A view from the Center

Deloitte's Life Sciences & Health Care Blog

The US health care system: Innovation as a curative

Everyone loves innovation.

Innovation makes the complex simple, gives us more options, enhances the quality of our life, and makes the impossible, possible.  Innovation can be a cure if we learn how to use it.

But how do we define innovation? I think of it as getting greater value for less cost by doing a job very differently and breaking the constraints that define what is possible. We need to use the science of innovation to achieve greater value at lower cost in health care.

Though there have been many clinical and technological innovations, we have generally used the same approach to health care financing and care delivery over the last 25 years. Why would we expect anything to change? Fee for service reimbursement has defined our incentive system and policy structure. Rarely, if ever, has the consumer been the purchaser of services. As a whole, the system has lacked transparency and had minimal incentive to align the goals of all the key constituents. Historically we were able to pay for health care through our productivity gains measured in GDP growth, but health care is now the largest single item in the Federal and likely an individual’s budget. Not only does our health care system cost more than we can afford, but most consumers aren’t satisfied with the care they receive.

The US health care system is relatively inefficient compared to other countries – it is unit price, not utilization that is driving the cost. To help reduce costs, we need to improve productivity of care delivery and match the cost and intensity of services to the patient’s needs – key tenets of population health management. If we examine the cost distribution of a health plan’s commercial population under 65 years of age, we see a stark contrast in the medical cost distribution curve. Based on Deloitte analysis, less than 3 percent of the population incurs 59 percent of the medical costs (chronic care) while 69 percent of the population accounts for less than 3 percent of the cost (wellness). Population health, including rethinking how we care for the chronic care patients and greater investment in wellness, could help reduce costs.

However, just because the industry knows it needs to evolve, doesn’t mean it will. Four key market elements are crucial to realizing a transformative change of this nature:

  • The imperative for change – overall, existing health care industry models are not meeting customers’ expectations and our economy can no longer afford the current financing and delivery system
  • Market disruption – the ACA, MACRA and other regulatory policies have changed many of the fundamental rules of financing and delivering care
  • Advances in technology – tools like telemedicine, remote monitoring, wearables and consumer engagement apps, and analytics can enable greater productivity and value for less cost
  • Operating model reform – new clinical operating models can improve productivity and provide greater access and connectivity to patients by leveraging virtual and team-based care models and realize the demonstrated benefits of new technology

These market forces are enabling the innovation and convergence we are seeing in health care today.

First and foremost, financial incentives are changing. Payment innovation, initially driven by the ACA and subsequently with MACRA, is the catalyst of change for health care financing. CMS is changing the rules and a new care model must evolve in response. Providers should invest in technology, process, and new operating models to effectively manage and be measured on the cost, quality and outcomes of the care they deliver.

Additionally, the market is changing. Consolidation within and integration amongst plans and providers is changing care delivery. Provider-sponsored plans have been around for a long time, but they have less than 10 percent of the market share.1 What’s changed is providers have built scale through consolidation in last decade.  Most are now better positioned to innovate with consumers who are making care purchasing decisions with Medicaid, Medicare, small group and HIX – and who are usually loyal to the health system they get their care from.

At the same time, health plan consolidation is changing the competitive landscape and enabling greater investments by those incumbents in new technology. With recently announced mergers, five health plans will cover 61 percent of the US commercial market, if approved by the regulators.2 Health plans are innovating to provide a tailored consumer experience, access to intuitive and meaningful tools and data, and align health care delivery incentives.

Disruptive new companies and technologies are entering to fill the gaps and white spaces in this market environment. Sometimes it is easier for a new company to offer innovation since they tend to have far fewer constraints, customers and risk from failing. New businesses are evolving to serve providers and engage consumers by developing solutions that combine technology platforms with care management and coordination, analytics and risk based arrangements to help manage populations or conditions.

We know population health offers an answer, so what is holding us back? Other industries are making the complex simple. Other industries have built models that help lower cost, provide transparency and have the ability to meet each person’s specific needs. Health plans and providers can look to how other companies broke constraints by changing the way they did business and thrived. As Walt Kelly, the cartoonist wrote, “We have met the enemy and he is us.”

Sources:
1Deloitte analysis of HealthLeaders and AIS Health data
2Deloitte analysis

Author bio

Bill Copeland, Vice Chairman of Deloitte LLP, is a 27-year Deloitte veteran and leads the US Life Sciences & Health Care Practice. Previously, Bill was practice leader for the health reform initiative, focused on serving clients’ needs around the incredible changes resulting from the Affordable Care Act. He was also National Managing Director of our Life Sciences & Health Care Industry Consulting Practice and managed the Health Plans Consulting Practice.