system from an activity-based approach to a value-based framework for the long-term. Some of this work has already started and there are leaders who are making a real difference trying to move VBHC forward. However, the effort is fragmented, without a consistent framework or unified focus. It would be incredibly helpful and worthwhile for the major players within the healthcare ecosystem to work together to jointly define what a true value-based model looks like for all parties involved — the framework, the methodology, the standards, etc — and then set established goals to reach this destination over a set period of time. This is an area where government can help.
In the end, today’s healthcare system was established with great intentions, but it just does not fit our current realities. It’s based on an insurance model that works well when covering the risk associated with a fixed event but breaks down when attempting to cover long-term, recurring episodes of care that have, within them, a myriad of different alternatives and pathways. Given its current trajectory, it is a system that simply cannot be sustained. With a real commitment to reward value vs. activity and through a common-sense approach, we have an opportunity to create a healthcare system that actually works given our 21st century dynamics and most, importantly, is built on a cost-effective framework that prioritizes what matters most – health.
