Health care at half the cost: What will that actually look like?

Health care costs far too much. We can do it better for half the cost. But if we did cut the cost in half, we would cut the jobs in half, wipe out 9% of the economy and plunge the country into a depression.

Really? It’s that simple? Half the cost equals half the jobs? So we’re doomed either way?

Actually, no. It’s not that simple. We cannot of course forecast with any precision the economic consequences of doing health care for less. But a close examination of exactly how we get to a leaner, more effective health care system reveals a far more intricate and interrelated economic landscape.

In a leaner health care, some types of tasks will disappear, diminish, or become less profitable. That’s what leaner means. But other tasks will have to expand. Those most likely to wane or go “poof” are different from those that will grow. At the same time, a sizable percentage of the money that we waste in health care is not money that funds health care jobs, it is simply profit being sucked into the Schwab accounts and ski boats of high income individuals and the shareholders of profitable corporations.

Let’s take a moment to walk through this: How we get to half, what disappears, what grows and what that might mean for jobs in health care.

Getting to half

How would this leaner health care be different from today’s?

Waste disappears. Studies agree that some one third of all health care is simple waste. We do these unnecessary procedures and tests largely because in a fee-for-service system we can get paid to do them. If we pay for health care differently, this waste will tend to disappear.

Prices rationalize. As health care becomes something more like an actual market with real buyers and real prices, prices will rationalize close to today’s 25th percentile. The lowest prices in any given market are likely to rise somewhat, while the high-side outliers will drop like iron kites.

Internal costs drop. Under these pressures, health care providers will engage in serious, continual cost accounting and “lean manufacturing” protocols to get their internal costs down.

The gold mine in chronic. There is a gold mine at the center of health care in the prevention and control of chronic disease, getting acute costs down through close, trusted relationships between patients, caregivers, and clinicians.

Tech. Using “big data” internally to drive performance and cost control; externally to segment the market and target “super users;” as well as using widgets, dongles, and apps to maintain that key trusted relationship between the clinician and the patient/consumer/caregiver.

Consolidation. Real competition on price and quality, plus the difficulty of managing hybrid risk/fee-for-service systems, means that we will see wide variations in the market success of providers. Many will stumble or fail. This will drive continued consolidation in the industry, creating large regional and national networks of health care providers capable of driving cost efficiency and risk efficiency through the whole organization.

What’s the frequency?

So what’s the background against which this has to take place? What’s going to affect health care from the outside? Mainly three broad trends:

The economics of yawns. We can expect more of the same, with continued inequality, most economic gains going to the top 1%, and continued deprecation of the middle and working classes. This will express itself in an ever mounting need and demand to bring people greater access to health care, which includes bringing the actual costs to the consumer/patient/voter down.

Boomers again. Boomers will continue bulking up the Medicare demographic. The current trends will become even more stark: costs per beneficiary down, overall costs up. Just pre-retirement Boomers were the group hit hardest by the great sucking sound of 2008 which magically disappeared massive amounts of equity in home values, IRAs and 401(k)s. The effects span generations: Not only are the Boomers struggling themselves, they have far fewer resources available to give help when their children and grandchildren sink into a health crisis.

Political momentum. The relative success of the ACA in getting people covered  gives the political momentum to expanding coverage further, such as through expansion of Medicaid in states that have not accepted it. It will especially add oomph to any political or market attempt to lower the actual cost of health care for the patient/consumer/voter.

What will grow anyway?

However successful we are or are not at making health care leaner, one thing the next few years will not be is business as usual. The current trend toward massive regulatory complexity will most likely continue. There are no forces or mechanisms emerging yet that would change that trend. At the same time, the economics of running a health care organization will get much more complex, which means so will strategic planning, capital planning, and every other top management task.

So we can expect growth in the regulatory compliance sector of health care employment. At the same time, health care planning, forecasting, financing, and strategy skills need to put on muscle, whether in-house or through consultants.

How will parts of health care get lean, trim down, atrophy?

Waste. Any payment system that gets around fee-for-service and puts the health care provider at some risk for good outcomes will push health care providers to compete to give the best possible outcome at the best available price. Any such competition will tend to drive wasteful, unnecessary, and unhelpful practices out of the market — you’re not going to do it if you can’t get paid for it. These include such common practices as complex back fusion surgery for simple back pain, computer analysis of mammograms, the use of anesthesiologists in routine colonoscopies, the routine use of colonoscopies for mass screening, some two thirds of all cesarean sections, over $1 billion worth of unnecessary cardiovascular stents done every year, and on and on. If your business model or your career depends on a technique that honestly doesn’t score all that well on a cost/benefit scale, this would be a good time to rethink your business model or career.

Prices. With growing price transparency and a growing willingness of buyers to go far afield if need be to find the right deal, it will become increasingly difficult for manufacturers of devices, implants, pharmaceuticals — indeed, any supplier to health care — to continue to insist on outsize profit-driven prices. It will be hard to charge $21,000 for a knee implant when the exact same device can be bought in Belgium for $7,000. Similarly, with reference pricing and comparison shopping becoming more common, it will be very difficult for your hospital to get business if you insist on charging over $100,000 for a new knee.

Automation. Many job categories across health care, from messengers and janitors to neurosurgeons and oncologists will be supplemented or in some cases entirely replaced by robots and software.  We are already seeing widespread automation of  labs and pharmacies. HVAC systems are auto controlled and remotely monitored. Security is enhanced with surveillance cameras, robotic patrols, and position sensitive ID badges. But automation will move much higher up the skill scale, as DNA analysis and volumetric CT and MRI scans replace much of the work of many oncologists, and next-generation scan-driven high precision proton beams replace neurosurgeons at some of their most delicate tasks — even as new custom-built DNA-based personal pharmaceuticals may obviate any need for surgical removal of tumors at all.

Automation of various kinds will show up increasingly in every task category throughout health care, extending individual’s powers, raising productivity, and increasing the team’s capacity while eliminating jobs.

Cost accounting and lean. Under a fee-for-service system, in which you can charge for each item, inefficiency is a business model. If you’re getting paid a bundled price or a per-patient per-month stipend, suddenly inefficiency is a drain on the bottom line. You simply must recognize your true costs and use strong “lean manufacturing” protocols to get them down. In the organizations that get this right we can expect large increases in productivity, which will mean both increases in capacity and loss of some jobs, either in the organization that is succeeding or the organizations that it is competing against.

What will grow?

In a health care economy that is moving toward “leaner and better,” which categories would increase?

A leaner and better health care will have to do far more in preventing and managing chronic disease. We are losing rather than gaining the extra primary care physicians that we need to lead that charge. The most successful disease prevention and management programs are based on team care. The most efficient and effective way to influence behavior, especially of “super users,” is through trusted lines of communication with real clinicians — being efficient requires putting a crew on it, increasing rather than decreasing the people who have actual patient contact. So we can expect strong growth in any category that could add to that crew, such as:

Complementary and alternative practitioners. When you get paid to do medical stuff to people, why give any business to rival modes? But when you get paid to help people be healthier, why not throw into the mix modalities such as chiropratic, acupuncture, and others which can often show strong results at a fraction of the cost? Why not try them first?

Physical therapy. Remember those Boomers massed at the gates? Many of the aches and pains of aging are better served by cortisone, ibuprofen and yoga than by back fusion surgery and new hips. Physical therapists, like chiropractors and acupuncturists, can be a first line of defense against higher medical costs.

Home health. Vulnerable populations (such as pregnant women, newborns, people with multiple chronic conditions, and the frail elderly) can often be cared for in the home for far less cost than any acute care that can be avoided. New communication technologies can make home health care cheaper, more constant, more data-driven, and more effective.

Enhanced medical home. The Vermont Blueprint and other programs have shown the efficiency and effectiveness of expanding the “medical home” home concept into teams staffed by physician assistants, nurse practitioners, community health specialists, behavioral health specialists, indeed any category of helper that can strengthen and deepen the bond with the family caregiver or the patient.

Behavioral health and addiction. In a fee-for-service world, the behavioral practices have been given short shrift. Considering how much illness and accident is driven in one way or another by addictions and other behavioral problems, any health care system run by “value” rather than “volume” is going to hire a lot more psychologists and family counselors.

IT support. The next health care will be modulated not only through docs’ BYO devices, but through multiple types of cheap sensors, gadgets, dongles, and apps. In order for them to be medically useful, they must be integrated into the system’s IT and EMRs. The need for integration and support of the device swarm will grow rapidly.

Tech industry. We can expect that creating such devices and software, especially those connecting the patient and caregiver to the clinic and clinician, will be a big growth area in the tech industry.

What’s the trend?

The shift can’t be captured in one big trend that devours everything. But there is this: Most of the things we will doing less are the kinds of things that have made a lot of the “procedure guys” rich over the last few decades, unnecessary procedures and tests that use lots of big machines, expensive implants and other hardware. Most of the parts that will grow emphasize real patient contact, though often at a lower skill and expense level. “Fewer back surgeons and implants, more physical therapists and exercise classes” could stand as a metaphor for the shift.

So while “health care at half the cost” would definitely mean fewer jobs in health care, it would not mean half the jobs. It would mean more jobs in direct patient handling, especially in primary care, while allowing less profit for suppliers and providers and high-end procedure specialists doing unnecessary work as well as charging unsupportably high prices. And that, my friends, would be a success.

Joe Flower is a health care speaker, writer, and consultant who blogs at Healthcare Futurist: Joe Flower

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  • QQQ

    From my previous post (again)……..

    Everyone’s concerned with “costs,” but so few seem to able to see the issue clearly. Everybody’s got their own bogeyman for the unsustainably rising costs of healthcare – Obamacare, pharmaceutical companies, insurance companies, hospitals, doctors, illegal immigrants, etc. But the real problem is economic and far more fundamental: The absurd notion that the way to finance all health care is through insurance, public or private.

    The purpose of insurance is to mitigate catastrophic risk by having a large group of people who share that risk, pay a relatively small amount into a common pool, which pays out to the few people for whom the risk becomes reality. One “insures” against unaffordable loss. The main reason we are in trouble is that most healthcare does not fall into this category of unaffordable loss that will hit only a relative few (even if some of it does). All of us need and “consume” healthcare, incurring
    regular and routine medical costs even if we never suffer catastrophic or prolonged illness. Insurance is a spectacularly inefficient way to pay for this routine care, and its use in this context introduces distortions and perverse incentives into the healthcare “market” that reverberate throughout the entire system.

    Insurance drives up costs not only by adding a huge administrative burden to every healthcare transaction, but by stifling competition, and encouraging over-consumption by divorcing the price of healthcare services from the patients who actually use them. There are good reasons why we don’t pay for auto maintenance with our car insurance, or most home repairs and improvements with homeowners insurance. If you doubt this, just look at the costs of those few medical procedures that are NOT covered by insurance, like LASIK or cosmetic surgery. They are a fraction of the cost of equivalently complex procedures that ARE covered– and they are going down as equipment depreciates and doctors compete for your business. This is what happens in a transparent, competitive market. But healthcare is anything but a transparent, competitive market! Try reading a hospital bill, or finding out up front the total costs of, say, an appendectomy. It is virtually impossible. Why? Because you may be the patient, but you are not the “customer” of healthcare providers – your insurance company (or Medicare) is. And until we put the customer back in the equation, there is no market discipline, no “competition” – and costs can only ratchet in one direction.

    Insurance is popular because it APPEARS as if “someone else” is footing the bill, but this is illusion; there is no free lunch here or anywhere else! If you, like most people, have employer-provided health insurance, all it means is that your employer is deducting the costs from your salary. It may not show up in your paystub, but from your employer’s perspective, it’s just part of your total compensation. Let’s suppose that your health insurance costs your employer $15,000 per year, but if there were, say, a $15,000 annual deductible, it would cost only $5000 a year. What if your employer were to give you the $10,000 difference in cash, and then YOU pay for routine medical costs out of pocket – would it be worth it to you? Transition to something like this is the only real solution to the cost problem. Most routine healthcare must be paid for the way we buy groceries, or gasoline, or housing, or any other necessity of life. Leave insurance for what it is meant to be: Protection against the cost of catastrophic illness. When the patient is also the customer, everything from the price of drugs and medical procedures, to the wait at your local hospital ER becomes subject to the same market forces as in every other consumer-facing industry. Until people recognize this basic economic fact, we have zero hope of containing healthcare costs.

    • doc99

      It’s a time-tested business principle that if you want to cut cost, eliminate the middleman. Healthcare is the only enterprise which still insists it can save money by increasing the number of middlemen.

      Thus endeth the lesson,

      • SteveCaley

        Nay, nay I say! American civilian manufacture has consistently followed this business principle, which is why “Made In China” is our new label for just about everything. The absurdity that “middlemen create jobs, which causes profits, which produces – middlemen!” is why we have fallen off that rickety carousel years ago.

    • NewMexicoRam

      I’m with you 100%. All insurance needs to be this way, including Medicaid and Medicare.

  • SteveCaley

    Oooo, I love reading Joe. He’s all wrong, but I think he very clearly outlines the prevailing business opinions on American healthcare. Followed through to their rational conclusion, they wind up a more horrific point than we have now.
    First, the conclusion every health-businessy-type person has is that the American Healthcare system has just been discovered, like a new continent or something. Up until this point, 2014, nobody has scrutinized the business of healthcare, when in reality, the deformation of the business structure began in the mid 1960′s, and has veered off to change perverse incentives for at least 25 years or so. “Doctor Driven Healthcare” is about as quaint as “Flock of Seagulls Haircut.”
    The management model proposed is something like American Public Education, to manufacture the American Public Healthcare system – but this time, it will work for sure! Or the Pentagon Model of military planning, which shows that putting all branches of the military under one roof causes equality of cluelessness throughout the system, and at a high cost, too.
    American management theory, at least in healthcare, has lagged behind many other theories, and we are still left with the quaint and dusty echoes of Taylorism and Fordism, which have failed consistently – well before the first commercial television was sold. All of the cheery promises above have tanked when the system is applied to many other types of systems – but they have doggedly pursued Taylorism in healthcare for twenty years, with rotten results.
    The answer to the question is – Turkey
    Not the delicious holiday bird now fattening in the August sun, but the sovereign state. It’s not too far below the US in the WHO’s ranking of aggregate performance of healthcare; its equity of access based on income are not that different pre-ACA; and it’s just a little below the %GDP benchmark of 7.5% that is the median for WHO countries.
    The product that will result from our current course of action is:
    ~Gold-standard, top-of-the-world medical care for those persons for whom there is no financial limit – the 1%’ers and senior politicos from ours and friendly others;
    ~Semi-adequate, hum-drum access to limited medical care from the new mid-levels: PA’s, EMT’s and RPh’s
    ~Most medications available over-the-counter as recommended by the new mid-levels.
    ~Independent patient-selected consumer choice, internet-style. This will be packaged as “expanded consumer choice” but really will be “flinging liability onto the patient.”
    ~Catch-as-catch-can for the indigent.
    This model, sadly, has been attained by most Third-World countries. In Nigeria, the top 1% gets the best of the Mayo/Harvard/Cleveland Club; the semi-wealthy who have the internet can see a doctor if necessary, sometimes, and at expense; the average Joe can go down to the pharmacy and try some digoxin for his grandfather’s swollen legs.
    Of course, folks like Joe Flower have absolutely no intent of causing such things to happen – they really do look to a glorious sunrise of the New World shining in on healthcare.
    But sometimes, bright and shining prospects, ain’t so on the ground. Go to the VA and ask any ‘Nam vet how that turned out.

    • DeceasedMD

      Somehow in general, many in the public have been brainwashed into thinking that HC is just sooooooo costly and take it at face value. Since I have been reading more, I am gobsmacked at the hubris taken to exploit medical care. In ways I would have never dreamed of. The incentive I find the most devious is that the product offered is FREE. Big Pharma has free vouchers so pts have no copay. In the workplace, an employee gets a discount on HC insurance if they participate in working with a third party company that measures their risk factors of getting an MI, CVA etc. and prints out a pretty graph at the end for them. Who knows if they will ever be evaluated by a PCP?

      Even a nurse who left the profession, and has become a dietician says she is gouged with expenses from Boards about licensure. THere seems to be no end to the exploitation of HC. Forgive the metaphor but it is as if a rape of sorts: Aggressive, and covert as few really grasp the malevolent underpinnings.

      • SteveCaley

        Yep, it’s against the fundamental principles of medical care, and that’s why the looters and moochers get away with it. Professions that exist to help, heal and respect human existence and dignity often open the Devil’s Doorway for the nastiest parasites to sneak in, too. Ugh. It’s though the whole culture has lost its immunity to predation.

  • JPedersenB

    What happens if you simply eliminate the profit motive? Of course, that means that pricing of everything in medical care would have to be rational! I know this suggestion will be characterized as simplistic but we have never tried this, at least, not in my memory…

    • NPPCP

      I can answer this question – I have owned a private practice family NP clinic for over 10 years. I see over 30 patients every day. Included are the chronic sickest of the sick, procedures, and snotty noses. New babies 7 days old and 100 year old graceful patients. I work hard every day and provide primary care that is second to none. Patients continue to flow in daily (It’s an NP practice only SteveCaley except for occasional coverage by a hired gun moonlighter). If you remove the chance for me to live the American dream and treat me like a communist farmer driving a government owned tractor, then I will work like one. The patient load with decrease to 15, the staying late will stop, the after hours will stop. I will adjust my financial needs to take the hit in pay as well. If you need me after I clock out, I can’t help you. I’m sitting on my back porch doing nothing so there is no room left in my schedule to help you. If you want top notch healthcare and government mandated demands that I provide it, that is not going to happen. I, and every other NP, PA, physician won’t do it.

      • SteveCaley

        Touché, friend! You know, if it meant that I could go to the car dealer or the grocery store, the gas station and the fast food drive-through, and get a 50% ‘nonprofit discount’ on the basis of being a medical provider, I’d consider the whole non-profit structure. But those venal folks get surly if they have to sell at wholesale, so I don’t expect I’d be a valued customer there. I love healthcare, but it doesn’t make the house payment for me.
        [PS: It's not a government-owned tractor - you have to pay for it yourself. That's the new Contract Job model.]

    • SteveCaley

      Please explain more. Do you mean that an objective cost of service can be calculated, and that is the rational cost?

      • JPedersenB

        Yes, that was too vague. By profit, I mean the money earned after expenses that is paid to stockholders, executives, etc. By rationalizing, I meant that prices should be clear, understandable and not be radically different from venue to venue…

        • NPPCP

          I am pretty much okay with that. As they say, “all politics is local.” Well, all healthcare should be local. The prices should be clearly identifiable as well. I have said this before, but – before we do anything to you in our clinic, the receptionist comes in your room (after we determine what needs to be done) and tells you the almost exact cost of your visit if you are private pay. If it may cost a little more (complications such as more difficulty closing a wound than initially anticipated) then you will know that too. My system is “mini free market”. If you pay cash, I want you coming back. I am not going to “rip you off – ever.” I want you here. So what is the EASIEST WAY to fix primary care and pricing? If at all possible, NEVER visit a hospital owned or corporate owned primary care facility. Find a small clinic owned by the physician or NP. This is the first step. To cut management out the equation, don’t go to a place that has management. We will refer you where you need to go, negotiate the best price for ancillary services we can for you, and treat you like a human. If you feed the beast, the beast will grow. If you feed me or a private practice family physician, we SHOULD appreciate you back and you will establish a real relationship with someone who cares about you. If I can own a private practice and make a living, any physician or NP can. The inability to make a living is a farce. The choice is just one most “providers” don’t want. Sorry so long and a little of topic. BTW, thank you SteveCaley for the entertaining and informative posts.

        • http://clearhealthcosts.com/ Jeanne (clearhealthcosts)

          We couldn’t agree with you more about prices being clear and understandable. But: we think it’s OK for the market to allow for radical differences in prices. For example? A $500 MRI can co-exist with a $6,000 MRI, just so long as the prices are public.

          But we think the system should not make me pay for your $6,000 MRI. If you want the spendy one, you should have it, but you should get to pay for it, not me (or my employer, or my government, or any other third party).

          It’s hard for us to see how rationalizing prices might happen: do you mean price-fixing so they do not differ radically? Because we don’t know how that would work. MA is trying, sort of, so far to no avail.

    • http://clearhealthcosts.com/ Jeanne (clearhealthcosts)

      Our view is that if you make real prices public and real quality metrics public, you will go a long way toward solving many of the money problems.

      Of course no one has tried this before at scale in health care, but we do know that typically transparent marketplaces optimize for good value (the grocery market wouldn’t bear a $50 tomato, to oversimplify a bit). Providers delivering good value will be elevated, one would think. People will need to learn differently about health care, but that’s kind of happening already with rising coinsurance, rising deductibles and rising premiums.

      Since our health care market is damnably opaque, no one has any idea what anything costs — and it’s always someone else’s money, so there’s no downward pressure on prices.

      I’m not convinced that our marketplace and our society will embrace eliminating the profit motive. Our system is, to a certain degree, a reflection of who we are as a nation, and free enterprise is one big piece of that.

      • NPPCP

        And these principles need to be instituted on a small scale everywhere; not on a large scale in a boardroom. As far as the profit motive, eliminate it. The pivotal word is MOTIVE. My motive counts too. Without motive, it’s as much time on the back porch that I can get. Period.

  • http://onhealthtech.blogspot.com Margalit Gur-Arie

    Great description of the Walmart model of business.

    • NPPCP

      Yes, the authors could all just “cut and paste” from various pieces of “PCMH” articles, shuffle them up, add some more “futuristic” words, and publish them. See my post below. The solution this author suggests requires mega-government infusion of grants and control. The people with the real skills don’t need all that fluff. We need a table and a stethoscope and some sutures and some other supplies. We can do our stuff anywhere, anytime without any of the above waste. Physicians, NPS – go to rural America and open your clinic! Partner with no facilities and sign no contracts for employment! Be an independent voice for your patients

  • Joe

    This article does a great job of ignoring facts. For example, that so much of the waste in health care is artificially and intentionally created, whether by the regulatory system, litigation, etc. Consolidation makes things more efficient? Then why are studies showing that it means higher cost and less productivity?

  • Dorothygreen

    Joe – It would do you good to read 2 books

    1. The Social Transformation of American Medicine – the rise of a sovereign profession and the making of a vast industry. Paul Starr 1984

    2 In Sickness and in Wealth – American hospitals in the twentieth century Rosemary Stevens 1989.

    Worth reading even though the titles speak to the root cause of the US health care mess. We do not have a health care system as every other rich country does and we do not have time to continue the bickering and to think business speak ideas will reduce costs. There are many ideas that have and will continue to be used to make the system more efficient, safe, and increase the quality of care ,but first we need a system. There are many models to pull from – an insurance model such as Switzerland to a single payer model such as Canada. Here is what makes them a system:

    1.. Prices for basic services are negotiated at the central government level for all players. This is key to transparency, reducing costs, avoiding the waste, avoiding fraud. All counties do this and all countries have much less overall health care costs. Additionally in Switzerland the negotiations for basic service premiums also much be negotiated.

    2.. for-profit health insurance for basic services is OUTLAWED. In Switzerland insurance companies can charge supplemental insurance at a profit for such things a getting access to top doc, private rooms and other amenities. No such things as concierge MDs , no such thing as Medicaid. In Switzerland the insurance companies (administrators of the programs) further negotiate between physicians and hospitals at the canton level. Even the supplement premium for physician choice is affordable enough so that 70% of the population has choice.

    Some politicians try to make the case that their plan uses the Swiss model. But it does not contain these two basic criteria. So, no plan from either side or the ACA will get us to a health care system until there is negotiation of prices for all players and outlaw for profit for basic services.

    Also, we must reform our eating culture if we are to significantly reduce health care costs inclusive of the need for more providers.. Parallel to the implementation of Medicare and the subsequent $$$$$$ bonanza for physicians and hospitals described above, another vast industry was spawned – Big Food. The main demons here are white flour, sugar, Omega 6 vegetable oils and industrial meat – All now known for being the root cause of chronic preventable diseases which consumes greater than 50% of our health care dollars. They are prevalent in the American diet as a result of a “perfect storm of polices that continue to this day”. And just like health care – follow the money.

  • http://www.nammavikram.com/ Vikram

    Rheumatological problems means swelling, inflammation and pain in muscles or joints. In such rheumatic disease, the immunity system affects joint linings and eventually causes pain, puffiness, and total destruction. It affects in almost every joint part of our body.

  • http://thematthewreview.com Matthew Durham

    Great article Joe! I hope everyone who has anything to do with healthcare reads this.