By Nick van Terheyden aka Dr Nick, Principal, ECG Management Consulting
Host of Healthcare Upside Down – #HCupsidedown
Would you buy something without knowing the price beforehand, and agree to pay whatever you’re charged when you reach the checkout? Probably not.
But that’s the way it goes in healthcare. Pricing information for common diagnostic procedures is nearly impossible to find, and there are no refunds once the procedure is done. And with prices that can vary by a factor of 50 or more, the impact on patients’ finances can be unpredictable—and significant.
David Johnson wants healthcare to be smarter, kinder, and more affordable. The author of two critically acclaimed books and the founder and CEO of 4sight Health, Dave believes digital exchanges can disrupt healthcare in the same way they’ve transformed industries such as transportation and hospitality.
“There’s nothing intrinsically different about healthcare that wouldn’t allow that type of business model to disrupt…the monopoly and monopsony market power of payers and providers,” Dave claims. “And it would be a great day for the American consumer when that happens.”
Dave joins us on episode to discuss digital exchange platforms, data liquidity, and the healthcare industrial complex. Here are three takeaways from our conversation.
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Digital healthcare exchanges can level the playing field.
Pricing for routine procedures can be wildly inconsistent. Dave points to data from the state of Virginia, where the cost of a colonoscopy ranges from $200 to $12,000. Those prices, he says, are more a function of market leverage and gaming the system than a true reflection of supply and demand. In his view, digital exchange platforms—the healthcare equivalent of Uber or Lyft in the transportation industry—are the key to improving transparency.
“What exchanges have a remarkable ability to do is to create level-field competition with transparency that will drive the price of a colonoscopy to a market rate, not one that has 50-fold variation,” he says. “So take that example and apply it across routine healthcare procedures, which probably constitute 75% to 80% of what healthcare does, and you begin to get a sense of what the magnitude of impact could be.”
But for disruptive technologies to work, they need access to patient data in a consumable form—which many healthcare organizations have long been reluctant to provide. A concept Dave calls “data liquidity” is critical to the success of digital exchanges. “Data wants to be free and free-flowing,” he says, criticizing organizations that hoard basic patient data. Organizations should be rewarded for “taking that data and creating insights and new ways of doing things that lead to better outcomes and lower prices.”
The healthcare industrial complex looms large.
Advocates for data transparency and organizations looking to disrupt the status quo in healthcare encounter a familiar hurdle—an industry dominated by powerful stakeholders resistant to change. This is what Dave characterizes as the “healthcare industrial complex”—similar to the military industrial complex, but bigger. “That occurs when the different parts of an industry work together with Congress for their own benefit at the expense of greater society,” he explains. “And that has been the primary obstacle to getting rational pricing, rational supply-demand relationships, into healthcare.” The result is that the US pays more per capita on healthcare than any other country, but trails other nations in outcomes and access to services.
Dave thinks that’s changing. “I think the country is figuring this out, and it’s had enough. The good news is record amounts are flowing into private equity and venture funding to support companies that are starting to do some of these kind of exchange-like mechanisms,” he says. “I think the provider systems that recognize that they need to get on board the value train—better outcomes at lower cost—will ultimately be the winners, and that continuing to cling to an artificial fee-for-service payment model just isn’t a long-term strategy for success.”
True change requires a one-two punch of disruption and regulation.
While Dave is optimistic that change is coming, he’s quick to acknowledge that the market can’t do it alone. A combination of disruption and regulation is what will prompt the industry to evolve. The most notable recent disruptor, of course, has been the pandemic. Devastating as COVID-19 has been, it’s forced payers and providers to rethink care delivery—and opened patients’ eyes to the benefits of a competitive healthcare marketplace.
Dave cites hospital-at-home as one example. “We’ve known since the 1970s that hospital-at-home costs less money, patients recover faster, there are fewer complications. They enjoy being surrounded by friends and family,” he explains. “And yet, it wasn’t until the midst of the COVID crisis last November that Medicare said, ‘OK, we’ll pay for a hospital-at-home visit for the same way we would a hospital visit.’ And suddenly that market has exploded.”
Government involvement is necessary for creating a level playing field, Dave says, and he points to recent regulatory changes that are gradually taking effect. “Absent COVID, the two biggest stories of 2020 would have been the interoperability regulations, which are forcing the EHR providers, among others, to give up basic patient data so these innovative companies can use it and create solutions. And then the transparency information on hospital insurance company prices is kind of embarrassing everybody,” he claims. “Data interoperability and pricing transparency are two of the ways that you start to get that level-field, competitive market environment that I believe needs to be the basis of market-driven reform.”
About the Show
The US spends more on healthcare per capita than any other country on the planet. So why don’t we have superior outcomes? Why haven’t the principles of capitalism prevailed? And why do American consumers have so much trouble accessing and paying for healthcare? Dive into these and other issues on Healthcare Upside/Down with ECG principal Dr. Nick van Terheyden and guest panelists as they discuss the upsides and downsides of healthcare in the US, and how to make the system work for everyone.
This article was originally published on the ECG Management Consulting blog and is republished here with permission.