Complex problems do not have simple answers
There is not a simple answer. It took US healthcare 70+ years to get this fragmented, complex, political, entrenched, somewhat inequitable, and definitely exhausting place. It will take a lot of competition, collaboration, and leadership in government, private sector, non-profits, payers, providers, and patients. Basically, there is a lot of wood left to chop.
Healthcare matters
No one will deny this. If you’ve ever been sick and gotten better, medicine is magic. In 1900, the average life expectancy in the US (not a poor country then either) was 50 years old. Uh, I am 52 years old now (talk about borrowed time, right?)
Healthcare is massive
- It’s 1/5 of the US economy. It is measured in the trillions of dollars (trillions with a T). $4,000,000,000,000+
- If you take all of US healthcare and divide by the number of people (330 million); it’s $12K per year per person; that’s the equivalent of leasing a Mercedes for everyone in the country, every year
- There are 5,600+ hospitals and thousands of other sites of care (ambulatory surgery centers, urgent care)
Healthcare is complex
There are multiple healthcare systems running concurrently. There are private & public providers. There is Medicare for the elderly. There is Medicaid for the poor, disadvantaged. There are commercial plans for the employed or pay out-of- pocket. There is the Veterans Administration (VA) for the military and veterans. You get the point, it’s not just 1 system.
Healthcare results are variable
There is no such thing as “average” and that’s doubly true for US healthcare. We have the best care in the US (foreigners fly to the US to get care). We are also the only OECD rich country that doesn’t insure everyone. In fact, 8-10% of Americans have no healthcare insurance; they go to the emergency room as their primary care (expensive, painful).
Healthcare is changing
We are living longer and we are more likely to die of chronic illness than infectious diseases (note: Covid-19 was a big anomaly in the trend). So if you have high blood pressure, you need to eat right, exercise, take medicine, see your primary care doctor, and accountability for your health. Until now, the US system was sickcare (get sick and get fixed) vs. healthcare (proactivity managing your own health).
If interested, strongly recommend you read these two books (affiliate links):
- The Healthcare Handbook, 3rd edition, Askins, Moore – This is the only book I assign for my healthcare class. Written by two physicians, it’s direct, well-documented, easy-to-read, and useful.
- The Long Fix, Lee – Also written by a physician, who runs Google’s Verily health subsidiary. Well-written ideas on how we can nudge everyone to improve healthcare – government, payers, providers, patients.
Healthcare has many middlemen
If you know anyone in healthcare, ask them how much time they spend doing paperwork. There is an incredibly byzantine system of charges, lists, regulations, process, middlemen, and charting that most doctors spend 1:1 hour of paperwork for every hour they spend with patients. Pharmacy benefits managers (PBM) sit in between pharmaceutical companies and providers. The “chartmaster” is a secretive list of negotiated payment rates between providers and payers. The case mix (% of commercial payers vs. Medicare vs. Medicaid) drives the profitability of hospitals and physician groups.
how I teach / think about healthcare
I recently ran a two day boot camp for executive MBA. This is the list of the videos and the discussions we had:
- Healthcare introduction: What is your bias going into these discussions?
- Current situation in US healthcare: The US spends 1/5 of the economy of healthcare, we have sub-par results
- Economics of healthcare: Healthcare is not a perfect market, what are 3 reasons it’s not?
- Hospitals, health systems: Hospitals & physician groups make 50% of total spending on healthcare
- Fixed cost in US healthcare: Since there are high fixed costs, there are barriers to entry and exit
- Shift to ambulatory care: What should a hospital CEO do with the 900,000+ inpatient beds we have in the US?
- Hospital profitability: Average hospital profitability is 2-7%, depending on the case mix and the year, not great
- Health insurance: Employer-based insurance started in the 1950s, but does it really make sense to do it this way
- Medicare: CMS sets the standard for reimbursement rates nationally, commercial payers usually follow suit
- Healthcare pricing: Since you don’t know the price until AFTER you get the service, it’s hard to be a savvy buyer
- Medicare for all: During the elections, people say “let’s just have Medicare for all”, but what about the 1M people who work at commercial insurance companies (e.g., Aetna, United Healthcare, Cigna, Humana etc) are 50%+ of market•
- Affordable Care Act (ACA, a.k.a., Obamacare): three-legged stool a) guarantee issue insurance (yes, even people with pre-existing conditions get covered) depends on b) community rating c) individual mandate
- What is strategy: Creating a sustainable competitive advantage that helps you to ‘win’ over the long-term
- Best practices: These are often freely shared among healthcare providers, and yet, not implemented fully
- Strategy = tradeoffs: You cannot be all things to all people; better to focus and be great at a narrow set of things
- Strategy is not planning: Planning = focusing on inputs, reducing risk, strategy = focused on results, winning
- Implementing strategy: It takes a clarity (commander’s intent) and commitment (culture) to make things happen
- Healthcare in the news: Huge M&A happening in provider space (Kaiser + Geisinger); what’s your opinion?
- Healthcare industries: It’s a dozen different industries (pharma, provider, medical device) with varying margin %
- Industry analysis: Yes, competition is more than just your rivals (think: suppliers, distributors, new entrants)
- Economic moat: What are you doing to make it difficult for new entrants to steal your customers, profits?
- Industry convergence: Industries are not necessarily distinct (think: UNH insurance is the largest physician employer
- Intermountain healthcare: Well-known, high-quality health system is making their own generic drugs
- Industry trends according to CEO: Look for gains from IT integration and clinical variance reduction
- Quality: Four quality failures (over-use, under-use, mis-use, variation)
- Quality: Donabedian Triad thinks of quality as a progression: 1) infrastructure 2) process 3) outcomes
- Quality: Making healthcare better (NY Times article), amazing here
- Quality: Joint Commission is the largest accreditation body; without their gold star = trouble
- Quality: Readmissions reduction program is just 1 example of CMS programs to put more risk-sharing on providers
- Quality: HCAHPS is a patient satisfaction survey which gives “voice of the patient” (good), but also can be gamed (bad)
- Quality: DMAIC is Lean / Six sigma tool to D (define), M (measure), AI (analyze, improve), C (control) performance
- Quality: Being Mortal is an incredible book written by Atul Gawande (affiliate link) on living a good life, ending well
- Cost: Flow of funds show where the $$ for US healthcare comes from (patients) and goes (payers, providers)
- Cost: Administrative costs = massive. McKinsey estimates here that $250Billion (with a B) could be saved
- Cost: Critical to quality (CTQ) asks the question, “What’s truly needed and value added?” If not, don’t do it
- Cost: 8 kinds of waste TIMWOODS (transportation, inventory, motion, waiting, overproducing, overprocessing, skills)
- Cost: Reducing clinical variation is a huge opportunity because the “standard of care” definition varies, a lot
- Cost: Consumerism has started with people “shopping around” because of higher co-pays and other incentives
- Cost: Economies of scale provides the benefits of being big: financial, operational, talent, clinician, population health
- Access: Americans – even those with insurance – often have to wait too-long for care. This problem is not unique to the US, look at the trouble with wait times in the UK with NHS.
- Access; Rural America is 20% of population. Many critical access hospitals (under 25 beds) are often underfunded
- Access: Provider capacity is a challenge (even in the US). We need to increase supply, which is not simple
- Access: Telehealth adoption spiked (because we had to during the pandemic), but many obstacles remain
- Access: Disruptive innovation is “less for less” which need to sounds bad, but it’s super practical and cost-savings
- Access: If telemedicine is such a “no-brainer” why is Teledoc consistently unprofitable?
- Access: Healthcare equity is not the same as access. Who you are, where you were born, where you live matters.
- Access: The vaccines which were developed because of Covid-19 was a testament to ingenuity, power of focus
- Provider well-being: Oddly, technology often makes providers’ lives more difficult & increases costs
- Provider well being: We are burning out our clinicians; the system makes it difficult to care for patients = bad K
- Keep learning; 100+ links here to different resources to learn more about US healthcare
Healthcare matters and needs your help
Stay engaged, as patients, as providers, as taxpayers, as caregivers, as curious people. I am proud clinicians and the work they do for all of us. Thank you CKL and ITG.