Affordability in health care: Ripping off the bandage to reduce waste | Deloitte US has been saved
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By Kulleni Gebreyes, M.D., principal, life sciences and health care leader, and Paul Lambdin, managing director, Deloitte Consulting LLP
The COVID-19 pandemic has driven many health plans and health systems to reflect and evaluate the rules they impose. They are taking a fresh look at how they communicate, how they deliver care, and how they work together. As the industry rebuilds from the pandemic, health care organizations have an opportunity to reduce waste and make health care more affordable.
Health plan and health system chief financial officers (CFOs) agree that the financial impact of the pandemic is significant, and recovery will be a long road, according to the results of a survey conducted by Deloitte’s Center for Health Solutions. Nearly half of health system CFOs (47%) and 53% of health plan CFOs said financial viability and planning were their biggest concerns.
Waste contributes to health care costs
Eliminating waste could help reduce the financial impact of the pandemic and help health plans and health systems rebound and make health care more affordable. However, dramatic change is likely needed to have a real impact on total spending. Waste makes up as much as 25% of total health care spending in the US. That translates to about $1 trillion a year, according to a recent Deloitte report on future health care spending. The major contributors of waste include administrative complexities, duplicative services, unnecessary treatments, high drug prices, and hospital readmissions, according to a study produced by researchers at Humana Inc. and the University of Pittsburgh School of Medicine.
Consider this: A patient was recovering from surgery and was required to take a special dietary supplement intravenously. While the patient’s surgery was covered by her health plan, the dietary supplement was only covered if it was administered in the hospital. While the patient wanted to be discharged, the health plan would not cover the supplement if it was administered in the patient’s home. As a result, the patient wound up being unnecessarily hospitalized for three additional months, at an average cost of $3,000 per day. That translates to $270,000 in avoidable waste for just one patient.
This story is unfortunate, but probably not unfamiliar. While we can point fingers, all players in the health sector contribute to waste. While many health care stakeholders can point to inefficiencies, it can be difficult for them to make any fundamental changes on their own. Health system leaders, for example, typically have little incentive to reduce the length of a patient’s stay, or even to prevent the need for a hospital stay in the first place. The pandemic, however, is pushing health systems to adapt to an evolving health care landscape, such as the shift to more outpatient and virtual services, which could help reduce overall costs.
Other factors that could make health care more affordable
Eliminating or substantially reducing waste could help to make health care more affordable, but it isn’t the only tool in the toolbox. Pushing care to other settings (e.g., in the home or virtual), for example, could have a significant impact on costs. While the fee-for-service model remains highly profitable for some health systems, the COVID-19 pandemic pointed out weaknesses of that model. This could create more momentum for value-based care models where revenue is captured indirectly by keeping members healthy.
Organizations that thrive in the future will likely be the few incumbents (and likely many disruptors) that can fundamentally challenge and change industry norms. Here are a few other factors that are likely to impact the affordability of health care.
In the future, the convergence of automation and the redesign of the industry’s legacy rules can lead to an unstoppable shift in our health care system. The first step may be to rip off the bandage and re-imagine our decades-old heath care system.
Kulleni is a US Consulting Health Care Sector Leader and director of the Health Equity Institute. She holds an MD from Harvard Medical School and an MBA from Johns Hopkins. Dr. Gebreyes has developed and implemented strategies for population health management and value-based care, physician alignment and patient activation, diversity, equity and inclusion, and the drivers of health. She is an active advocate for vulnerable and underserved communities. She is also a physician leader with more than 20 years of experience in the health care industry across the commercial and public sector. She drives care delivery transformation for health care organizations pursuing financially sustainable strategies for consumer centric care models that are data driven and digitally enabled. She has also developed strategies for population health management and value-based care that address payment reform, physician alignment and patient activation. In partnership with providers, payers, and employers, Kulleni has successfully developed and implemented clinical analytics tools and applications that reduce operating costs and promote appropriate utilization of resources.
Paul is the Regional Segment leader for Health Plans in Deloitte Consulting LLP, focused on expanding our relationships with regional health plans, as well as the Distribution and Insurance Exchanges practice leader. He has more than 25 years of industry distribution and P&L experience and focuses on growth through effective distribution across all lines of business, including helping clients to optimize the market impacts of public and private exchanges. His recent engagements include public exchange go-to-market planning, private exchange strategy, and retail business and distribution strategy.