Building in Healthcare Part 3: The Three Core Challenges Shaping Healthcare Innovation

In Parts 1 and 2, we explored healthcare’s fundamental dynamics and the complex web of relationships between stakeholders. Now, let’s dive into the three core challenges that anyone building in healthcare must understand: cost management, quality improvement, and access expansion. These challenges aren’t just obstacles — they’re opportunities that shape how we innovate in healthcare.

The Cost Challenge: Healthcare’s Growing Economic Burden

Healthcare costs present a fundamental challenge that extends far beyond simple budget constraints. The numbers tell a striking story: healthcare spending continues to grow faster than GDP in most developed countries, with the United States leading at unsustainable levels. What makes this particularly concerning is that increased spending doesn’t necessarily correlate with better health outcomes.

The Complex Economics of Rising Costs

At its core, healthcare cost inflation stems from a unique economic dynamic where traditional market forces often fail to function effectively. Three fundamental factors create a particularly challenging economic environment:

First, the aging of populations creates a compounding effect on healthcare systems. As people live longer, they tend to develop multiple chronic conditions that require ongoing management. This isn’t just about treating more conditions — it’s about managing increasingly complex interactions between conditions, medications, and treatments. A patient with diabetes, heart disease, and arthritis requires exponentially more care coordination than treating each condition in isolation. The challenge grows exponentially rather than linearly.

Second, technological advancement in healthcare often adds costs rather than reducing them. Unlike other industries where new technology typically drives efficiency and lower costs, healthcare technology frequently creates new treatment options without replacing existing ones. For example, when MRI technology emerged, it didn’t replace X-rays or CT scans — it added another layer of diagnostic capability, along with its associated costs. Each new technological advancement tends to layer on top of existing capabilities, creating cumulative cost increases.

Third, the healthcare payment system itself contributes significantly to cost inflation through structural complexity. The intricacies of billing, insurance, and reimbursement create substantial administrative overhead — to the point where many hospitals maintain larger billing departments than clinical staff. This system also obscures true costs from both providers and patients, making it difficult to make cost-effective decisions. The opacity of pricing and complex reimbursement mechanisms create a market where normal economic forces of supply and demand operate imperfectly at best.

Recent data underscores the severity of this cost challenge. According to a Brown & Brown analysis, large employers expect their healthcare costs to increase by an average of 6.7% for 2025 after accounting for changes to their plan offerings. If no changes were made to plan offerings, the expected increase would be 7.7%. This projected increase is significantly higher than the general inflation rate, highlighting the unique economic pressures in healthcare.

The Value Equation in Healthcare

The cost challenge isn’t just about reducing spending — it’s about maximizing the value derived from healthcare expenditures. This requires a fundamental shift in how we think about healthcare economics.

Value in healthcare is uniquely difficult to measure because outcomes are complex and often long-term. The same treatment might have different values for different patients based on their circumstances, preferences, and overall health status. This complexity makes it challenging to implement typical market-based solutions.

The value equation becomes even more complicated when considering preventive care. The benefits of prevention often accrue years or decades later, while costs are immediate. This temporal disconnect makes it difficult to align financial incentives with optimal healthcare decisions.

The Quality Challenge: Wrestling with Complexity

Healthcare quality represents a unique challenge because, unlike many industries, the stakes involve human life and well-being. The quality challenge in healthcare is fundamentally different from quality control in manufacturing or service delivery.

Understanding Quality Challenges in Healthcare

Quality challenges in healthcare manifest in three critical dimensions, each representing a distinct failure mode in healthcare delivery that requires its own strategic approach:

1. Underuse represents a particularly insidious quality problem where beneficial services aren’t provided when they should be. This isn’t simply a matter of oversight — it often results from complex systemic issues. Consider preventive care: a patient might miss crucial screenings not because anyone made a conscious decision to skip them, but because insufficient follow-up systems, lack of care coordination, or unclear responsibility among multiple providers allowed the need to slip through the cracks. The challenge compounds over time as missed preventive care leads to more serious conditions that could have been caught earlier.
2. Overuse emerges as a different kind of quality challenge, occurring when unnecessary services are provided. This isn’t typically driven by malicious intent but rather by a complex interplay of defensive medicine, misaligned incentives, and information gaps. The overuse of antibiotics serves as a classic example: a combination of patient expectations (“I need antibiotics for my cold”), time pressures on providers (it’s faster to prescribe than to explain why antibiotics aren’t needed), and diagnostic uncertainty leads to widespread overprescription. This creates not just immediate cost issues but long-term public health challenges through antibiotic resistance.
3. Misuse represents perhaps the most visible quality challenge, occurring when errors happen in service delivery. These errors typically result from system failures rather than individual mistakes — a crucial distinction for anyone building healthcare solutions. Medication errors illustrate this perfectly: when a patient receives the wrong medication, it’s rarely because one person made a mistake. Instead, the error often results from a cascade of small communication breakdowns between multiple providers, pharmacy systems, and care settings. Each part of the system might work correctly in isolation, but the interfaces between them create opportunities for error.

The Systematic Nature of Quality Challenges

Healthcare quality challenges are inherently systematic. Individual excellence isn’t enough — quality requires coordinated performance across multiple teams, departments, and organizations. A single patient’s care might involve dozens of healthcare workers across several locations, each interaction creating potential for both excellence and error.

The rapid evolution of medical knowledge compounds this challenge. What constitutes “quality care” can change as new evidence emerges. Healthcare systems must constantly update practices while maintaining consistency and reliability — a particularly difficult balance to strike.

The Access Challenge: Beyond Physical Availability

Healthcare access involves more than just the physical presence of healthcare facilities. It encompasses a complex web of factors that determine whether people can effectively utilize healthcare services when needed.

The Multidimensional Nature of Access

Geographic access remains a significant challenge, particularly in rural areas, but the issue goes deeper than physical distance. Even in areas with adequate healthcare facilities, access barriers can prevent effective healthcare delivery.

Financial access extends beyond insurance coverage. Even insured patients often face significant out-of-pocket costs that can deter them from seeking necessary care. The complexity of healthcare financing itself creates access barriers as patients struggle to understand their coverage and potential costs. In fact, a recent study found that more than 1 in 4 adults (28%) reported delaying or going without either medical care, prescription drugs, mental health care, or dental care due to cost in 2022.

Cultural and linguistic access determines whether patients can effectively communicate with healthcare providers and navigate the healthcare system. This includes not just language translation but also health literacy and cultural competency in healthcare delivery.

Technological Evolution of Access

Technology is transforming how we think about healthcare access. Telemedicine and digital health tools create new opportunities for access while potentially exacerbating existing disparities. The “digital divide” means that technological solutions can sometimes create new access barriers even as they solve others. However, telehealth has shown promise in improving access, particularly in rural areas. It allows small-town doctors to connect their patients with specialists to help them provide better overall care.

Implications for Healthcare Builders

These challenges create specific imperatives for anyone building healthcare solutions:

Understanding Interconnections: Solutions must consider how cost, quality, and access interact. Improving one dimension often affects the others, sometimes in unexpected ways.

Focus on Systems: Effective solutions must address systematic issues rather than just individual problems. This requires deep understanding of healthcare workflows and organizational dynamics.

Measuring Impact: Success requires careful measurement of both intended and unintended consequences. Healthcare solutions often have complex ripple effects throughout the system.

What’s next

The healthcare challenges of cost, quality, and access create a complex environment for innovation. Success requires understanding not just the individual challenges but how they interact and influence each other.

As we look towards 2025, these challenges are expected to persist and evolve. Healthcare costs are projected to continue rising, with estimates suggesting a 6.0% increase in per enrollee costs in 2024 and a 5.0% increase in 2025. Quality improvement efforts will likely focus on leveraging technology, particularly AI and machine learning, to enhance decision-making and reduce errors. Access challenges will continue to be addressed through innovative solutions like mobile clinics and expanded telehealth services.

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