Healthcare’s Financial Dysfunction

The High Cost of Healthcare

The US spends 2 to 3 time more per capita than any other country, ($10.2k vs $.3k for all of EU (2016 World Bank.)) without commensurate patient outcomes. What has contributed to the high cost of care?

  • Increasing intensity of services. More tests, the most advanced medical devices, more procedures and more expensive medications – more than necessary, and many without proven evidence regarding efficacy and improved health outcomes.

    Research in managing this category of costs has resulted in several early AI solutions, some of which are already in operation – guiding initial diagnosis, and ICU clinical outcomes by accessing millions of detail records to present clinicians the highest probability options for the desired result. For example, managing ICU time long enough to prevent readmissions, and short enough to open ICU beds to other patients

  • Pricing. Payer profit demands and increased administrative costs have led to price increases that far several multiples of the rates of inflation. We do not have normal supply/demand/competitive forces in healthcare to keep pricing in check.

    Recent publication of claims data has illustrated the very broad spectrum of claims costs even in the same or adjacent zip codes. As of yet, this cannot be directly tied it to actual pricing (kept secret in the guise of protecting confidential contractual arrangements) nor to outcomes that are made difficult to compare and adjust.

  • The two parties (doctor and patient) in a transaction, do not have a financial relationship. Even with price or cost transparency, a patient is not incentivized to select a cost-effective approach, especially in the absence of advice from the doctor. Since a patient a feels their life and health is at risk, they can sometime consider higher price as a proxy for quality and efficacy.

    We’ve now had the ACA for ten years, leading to an increase in the insured population. For the most part, the ACA did not include measures to control costs so it has led to increase profits are almost all healthcare firms and insurance premiums keep rising faster than inflation.

  • Multiple parties with different objectives. The complete “value network” is not integrated and driven by the same values. Most cost control measures usually end up optimizing a small part of the subsystem while sub-optimizing the whole system – the overall system always ends up costing more.

  • High administrative costs. While the monopsony paper ( https://pnhp.org/news/a-medicare-for-all-monopsony-would-get-the-prices-right/) showed that Medicare for all would not necessarily lower healthcare cost, it would lower administrative cost. The article from a few years back (The Bitter Pill, by Steven Brill, TIME magazine ( https://time.com/198/bitter-pill-why-medical-bills-are-killing-us/) showed that private insurers spend 10x more than CMS to process claims. CMS approves the vast majority on the first pass. Private insurers may reject the first 3 or 4 (re)reviews before approval – and yet both have approximately the same final approved claim rate.

    At its core, this is a traditional business reengineering challenge to eliminate redundancy, rework, and reconciliation. Some startups are working this issue with data and AI – in essence predicting which claims will be rejected, and proposing the “correct” claim approach for first pass approval, also speeding up the payment to the provider.

  • A low trust system. The barriers of entry are so high that organic disruption is nearly impossible. How do we rebuild from the doctor-patient level of trust? There are two possible solution areas: 1) data (AI) and technology can embrace the complexity (and volume) of data at the most local (patient) level, and 2) distributed ledgers are tailor-made to create viable value-based transactions possible in untrusted environments.

  • Other points of discussion that came up:
    • the cost of the uninsured
    • cost of living
    • provider collusion
    • ER’s doors are open for those with insurance
    • not just silos – but hyper provider and staff specialization
    • a Medicaid system that supports seniors in expensive Skilled Nursing Facilities over home care – where most all would rather be
    • the glamour, attraction to, the high-tech aspects of healthcare
    • mergers and acquisition frenzy among health providers, and now among senior care providers as well
    • the minimal – but growing support for funding social determinants of health.

    Research Questions

    How does the percentage of population that has insurance coverage, affect healthcare costs? Does life expectancy go up and costs come down when more people have health insurance? What role does supporting such insured services as vision, dental, and preventative wellness play?

    Addressing this research question will require deep analytics. Here are some of the thoughts we discussed on our call:

    In general, we believe that long-term as more people have health insurance cost will go down. However, studies have shown that soon after gaining insurance under ACA, total cost went up. We theorize that three factors were contributors: 1) people came to get care for conditions that they avoided care due to cost, for perhaps years (the backlog,) 2) people used the system without delay for new health concerns (new demand,) 3) people used the system more often for their chronic conditions (higher intensity of use.)