15 June 2016Bermuda analysis

One third of US healthcare costs unnecessary, says healthcare futurist

The US healthcare system is in deep trouble and in dire need of radical change. But this is not a consequence of Obamacare, it’s due to much more fundamental flaws in the system that can only be addressed by changing the way healthcare is paid for.

That was the argument made by Joe Flower, a healthcare and technology futurist, the keynote speaker at the Bermuda Captive Conference yesterday (Tuesday June 14). “Healthcare is a very badly managed risk and much more costly than it needs to be,” he said.

“That is why we are seeing so much consolidation. Much larger forces are combining to start a new era but we need to understand the problems with the system and how we can act to make it better.”

Flower went onto illustrate that the US healthcare sector is worth $3 trillion – bigger than all but five national economies globally. Yet despite its size he described it as deeply opaque, very confusing and very resistant to simple analysis.

“This also means that despite the best intentions of politicians, it also very difficult to know how to fix it,” he said. “The short version is that it is hollow and very fragile. But if we change the way we pay for it, we will very quickly change its shape and it will shrink.

“If we change its inputs, it will change. We have a huge opportunity to penetrate the system and create a better healthcare system and make it more efficient, effective and better than it is today.”

To explain this, Flower went onto illustrate that as a percentage of GDP, the US healthcare system costs around twice as much as any other country globally. Showing data between 1960 and 2013, he showed that this was not always the case but that costs started to climb after the introduction of Diagnosis Related Groups (DRG) in the early 1980s. This is a system which codes the different treatments, medications and services offered by healthcare facilities and costs them in terms of what that facility gets paid.

Flower suggested that the introduction of this system effectively encouraged healthcare bodies to conduct procedures and treatments that are not necessary in order to earn more money.

He estimates that one third – or $1 trillion worth – of all costs in the healthcare system in the US are now unnecessary largely because of the introduction of this system.

“That is a shocking statistic,” Flower said. He went on to give a number of examples of unnecessary procedures along with how much they cost.

He also highlighted huge variations in the cost of treatment, which bears no relation to geography or quality.

“It is simply about how that healthcare facility is organised, paid and positioned in the market,” he said. “It is a hollow economy. There is nothing supporting these prices. The market is not working as a true market.”

He argued that real change will come about in healthcare if the business model of healthcare changes from a measure of success being determined by the value to the provider (in terms of how much they charge) to what value is being provided to the customer.

“We need to stand up and start acting like customers and making choices. The private sector has much greater power to change things compared with even government policy. We now have more information available to make informed choices and that can make a real difference.”

He pointed out that in recent years, US healthcare spend relative to GDP has flattened out and he believed this was partly because of this trend of the end-users starting to be more proactive in making decisions around the healthcare they receive.