US Healthcare has so much potential, yet, it remains a super-fragmented, inefficient, and often unjust system. In sum, it’s broken in many places.

In the fall, I facilitate a graduate-level course where we try to grok the root causes of an industry which is 1/5 of the economy, and by some estimates, 1/3 of it is waste. How can that be? For Emory MBA and MPH, please register for OAM 506, Monday nights 630-930. See you there.

US Healthcare = Strange Start

The healthcare ecosystem in the United States is complex, cryptic, and changing. The current system has its origins during World War II, when companies used employee-sponsored insurance (ESI) as a way to incentivize workers during the government’s wage caps.  Since the government does not tax ESI, this has been an incredibly tax-efficient way for companies to transfer value to employees. From that ostensibly logical beginning, the system has grown; now over 55%+ of the US population receiving their healthcare coverage from their employers. Among the OECD countries, only Japan has a notably similar system.

Continuous National and State Reform

Since then, there has been a continuous slate of national and state-level reform.  In 1965, President Johnson and the Congress made amendments to the Social Security Act, creating public health insurance for the elderly (Medicare) and the poor (Medicaid).  More programs in the 1990s (CHIP), expansion of coverage (Medicare part D) and state-sponsored reform (Massachusetts) in the 2000s, are just a few examples of US healthcare systems’ complexity.

Evaluate with the Triple Aim: Quality, Access, Cost

When evaluating the US healthcare system through a reductionist lens of the triple aim (quality, access, cost), the country’s performance has been poor.  As a whole:

• Quality: There are large disparities in health outcomes for Americans depending on insurance status, race, income, and location. As a paragon of extremes, the US offers some of the most advanced technologies, therapies, and skilled practitioners, while also having life expectancies at birth below the OECD average. (1)
• Access: Roughly 1 out of 12 Americans are currently uninsured, often forgoing preventative care, and instead relying on the safety-net system of last resort. (2)  Perhaps more alarmingly, more than a quarter of all Americans remark that they “encounter difficulty accessing the healthcare system”. (3)
• Cost: The United States spends approximately 17%+ of the national gross domestic product, or $9,000 per American on healthcare.  It is one of the fastest growing industries over the last 30 years, and one of the most wasteful; by some estimates, a quarter of health care spending is wasted. (4)

Not a free market

The US healthcare ecosystem is not a free market in the traditional sense. The federal and state governments play an active role in legislating and regulating the market. Likewise, non-governmental organizations lobby for policies and reforms that support their interests.  As a simple data point, 2/3 of hospitals are either public or not-for-profit. (5)  As such, this course looks to apply more nuanced application of core business-school precepts of supply / demand, consumer willingness-to-pay, competition, value chain, and strategy.

Massive sub-optimization

To many observers, the US healthcare system is a classic situation of sub-optimization; different groups of independent participants (hospitals, physicians, medical device companies, insurers) respond to incentives and optimize their own piece of the puzzle.  As with most complex problems, there is not a simple answer. There is not “one strategy”. Instead, one of the key questions which we will be continually asking throughout the course will be, “Whose strategy?”

Whose strategy?

• Delivery system and professionals?
  • Hospitals, skilled nursing facilities, ambulatory surgery centers
  • Managed care providers (HMO, PPO)
  • Physicians, nurses, healthcare practitioners
• Insurance companies and payers?
  • Public: Medicare, Medicaid, Tricare
  • Private: Blue Cross Blue Shield, United Healthcare, Humana
• Research, Drugs, and Devices?
  • Medical device, technology providers
  • Pharmaceutical, biotechnology
  • Distributors, pharmacy benefits providers

Strategy = creating a sustainable competitive advantage

Finally, this class is a strategy class. Students will be able to build on the economic principles and business foundations gained from their core classes and other healthcare electives.  This course takes the perspective of the general manager, the strategist, who is looking for ways to create a sustainable competitive advantage by making deliberate choices for either cost leadership or differentiation.  The course will revisit many of the fundamental strategy tools and frameworks and apply them entirely within a healthcare industry context. It is strategy, applied to healthcare.

Posit: We need more collaboration, not competition

Please break into pairs and discuss. . .

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(1) Organization for Economic Co-operation and Development, Health Statistics, 2018 (4MB download, excel)

(2)NBC News, January 2018

[(3)Elisabeth Askin MD, Nathan Moore MD, The Healthcare Handbook, Washington University Press, 2014 (affiliate link)

(4) NPR, A Prescription to Reduce Waste in US Healthcare, December 2017

(5) American Hospital Association, Fast Facts on US Hospitals, 2018