Skip to main content
Blog

Transforming Healthcare – Better Outcomes at Lower Costs

By February 20, 2023November 22nd, 2023No Comments
Transforming Healthcare – Better Outcomes at Lower Costs

The US spent $4.3 trillion on health care in 2021, which accounted for about 18% of GDP. In 2021, life expectancy was 76.1 years – the lowest in 25 years. Health outcomes have clearly not matched the spending.

The Centers for Medicare and Medicaid Services (CMS) estimates national health spending to reach $6.8 trillion by 2030 which will account for about 20% of GDP. The UN Sustainable Development Goals (SDG) has a 2030 target of universal and affordable health care. Data shows that the US is not on track to meet its SDG 3 targets.

The Direct-Care Capitation Payment Model is a healthcare model that provides for universal and affordable health care. It right-aligns market forces and significantly cuts down on waste. It brings the focus back to preventive care and prioritizes quality of life. It will provide better health outcomes at about a third of the cost and will put the US on track to meet SDG 3 targets.

Health Spending and Outcomes

The Organization for Economic Cooperation and Development (OECD) publishes data annually about the health systems of its member countries. The figure below shows the trend over the years for OECD member countries.

1
Data Source: OECD, Visualization: Hawkai Data

The US is clearly an outlier. In 2021, the US spent $4.3 trillion on health care accounting for about 18% of GDP which is around 2x the median of the OECD countries. The total  and per capita spending both show similar trends. Starting in the early 1980s, US healthcare costs branch off from the rest of the countries. The Centers for Medicare and Medicaid Services (CMS) estimates national health spending to reach $6.8 trillion by the year 2030 and to account for about 20% of GDP (this assumes that GDP will grow at 5.1% annually over the same period). This divergence from the rest of the countries is expected to continue.

A metric that is used as a measure for health outcomes is life expectancy.  The figure below compares the yearly trend in life expectancy for countries that have distinct healthcare models. Canada follows the Tommy Douglas model (or the National Health Insurance model, where the government provides universal health insurance and is the single payer for medical procedures), Germany implements the Bismarck model (or the Social Health Insurance model, where the insurance is non-profit and the health care providers are private), and the UK implements the Beveridge model (or the National Health Service model, where the government provides universal health care).

2
Data Source: OECD Visualization: Hawkai Data

The US is again an outlier in life expectancy when compared to the other countries, starting to diverge from the rest around the 1990s.  Life expectancy in the US has been showing a downward trend since 2014. Life expectancy in 2021 was 76.1 years, which was what it was back in 1996. We have effectively rolled back 25 years of public health progress. A contributor to the increase in life expectancy in the 1990s were community health initiatives that included anti-smoking campaigns. The decrease in tobacco-related and cardio-vascular deaths have been negated by new entrants making their way into the leading causes of death  – deaths of despair, Alzheimer’s, Parkinson’s, and Polypharmacy.

While life expectancy is an indicator of the quality of care, it is not an indicator of the quality of life. Medical advances have meant that people are living longer with illnesses. A higher life expectancy should not be necessarily correlated to a better outcome for a healthcare model. A better metric would be the healthy-life expectancy. Primary care that allows for early detection and interventions, preventive care, and community health programs that focus on quality of life can improve the healthy-life expectancy for countries.

Access to Primary Care

A health system that focuses on primary care and community health will have more generalists than specialists. The figure below shows that the US is again an outlier. It is the only country where specialists outnumber generalists by a huge margin.

3
Data Source: OECD, Visualization: Hawkai Data

Fewer primary care doctors means less care and more expensive services. Longer years of medical study and increasing medical school debt incentivises medical students to gravitate towards specialized degrees that offer higher salaries. This skew in the number of specialists has encouraged over-treatment, over-diagnosing, and perversely making patients appear sicker than they are (for details, read our article – The Rash that Cost $1538).

The United States is aging. The median age has increased by 3.4 years since 2000. In 2000, about 1 in 8 were above the age of 65. In 2030, it is projected that 1 in 5 will be above the age of 65. At the same time, there has been a corresponding decrease in the number of geriatricians. In 2000, there were 10,270 board certified geriatricians. That number fell to 8,502 in 2010 and was 7,300 in 2020.

Alzheimer’s, Parkinson’s, Polypharmacy, and Deaths of Despair disproportionately affect older adults. Primary care that allows for early detection and interventions, community health education, and wellness programs can significantly improve the quality of life of older adults and increase the healthy-life expectancy.

Health Insurance Payment Models

The figure below shows the various payment models that have been experimented with in the US, in an attempt to control costs and cut waste. The cost of the CMS programs have not just gone up year-to-year, the rate of growth has increased over time.

4
Data Source: CMS, Visualization: Hawkai Data

Medicare spending increased 8.4% to $900.8 billion in 2021, accounting for 21% of the total spending on health care ($4.3 trillion). CMS projects total spending on Medicare to show the fastest growth (7.6% increase year-over-year).

The Pay-for-Service model encouraged over-treatment; the Capitation Payment model encouraged under-treatment; the Flat-Rate Capitation Payment model encouraged patient-selection; the Risk-Adjusted Capitation Payment model encouraged over-diagnosis. In the battle for the dollar between the provider and the payer, the only sure casualty is the patient. The patient is left with year-to-year increasing premiums and out-of-pocket costs and year-to-year declining community health outcomes.

Misaligned incentives, black-box drug pricing, well-intentioned legislation that is perversely gamed by the players, and systemic and structural inefficiencies have all contributed to a dysfunctional healthcare system that rewards profits over health outcomes, prioritizes quantity over quality, and sees value in keeping the patient as a returning customer. Are there lessons that we can take from other countries that will help us meet the SDG 3 target of universal and affordable health care?

Comparing Healthcare Models

There are four distinct models for providing health care – the Beveridge model (UK), the Bismarck model (Germany), the Tommy Douglas model (Canada) , and the Out-of-Pocket model (practiced in most countries of the Global South)l.

In the US, these four models for health care are available to different population segments. The Veterans Health Administration runs an integrated healthcare system similar to the UK model. Employer-based plans that offer private health insurance are similar to the Germany model (except for the fact that insurance is for-profit). Medicare is a single-payer model available to seniors over 65 and is similar to the Canada model. The Out-of-Pocket model is used for procedures like cosmetic surgery, which are typically not covered by insurance. Since all the models are in use, we can use US healthcare data to get insights into costs for each of these models.

We compared the rise in costs for these four models using data from CMS and the Aesthetic Institute. The inflation data is from the U.S. Bureau of Labor Statistics (BLS). We used the year 2000 as the baseline and normalized all the costs to $1,000. Data for Medicare, Veterans Affairs, and Private Health Insurance is from CMS. We took the yearly totals and adjusted them for population to get per-capita costs. For the Out-of-Pocket model, we summed the average costs for three of the more popular cosmetic surgery procedures – Breast Augmentation, Liposuction, and Rhinoplasty – over the years.

5
Data Source: CMS, Aesthetic Institute, BLS Visualization: Hawkai Data

The figure shows the rise in costs for the different models from the year 2000 to 2021. Veterans Affairs (the UK model) showed the highest rise in costs, with an increase of 374% over 22 years. This was followed by single-payer Medicare (the Canada model) with an increase of 242% over 22 years. Private health insurance (the Germany model) costs went up on average 134% over the 22 years. What performed best was the Out-of-Pocket model where average costs went up 40%. Considering that inflation over the same period was around 54%, costs for the Out-of-Pocket model actually went down when adjusted for inflation. The table below shows the increase in costs for the different models.

6

The UK (Veterans Affairs) model’s costs went up about 7x inflation in two decades. The Canada (Medicare) model’s costs went up over 4x inflation in the same period. The cost of the Germany (Private Health Insurance) model went up about 2.5x. Most private health insurance plans today are high-deductible plans. If you include out-of-pocket costs when you are under the deductible, the per-capita costs would be much higher. None of these healthcare models can put the US on track to meet its SDG 3 target.

The costs for the Out-of-Pocket model, when adjusted for inflation, declined over the same period. The Out-of-Pocket model shows that where there is price transparency and no third-party intermediating payments, medical services can be provided at much lower costs. In the UK (Veterans Affairs) model, the government is the provider and the payer. In the Canada (Medicare) model, the government is the single-payer. The data also shows that greater the government intervention, the higher the costs.

This data provides the needed insights into reducing costs while improving health outcomes. Costs can be reduced when there is price transparency and by reduced third-party mediation. Health outcomes can be improved by facilitating early intervention and preventive care.

Direct-Care Capitation Payment Model

In the Direct-Care Capitation Payment model, the only touchpoint that a patient has for their health is their primary care provider. The primary care provider is responsible and accountable for community health outcomes. Every family makes a capitation payment to a primary care center that covers all health care needs. The model provides predictable revenue to a primary care center, significantly reduces administrative overheads, and eliminates claim processing. The figure below illustrates the Direct-Care Capitation Payment model.

7
Direct-Care Capitation Payment Model

The table below compares the current US healthcare system with the Direct-Care Capitation Payment model. 13,000 primary care centers with 100 doctors each would require 1.3 million primary care physicians (for details, read our article – The Rash that cost $1538).

8

The Direct-Care Capitation Payment model increases the number of primary-care physicians from 100,801 to 1.3 million which should show a corresponding increase in life expectancy of over 5 years. It will incentivize quality and not quantity. It will create a system where the incentive to innovate is rewarded and aligned to patient outcomes.

The Direct-Care Capitation Payment model will eliminate open enrollment nightmares, give you your choice of doctors, significantly reduce costs, and will improve community health outcomes. Market forces will balance the mix of generalists and specialists, align profits with quality of care and health outcomes, and allow and incentivize providers to focus back on primary care and community health. It will prioritize quality of life over quantity of life.

The Direct-Care Capitation Payment model will provide universal and affordable health care. It will allow countries to meet SDG 3 targets. It right-aligns market forces, leverages market efficiencies, and will in the longer-term deliver better outcomes. The model’s success will be determined by the ability of the system to scale, in its agility to adapt to change, and in its adoption by the people.

Scale, Agility, and Adoption

Health care today commodifies sickness. The Direct-Care Capitation Payment model will commoditize health. It aligns patient interests with that of the primary care provider. Improved community health outcomes will reduce risk insurance for the primary care provider and improve profits.

The Direct-Care Capitation Payment model provides a sustainable framework that provides real value to the consumer and can sustain delivery of value at scale. It elevates the customer experience – no enrollment nightmares, no plans to choose, no deductibles or caps or exclusions to worry about. The only touchpoint that a person has is their primary health care provider who is responsible and accountable for their health.

Technology today depersonalizes the patient experience. The Direct-Care Capitation Model will enable and incentivize the providers to digitally scale out personalized patient services. The model right-aligns market forces, provides the agility in adapting to change, and market efficiencies will keep costs in check.

9
Sustainable Development will provide agility, Digital Transformation will provide scale, and focusing on Customer Experience will ensure adoption

Right-aligning people, profits, and the planet makes good business sense. The Direct-Care Capitation Payment model will create resilient communities, profitable healthcare businesses, and significantly cut down waste. It will allow doctors to go back to caring for their patients. It will transform our health care and put the US on a sustainable path to meet its SDG 3 targets by the year 2030. It is time to lead by the power of our example.

Further Reading

1. Lown B. The Commodification of Health Care. PNHP Newsletter. 2007. Available at https://www.pnhp.org/publications/the_commodification_of_health_care.php?

2. Shetty D. India needs universal health insurance, not universal healthcare. The Times of India. January 29, 2023. Available at https://timesofindia.indiatimes.com/india/for-health-you-neednt-have-wealth/articleshow/97421043.cms

3. Yousif N. Canada pledges billions to help fix healthcare system. BBC News. February 9, 2023. Available at https://www.bbc.com/news/world-us-canada-64574072

4. Ziady H. Britain’s NHS was once idolized. Now its worst-ever crisis is fueling a boom in private care. CNN Business. February 6, 2023. Available at https://www.cnn.com/2023/02/06/business/nhs-strikes-private-healthcare-uk/index.html

5. John R. The Rash that Cost $1538. Hawkai Data Blog. January 2023. Available at https://www.linkedin.com/pulse/rash-cost-1538-ranjit-john?

6. Commodify vs Commoditize, Read at https://en.wikipedia.org/wiki/Commoditization

Data Sources

Organization for Economic Co-operation and Development (OECD) data is available at https://stats.oecd.org/

Centers for Medicare and Medicaid Services (CMS) data is available at https://data.cms.gov/

U.S. Bureau of Labor Statistics (BLS) data is available at https://www.bls.gov/data/

The Aesthetic Society data is available at https://www.theaestheticsociety.org/media/procedural-statistics

American Geriatrics Society data is available at https://www.americangeriatrics.org/

Learn more about Hawkai Data at https://hawkai.net, follow us on LinkedIn at https://www.linkedin.com/company/hawkai-data/, or talk to us at info@hawkai.net.

Ranjit John

Engineer. Writer. Marketer.