Healthcare Crash? Where is Houston?
As a nation our healthcare system is just a few short years away from several converging catastrophes slated to touch us all in terms of how we receive care and the price tag associated with said care. In this piece, Lisa Trumble, President and CEO at SoNE HEALTH, highlights staggering statistics all healthcare consumers and stakeholders need to understand. Sharing her extensive expertise working in the Value-Based Care (VBC) arena she provides a clear explanation of VBC: what it is, why it is so critical now more than ever, its potential to transform healthcare and the role we each have to play toward healthcare transformation.
I typically start a new year feeling more positive about what we can achieve in healthcare, only to reach December feeling that progress hasn’t occurred. Then in January, I look at what the influencers, pundits, and soothsayers have to say about the coming year and think, are we on the same planet? So, let us talk about where we are and why the status quo, dabbling, and tweaking of healthcare around the edges won’t work.
I’m not sure if you noticed, but we (those working in the industry) manage a crisis that sometimes feels like a ride on the Titanic. If you don’t believe this statement, here is an astounding number for you…
47% of healthcare workers are planning to leave their jobs by 2025, according to a Forbes survey.
Seems like a lot! However, I must admit that I have considered my circumstances and thought that 2025 is when I throw in the towel. I know I’m not alone. Spending over 30 years fighting the same battles and issues in healthcare and the undercurrents of healthcare reform, you cannot help but feel that there must be something better.
As gloomy as this sounds, I do have hope! The hope is that change will happen, and Value-Based Care and the Consolidated Appropriations Act can provide the paths we need to change the industry materially. The questions are: Who? When? and
How will it happen? Will it happen slowly, incrementally, an evolution, or will it need a distributive, dis-intermediation, or near revolutionary approach? In my soothsayer opinion, entrenched behaviors exist across the industry coupled with a political unwillingness to address the real problems that it will take a near collapse of the system for any meaningful change to occur.
We are facing five mammoth catastrophes occurring in tandem going into 2025-2030:
1) Service demand versus healthcare worker supply
The last of the Baby Boomers (yours truly) will age into Medicare, increasing Medicare enrollment from 58.6 million in 2022 to over 80 million by 2030, equating to almost a 27% growth over the next eight years. Indicating a greater need for healthcare services because of an aging population. Mind you, 47% of healthcare workers are thinking of leaving the industry at a time when there will be increasing demand for more intense services. This situation is further aggravated by the expected shortages of key personnel, a staggering 200,000-450,000 registered nurses and 50,000-80,000 doctors by 2025. The result is a greater, more acute need for services compounded by a resource decline; this dynamic requires us to change care delivery models now.
2) Escalation in healthcare expenditures assuming no material intervention
According to The Centers for Medicare and Medicaid Services (CMS) National Health Expenditure (NHE) data, healthcare expenditures grew to $4.3 trillion in 2021, equating to 18.3% of the Gross Domestic Product (GDP). Given the aging of the population, historical utilization patterns, and trends, CMS is projecting NHE to reach $6.2 trillion and 19.7% of GDP by 2028. Astounding! Thereby zapping the economic stability of all employers and the Medicare Trust fund.
3) The impact of inflation on healthcare costs
According to McKinsey, healthcare labor and non-labor inflationary cost increases will continue to grow over the next five years and will increase healthcare expenditures by $370B by 2027. Note that this estimate does not account for aging populations and utilization pattern changes or increases, just inflation's impact. This increase has yet to be factored into the expenditure prediction outlined in the second bullet. Consequently, healthcare inflation will cause hospitals, providers, and suppliers to seek offsets in payment rates rather than transforming the delivery model or seeking further efficiencies. Dealing another blow to economic stability.
4) Inflationary impact on healthcare premiums
Employers’ healthcare cost increases could be 6.5% in 2023, which I believe is underestimated. At the same time, employee out-of-pocket costs are expected to continue to grow through 2026. If employers think this is not good, wait until 2024 & 2025 renewals (see McKinsey’s EBIDTA erosion graphic for inflation impact and new revenue scenarios). Increasing premiums requires employers to respond by reducing benefits, shifting to the exchange or high deductible plans, and greater employee cost share when competition, recruitment, and retention are critical. The result is a less profitable or competitive business environment, increased uninsured or underinsured, and a reduced workforce. We must face the reality that NO NEW MONEY will be pumped into the system! Nor is there tolerance for continued premium increases without consequences to overall economic stability.
5) Political ambivalence
There is a clear need for more political urgency. However, there is disinterest in resolving problems that everyday Americans face and an intensely divided congress. With this political atmosphere, who believes our political system will make material progress in two years on healthcare reform? No one. Caitlin Owens from Axios framed this in her November 2nd article; The next healthcare wars are about costs because it states the political reaction appropriately. “Don’t underestimate Washington’s ability to have a completely underwhelming response to the problem, or one that just kicks the can down the road – or to just not respond at all.” Effectively, for the problems that our industry faces, Houston is missing! So, where does this leave us?
We should instead look at our historical view of where revenue and expenses were and where they are now. Does it make sense to continue to pound on one part of the industry, predominately providers, when other components are running away with record profits? Don’t get me wrong; there is much improvement needed in the provider space; however, it is not the only place to look. Maybe disintermediation is warranted, along with seismic changes in how we deliver healthcare.
What can we do in the meantime? Two strategies could produce light at the end of the tunnel; 1. Value-Based Care (VBC), 2. Consolidated Appropriations Act (CAA). While these strategies take time to evolve, they can shake up the status quo.
Value-Based Care (VBC) is a tool to transform healthcare delivery.
For those just waking up to the Value-Based Care movement, welcome! The VBC effort has been around in some form (good or bad) since the 90s and, more recently, with CMS’s development of the Medicare Shared Savings Program (MSSP) in 2012. So VBC is not new, but the framework is ever-evolving, and the initial components were outlined in Porter and Teisberg’s “Redefining Healthcare”. As our population ages, healthcare expenses increase; that increase creates interest in VBC, VBC models, and new VBC services that can be provided at a lower cost than traditional healthcare services and settings. However, to truly transform healthcare, offering new services here or there will not achieve that outcome; it will only cause more fragmentation and, eventually, more costs. Therefore, we must recognize that some basic foundational elements are necessary to be successful:
1) Healthcare is local; it always has been and will always be local. Our circumstances (personal, social, and structural) all play a role in an individual’s ability to achieve optimal health. Therefore, attaining optimal health involves genetics and requires a focus on the local and lived circumstances that influence health:
Educational Access and Quality
Healthcare Access and Quality
Social and community context
Lastly, we must recognize that serious inequities exist in all the above categories and the approach and evolution of our healthcare structures, resulting in poorer health outcomes. As a nation, more should be spent on the above items. Consequently, we have a less healthy population at a higher cost because we spend all our dollars fixing medical problems rather than addressing the issues upstream. Therefore, health equity must be part of any VBC model.
2) A VBC structure utilizing a population health management approach that considers the health influencers described above in addition to the clinical conditions and outcomes must inform the development of strategies and programs to improve health outcomes. Additionally, an effective population health management model would follow a patient throughout the continuum of care and in the community. There are multiple ways VBC can take form; however, the structure to support that work can vary greatly based on the population’s needs.
3) A successful VBC structure must include strategies, tactics, and programs in five core domains:
The Population Health Model: Primary care providers accountable for the outcomes associated with a patient or population of patients in their practice are the foundation of a population health management model. Ideally, this primary care provider would operate in an advanced primary care practice model supported by team-based care and technology that pivots the focus toward prevention, wellness, and quality outcomes. This model must incorporate approaches that address the influencers of health described in item one, thereby effectively developing a Medical Home for the patient.
Longitudinal Care: Development of an individualized longitudinal plan of care for each patient that considers prevention and treatment goals, personal beliefs and preferences, coordination and utilization of services, and the influencers of health and health equity. Consideration is also given to services received across the continuum, e.g., hospital admissions. Additionally, understanding the prevalence of chronic conditions, avoidable or unnecessary utilization, quality, safety, and experience outcomes for the patient is essential to achieving the best health outcomes.
Clinical Integration: Given the fragmented nature of our healthcare market, successful VBC providers must address clinical fragmentation by developing an integration strategy. Integration between providers requires a process for exchanging clinical information, the development of cross-continuum guidelines for care, and prioritizing and using specific providers that follow these guidelines. Lastly, clinical integration incorporates transparent reporting of performance (Quality, Experience, and Cost) in every care domain. With performance information, primary care providers are aware of the rest of the system’s impact on their patients.
Digital and Virtual Enablement: Healthcare is an intensely personal experience, and we need to appreciate that patients may not want to consume their healthcare experience the same way. Enhancing the experience to incorporate digital and virtual tools and platforms can expand access, improve quality and experience, and reduce inequities associated with access. As with any other industry, healthcare is not immune to technological advancements; it’s just that we spend most of our time and money on advancing clinical technology and far less on what would improve the experience and reduce fragmentation for patients.
Payment Model: Lastly, a value-based model requires a framework that aligns the financial incentives with the actions and outcomes expected within the population health environment. The existing fee-for-service (FFS) structure doesn’t achieve this objective. Similarly, the typical approach from health plans is to utilize an alternative payment model (APM) that overlays the FFS chassis. While current APMs are a reasonable short-term solution, over time, results will plateau or be diminished if they fail to address the misalignment of incentives derived from an FFS model.
Our healthcare system must migrate to a population-based payment model that drives the necessary behaviors to improve health outcomes while reducing healthcare expenditures. Until this pivot is made, APMs in a value-based care environment will only nibble around the edges of healthcare expenditures with no discernible impact on health outcomes. Despite the evolution of VBC care and the touted savings of various CMS programs, such as MSSP, none have resulted in material bending or reductions in national healthcare expenditures, as outlined above in bullet two.
The Consolidated Appropriations Act (CAA) as a tool for dis-intermediation?
The second potential light at the end of the tunnel is the Consolidated Appropriations Act (CAA), the outside looking into healthcare. Is it a path to disintermediation? CAA creates a fiduciary responsibility for self-funded employers to understand how every dollar is spent, where it goes, how much is being paid for what types of services, and the quality of those services. CAA creates transparency and disclosure requirements across sales/purchasing processes for all healthcare services, from the broker to those that provide services to the employee. Effectively, putting cost, quality, and data control in the employer’s hands, specifically the Chief Financial Officer. Lastly, CAA creates opportunities for legal claims against sponsors for violations of CAA and potential antitrust claims against health systems, for terms that restrict competition.