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This chapter is from the book

The Uneasy Business of Health Outcomes

Despite the substantial missed opportunities accruing from a lack of focus on health outcomes, the business case for doing so may not be obvious, and other significant pressures drown out the need to change business-as-usual.

Missed Opportunities

There are many areas for improvements in prevention and clinical outcomes to produce a long and healthy life. And saving lives can lead to saving dollars and/or creating value. But, it is clear that the businesses of health, including health care providers, payers, and life science companies, are not betting the business on it. Let’s look at a few big opportunity areas:

  • If the United States achieved the best (lowest) premature death rate among OECD countries, it would save 36 million years of life per year. The monetized value of the lives lost is $2.6 trillion. This is nearly equivalent to annual health care expenditures of $2.8 trillion.
  • If U.S. health care were to use Big Data creatively and effectively to drive outcomes and quality, the sector, according to McKinsey & Company, could create more than $200 billion in value every year mostly in the areas of comparative clinical effectiveness and clinical decision support.13
  • If patients with cancer, heart disease, and diabetes received more personalized care, including computer-aided differential diagnosis, connected health, sensors for remote monitoring, tailored treatments, and better communications within health care and to patients, at least 20% of them would live at least two years longer.14 Over 40 million Americans have these diseases.15 The extra years of life has a value of $800 billion for this cohort.

The benefits of these outcomes, especially the extended years of life, accrue to the patients who receive the care. But, people do not write a thank you card and a check to anybody for the value of extended life. No money changes hands. But, if it did, it might change the incentives of health care businesses. The predominant payment system is based on fee-for-service and designed to reward providers based on the quantity of services, not on the quality or the outcomes. This system can also lead to (un)intended consequences, including overtreatment. What we need is a fee-for-outcomes system that does not induce excessive services, but excessive years of life!

Is there a business case for actually producing longer and healthier lives? Could a company differentiate itself by demonstrating that it does a better job than its competitors? We do not see evidenced-based research or advertising that says, “Our health plan members live five years longer” or “Our heart attack patients live longer with a better well-being and we can prove it.” Why not? The data is certainly available, but the results may be equivocal. Perhaps marketing based on declarations about “the country’s best doctors and hospitals,” however conveniently defined, gets more traction on driving market share.

Although pay-for-outcomes systems have been espoused for decades, the present approximations include pay-for-performance and capitation. Pay-for-performance programs provide a modest bump in cash for providers that produce services of high quality. Capitation or global payment plans involve a prepaid payment for the care of individuals over a period of time. Under these plans, when the population of individuals in the plan use less services than those that are priced into the premium, the health insurance plan or provider group makes a profit. The theory is that providers would be unshackled from the fee-for-service system and be driven by a business model that provides the right mix of prevention and care that results in fewer services, at less cost, and, maybe, better outcomes. The theory is sound that these approaches should work, but in the real world the adoption of pay-for-performance systems has been low or the potency of the incentives has been insufficient to have a significant impact. Global payment schemes have been discussed for quite some time, are getting more traction, but have not achieved much scale.

For the most part, it is business as usual concerning financial incentives to produce better health outcomes in the form of more years of life. For example, health insurers would make a profit of an average of 5% to 10% on the extra years of premiums charged, which would amount to about $500 per individual per year. Providers would receive revenues for the extra services provided for the extended years of life and perhaps a small pay-for-performance bonus for providing better care. Life science companies would receive revenues for selling more prescription drugs. But none of these revenues would come remotely close to the value of extended healthy years of life for the people receiving them and the society at large that benefits from more productivity and well-being among its citizens.

We put a high value on our healthy years of life. Our health is a very intimate thing. Without good health, “we have nothing,” as the old saying goes. It is difficult to have a satisfying personal and a professional life without good health. We think it is “priceless,” but let’s get specific. At birth, we are given the gift of life. This gift amounts to an average of 79 years for a person born in 2012 with a lifetime value of $5,530,000. For 99.9% of us, it is the most important asset we will ever have.

The health care industry is unique among industries. Its value proposition is to relieve suffering and make people feel better. And there is an implied sacred trust that doctors and hospitals will always act on our behalf with a clarity of purpose to do everything they can to heal us. But, unfortunately, this is not always the case. There are too many wasteful tests; too many deaths and injuries resulting from medical errors; too much marketing to induce people to buy drugs, devices, and procedures they do not need; and too much lobbying to maintain the status quo despite the possible gains for patients from disruptive innovations. Quite frankly, all too often, the health outcomes for people take a backseat to the business needs of the health care industry.

New Pressures on the Business and Analytics

The business of health care has a commanding influence on the economy and people’s lives. Expenditures in 2012 were $2.8 trillion, representing 18% of the economy, and employing over 14 million people.16 Hospitals are often the largest employer in a community and a state. The size of the largest health care businesses is huge. For example, Kaiser Permanente, an integrated delivery system and health insurance plan, has almost 9 million members/customers, 173,000 employees, 16,658 physicians, 37 hospitals, 611 medical offices, and operating revenues close to $50 billion in 2011.17 The largest health insurance company is United Healthcare Group with over $100 billion in revenues.18 The largest life sciences company is Pfizer at $50 billion in total revenues.19 And profits are good from an industry perspective. The industry is ranked fourteenth in profitability among 35 industries. Profit growth has been about 8%.20 Share prices for four of the major insurance companies—Aetna, Cigna, Humana, and UnitedHealth—have more than doubled since 2012.21

But the business of health is under pressure. It might be flatlining. According to U.S. government actuaries, real spending for health care increased a scant 0.8% in 2012, slightly less than the real gross domestic product (GDP) per capita. This follows a few years of growth below the GDP. In contrast, since 1960, health care spending has increased an average of 2.3 percentage points more than GDP growth.22 Convergent data from the Bureau of Labor Statistics shows a drop in health care employment in December 2013, which is the second time this has happened in 23 years.23 Visits to doctors across the United States are dropping on the order of 7.6%.24 And overall prescription drug revenues are declining.25 The slowdown may be just a blip in the relentless upward trend in expenditures. But, it may also signal other fundamental shifts, as discussed below.

In addition to the revenue pressures resulting from the flatlining of health care utilization, there are unrelenting compliance requirements that providers and payers need to respond to, ranging from meaningful use, to performance metrics for readmissions, to consumer engagement and more, as well as numerous regulations under the Affordable Care Act. Many of the compliance requirements have an analytics component that strains existing legacy information systems. The first priority of many provider IT departments is to digitize a wide variety of transactions, most especially the electronic health record, in order to keep up with compliance reporting. Often, the metrics that are adopted, as above, are the ones required by CMS and others. Therefore, branching out into other analytics, such as outcomes measurement, may seem less emergent (although important) and not worth the time, effort, and cost.

Health care analytics tends to focus on business intelligence; that is, providing information to help the business succeed (for example, revenue enhancement, reduction of operational costs, fraud detection, process improvements, compliance requirements, and so on). It has not concentrated on health intelligence. There are understandable reasons for this, not the least of which is the pressure on businesses to make a profit and on analytics to digitize the business and provide information for “today’s needs,” such as compliance.26

Analytics has a lot to offer in the form of health intelligence. It has the capability. Indeed, it has an impressive toolkit, an expanding availability of Big Data sources, and impressive advances in information technology and computational powers. The demand is great in this area, for example, to improve the care for people with chronic diseases. And there is great opportunity for analytics to strut its stuff and provide informational insights for competitive breakthroughs in these health domains.27 But, like horses in a race, it has its blinders on and is driven to win the business race. In so doing, all the air is sucked out of the analytics enterprise and little is left over to support improvements in outcomes.

Change is particularly hard in health care. Nobody wants to rock the boat in a turbulent environment. Every change has consequences.

The biggest obstacle has always been the entrenched way of doing business in the health care industry. As Uwe Reinhardt, the Princeton health policy sage, observes, “Given that every dollar of health care spending is someone’s health care income...there must exist a surreptitious political constituency that promotes...waste.”28

People may rise up and ask, “Why aren’t my outcomes getting better?” and “Why is it that the self-interests of the business of health care are superordinate to earnest consideration of my good health?” An accelerator of this awareness and outrage may be the vastly increased copayments required of consumers from the new generation of health insurance plans. Bronze and silver plans, with $2,500 deductibles as the norm, will make people think about the price and value of the care they receive. It may curb unnecessary use on the demand side (although research has shown that high copayments reduce use of both good and bad services). People may be shocked and outraged at how much they have to pay when they get sick. And, they may ask other questions and want answers about uncoordinated care, excessive testing, emergency room visits that take many hours, inconsistent messages from different providers on the right course of treatment, routine medical errors while in the hospital, the hassle involved in simply signing up for health care coverage, and why their medical networks have been narrowed and their doctors squeezed out.

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