The United States is home to one of the most expensive healthcare systems in the world. Yet the U.S. has some of the poorest outcomes. But what's driving the cost?
The debate about cost often moves between unit cost and utilization. However, we believe it's a combination, with utilization the bigger concern. Also, the most critical requirement is keeping quality of care high. This article will examine these issues and explores how value-based care models, directed by primary care physicians, are a potential solution.
The U.S. spends considerably more on healthcare as a percentage of GDP than any other high-income nation. Economists often analyze other countries’ healthcare costs and outcomes and make assumptions about the cost of care. Yet comparing the U.S. to other developed countries at the unit-cost level is problematic.
Many factors can influence economists’ healthcare cost analyses, including cost-of-living, health system structure and morbidity levels of the population. For example, the U.K. has a lower cost-of-living, a government-run health system and lower rates of obesity. Comparing a system with those characteristics to one that is for-profit, in a country with significantly higher obesity rates is a mistake.
This disparity is not necessarily indicative of better health outcomes or quality. For example, among high-income nations, the U.S. has:
The high cost and poor outcomes signal systemic issues that need addressing within the system.
The healthcare cost debate is centered around the unit cost of services and the rate of utilization of these services.
While both factors contribute to increasing healthcare costs, excessive utilization is a major driving force. Some of the factors driving excessive utilization include overtreatment, fee-for-service, broad network systems and incentivizing volume over value.
There's also risk to utilization through disintermediation. The current approach of virtual care, retail clinics, digital solutions, on-site clinics, and health plans makes limiting utilization difficult. If care can be obtained at every turn, efficiency becomes challenging.
Quality is critical: While cost considerations are important, they shouldn't come at the expense of quality. Healthcare's primary goal is the wellbeing of patients. Any effort to curb costs must maintain or improve the quality of care patients receive. Low-quality care is a significant issue, but employers can address it. These can range from centers of excellence for surgical episodes to high-value primary care for preventive medicine.
Changing the claim distribution (i.e., fixing utilization): Redirecting care involves guiding patients to the most appropriate care settings, reducing unnecessary treatments and ensuring timely intervention. It’s a strategy that potentially reduces costs and ensures patients receive the right care at the right time. In a previous article, we discussed the point of enrollment vs point-of-care solutions within the market. There's room for both strategies, and they should be combined to reduce the total cost of care.
Value-based care (VBC): Moving away from broad networks and the fee-for-service model, value-based care rewards outcomes and efficiency. This approach incentivizes healthcare providers to ensure the best outcome for patients while being mindful of resources. Linking payments to the quality of care rather than the quantity is a powerful tool to control utilization. The many forms of VBC can be effective. Bundled payments, capitation, full-risk contracts, and upside/downside quality models can impact utilization and drive down excessive costs.
Primary care is the most important piece: Primary care doctors can play a crucial role in transitioning to a more sustainable model. They are often the first point of contact for patients and can act as gatekeepers, ensuring patients get the appropriate care without unnecessary interventions. Their holistic view of patient health can lead to more effective, targeted care. Empowering high-value primary care and rewarding top physicians is an important piece of shifting utilization. Patients usually are guided by their physicians and not by price.
Addressing rising costs in the U.S. healthcare system requires significant attention. While unit costs are undeniably a factor, unchecked and inefficient utilization is a significant concern. We're committed to targeting the root causes and bringing employers impactful solutions. In our view, transitioning to value-based care models, driving improvements in quality of care, and harnessing the potential of primary care physicians can pave the way for a system that's both more affordable and maintains the high standards of quality care that every patient deserves.
