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March 22, 2019
Healthcare cost—Critical to value equation
By: Dr. Ron Moody

Few days go by without an article on the need to address healthcare cost. I think that cost is only important as it relates to a value equation—in its simplest form, Value=Outcome/Cost. Too often we let cost decisions overtake the drive toward better outcomes.

Let’s acknowledge some facts. The U.S. is Number 1 in per capita healthcare expenditure, but much lower in national health rankings. The issue is not necessarily cost, but the value being achieved related to that expense. There is no reason the U.S. should not have the best value-healthcare system. Achieving this requires an evidence-based look at outcomes, healthcare cost and decision-making to include health policy.

Too many efforts to improve healthcare outcomes and improve cost have not resulted in the change expected. Just as many healthcare practices are based upon opinion so are practices to improve healthcare. To fix a problem, the actual problem has to be understood. It also requires that any fix be applicable to how the system is working at the time of implementation. As the saying goes, every system is perfectly designed to get the results it gets.

A broader look at the facts from various studies have clarified the facts of U.S. healthcare expenditures. The use rate of physician visits and hospital length of stay is similar to other nations. The primary care versus specialist mix in the U.S. is similar to the average of other countries. The majority of healthcare cost in this country—more than 80 percent—is outpatient services. Compared to other nations, U.S. costs for healthcare are notably higher for medications and healthcare administration. Physician salaries are also higher, but the salaries are not a major factor.

Other items to consider related to cost as part of value:

  • Preventive services often improve quality of life, but may result in significant total cost reduction on a plan or national scale. The greater value here is the quality of life outcome.
  • Healthy people control two-thirds of healthcare expenditures.
  • Changing to value-based payment (VBP) models may have little impact on total cost if the metrics are poorly designed, or simply repackages what the “fee for service” is paying for.
  • Multiple industries have modernized by leveraging disruptive technologies. Despite billions spent, health outcomes and the cost curve of healthcare have not really changed.
  • The key issues of 20 years ago are still present, despite the promise and potential of various technologies. Healthcare is one of the least-improved industries, based upon value derived from technical modernization.

For more than a decade, it’s been said healthcare is on the verge of a tipping point. Today, the hype sounds similar but with different tag lines (artificial intelligence, data interoperability, the Internet of Things).

While I am skeptical, I agree the tipping point is approaching, because the magnitude and urgency of the problem will soon require immediate attention. Unfortunately, the U.S. healthcare system and policy understand and respond to emergencies. It’s unfortunate. Evidence-based, outcome-focused actions are available today that could deliver better outcomes, while lowering costs aligned with changing the model and culture of healthcare.

So here are a few of the key points that all stakeholders in health care should consider as we move closer to this tipping point:

  • Focus should be on value, not simply cost or outcomes.
  • Important to know true cost outlier areas, so immediate efforts can start to address them.
  • Optimizing how things are done today to provide increased value or cost improvement.
  • Ample opportunities exist to create a learning system that helps define the future with continued change, especially in federal healthcare.

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