Why Those Outside Healthcare Control its Future

I study the future of the U.S. health system. The framework I use is based on monitoring trends, lag and lead indicators in five zones of unique relevance in the health industry at home and abroad:

• Clinical innovations that produce new diagnostics, therapeutics & methods of care.
• Technologies that improve how processes and decision-making (clinical/administrative) are made, by whom and where.
• Regulations (and politics) that set boundaries, define roles, appropriate public funds, protect public interests and facilitate (or not) competition.
• Capital markets (public and private) that enable funding, define access (credit) and determine costs of capital (monetary & fiscal policies, interest rates).
• Consumers who use and purchase health products and services and vote on health issues.

Based on 30 years-plus years of applying this framework to my industry surveillance process, it’s clear that traditional lag indictors like enrollment, utilization, spending, workforce supply-demand et al are less useful in predicting its future. Instead, indicators from outside healthcare seem more aligned to its future than indicators from within. Why?

• Technologies developed outside healthcare now control the system’s processes and pace of adoption. Technologies are solving problems that legacy healthcare has struggled to address. AI-enabled point solutions are reducing administrative cost and inappropriate clinical variation. Private capital is funding cheaper, and better remedies without permission of insiders.
• The public’s receptive. Public satisfaction with the status quo has plummeted. Expectations have changed. Affordability concerns have been neglected by insiders. Non-healthcare employers are fed-up. And voters are receptive to solutions insiders fear.
• Regulators are changing the rules. Partisan brinksmanship on most contentious healthcare issues has intensified. The Trump administration’s health apparatus (legislative priorities, executive orders, judicial appointments) embraces price transparency, competition, and necessary spending cuts due years of fraud, waste and abuse. And it is facilitating a dramatic increase in state responsibility for implementing and funding its policies.

Objectively, the reality is this: the players outside healthcare including Big Tech, Big Banks and Big Employers are forcing changes faster than healthcare insiders are comfortable and the health system’s future is uncertain as a result. Boards of most healthcare organizations inadequately evaluate future state options due to urgent issues that require attention and/or lack of CEO interest. And in many, long-range planning is relegated to 5-year capital plans and program portfolio updates. Radical change is dismissed, and executive compensation is set accordingly.

Will the health system change radically? Or will it incrementally evolve? To facilitate meaningful discussion,  at least three future state possibilities merit deliberation by leaders:

Big Public-Small Private: By 2040, federal and state governments fund 85% of health services funds contracting with private hospitals, medical groups and other providers based on evidence-based performance standards of quality, costs and access. Funding will be sourced from individual and employer taxes while a small percentage of the population will purchase services in a separate, smaller private market. Medicare, Medicaid, CHIP and Social Security programs will be combined (eventually) and budgets will be capped. Note: this model already in place in many developed systems i.e. Canada, UK, et al and is considered an incremental change to the status quo akin to “Medicare for Most” proponents.

Retail health: By 2040, employer tax deductions for employee health benefits are eliminated as a result of employer dissatisfaction with costs and cost shifting by providers based on underpayments by Medicaid and Medicare. Individuals are responsible for purchasing individual insurance and choosing and paying for the doctors, hospitals, medications and ancillary services they use. Note: many economists believe the unintended consequence of third-party health insurance is unnecessary waste, costs and marginalization of consumer choice in healthcare. Forced consumerism, they argue, would bring discipline to health spending. Critics (including most physicians) counter consumers are incapable of smart shopping for their health needs. This option represents a transformational change to the health system wherein its economy is based on retail health.

Restructure: By 2040, system restructuring to reset its focus.  The health system’s structure is its major barrier to change. Horizontal consolidation dominant now in most sectors represents a defensive maneuver whereby insiders protect against restructure by imposing its muscle-strength. Current incentives reward specialty providers, inpatient and outpatient services, patent protected specialty drugs, institutional senior care and separate financing and delivery systems. At the same time, they discourage needed investment in behavioral health, enabling of mid-level providers, incentives based on value (costs + outcomes), community-based integration of health and social services programs and guided self-care. Systemic restructure is necessary but unlikely until and unless demanded by community leaders, elected officials and private investors. In the interim, vertically integrated community health organizations will be surrogates for wider adoption.

No one knows for sure what healthcare’s future will be, but all recognize the status quo is not sustainable. Ownership status (for-profit vs. not-for-profit) will matter less and affordability will matter more.  Regulation will increase and states will play a larger role. And base rates for reimbursement will decreasingly be based on Medicare rate setting.

Protecting the status quo is not a solution. Failure to seriously evaluate future state options is professional malpractice. Outsiders want results, not excuses.