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The State of Healthcare: A System in Crisis

September 9, 2022
RESOURCES

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Read the ManifestoIt should come as no surprise when we say the U.S. healthcare system is in a state of crisis. In fact, it has been for some time. The pandemic proved that prioritizing volume over value is unsustainable. Together, we have the power to create change. We all know a fee-for-service system is unsustainable, and the time to talk about the problem has come and gone. Our only option now is to march forward toward a more sustainable and effective healthcare system. Those who don’t will fall behind. 

This is our manifesto for change. 

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HOW DO MISALIGNED HEALTHCARE ECONOMICS CONTRIBUTE TO A BROKEN SYSTEM?

Today we are facing an unprecedented healthcare crisis in the U.S. as misaligned economics incentivize all the wrong behaviors. But the outlook for our healthcare system wasn’t always so dire.

In 1970, the U.S. spent about 6% of gross domestic product (GDP) on healthcare. That was comparable to the 5% average in 11 similarly developed countries, based on data from the Organization for Economic Cooperation and Development (OECD). Then in the early 1980s, U.S. expenditures on healthcare started to diverge from our international counterparts. By 2010 our spending was 75% higher than the OECD countries’ average. In 2021, we spent more than double our peer nations: $12,318 versus just $5,932 per capita.

Some may argue that the high costs have contributed to the best healthcare system in the world. Indeed, America has some of the world’s mostly highly trained healthcare professionals. We also have some of the most advanced medical technologies and innovative therapies. But the majority of this exceptional care only helps patients who are already sick. Meanwhile, we have minimal preventive care to address the root cause of our most pressing health issues or to help people maintain better health by limiting the need for acute care interventions.

Additionally, our high healthcare spending has not translated to a dramatically better quality of life or health outcomes. The U.S. ranks at the bottom in an OECD comparison in four out of five categories according to a 2021 report by the Commonwealth Fund, including:

  • Access to care: the affordability and timeliness of care
  • Administrative efficiency: the simplicity of insurance, billing, and payment processes
  • Health equity: how income-related disparities affect care quality and access
  • Health care outcomes: these include measures on infant and maternal mortality, life expectancy, and preventable disease

Blog-1-graphicAmericans’ life expectancy is also low compared to other nations. In 1980 U.S. average life expectancy of 73.7 years was only slightly below comparable countries’ average of 74.5 years. By 2020, we ranked 28th in the world with a life expectancy of just 78.7 years, almost six years lower than top-ranked Japan (84.2 years). In the last two years, this country saw its biggest decline in life expectancy since World War II after COVID-19, further widening the gap between America and much of the developed world.

When it comes to chronic disease, the U.S. far outpaces our peer nations. The Centers for Disease Control and Prevention (CDC) reports that 40% of Americans have two or more chronic diseases. And only 8% of U.S. adults get all their recommended preventive screenings and care.

The National Center for Chronic Disease Prevention and Health Promotion published a report in 2021 on how poor overall population health impacts the nation’s ability to compete economically on the world stage. This “U.S. health disadvantage” means companies spend more on employee health benefits but get lower levels of productivity and competitiveness.

We are spending drastically more, living shorter lives with more chronic illnesses, and experiencing far worse health outcomes than our global peers. It may sound hyperbolic, but the health and prosperity of our nation is literally at stake if we do not make dramatic changes.

WHAT IS FUELING THE CRISIS?

Our fee-for-service (FFS) system is filled with perverse incentives that prioritize volume over quality care and patient outcomes. This FFS system drives many of the wrong behaviors. Even providers who want to deliver the best possible care must focus on seeing more patients and ordering more procedures to sustain financial viability. They have limited time and attention to establish whether care actually leads to better outcomes.

A volume-based system is counterproductive to the health and well-being of a population. In this system, people primarily seek care after they get sick, but acute interventions do nothing to prevent disease. Volume-based systems also leave fewer resources for prevention efforts. In spite of our nation’s high levels of chronic disease, FFS does nothing to incentivize care that could halt or minimize disease progression and improve people’s health over time. 

Fee-for-service is unpredictable as a long-term business strategy. The COVID-19 pandemic brought the volatility of FFS starkly into view, as hospital and clinic volumes evaporated literally overnight. Providers and hospital systems were left without a backup plan. America’s hospitals now face “significant, ongoing financial instability” in the wake of COVID-19, according to the American Hospital Association. 

Another disruption in care volumes could devastate large segments of our hospital system. One study by Kaufman Hall projected that hospitals would lose $54 billion in 2021 because of COVID-19. Thousands of hospitals in the U.S. – particularly smaller hospitals and those in rural areas – were already operating on the edge of financial viability when the pandemic hit. Rural hospitals serve 20% of the U.S. population (around 60 million people). Our volume-sensitive FFS system is working against our care delivery system, which could lead to facility closings and leave millions with no access to care.

A volume-based system is not contributing to a healthy, thriving workforce. Employers are paying a higher price every year for insurance coverage, but that is not improving workforce health. A Milken Institute study estimated that the economic burden of chronic disease is costing U.S. employers $3.7 trillion a year in both direct healthcare costs and indirect costs related to lost productivity and missed work days.

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Making these changes is not optional, so it’s time to either march forward on this journey or fall behind. Let’s turn the page on healthcare history together.

 

Next: The Cost of Business as Usual

 

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