MX: Rx for Healthcare

Now what?

Many critics say the United States simply can’t afford such an expensive program, and they may be right. The healthcare bill focuses primarily on access and insurance reforms but does very little to address the underlying costs and structural issues that have kept the healthcare inflation rate two to three times higher than the rate of overall inflation for two decades. Adding 32 million insured people will place additional stress on a system that was already on pace to grow from 16.2% of GDP in 2009 to more than 19.5% by 2017.

Healthcare is the single largest drag on corporate America’s prosperity. In fact, the United States spends a greater percentage of its gross domestic product on healthcare than any other country by nearly a factor of two, yet it ranks only 25th in global life expectancy. A report released recently by the Commonwealth Fund, a Washington-based foundation focused on improving healthcare, said the U.S. ranked seventh out of seven in overall healthcare system quality and efficacy. That places us behind Australia, Canada, Germany, the Netherlands, New Zealand, and the United Kingdom.

Business and government will be soon forced to confront significant change. Rationing of care, while sometimes discussed, means accepting a financial model designed to let some people die. Americans won’t accept that as an outcome, but it’s clear that the U.S. must devise a remedy that that goes beyond the provisions in the new healthcare legislation.

That solution must be the implementation of more productive and efficient healthcare. Both the private and public sectors must cut costs, improve quality, and realign incentives across payers, providers, and patients. As reform moves from policy to practice, it is more critical than ever that medical device manufacturers and other elements of the healthcare industry finally embrace the productivity reforms that have transformed almost every other American industry, including much more aggressive implementation of information technology. Ultimately, significant new healthcare regulation will spark a new “industrial revolution” in healthcare delivery.

Need for Educated Consumers, Providers
 

Critical to the success of innovation will be the broad-ranging education of both consumers and providers. Consumers must learn to actively manage their own care, which substantially mitigates big health problems later, and they must be provided with the tools and incentives to do so. Some believe consumers aren’t smart enough to oversee their own healthcare, but that is simply not the case. One example of consumers’ skill at making the best decisions is shown by their extensive use of the Internet to acquire healthcare information. The problem is that this information isn’t customized, is often unearthed too late, and, depending on the source, can be completely inaccurate.

Through the creation of personalized channels of information and improved consumer education about personal health records, social media outlets, and other modes of communication, consumers can begin to “own” their healthcare in the same way that they own responsibility for every other part of their financial and social lives. It is essential to put consumers squarely in the middle of clinical decisions because their historic lack of understanding of the cost and consequences of the care they receive is a key cause of stress on the healthcare economy. Fortunately, when patients are presented with all of their options in a clear and comprehensive way, studies have shown that their choices overwhelmingly favor the least costly and more productive interventions.

Doctors and hospitals must also have access to high-quality, timely information about the validity and relative effectiveness of the treatments they prescribe. It has been estimated that up to 40% of patients do not receive care in lockstep with current scientific evidence and that 25% of the care that is provided is unnecessary or potentially harmful. In addition, multiple modes of treatment are practiced without sufficient evidence about which one is best for a particular patient. All this falls well short of what the standard should be for quality healthcare delivery. Doctors and hospitals must make the commitment to determine what works best for individual patients, then rapidly disseminate information about best practices to physicians to improve our healthcare system.

Here are five additional areas of the healthcare economy that are especially ripe for implementation:

Time for ‘Change Agents’
 

Achieving this healthcare revolution will require serious consumer engagement and a real partnership between business and government. It will also require an end to the ongoing acrimonious debate over healthcare reform. There are no devils in healthcare—only a worn-out, broken system.

On the bright side, this is an exciting time for innovators in the new healthcare economy. The Patient Protection and Affordable Care Act, imperfect as it may be, creates significant impetus to develop ideas and technologies that will improve our healthcare system. The federal budget deficit and other economic pressures place even greater focus on the need to address the rising cost of U.S. healthcare. The market is especially ripe for new business models and innovative solutions that simultaneously improve healthcare delivery quality and reduce costs.

What the market is seeking is change agents, or “first movers,” and pioneering companies that enhance value and efficiency. Innovation will be driven by smaller companies and private ventures, which can afford to make riskier long-term investments. Later, mainstream providers and payers will adopt the innovations as the only way to achieve the dual and consistent goals of cost reduction and quality improvement.

Failure to invest in the innovations required to cure our healthcare system’s ills is not an option. Absent healthcare innovation, we may be tempted to enact a single-payer system, which is used by many countries with lower overall costs than those in the United States. The single-payer approach is effective at rationing care and lowering the baseline costs of national healthcare. It does not, however, address the underlying drivers of medical inflation. Every country that has adopted a single-payer approach is experiencing a healthcare inflation rate similar to or greater than the rate we are battling in the United States. These countries are also lagging behind other parts of the world in fostering innovation.

Ultimately, the United States will straighten out its healthcare plight. This is another unfolding chapter in the ongoing story of America’s history, which is one of solving serious problems and renewing the country through industrial innovation and public-private partnerships that foster growth.

Stephen Krupa is a cofounder and managing member of Psilos Group (New York), a venture capital firm that invests in healthcare services, healthcare information technology, and medical technology companies. Krupa can be reached at 212/242-8844 or [email protected].