We Believe Series: The US Healthcare Provider Economic Model Is in Critical Condition

The Us Healthcare Provider Economic Model Is In Critical Condition Web

Healthcare expenditures in the US represent nearly 18% of the gross domestic product (GDP). Many take issue with the level of healthcare spending in this country based on comparisons to other countries. In the US, healthcare is the second-largest component of the federal budget behind Social Security, representing nearly 30% in FY 2020, and government sources fund 51% of all national healthcare expenditures. Further, the healthcare share of the federal budget is projected to increase significantly as the last wave of baby boomers enroll in Medicare.

One could also take the position that this level of spending is not, in and of itself, a bad thing. The healthcare sector is an economic juggernaut. In addition to providing a clear societal benefit, hospitals, physicians, and other clinical services represented $1.92 trillion in expenditures in 2018, 52.5% of national health expenditures, and 9.3% of GDP. Retail sales of medical products, including prescription medications, represent another $456.3 billion, and 12.5% of national health expenditures. In many communities, hospitals and health systems are among the largest employers. Physicians, other medical providers, and their employees across the continuum make up a significant part of every community’s workforce. The sector added 2.8 million jobs between 2006 and 2016, the most of any industry. The US Bureau of Labor Statistics projects another 18% growth in health sector jobs between 2016 and 2026, and growth in national health expenditures is expected to continue to slightly outpace the general economy, reaching 19.7% of GDP by 2028. That represents a 54% increase in spending over 2018 levels.

Can we reduce healthcare spending to the levels of other industrialized nations? Not with our current model of care delivery and funding. Such a goal would require draconian measures that would entail slashing reimbursements, curtailing wages and reducing staffing levels, rationing services, and a host of other means that would disrupt almost every aspect of how we access, provide, and pay for care—never mind the impact on the economy overall if the healthcare spending equivalent of even three to four percentage points were to disappear from the GDP. There are also cultural differences that impact the types of healthcare services available in the US versus other countries and how they are utilized. Even the Organisation for Economic Co-operation and Development (OECD), the entity that compiles country comparisons, acknowledges that data inconsistency and availability between countries may impact the comparisons. Where there seems to be clarity is that base provider costs—labor, pharmaceuticals, medical equipment, and supplies—in the US are simply higher. The literature has many examples of authors supporting either side of this debate.

Politicians and policy makers, health systems and payers, employers, and consumers all have a vested interest in controlling the rate of spend in healthcare, or at least improving the value for what we do spend. There is little disagreement that the US healthcare system has significant amounts of inefficiency and waste in clinical care delivery and high administrative costs attributable to both regulatory burden and our private insurance model. Various studies estimate the total annual cost of waste ranges from $760 billion to $935 billion.12 Some measures of quality, and quality of life, consistently fall below levels that we would aspire to achieve, and the US chronic disease burden and obesity rate being substantially higher than the rest of the world certainly affects health outcomes. Our underlying costs for a highly trained and credentialed clinical workforce that is in short supply and other key cost elements, such as pharmaceuticals, are higher than those of our counterparts in other areas of the world. Our infrastructure is asset heavy, expensive, and aging more rapidly than it can be replenished in many parts of the country. The industry has been a slow adopter of information technology (IT) and lags in the use of technology generally to drive innovations in access and care management.

Of course, the preceding discussion does not reflect the impact of the COVID-19 pandemic and the resulting US government infusion of trillions of stimulus dollars. The healthcare sector itself has been particularly hard hit, as the COVID-19 crisis has shone a bright light on the fragility of the provider economic model and its dependency on elective procedures, diagnostics, and admissions via the emergency department that have historically kept hospitals afloat with sufficient volumes to spread fixed costs. At the center of that bright light is a flawed reimbursement model. There will be no “post-COVID-19” return to business as usual, as the pandemic has sent the economy reeling, and most providers realize their business model will likely be forever changed.

As the nation grapples with its recovery from the coronavirus crisis and how to pay for the associated stimulus costs, healthcare spending and the entirety of the nation’s public health and healthcare infrastructure will be in the spotlight. Some might suggest healthcare is “too big to fail.” That may be true, but it isn’t too big to undergo transformative change.

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