What if you found out that your company is spending over twice as much as your competitors on a key element of your business, but the excess spending provides no differentiation, market-share gains or price premiums for your company? You’d likely appoint a team to unearth root causes of this wasteful spending.
Welcome to the US Health Care system. We spend 16% of our Gross Domestic Product (GDP) on healthcare – seven percentage points of our GDP more than the average of all OECD nations and 5 percentage points more than the second highest spender in the OECD, France. (The 34 member countries in the OECD span the globe and include many of the world’s most advanced countries.) Yet we have nothing to show for our excess spending in terms of population health, as cited in Forbes.
Today’s situation will only worsen absent change. Healthcare spending drives the truly scary US budget deficit projections. According to the US Congressional Budget Office, without a change in our healthcare system, Medicare and Medicaid will rise from 5.3% of our GDP (2009) to 10% by 2035. In addition, current trajectories show that national spending on health care will double from 16% of GDP to 31% over the next 25 years, clearly an unsustainable situation.
Strategy firm McKinsey and Company broke down extra US spending versus other nations into its component parts. $436 billion out of the $643 billion of waste in 2006 (numbers that are likely double that today) arises in outpatient care. We pay doctors more, our doctors order more tests, our tests are more expensive, and we have many more relatively expensive specialists and relatively few relatively cheap GPs compared to our peers.
The status quo path involves our governments, employers, employees and retirees paying more for healthcare. Case in point: healthcare employment continued to grow throughout the devastating 2007 recession, adding to all our costs. Employers have shifted more of the spending burden onto employees. Likewise, US Representative Paul Ryan (Wisconsin) hopes that by fully shifting spending risks onto retirees by transforming Medicare into a voucher system, we will create a consumerism that lowers costs.
Consumerism is worthwhile, but it’s hardly the salvation to our mess. Look around any industry in which prices have fallen and what you see is a mega-buyer, like Walmart squeezing lower prices out of product manufacturers, not a fragmented customer base up against a consolidating industry–as in farmers buying from Monsanto and DuPont. Even worse, healthcare providers tell customers what they need and make more money the more procedures they recommend as “needed.” Therein lies the root cause of our waste.
America requires more than a slowing of healthcare spending. We require deflation in healthcare costs, so that we eliminate the “wasteful” part of our GNP and shift spending into better infrastructure, more research and development, more exports and a stronger educational system. With lower healthcare costs, we’d also make our labor more competitive, enhancing US job creation. Other than healthcare providers, who’s not for that?
How do we get there? Joe Flowers, a health care futurist, raised that question when he spoke at the annual meeting of The Alliance last week. (The Alliance, a Madison, Wisconsin-based employer cooperative, pools purchasing and contracts for health care services on behalf of self-insured employers in Wisconsin and Illinois.) A born optimist, Flowers argues that all solutions arise from problems. Good thing, as our problems will only increase given obesity and aging trends.
The answer, according to Flowers, is to not just do the right procedures in the right way and better coordinate care across specialists. We must eliminate a significant percent of the procedures themselves, and replace expensive procedures with far less expensive procedures by catching health issues earlier. Here are the rabbits that Flowers believes we will pull out of our hats to reduce our spending. He has seen these strategies working, including within Alliance member companies.
- Implement wellness efforts by employers and government so that chronic diseases are identified and managed earlier.
- Surround the chronically ill with teams of people that reduce the need for higher-cost care, a people-intensive strategy that turns out to have amazingly high payback.
- Change how we pay providers – case rates (versus individual procedure rates) and outcome-based payments that put providers at risk. Pay providers to keep us healthy, and costs will decline.
- Open on-site primary care clinics wherever large groups of people work (or, for the elderly, where they live).
- Integrate health care teams like you find at the Mayo Clinic, where highly efficient systems for patient care exist.
- Target highest-cost spenders (patients) with interventions that reduce their spending.
- Steer patients to the highest value providers. The variability across providers in the cost of the same procedure for similar patients and identical outcomes is quite shocking.
- Reduce heroic end-of-life care.
Flowers’ list demonstrates that there is no one silver bullet to reduce the cost of health care. So, as you listen to the health care debate that will surround 2012 Presidential elections, ask if the proposed policies will reduce the number of procedures doctors order and make people healthier. Any combination of changes that falls short of these twin goals will cause our nation to fall short of its potential.