Insights from the 15th Annual Health Care Leaders Conference

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Andrew Lindner

Andrew Lindner

Managing Partner

October 17, 2017
Thought Leadership

As a growth equity investor, Frontier Capital has a front-row seat to the innovation in healthcare technology, but it’s just as important to have a 30,000-foot view of the overall system. Earlier this month I had the pleasure of hearing Dr. Toby Cosgrove, the much decorated and insightful Chairman and CEO of The Cleveland Clinic, at the 15th Annual Healthcare Leaders Conference in Dallas. He offered his thoughts on the state of the U.S. healthcare system, delivery of care, regulations and more.

Below are a few of Dr. Cosgrove’s insights on the state of our healthcare system and my own observations on what this means for the rest of us.

  • Affordable Care Act – The numbers reflect that more Americans are indeed covered by health plans than pre-ACA. This is an immutable fact. However, overall healthcare costs have not declined; in fact they continue to climb.  Some of it is due to demographics, such as the aging of baby boomers. Some is due to new, expensive technologies that extend life and ameliorate disease. But a lot of the increases are still reversible. How? Making the actual care for the sick more efficient through awareness among medical staff of resource saving (yet simple) habits and techniques. Another enormous opportunity lies in educating and incenting Americans to become healthier. Amazingly, 70% of Americans are overweight and one-third are obese. This alone results in 10% of all healthcare expenditures in the U.S., yet the federal government continues to maintain policies such as subsidizing the production of sugar. Sixteen percent of Americans still smoke. This year more people will die of opioid overdose than the total deaths in the entire Vietnam war. Providers and the government need to address the practice of casually overprescribing opioids, which often leads to disastrous consequences.
  • Pharma – The cost of prescription drugs continues to increase in double digits every single year and is not sustainable. The American consumer is beginning to revolt, Dr. Cosgrove predicted that if the pharma industry doesn’t control itself, the government will through massive regulation. Furthermore, U.S. consumers are carrying a disproportionate share of the cost of developing new drugs. He cited a drug which costs $80,000 per treatment in the U.S. and $800 in Egypt.
  • Interoperability – This is still a huge problem creating tons of waste and operational inefficiency. Another speaker, whose business is providing second opinions in complex medical cases, pointed out that 75% of the company’s effort is spent simply gathering the medical records from disparate systems in order for the physician to offer his opinion. The vendors themselves are not helping the problem, (witness Epic’s refusal to share data with other platforms) and the solution again is likely to come from the top in the form of federal mandates or incentives.
  • Single-Payer System – As the bureaucrats in Washington bicker and debate this issue of a healthcare system financed by the government (the “single-payer”), it is actually happening naturally. At the Cleveland Clinic for example, 62% of all patients are either self-pay or covered by a government payer of some kind, and this number is quickly going to 70. Single-payer is happening on its own.

I have seen wide-ranging and conflicting reports of where the U.S. ranks globally in the quality of healthcare, but there is little debate that the cost of our system is the highest in the world and rising. So what can be done about this? In my opinion, three things: targeted policy, investment, and shifts in societal mores.

1.  Targeted Policy – There is certainly not a lack of regulation in the U.S., but we haven’t yet addressed the right target. Rather than incentivizing providers to increase care a la a fee-for-service system, we need to continue to develop policy that transitions us to a value-based approach where the provider of the care has tangible incentives to adopt efficient practices, such as choosing medical devices and prescriptions based on the clinical effectiveness and relative cost. Interoperability also remains a huge drag on our system. We have interoperability in other standards in the US, such as the clearing of financial transactions but not so with healthcare data. The federal government achieved the goal of digitizing medical records via “Meaningful Use” incentives – they should now liberate all of that data and reduce the friction of its movement via similar incentives for adopting interoperability standards.

2.  Investment – There has been a lot of investment in innovative solutions, particularly in the employer-sponsored healthcare segment, and we need to continue to expand this. For example, the employer sector has led the way in areas such as incentive-based wellness programs, which are now starting to take hold in the provider and government world. Employers have the right set of incentives, i.e. keeping employees healthy (wellness), directing them to a lower-cost care setting (telehealth) and adding individual responsibility to the equation (high-deductible plans). It is our duty to keep funding solutions that improve health outcomes and lower cost for employers, and eventually the rest of the system will follow.

3.  Societal Mores  –  Even with the most thoughtful of policy and investment in innovation, perhaps the most stubborn roadblock to healing our healthcare system are society’s lingering attitudes and mores. For example, mental health is a huge problem, both sociologically and financially, directly or indirectly costing the system countless billions of dollars each year. Researchers have proven the co-morbidity and causality between mental and physical health (did the patient become obese and develop Type II diabetes because he is depressed, or is he depressed because he is diabetic?). Fortunately, due to public service initiatives and advocacy among caregivers, social mores are beginning to change, and the stigma attached to mental health is eroding. As a result, this important and costly epidemic is coming out of the shadows and being treated.

The U.S. healthcare system isn’t completely broken, it is just inefficient and too costly. The public sector can help with policies, such as health record interoperability and the private sector can assist by investing in innovative solutions promoting healthy and cost-effective behaviors among employees and their families. Societal changes will follow as we have seen in the decline in smoking, and more recently with attitudes around mental health. The good news is the conversation about improving the efficiency of the U.S. healthcare industry has begun, and while it won’t change overnight, it is definitely changing for the better.


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