From Volume to Value: The Changing Economics and Regulations of Healthcare

Bellevue, WA—Numbers might not lie, but that does not mean they are here to reassure us either. In fact, when one is talking about the marketplace of healthcare, the numbers can be downright terrifying. According to a presentation at the National Organization of Rheumatology Managers (NORM) 2015 annual meeting, the United States spent $2.7 trillion on healthcare in 2011—an investment that is yielding diminishing returns, while our national debt continues to soar.

“The US government is broke,” said Larry Van Horn, PhD, MPH, MBA, Executive Director of Health Affairs at Vanderbilt University Owen Graduate School of Management in Nashville, TN, “and now more than 50% of healthcare is dependent on government financing. The US citizen has an overinflated perspective on the value of healthcare with unrealistic expectations….Changes in the private employer–based insurance market will be more important than the Affordable Care Act [ACA].”

Lack of Individual Ownership

The great undoing, Dr Van Horn explained, began about 25 years ago—the growth of health maintenance organizations ruined price sensitivity with comprehensive health benefits and the creation of copays.

“Today, if you ask someone how much it costs to go to a provider, they will tell you $10 or $20,” said Dr Van Horn, “but that’s completely divorced from the actual cost of care….There is a disconnect between what providers define as value and what patients define as value.”

The copay model, said Dr Van Horn, has encouraged a lack of individual ownership over health, leading to daily healthcare transactions that are value-destroying. In other words, Americans are poorly financially incentivized to make positive health decisions.

“I spend less out of pocket to take my kids to the pediatrician than my parents did 40 years ago,” said Dr Van Horn. “My grandma lives in a nursing home—a state responsibility rather than my family’s. Meanwhile, I have a BMI (body mass index) of 30 and take 6 prescription drugs per day.”

To make matters worse, Americans have a misplaced faith in the power of physicians. Hospital errors, Dr Van Horn noted, are the third leading cause of death in the United States. New research estimates that up to 440,000 Americans are dying annually from preventable hospital errors, underscoring the need for patients to protect themselves and their families from harm.

Return of the Healthcare Consumer

Although a recent slowdown in health costs has provided some overall relief to the federal budget, the cause of this slowdown remains unclear. In Dr Van Horn’s opinion, the real shift will come from the demand side of the market because of changes in patient cost-sharing and higher deductibles. “Providers thought that the ACA would expand coverage and turn bad debt into compensated care,” said Dr Van Horn, “but it has accelerated changes in the employer-sponsored market. This is where the major action is—145 million covered lives.”

Cost-shifting in employer-subsidized insurance will pull back on demand, he explained, as higher deductibles alter purchase decisions. All of which is to say that “the healthcare consumer is back for the first time in 40 years.”

Dr Van Horn envisions a near future in which healthcare options proliferate as price and access become paramount. There will be innovation in the locus of care delivery, he predicts, from retail medicine to Walmart to smartphone-enabled solutions. And finally, the return of the healthcare consumer will lead to greater transparency around what exactly is being purchased.

“Patients will no longer be willing to wait 45 minutes to spend $250+ on a well-child visit,” he concluded. “We’re about to witness a great payment shift—the move from volume-directed care to value.”

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