Dr. Christopher Crow, CEO, Catalyst Health Group.
It’s hard to see reports of the astronomical costs of American healthcare and not become immediately desensitized to the enormity of it all. In 2021, fueled somewhat by the pandemic, American healthcare costs topped $4.3 trillion (membership required). By 2028, that number could surpass $6 trillion.
Staggering. Unprecedented. Terrifying. Unsustainable. All those words ring true. Frankly, they have rung true for decades. But what are we committed to doing about it other than enabling giant corporate healthcare companies to continue consolidating the market and profiting from it? And what hope do we have of a tidal shift in healthcare spending over the course of the next couple of decades?
Consider that in 2002, there were zero healthcare-centric companies among the 20 largest publicly traded companies in America by revenue. Fast-forward to 2022, and there are eight healthcare-centric companies among the largest companies by revenue, including two of the top five. Additionally, the top three companies are all pursuing their own healthcare agendas. Perhaps the most concerning observation: None of those eight healthcare-centric companies are, at their core, healthcare provider organizations or leading pioneers for medical breakthroughs.
As industry leaders, we must examine how we can break this cycle of unending, upward costs with questionable-at-best value. By clarifying for ourselves where the dollars are moving today, we can each do our part to ensure that the investment of future dollars can result in change that’s productive, transformative and enduring.
Spending Without Return
Intermediary companies boast hundreds of billions of dollars annually in revenue, with a substantial portion of those dollars coming from services outside of the direct delivery of healthcare. These include everything from insurance, pharmaceutical distribution and pharmacy benefit management solutions to a host of other services that are ostensibly aimed toward driving efficiency and ease in healthcare.
It’s important to recognize that intermediaries do things that others can’t or won’t, and many have managed to position themselves as indispensable cogs in the current healthcare machine. It’s also fair to ask: Is it working? Are these intermediary companies making healthcare easier for us? Are they making life better for either end of the healthcare value chain, with physicians and other healthcare providers at one end and employers, consumers and patients at the other?
Accelerating The Inevitable
The change and turnover in America’s business landscape have shown the measurable impact of change, and that should give us a clear indication of what to expect next. Strategy consulting firm Innosight shared in 2021 that “corporate longevity remains in long-term decline. Our latest analysis shows the 30- to 35-year average tenure of S&P 500 companies in the late 1970s is forecast to shrink to 15 to 20 years this decade.”
This goes to show that industry disruption is only accelerating. Many companies that are at the top today won’t likely be there in 2040, but which companies are most likely to be affected?
We’ve seen it again and again in other industries: Innovation drives out intermediaries to create new value through disruption. People tire of paying higher costs for lower value and diminishing returns. It’s already happened in travel and hospitality (direct online booking), entertainment (streaming services to cable companies and video stores) and retail (direct-to-consumer and subscription models), among other industries.
So far, healthcare intermediaries have resisted the momentum of true disruption; they’ve aggregated to build stronger walls around their status quo. However, the irresistible forces of change have begun to put cracks in those walls.
Consider healthcare benefits design as a leading indicator for what could happen. There is a growing likelihood that payers could soon find themselves increasingly carved out due in part to the disproportionate amount of money they make by simply sitting between the buyers (government/employers/patients) and sellers (providers) of healthcare services. Parties on both ends of the value chain are growing increasingly frustrated at the lack of transparency regarding where the costs go and why they keep going up.
Direct contracting is already occurring with Medicare, allowing providers to take on risk and circumvent the need for a health plan to work as an intermediary for Medicare, providers and patients. To avoid their rising costs and premiums, employers have also begun rejecting traditional group health plans, instead offering Individual Coverage Health Reimbursement Arrangements (IHCRA), which are non-taxed dollars for employees to use toward purchasing individual or family coverage for themselves. This is largely applicable to smaller businesses, but because these organizations comprise over 99% of all businesses in the country, there’s a monumental opportunity to shift behaviors and expectations at a massive scale. The reality of continual and significant inflation in healthcare will contribute to the likelihood of this occurring, as well.
A Force For Change And Sustainable Value
Provider organizations can also take steps to reclaim some of their autonomy. We’re seeing larger consolidated provider groups, hospitals and community health plans provide direct-to-employer solutions that include narrow networks, which are insurance-type offerings that employers can deliver to their employees based on the geographic areas of their staff.
Providers need to remember that they are the true value creators. They are the deliverers of care and navigators of health for patients. Ultimately, they own the decision for which channels they use to deliver that value, as well as how they wish to define what truly matters to them.
The undeniable truth is that there will always be supply (providers) and demand (patients) in healthcare. To find balance, we must work toward creating a movement of providers who are backed by teams and technologies to care for those individuals in a high-quality, low-friction way. I believe this can be achieved most effectively and rapidly by connecting both ends of the value chain more directly—through new services, new platforms and new payment models that give mutual incentivization for patient health above all.