Fixing Healthcare – Searching for the Healthcare Unicorn

By Brian Holzer MD, MBA, President, Kindred Innovations

[Searching for the Healthcare Unicorn is blog post about fixing our healthcare system. It was originally published on LinkedIn, is based on my personal view, and does not in any way reflect the opinions of the current organization I work for].

Last week I came across the article titled, Cuts threaten rural hospitals hanging on by their fingernails, which reported that 673 rural hospitals were at risk of closing. The data came from the Chartis Center for Rural Health, which also cited that states including California, Oklahoma, Louisiana, Alabama, and Georgia were most at risk with as many as 79% of their rural hospitals facing possible closure.

Reports like these that imply an impending doom of the healthcare system as we know it are almost a daily event. And the sensationalism of healthcare by politicians and the media only adds further distractions to a system that is starving for patience and unbiased pragmatism. There is also no shortage of articles professing solutions that say nothing more than we need to 1) create a system that ensures that everyone has access to health insurance; and 2) make sure that we contain the huge cost increases.

The real problem we are facing as a society is that Healthcare is a Unicorn…Healthcare is not the same as other markets. There is a widespread lack of transparency about both the costs and the effectiveness of treatments, and many other details that a customer or end consumer might use to make purchasing and utilization decisions in healthcare. If life were as simple as it is often taught in business school classrooms, fixing Healthcare should be as easy as learning from other industries and adopting best practices. So, let’s [apply lessons from] two industries-airlines and auto insurance.

Healthcare versus Airline Industry

In 2016, American Airlines CEO Doug Parker told investors that the U.S. airline industry has been so transformed in the past five years that the nation’s largest carriers may never again report annual losses. He was quoted as saying, “My personal view is that you won’t see losses in the industry at all…we have gotten to the point where we, like other businesses, will have good years and bad years, but the bad years will not be cataclysmic. They will just be less good than the good years.” And the numbers don’t lie. In 2005, the industry lost roughly $28 billion, while a decade later, in similar conditions, airlines earned $19 billion.

Great. Let’s analyze what the airlines did and apply it to healthcare. Mergers and consolidation for starters…U.S. airlines evolved into larger, more rational competitors from a model that was fragmented and inefficient and fraught with costly market share battles. Aviation graveyards in Arizona, California and New Mexico are now the home of billions of dollars worth of aircraft taken out of service and stored in the dry desert conditions to prevent them from going rusty. But, want to take a direct flight? Nope. The public almost expects connections and it is now a daily part of life. Further, cities with hubs now have an economic annuity, and cities without a hub don’t. I suspect that we will be reading about this effect on population migration in the years to come.

The parallels between hospitals and airplanes seem obvious. As consolidation and closures continue, hospital systems will evolve into larger, more rational competitors as well. Profits will likely follow. But, healthcare isn’t the airlines. Sick people can’t afford to “take a connection”; rather, they need direct access to high quality healthcare near their homes. And hospitals can’t be stored in the desert for later use. Seems like every major city has a former retail bank location that has been turned into a fancy restaurant. Something tells me that people won’t want to dine in a former ICU.

Maybe even more fundamental is that flying is not a perceived right by the American public and legislators. How profitable would airlines be if they were paid, not by their ticket prices, but by a reimbursement model that paid them a percentage of their ticket prices as negotiated by third party companies? These companies would also have to cover their administrative costs by charging memberships to employers and directly to customers through government exchanges funded through tax dollars. And as that model evolves, the airlines and the third party companies would merge hoping to generate efficiencies for the employers and consumers.

And what if seats on the airline could be just as easily filled by customers that had to fly but couldn’t pay for the seats. Laws would prevent airlines from turning away customers from the gate based on their ability or unwillingness to pay. In response, airlines would begin hiring financial counselors, pre-flight and post-flight coordinators, and community outreach coordinators to try and encourage customers to use lower cost options such as the local bus or train. But, all of these administrative costs become even more burdensome because these expenses can’t be passed through to ticket prices, and ultimately the airlines will soon realize that customers really prefer flying to taking the bus or train anyway.

Again, hospitals face these financial pressures daily. Charity care (bills for patients who cannot afford to pay) and bad debt (patients are expected to pay but do not) are terms that don’t exist in the airline industry. These are also terms that should never be removed from healthcare.

Healthcare versus Auto Industry

This is in fact a business model that has local and national mandates for universal coverage of drivers. Perfect. Let’s analyze how they are able to control costs and remain profitable. Seems to me that this industry has a perfect model for managing risk. Get a speeding ticket….you will pay higher rates. Fall into an age group with more of a perceived risk for accidents…you will pay higher rates. File a claim and use your insurance…you will pay higher rates. Decide you don’t want to have insurance because you don’t think you will ever need insurance….you will get arrested and then pay higher rates. So, everyone pays into the system, and those that use more pay more. Profits are inevitable. In healthcare, we call these pre-existing conditions. And that happens to be one of the only points in the last several decades that Democrats and Republicans seem to agree is a bad thing for health insurance. Enough said.

With no healthcare unicorn, what is the solution?

With National Healthcare Expenditures in the trillions [$4.3 trillion in 2022], cost containment seems more like a party joke than a real thing. How is it that almost 77 percent of Americans own a smartphone, and 78 percent own a computer, yet healthcare has been more or less unaffected by the “digital revolution”? How is it that all 6 billion letters of a person’s genome sequence can be determined today, but precision medicine continues to be future speak? And what about Big Data and the predictive models for diagnosis and treatment that should empower consumers and healthcare students and lower trained aids to care for patient in their homes, rather than hospitals?

Our society is clearly thirsty for healthcare innovation, but is our society ready to accept “disruptive healthcare innovation”? Are we ready to face our fears and put aside personal interests that seem to keep getting in the way of true innovation in healthcare. Disruptive innovation will have its winners, but also its losers. Disruptive innovation is just that – disruptive. Excited about machine learning, artificial intelligence, and robotic surgery? Who wouldn’t be? But are we ready for the implication of those innovations. Fewer hospitals, less doctors and more nurses, and entire medical specialties nearly going away because, for example, machines can digitize and read X-rays and pathology reports with more precision than people. Ever hear of “Homists?” (i.e. Internists for the home) You will. Are we ready to revisit medical school education and consider doing what the military does…States can cover 100% of medical school tuition in exchange for four years of primary care service, during or after residency in a location of the state government’s choice?

Are we ready to go beyond producing innovations to applying innovations so that some medical care can be transferred from specialists to generalists, from generalists to nurses, then to allied health professionals, and ultimately to patients themselves? Are we ready to empower family and community members with all of this wonderful technology so that they can be as good as nurses at delivering non-skilled medical care to elderly in their homes? Right now, Payers don’t pay for caregivers to deliver non-skilled care in the home. But, if that person calls an ambulance and shows up to the ER, they are covered…Are Payers ready to begin rewarding precision diagnostic tests and precision diagnostic abilities of providers to begin to create a more rational system? Are we ready to share our personal data so that universal health information exchanges can further accelerate precision medicine? Are we ready for the implications of applying the wonderful advances in telemedicine to connect cities without hospitals with those that do? This list goes on and on. Therein lies the problem.

The more examples listed, the more people affected and made defensive by the natural response of fear and emotion. Add in the politicians, media, and special interest groups and now you have an immovable object. $6.8 billion was spent on the 2016 election that has yielded politicians with policies to cut Medicaid funding because the states have no money. Seems ironic to me. Maybe elections should take the form of 50/50 raffles at sporting events. For every campaign dollar raised, half goes into a Medicaid fund. Every four years, states would share a $3 to $4 billion distribution. Seems logical to me.

We have also gotten good at creating constraints and laws when healthcare becomes disruptive or threatens to become disruptive. Billions are spent each year on lobbying purposes to protect current models that protect current profit streams. Are we ready for the FDA to mandate that all new clinical trials be designed to prove that the new products are better than the old ones (superiority) vs. non-inferiority and equivalence designs that provide a quicker path to market with sales and marketing engines awaiting? Many will argue this would stifle innovation. Perhaps. But, it would also disrupt drug development and challenge the wisdom that products should take $1 billion and 15 years to bring to market.

Too often innovation is branded as a happy term with a simple panacea. Disruptive innovation has losers. Disruptive innovation is disruptive. Healthcare must stay a right. Our modern society depends on it. And what also must not change is quality and access to healthcare. So back to how I started….Healthcare will always remain a unicorn. To fix it, we must then be open to innovation. The disruptive kind.

About the Author

Dr. Brian Holzer, MD MBA. is a senior physician executive leading the newly created Innovations Division for Kindred Healthcare. His previous professional and educational healthcare executive experience includes an MD with a one year general residency clinical program. He earned his MBA in Health Care Management from The Wharton School at The University of Pennsylvania with a concentration in healthcare systems management, integrated delivery and financing networks, healthcare consulting, and various strategy, operations, sales and marketing roles in the Biotech industry.

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Editor’s Response

I loved Brian’s article so much that I had to reach out and ask permission to republish it. I originally posted several comments, along with numerous other reader comments, and I include a brief summary below. But first, the funny video I promised. (Maybe not so funny after all, since we spend twice as much per-capita as other advanced nations on health care but still live sicker and die younger.

DEMOGRAPHICS – As if the healthcare problems that Brian describes aren’t bad enough, the future looks even worse unless we change course dramatically (disruptively). His mention of mothballed airplanes, and the difficulty of doing the same thing with hospitals, is relevant because of the baby boomer demographic that stressed facilities in every stage of their lives. First it was not having enough birthing centers for all the new babies, then nursery schools, grade schools, college, and (soon) nursing homes. Policy makers don’t seem to be anticipating and preparing for those future needs, and they aren’t planning to exploit future technologies.

SPECIAL INTERESTS – While society seems ready and anxious to accept “disruptive healthcare innovation,” GOP politicians apparently are not. Steven Brill described the reason for our lack of progress in his TIME report four years ago, saying the medical industrial complex spends three times as much on political lobbying as the military industrial complex. That’s because they fear disruptive reforms could cut overall healthcare spending in half to match what other advanced nations pay for better outcomes, and that would mean losing some $1.5 trillion in revenue.

TECH INNOVATION – Another related article on this website examines the potential healthcare impact of Moore’s Law and the exponentially accelerating pace of tech innovation. As medical devices keep getting cheaper, smaller, more accurate, and easier to use, more of the medical functions done by doctors in clinics and hospitals will move down-market to nurses and consumers at home.

PREVENTION – Brian mentions problems with medical schools and offers ideas to lower the cost of attending. But what bothers me is their primary emphasis on diagnosis and treatment (of symptoms). There’s relatively little time spent on the pillars of health (nutrition, exercise, and sleep), because the profits are in treatment, not prevention. In Medicare-for-All is Not Enough, I argue that we need greater national emphasis on wellness and prevention to sustain a healthy and productive workforce.