Thoughts on Total Cost of Health Care

Thanks to technology, we can finally retire the old business adage that says that when building a business - you can only pick two out of these three: good, fast, or affordable. Today, Google provides us the opportunity to search and get high-quality answers to our questions in a matter of milliseconds – for free. Consumer electronics (laptops, smartphones, televisions) keep getting lighter, faster, smarter, and more affordable. In fact, the same can be said for a whole host of products from smart homes to driverless cars.

Technology has created the expectation among consumers for ever-higher quality products at ever more affordable prices. That is, except in healthcare.

Contrasted with our demand for consumer product perfection, we’re amazingly tolerant when it comes to healthcare - and willing to accept services that is not always good, rarely fast, and certainly not affordable - despite its annual higher-than-inflation cost increases. 

Largely absent from the vigorous debate over reforming the nation’s health care laws is the understanding that simply being covered by health insurance does not reduce health care costs.

Total healthcare spending in the US reached nearly $3.4 trillion in 2016, and the Centers for Medicare and Medicaid Services (CMS) projects it will climb to $5.5 trillion by 2025, outpacing the growth in gross domestic product (GDP) for the period. In fact, despite having the highest per capita healthcare expenditure in the world, we trail other developed economies in such measures as life expectancy, health coverage rate, and deaths from preventable diseases.

It does cause one to wonder about the total cost of care in our country. How might we harness the power of technological innovation to achieve “good, fast, and affordable” for our industry? There are so many significant opportunities. Here are just three areas where I believe we could impact the total cost of care and the experience - making it good, fast and affordable!

1. The total costs to administer healthcare and the health benefit
2. The total costs of the clinical services rendered
3. The total costs of the support individuals need as they navigate the health system

Here’s a few thoughts on each:

Costs of Healthcare Administration and the Benefit

These costs include setting up the plan design, managing member eligibility, confirming provider billing are within the defined health benefit, processing and paying provider claims, administering stop loss coverage for the employer, and answering the myriad of questions raised throughout the relatively complicated process of getting a bill paid after seeing a doctor or a hospitalization. 

This entire process is in dire need of disruption. It’s a paper-intensive process that makes up 12-18% of the total healthcare dollar in the private sector. On top of that, the agent or broker organizing the benefit for the employer charges an additional 8-18% on top of the total costs (depending on the group size and type of healthcare plan sold. If we can manage virtually all our banking activity from our phone, when will this sector of healthcare provide us the same innovation?

Costs of the Clinical Services Rendered

The range that medical providers charge varies widely - even within a single city. What might be a $400 cost if you’re covered by Medicare could be a $2,000 charge otherwise. So, predictability of clinical costs is difficult. Employers and Insurers often have their own special pricing arrangements that defines what they pay for clinical services. Many employers have begun to set their pricing indexed around the Medicare price. About the only folks who are left paying the “charge” are the poor who have no insurance. And they’re the least able to pay - so often these become bad debt and write-offs for providers, who then must raise prices for everyone else. It’s a vicious cycle that gets created. 

Our industry talks about price transparency - but few offer any real transparency. A recent study published in JAMA Internal Medicine makes this abundantly clear: Hospital emergency departments across the country are prone to excessively overcharge patients with private insurance, the study found, demanding that patients pay — on average — more than four times what Medicare pays for typical emergency procedures. Stitches and sutures can cost up to seven times more than what Medicare pays; a CAT scan can cost almost 28 times what Medicare pays. These prices vary widely — and almost randomly — depending on the hospital providing the treatment. Why not index all pricing around Medicare? Even that simple change would like reduce total spend by 30-40%.

Costs for Patients and Families Navigating the System

About one percent of those insured account for more than 30 percent of the total costs. Identifying those most at risk for certain diseases and putting them on a path of early support seems profoundly logical. We must focus on the population most at risk and develop innovations in care management for the people who need it most.

Today, support for families is such a mix of noise that it’s almost impossible to understand: nurse advice lines, disease management programs, care coordination, care navigation programs, large case management services, post-acute care managers, utilization review nurses… you get the picture. They each own a small “piece” of the experience. Yet the reality is the patient is a “human” on a journey - and these services should be integrated. Today’s data and technology tools provide so many ways these programs could have significant value to the individual - but the support must be 24/7/365, on your phone, when you need it. Patient experience data these groups should be aggregated for best outcome. Care support programs that operate Monday - Friday are remnants of a pre-historic age of healthcare that need serious innovation and an infusion of technology.

Ask any family member who has cared for a very sick spouse or child - dealing with the logistics of appointments, knowing one’s options, ensuring their loved one has a voice in the process, filtering through dozens of medical bills - while trying to work or manage the family is an almost impossible task. The average family caregiver will spend nearly 1,000 hours a year supporting a sick family member each year. They often harm their own health and wellbeing in the process. The entire patient support experience needs disruptive innovation.

Final Thoughts

Employers that are serious about reducing total health care costs — and improving the health and well-being of their employees — should take a serious look at how innovation through smart use of people, process and technology can streamline all three of these cost areas. And there are many more areas of opportunity for consideration. 

Most of these innovations will be found in younger companies looking to disrupt the status quo.