- From alternative payment models and value-based purchasing to artificial intelligence and data analytics tools, the healthcare industry is transforming how care is delivered and paid for to reduce constantly rising medical costs. While payment reform and health IT bring promises of reduced costs and increased productivity, can these efforts truly bend the healthcare cost curve?
For Kaveh Safavi, MD, JD, Senior Managing Director at the global consulting firm Accenture, the answer is no. The real solution lies with transforming how the healthcare industry views its workforce.
“If you look at the research, the single most important driver of healthcare cost over time is the cost of human labor and experts. Healthcare is a labor-based model,” he said. “For every country in the Organisation for Economic Co-operation and Development, whether it’s the US or the average, which is half the US, or even one-tenth, no matter how much they spend on an absolute basis, their healthcare costs grow one to three percent past their GDP.”
In the US, the healthcare spending growth will outpace the average estimated GDP growth rate by one percentage point, the CMS Office of the Actuary recently reported. As a result, national healthcare expenditures will account for almost 20 percent of the economy by 2026.
The constant growth of healthcare costs can be attributed to the cost disease theory created by economist William Baumol, Safavi explained. “He said healthcare and education are labor input models. No one is ever going to take those two things away.”
“If we can’t figure out how to solve this problem using the productivity mindset the way other industries have, we’re never actually going to change the curve.”
As Safavi pointed out, healthcare stakeholders have yet to approach the healthcare cost conundrum with a productivity mindset. Rather, stakeholders approach the problem by developing strategies to reduce the number of services performed, prevent consumers from seeking unnecessary medical services, and implement other waste-cutting initiatives.
“In healthcare, our argument has been, ‘How do we get waste out of the system?’ But even if we do it perfectly, we don’t actually solve the problem,” he remarked.
Only about 20 percent of waste in the healthcare system stems from overtreatment, administrative complexity, pricing failures, fraud and abuse, and failures of care coordination and care process execution, according to a JAMA study by former CMS Administrator Donald Berwick, MR, MPP, FRCP.
“So, if I wipe all one hundred percent of that tomorrow and I get the prices down to European prices, it’s still going to grow one to three percent past the GDP,” he explained. “For the remaining care, you haven’t changed the problem and that’s one of the challenges we have. There’s no payment model answer because this phenomenon exists in every country, public or private, fee-for-service or non-fee-for-service.”
To truly reduce healthcare costs, stakeholders need to start viewing the cost challenge in terms of labor and productivity, not how many items are used or services provided.
“Henry Ford didn’t ask, ‘How do I make sure that the guys in the assembly line waste fewer screws,’ which is the approach we use in healthcare. Instead, he asked, ‘How do I do this with one-tenth to one-twentieth or fiftieth the number of humans necessary to do the work because that changes the economics?’ It’s a mindset issue. We haven’t even begun to think about it that way,” Savafi said.
Healthcare stakeholders should start to focus on the doctor’s time as a means to bend the healthcare cost curve. And their priority should be to shift work to a less expensive person, like the patient or a machine, he advised.
Adding self-service technology and artificial intelligence will help provider organizations to transition part of the clinical encounter to the patient or a machine.
However, shifting labor and productivity to a machine does not mean allowing health IT systems to take over the clinical encounter, he warned.
“Start thinking about technology that allows a doctor to serve many patients simultaneously or self-service models,” he suggested. “Or start thinking about using AI in healthcare in the non-clinical components of care, for which there’s a tremendous amount of cost absorbed in healthcare services that aren’t the doctor’s judgment, including where patients are, workflow, payments, the organization, and scheduling. There’s a ton of things that you can begin to think about technology replacing or making people more productive.”
Healthcare technologies and self-service systems should add to the clinical encounter by taking some clinical and clerical responsibilities off the provider, so he can focus on the patient, he continued.
Artificial intelligence tools and other health IT systems should be there to perfectly execute a clinical encounter, checking off boxes and ensuring all necessary exams are performed. This gives providers the freedom to hone in on the context of a visit.
“Context is actually very interesting because what we’ve discovered is that listening to a conversation and how somebody talks about things like how much money they have, whether they have food, and those things matter a lot in their care,” Savafi stated. “Doctors actually do a really bad job of that today. But what is going to happen is that that is going to be the most important part of their job because the other stuff is the part that they share with a machine, and it’s not an all or none. It’s a human-machine pairing that we see as being the issue.”
Understanding the context of a clinical encounter can save the healthcare industry significant dollars while improving outcomes. About 85 percent of primary care providers and pediatricians in a national survey said patient health is attributable to social determinants of health, such as housing, educational level, and food security, research from the Robert Wood Johnson Foundation shows.*
These factors are also responsible for about one-third of all patient deaths, the National Institutes of Health reports.
Simply connecting patients with a program that can address specific social determinants of health, like the Supplemental Nutrition Assistance Program (SNAP) or a permanent housing initiative, can reduce healthcare costs. For example, SNAP enrollment resulted in nearly $19 million in cost savings in 2012 because patients used fewer expensive hospital and nursing home services, a recent study revealed.
Pairing doctors with technologies that can supplement the clinical experience can also help to address the growing physician shortage, Savafi added.
“The World Health Organization published this study that said by 2030, there will be an 18 million person healthcare worker shortage globally,” he said. “Some people think of that in terms of developing countries, but it’s actually a big problem in developed countries, too.”
The US is slated to be short of up to 104,000 physicians by 2030, the Association the American Medical Colleges (AAMC) recently projected. And the shortage is likely to persist as Baby Boomers age and providers achieve population health outcomes.
“That’s an interesting problem because that’s not a payment model problem. That is a physical impossibility,” Savafi stated.
“We’re going to have to figure out a way to do the work with relying on fewer people to do the same amount of work. The role of these technologies will be creating productivity, but not because it’s going to create surplus labor. It’s actually going to close the gap between supply and demand. If we don’t do something to close the gap between supply and demand, we’re going to have even greater access problems, and, so, the productivity model gets expressed as our society’s ability to serve more people without adding more human caregivers to the mix.”
Therefore, addressing productivity and labor should be a top priority for healthcare leaders. While payment reform and health IT implementation are important strategies for bending the healthcare cost curve, using these strategies to improve productivity and labor will be the true key to unlocking the door to lower costs.
*CORRECTION: Previous version of this article stated, "About 85 percent of patient health is attributable to social determinants of health, such as housing, educational level, and food security, research from the Robert Wood Johnson Foundation shows.”