The government taking a backseat has opened the market up to disrupters from outside the healthcare industry.
For the past decade, trends in healthcare have focused entirely on what is happening in Washington, DC, and the White House, and with efforts to repeal and replace the Affordable Care Act. However, the federal government is taking a step back from healthcare and allowing private companies to step in and try their hand at fixing the US health system, said Stuart Clark, managing director, The Advisory Board Company, during the 2019 Annual Conference of the Greater Philadelphia Business Coalition on Health.
The government taking a backseat has opened the market up to disrupters from outside the healthcare industry. Disruption in healthcare is almost becoming a cliched term, Clark said, but The Advisory Board Company, as researchers, looks at disruption in a different way.
“Because to us, disruption means that you actually have a critical mass of activity that is looking at a particular market and realizing there is an opportunity to do things different—more cost effectively, more efficiently,” Clark said. “And that is absolutely true in healthcare today.”
Actors outside of healthcare are looking to jump into the market and disrupt it, because the rising cost of healthcare “is getting to the point where it’s untenable.” He compared the cash cost of giving birth in the United Kingdom ($2700) versus in the United States ($10,800).
“Notice that massive disparity. Why is that? Are you getting $9000 more care or better care?” Clark asked.
The healthcare economies in the United States and the United Kingdom are essentially the same, but hospital and drug prices are vastly different and explain why Americans pay so much more for healthcare, he said. Together, drug prices and hospital prices account for $1.5 trillion spent in 2016 alone.
The high costs and inefficiencies in the market are why outside companies are looking to get into healthcare. Apple, Google, Lyft and Uber, and Microsoft have all tried. “Everyone is trying to disrupt healthcare, but it’s really hard to do,” Clark said.
However, even within the healthcare sector, there is plenty of change happening. Clark and The Advisory Board identified 3 major trends: the rise of the hospital-less integrated delivery network (IDN); the resurgence of the activist employer; and the federal government.
Recent vertical mergers, such as CVS—Aetna, Walgreens–Humana, and Cigna–Express Scripts, are all examples of the hospital-less IDN. These deals are re-engineering the front door of the delivery system.
These deals don’t view the hospital as the center, or hub, of the delivery system. Instead, the hospital is part of a downstream cost center. He went into depth on the CVS—Aetna deal, which will make CVS the front door to the health delivery system, so that when someone needs specialty care, CVS can make referrals down to the individual procedural level.
“This is probably the most disruptive force from a near-term perspective,” Clark said.
As employer health spending has continued to grow, employers have simply made deductibles higher and higher, so employees share some of the burden and take on financial risk. As a near-term solution, it works, but it doesn’t work quite as well in the long term. Research has also shown that people who have high-deductible health plans are more likely to avoid care altogether, which can increase their costs down the line.
“For employers, yeah, it was a near-term cost-savings opportunity, but in the long term, that’s not a high-value option,” Clark said. “So, employers, instead of just abdicating responsibility to their employees, they’ve decided, ‘We’re now going to become that much more activated. Let’s create a solution and the tools to help them become more cost-effective consumers when it comes time to accessing care.’”
Finally, the federal government has a growing situation. Right now, the Medicare population is young. When they need care, it’s hip and knee replacements, which is the “bread and butter” for health systems. However, in the future, as the Medicare population ages, care will be medical management, preventive care, long-term chronic pain management, and other similar services that have much lower reimbursement rates. Reimbursement pressures are going to increase for hospitals as the Medicare population ages.
Right now, there is not much happening with the federal government from a policy standpoint. Clark expects that the healthcare policy situation will be fairly quiet until after the 2020 election.
Those 3 trends paint a difficult picture for hospitals and systems. Not only is their reimbursement changing, but the way they see people come into the hospital for care will change. An outmigration of all but the most complex cases being taken care of outside of the hospital will continue, he said.
“Now, from an economic standpoint: not an easy moment,” Clark said. “Not a great time for this kind of disruption.”