Healthcare financing reform in the U.S.: Trumping the ACA and Medicare?

Financing healthcare is a global problem, but the U.S. spends significantly more on healthcare than other nations and the gap is widening.

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Increasing costs

Technology may lower costs in many industries, but it is actually a major driver for rising expenditure in healthcare. Advances in procedures and medication are mind-boggling – but so are the bills. Some advances, like the new hepatitis C, drugs are true breakthroughs but are very expensive.  Others may offer small marginal benefits at very high marginal costs.  All of this is further confounded by major price increases related purely to market factors, like the case of the EpiPen, where prices skyrocketed to over USD 1,000 for two pens.

Facilitating greater personal engagement

Costs are only one of the barriers to patient engagement. The "MI Free Trial" study looked at whether patients were more likely to take their medicine if it was free. Following a heart attack, one group of patients were given free medication; the others were in standard co-payment schemes. Medication adherence improved when co-payments were eliminated, but surprisingly, neither group exceeded 50% adherence. The emerging science of behavioural economics, on the other hand, is proving useful in changing behaviour and motivation levels. Compared to lower success rates for educational and interviewing techniques, behavioural economics approaches are able to get patients to take their medication over 90% of the time.

Healthcare expenditures vs social care

Healthcare, per se, is a relatively minor contributor to overall health, perhaps at the level of 10% or so. However, it is, by far, where we spend the most - on the order of 88%. In the US there is a particular mismatch in that we spend the most among the OECD countries on direct healthcare expenditures and the least on the social determinants of health. One can make a strong argument that redirecting a portion of the direct healthcare expenditures towards social determinants would substantially improve the health of the population. In the apparent absence of the political appetite to make such a shift, the movement towards value-based reimbursement is creating incentives for providers to address some of these social determinants, albeit sub-optimally.

Source: Derived from Information from the Boston Foundation (June 2007)

Shift to value-based healthcare

Value can be measured in terms of quality divided by cost and cost is a constraint for society. In the early stages of healthcare system development, technology produces large marginal benefits at a low cost. But newer technology is proving increasingly expensive, often with little marginal increase in quality, eg the controversial screening for prostate cancer. So the question is, for example, who should constrain the high cost "low value" technologies? Should it be the payer (including governmental payers), the patient or the provider? What about the government as a kind of regulator, as in the case of the National Health System (NHS) in the UK? And who decides what society can afford? For example, should proton beam radiation therapy be available to all men facing prostate cancer if it is a lot more expensive, but only slightly reduces the risk of impotence and incontinence?

There is likely to be a shift in healthcare finance in the US from defined benefits to defined contribution. High deductible plans are an early step in this shift. Whether this will reduce overall costs and improve the quality of healthcare for Americans is debatable. Evidence suggests that while consumers confronted with high out of pocket expenses are less likely to purchase wasteful care, they are also less likely to get important preventative care. This could lead to overall higher consumption and a decrease in healthcare quality. Similarly, there is mixed evidence on the efficacy of providers serving this function under value-based reimbursement.  Government-based regulatory models, like the NHS in the UK, are also struggling. In many ways the problem is analogous to the “Tragedy of the Commons” for which there is no perfect technical solution.

In summary

The US is in the midst of a major experiment involving patients and providers - so far with mixed results, but with ample learning opportunities. Inevitably, healthcare spending in the US and other countries must be rationalised (or “rationed”). How this happens will largely be a reflection of a given society’s values.  Hopefully, as the healthcare financing crisis progresses around the world, new innovative approaches will emerge to benefit our citizens and the people we serve as healthcare providers.

Summary of the Centre for Global Dialogue's Transforming Healthcare event in February 2017. Summary by David M. Taylor.