What is the Future for the US Health Care Industry?

I have been an International Employee Benefit and Health Care consultant with some of the world's leading global consultancies. I have also been working on US Health Care reform for over 20 years. I have lived and worked in a number of countries around the world and I have also been an Executive Compensation consultant to a number of US hospitals.

The brief report above was recently produced by McKinsey and Co, one of the world's top management consultancies.

McKinsey states-"Experts agree that our health care system is riddled with inefficiencies, excessive administration expenses, inflated prices, poor management and inappropriate care waste and fraud."

 

No other country is perfect but we are twice as expensive as most other major countries that provide Universal Health Care which we do not. All the other major countries regulate their Healthcare Systems.

The World Health Organization ranks our Health Care System 37th just below Costa Rica. France is first, UK 18th and Canada 30th.

In particular our administration costs are incredibly high and Healthcare Reform offers a great potential opportunity for Healthcare Business Process companies such as ACS, just being purchased by Xerox, Accenture, IBM and Cap Gemini.

 

1- Competition in healthcare does not result in lower costs.

Cosmetic and Lasik Surgery are frequently quoted as the model for how competition lowers costs in healthcare. In these markets the consumer makes the decision to buy and has adequate information on costs and credentials to be an informed consumer and competition has controlled costs.Normal healthcare does not fit this model.

If you go to the ER with palpitations Physicians make the decision on what you will buy and who you will buy it from. The first thing you know about costs is when you receive the bills. The costs that you will be charged are arbitrarily based on profit motives and cost shifting to regulated payments under Medicaid and Medicare.

Competition does not control costs as the demand is not driven by an informed consumer it is driven by the seller. Other countries regulate pricing and physician and hospital participation in their Universal Healthcare Systems, many do have "for profit" "Top up Systems" that people can buy into.

Hence costs in the US have escalated 130% in the last 10 years to $2.5 trillion and McKinsey forecasts $4.4 trillion by 2018, more than double 2007.

The current average cost of family Healthcare coverage is $13,000 a year. It is on track to be $20,000 in 5 years. This cost is increasing taxes, reducing businesses profit, causing more layoffs and off-shoring, reducing consumer spending and creating more bankruptcies.

2 - Other countries have Healthcare Systems that more effectively meet the people's needs with high productivity and much lower costs than the US because they work as Integrated Delivery Systems.

Our Healthcare resources are based on profit performance and the need to compete with each other. This leaves huge gaps in their ability to meet the populations needs. In Georgia for example 700 people die every year because they cannot get to a Trauma Center in time. There is also very poor productivity as competing hospitals all seek to have the latest facilities and equipment which is poorly utilized.

Healthcare Systems have many components that must all work together to cost effectively meet the diverse needs of the population based on demographics and geography.

This means that there must be a comprehensive Integrated model for the System that includes everything from healthcare education, preventative medicine, the role of the Primary care physician, location of Trauma Centers and  hospitals that act as Centers of Excellence for specific conditions(Cancer, Spinal, Cardiology, Burns, etc.), These centers are very cost effective as they have highly utilized resources and equipment. The reason that there are waiting periods in some countries for non-essential treatments is that the resources are highly utilized. The result is of course much lower unit costs.

The other critical aspect of an effective Integrated Healthcare Systems is efficient information sharing and administration system through a consistent Management Information System. About 20% of US Healthcare costs($500 billion) are used in administration 3 times that of most other countries.

We have a Healthcare System designed to maximize profit not to meet the peoples' requirements.

The US has however a track record as the world's leader for developing innovations in Health Care because we give the biggest return on Health Care R&D dollars as prices are unregulated. The people of the US are in fact subsidizing other countries regulated healthcare Systems through the benefits they get from US innovation. The question is, "Is limiting innovation(some of which is aimed at maintaining profitability through "reinventing" similar drugs) justification for resisting regulation?"