American healthcare is expensive. Too expensive. On this, there is little debate. In 2001 the median U.S. household spent 6.4 percent of its income on healthcare; by 2016, the same household spent 15.6 percent of its income on healthcare. That bigger share of the pie leaves less for other essential purchases such as food, education and housing.
The same phenomenon exists at the national level, with spending on education, the environment and social programs getting squeezed. Recent estimates from the Centers for Medicare and Medicaid Services (CMS) have the American healthcare tab coming in at $3.6 trillion for 2016 and projected to continue to soar through 2025. Despite broad agreement that rising healthcare costs are unsustainable, the root causes of the rates of increase and the best ways to combat them remain the subject of some debate and confusion.
Numbers matter. The 80/20 rule—known to healthcare actuaries as the Pareto principle, posits that 80 percent of all medical spending is incurred by only 20 percent of the population. Whether a population is defined as a company, a county, or a country, most healthcare spending is for care of a small minority of individuals. Moreover, the bulk of that spending arises from either largely unavoidable or unpredictable single events (such as trauma or sudden-onset acute illnesses); such chronic conditions such as diabetes; complex episodes of care for such illnesss as cancer, and care delivered at the end of life.
A critical (but often overlooked) point is the fact that as much as 40 percent of spending during chronic and complex episodes is avoidable if providers and systems adhere to established standards of care. Reining in runaway healthcare spending must involve better management of high-cost episodes of chronic and complex care.
A key buzzword in today’s debate is “population health”. Confusion occurs when the term is interpreted as a strategy for controlling healthcare costs when it is applied across our entire population as opposed to the sickest 10 percent or 20 Percent. Wellness initiatives, early detection, the avoidance of emergency room visits, and disease prevention have undeniable value, and should all be pursued, but they will not (by themselves) sufficiently reduce healthcare spending by enough to make the system “affordable”.
As the Baby Boomers swell the ranks of Medicare beneficiaries, the inevitability of illness is the only certainty in an otherwise uncertain world. To be successful, programs, payment systemsand policies to curb healthcare spending must focus on improving the efficiency and effectiveness of care delivered to the sickest subset of the population. This is best accomplished within a completely integrated healthcare-delivery system.
American hospitals and healthcare systems are among the best in the world. Rather than asserting that “American healthcare is broken” and in need of rebuilding from scratch, a better strategy may be to look at what works well within our system and ask how we can build on those strengths while facing the escalating costs head on. Hospital systems are in the health care business, and we should not be reluctant to say so. No matter what wellness and prevention programs we collectively offer, inevitably a small subset of the population will still get very sick, and it is a core mission of health systems—working in close partnership with our primary and specialty providers—to take the very best and most efficient care of them when that happens.
Irrespective of what happens with the Affordable Care Act (ACA), as leaders in health care, we must redouble our efforts to eliminate unnecessary variations and wasteful spending in the clinical care we deliver to patients.
Rather than debate the actual percentage that is “wasteful spending” (now commonly referenced at around 30 percent) we would be better served by continuing the hard work of identifying and eliminating areas within our own systems where needless variations in care add cost without improving outcomes. As Lifespan, the system I lead, continues to evolve into a comprehensive, high-value, integrated healthcare system, we are doing just that.
Timothy J. Babineau, M.D., is president and chief executive of Providence-based Lifespan, a large hospital system, and a professor of surgery at the Warren Alpert Medical School of Brown University.