Simply reducing health care costs in the United States isn’t enough, says health care consultant James Orlikoff. The country must reverse its rate of health care cost growth – or watch its economy collapse.
“Bending the cost curve will be insufficient; we need to break the cost curve,” Orlikoff, who is president of a consulting firm specializing in health care governance, quality and organizational development, told University of Utah health care doctors and administrators. The country is at a crossroads of demographic, macroeconomic and global trends, any one of which would be revolutionary on its own, he stressed. Together, they’re a storm of undeniable market forces that will create health care industry change – whether providers like it or not.
“The economy is facing a question: Protect and preserve the health care system at the possible expense of the American economy, or protect the economy at the expense of the health care system? Which do you think the market will choose?” Orlikoff asked the crowd.
Unsustainable health care costs
The urgency in Orlikoff’s message comes down to one factor: the relationship between the rate of health care cost growth and the rate of economic expansion. For the past four years, Orlikoff said annual total health care spending actually grew about 4 percent, the slowest annual pace in more than five decades. As a short-term trend, that seems promising. Don’t be fooled, he warned.
The recent decline in health care spending was partially fueled by a decrease in demand for inpatient services since the beginning of the recession. Assumptions that the health care industry is recession-proof were laid bare. “People may always get sick and may always need health care; but the recession showed they won’t always go,” Orlikoff said.
More importantly, even at that 4 percent rate, the lowest rate of growth in more than 50 years, health care costs still grew four times faster than the country’s rate of economic expansion. “It doesn’t matter how fast health care rates are growing,” Orlikoff said. “The only thing that matters is the rate of health care cost growth relative to the rate of economic expansion.” Markets don’t care about health care or fairness; they demand a product or service at the highest quality needed for the lowest price. “This is why they call economics the dismal science,” Orlikoff added.
To put America’s health care expenditures in perspective, Orlikoff said, consider this: If the growth in the cost of Medicare were to come down to an annual rate of 1 percent more than the economy’s growth, the projected long-term U.S. budget deficit would fall by more than one-third. If it dropped to 1 percent less than GDP, the country could eliminate the federal debt in five years. “Name one other thing that could get rid of the debt in that time,” Orlikoff challenged.
Race to compete
To balance health care spending with economic growth, Orlikoff said market forces will require providers to have better quality care at lower prices–or go out of business. One such example of market pressures Orlikoff said is Walmart’s new insurance plan. Walmart researched health care providers around the country, asking for demonstrated outcomes and low costs, and chose the six best health systems to provide heart and spinal surgeries for its 1.1 million U.S. employees. While Walmart’s employees can still choose any provider, only the ones that made the preferred list have their costs, including sometimes transportation across the country, covered in full. And Walmart’s not alone: Other large employers, from box stores to school districts, are making the same changes.
Health care providers that continue to attract commercially insured patients in this competitive environment will be the ones that succeed. “That’s the race that you’re in,” Orlikoff said. “And if everyone else is doing that, and you’re late to the party, everyone else will have filled their excess capacity by their demonstration of value and it will be very challenging for you to succeed.”
Orlikoff challenged providers to become transparent and data-based, fully aware of their costs and quality. Only then, he said, can they demonstrate their value and become more efficient.
“The market is going to force transparency and data exchange,” Orlikoff said. “How does that affect viability? It rips open your kimono and thrusts you naked in front of the American public. And if you’re going to be naked, you better be buff.”
Keriann Lynch Strickland is managing editor at Alliance Health Networks and adjunct communication instructor at the University of Utah.