Transforming Our Flawed Healthcare System

Data shows how most of healthcare’s inflation has resulted from increased administrative spending.

According to a Forbes article by Dave Chase, “The current U.S. healthcare system is a deeply flawed and wasteful system that has caused enormous damage to our economy and society. It has decimated household incomes, retirement accounts, education budgets, government services budgets, and more. It’s estimated that nearly half of all spending in the current healthcare system is waste. However, a generational transformation is happening right now to change this system.”

While exploring the difference between healthcare Impact investing and Financial investing, Chase showed insight that is very similar to my own. He criticized the traditional sick-care system and advised investors to support an optimum system with four attributes: (1) significantly lowers costs, (2) dramatically improves health outcomes, (3) improves the patient experience, and (4) improves the clinician experience.

Problems with the Traditional System

• Incentives don’t align with improving care or lowering costs.
• Business models and technology are optimized to maximize usage because that leads to more profitability.
• Because health problems drive profits, the incentive is to treat symptoms rather than prevent illness or improve health.
• Systems are highly fragmented, siloed and opaque, with very little information exchange among providers with patients.
• As a result, Americans spent $9,255 per person in 2014, which is twice as much as in other advanced nations, but we still live sicker and die younger.
• At about $3 trillion/year, healthcare represents 17.4% of GDP.
• Health insurance functions as prepaid medical care with no consumer incentives to seek the best value or make healthy lifestyle decisions.
• It’s the second largest expense for most employers, hindering investment, innovation, salaries, and growth.
• It bankrupts government budgets and robs citizens of education, infrastructure and public services.
• It causes of 62% of all personal bankruptcies, even though 78% of all filers had health insurance.
• It has decimated personal retirement accounts.
• And it has worsened the lives of care providers, causing record levels of doctor burnout.
• It has become more effective to lobby politicians to protect traditional models than to create new ones.
• Clinical care consumes 88% of all health dollars, even though it only accounts for 20% of health outcomes.

Benefits of an Optimal System

An optimal system that works in for public interests and not special interests would fundamentally change the incentives of the traditional system and reverse the damage done.

• It would align economic incentives with patient interests.
• It would better meet the increased demand from baby boomers and millennials.
• Business models and technology would be optimized to cut usage and costs while improving outcomes and care quality.
• A proactive focus on health and wellness would reduce chronic illness and the number of serious health conditions.
• Politicians could apply some $1.5 trillion elsewhere, such as paying down the national debt, reducing taxes, or investing in education, research, infrastructure, etc.
• Politicians could also focus on other drivers of health, including social & economic factors, the environment, nutritious food, exercise, sleep, and genetics.
• Accelerating adoption of an optimal system would keep more patients healthy with fewer chronic health conditions.
• Healthier workers would be more productive, leading to more profits, higher wages, increased GDP, and improved global competitiveness.

Because the Optimal System is fundamentally different that our dysfunctional sick-care system, investors need a different approach. Chase advised them to look for companies supporting the four attributes described above with approaches that are repeatable, digital, accessible, automated, and scalable. He goes on to describe common characteristics of promising opportunities. Another place to look is in my article 101 Minitrends in Health Care, which suggests that some of the biggest opportunities are at the overlapping intersections of those disruptive trends.