The Future of U.S. Healthcare is not so Clear

Last week, I had the honor of delivering the Russ Coile Memorial Lecture at George Washington University in DC. I was asked to offer a long-term perspective about the future of healthcare in America akin to the role Russ had played in his stellar career as our most prominent industry futurist before his untimely death in 2003.

Most often, I am asked to speak to boards and C suites about the current landscape and how to prepare—the near-term dynamics in the clinical, capital, regulatory, competitive and consumer environments that challenge managers.  But long term? This request pushed me past my comfort zone.

In our industry, it’s easier to focus on the here and now. Shareholders in our for-profit sectors monitor performance quarter to quarter. Our capital budgets and strategic plans are usually predictable based on forecasts slanted toward a particular sector’s roadmap to sustainability and competitive relevance. Our plans acknowledge the obvious—the industry’s change resistant and consumers are ill-informed but highly opinionated about its future. Against this backdrop, it’s tough to think what might be our future 10, 20 years from now; it’s far easier to offer updates on the here and now (See Today’s Fact File—I couldn’t resist!)

Walter Lippman, the famed journalist and social commentator of yesteryear, wrote “when all think alike, no one thinks very much”. As I reflected on my topic, I found myself reflecting on industries that have undergone major changes resulting in an entirely new landscape in their businesses.

Banks, retailers, media, entertainment, transportation, food, housing and others have seen their enterprises transition from “local” to “national” and in some cases global. Some survived; most haven’t.

In the last two generations, our culture has shifted from binary sorting of our populace by race (black vs. white), income (rich and poor), education (educated or not), location (urban or rural) and other dyads to multi-dimensional characterizations of who we are, how we live and what we value. Even our politics reflects the gravity of pluralism that’s tearing at our traditional two-party system!

And monoliths that once operated with the protections of government policy and security of public funding now face challengers who dare to compete with their dominance—our currency faces the advent of Bitcoin, our U.S. Postal Service faces competition from strong incumbents now defining their own second curves for growth, our public schools face private, self-funded alternatives that proport to offer greater value to society, and so on.  

A lot has changed. So, what’s the future for healthcare. Here’s four assumptions based on comparing and contrasting our industry to others that have evolved in recent decades:

Demand: Demand for healthcare products and services will expand exponentially as non-traditional resources are adopted by new generations of users: healthiness and well-being, holistic methods, probiotics, predictive health via genetics and microbiomics, smart home and devices, artificial intelligence and others. The health industry market will be defined more broadly and innovations impacting affordability, personalization and healthiness in each stage of life will attract capital from traditional targets of investment.

Business model: The business model and regulatory framework of the industry will shift from access to bricks, sticks and pills to technology-enabled self-care management programs that enable individuals to define health for themselves, control their decisions and manage its costs. Health and human services programs will be merged as regional systems of health become fully accountable for costs and quality across all populations.

Funding: Funding for the system will be bifurcated: the majority of Americans will pay for healthcare through their taxes and access services through federal programs that contract with regional systems of health on a fully capitated model whereby the delivery and financing of care are fully integrated. A small number will purchase services for themselves outside the parameters of the public system.

Scale: Access to technologies, management of data, digitization of care coordination, altering consumer behaviors, optimizing efficiency and effectiveness, integrating financing (insurance) and delivery, and maintaining access to capital through lenders or strategic investors—these require scale that supersede conventional parameters of scale and scope. There may be fewer than 100 systems of health in the U.S. in 20 years, and some will emerge from origins outside the conventional hospital and insurer sectors.

Yogi said “it’s hard to make predictions, especially about the future. Russ would have been more eloquent and likely more thoughtful. But gratefully, he forced many like me to take a step back and think long-term. Admittedly, the future is not so clear.

Paul

Fact File: the busy week in healthcare

Tax reform deliberation continues: the Senate and House versions differ in many respects, but speculation that suspension of the individual mandate might be included to reduce the projected $1.7 billion deficit impact gained momentum. Per the CBO, suspension would save the feds $336 billion over a decade by eliminating the costs for coverage for 13 million Americans (which means higher uncompensated care in hospitals).

Marketplaces: According to the Washington Post, 601,462 people signed up last week for health insurance under the Affordable Care Act in the 39 state marketplaces run by Healthcare.gov. Of that number, 137,322 consumers (23%), were new to the marketplace and did not have coverage this year through the federal insurance exchange.

Healthcare prominent in Tuesday’s elections: In Virginia, Democrat Ralph Northam defeated Republican Ed Gillespie in a gubernatorial race. (Early exit polls showed that 4 out of 10 Virginians said health care was their top issue in a race). In Maine, voters approved an expansion of Medicaid for low-income adults, defying Republican Governor Paul LePage’s five vetoes on prior occasions. In Ohio, voters rejected a measure that would have forced pharmaceutical companies to reduce the price of prescription drugs, after Big Pharma outspent its opponents by a three-to- one margin.

Spotlight on vets: Saturday was Veterans Day. Numerous reports about the status of veterans’ health appeared. Example: Approximately 39,471 veterans are homeless on any given night—11% of the entire U.S. adult homeless population (The U.S. Department of Housing and Urban Development (HUD)). The majority are in urban communities, young (half served in Vietnam or after), male (91%), single, disproportionately of ethnic minority origin (45% of all homeless veterans are African American or Hispanic, despite accounting for 10.4% and 3.4% of the U.S. veteran population) and suffer from serious mental illness (50%), alcohol or substance abuse (70%) disorders. In addition, about 1.4 million other veterans, meanwhile, are considered at risk of homelessness due to poverty, lack of support networks, and dismal living conditions in overcrowded or substandard housing. The 2015 Point-in- Time Estimates of Homelessness, Volume 1 of the 2015 Point-in- Time Annual Homeless Assessment Report; Housing and Urban Development

Medicare advantage: The Medicare Advantage market is becoming more competitive for insurers: Humana, which has 3.3 million individual and group Advantage seniors, told investors last week competition in the sector is intensifying. Example: Anthem announced plans to acquire two Florida-based Medicare Advantage companies, America’s 1st Choice and HealthSun with high CMS star ratings in the past two months, adding 170,000 to Anthem's 1.5 million MA membership. UnitedHealth Group increased its Medicare Advantage membership by more than 790,000 members in the last year to 4.4 million total.

Costs: The cost of healthcare in the United States increased $1 trillion from 1996 to 2013 due to 5 factors: (1) more people; (2) an aging population; (3) changes in disease prevalence or incidence; (4) increases in how often people use healthcare services; and (5) increases in the price and intensity of services. Healthcare spending on outpatient care increased a dramatic 85% between 1996 and 2013, largely due to increasing use of services. Spending on inpatient care grew 59% because of price increases and service intensity. (JAMA)

Accountable care: Last week, CMS reported 31% (134 of 432) of the Medicare Shared Savings Program (aka Accountable Care Organizations) generated shared savings of $700 million in 2016, the same as in 2015 and up from year one (2012) when only 26% (55 of 220) produced savings. CMS reported the majority of ACOs in 2016 were in Track I (upside risk only) with no losses for those in Track 2 and four Track 3 that failed to achieve savings. The effectiveness of the ACOs correlated to their sponsorship: 45% of the 134 physician-only ACOs generated savings compared to 23% of ACOs sponsored by hospitals, per CMS’ analysis. Their data also showed ACOs that had been in the program longer saw lower savings, leading CMS to conclude “stagnation” might be a factor. Earlier, CMS reported that Pioneer and Next Generation ACO programs had better results: 6 of 8 Pioneer ACOs and 11 of 18 Next Generation ACOs earned shared savings in 2016. Note: The Pioneer program launched in 2012 with 32 ACOs and ended in 2016 with 8, while 2016 was the first operational year for the Next Generation ACO program. The Next Generation ACOs assume two-sided risk. The best-performing Next Generation ACO garnered more than $12 million in shared savings, while the worst-performing had more than $6 million in losses. Per CMS, Medicare ACOs generated $836 million in savings in 2016.

Blue Cross plans: The financial performance of the 34 Blue Cross and Blue Shield plans improved “significantly” in the first half of 2017, according to Fitch. Their underwriting gains of $5.1 billion above the same period in 2016 achieved through administrative cost reductions ($2.8 billion) and premium increases ($2.3 billion). The result: the Blues’ capital and surplus improved 11% and debt declined moderately.