As we reported earlier this week, the editors of Health Affairs published in their July issue the latest estimates of U.S. healthcare spending, developed and revealed by the actuaries of the federal Medicare program. As our news article noted, in an article entitled “National Health Expenditure Projections, 2015-25: Economy, Prices, and Aging Expected To Shape Spending and Enrollment,” the authors (Sean P. Keehan, John A. Poisal, Gigi A. Cuckler, Andrea M. Sisko, Sheila D. Smith, Andrew J. Madison, Devin A. Stone, Christian J. Wolfe, and Joseph M. Lizonitz), predicted that the percentage of the gross domestic product (GDP) spent on healthcare every year across the U.S. healthcare system will grow from 17.5 percent in 2014 to 20.1 percent in 2025, with total spending rising from $3.3013 trillion in 2014 to $5.631 trillion in 2025. That figure adds to the estimates that the Medicare actuaries had predicted in October 2014; back then, the actuaries had predicted that annual healthcare spending would reach $5.1588 trillion in 2023, and 19.3 percent of the nation’s gross domestic product.
This time around, the Medicare actuaries noted that, while the passage and implementation of the Affordable Care Act (ACA) had initially held down healthcare spending, “increases in economic growth, faster growth in medical prices, and population aging are expected to be the primary drivers of national health spending and coverage trends over the next decade.” Anyone who’s been following these trends for some time will note that every one of those factors is very difficult to bend the curve on, and all are immensely complex phenomena.
But let’s go back to the marquee numbers here, shall we? Because, seriously, anyone who isn’t astonished to see or hear or the figure of $5.631 trillion—yup, that’s trillion with a “t”—isn’t fully awake.
What the Medicare actuaries are saying is that, within the span of 11 years, beginning in 2014 and ending in 2025, total U.S. healthcare spending will have increased by nearly 70 percent. That’s right—nearly 70 percent. And that’s huge—really huge.
The reality is that our nation’s total healthcare spending—federal, state, and private, with a tiny fringe of self-pay—is already on the edge of unsustainability, at current rates of spending. Even Medicare and Medicaid (which is in fact 50-plus Medicaid programs, plural) are already too expensive; specifically, Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and Affordable Care Act (ACA) marketplace subsidies together accounted for 25 percent of the federal budget in 2015, or $938 billion out of $3.7 trillion of federal spending, according to the Center on Budget and Policy Priorities, while Medicaid spending on the part of all government entities in the US. was $492.3 billion in fiscal year 2014, according to the Kaiser Family Foundation.
And now, with the aging of the population and an explosion in chronic illness nationwide, the numbers are set to get bigger—and bigger—and bigger. Seventy percent bigger within last than 10 years from now. So what do we, as a country, do about that?
One major breakthrough that partly bent the cost curve in the past few years was the passage of the Affordable Care Act, which has given more than 12 million more Americans reliable health insurance, and has already, at least temporarily, bent the healthcare inflation curve—unsurprisingly so, since many of those millions of uninsured ended up accessing care in hospital emergency departments, resulting in pain and suffering for those Americans, and in unnecessarily inflated costs for everyone, as ED care at unnecessary and avoidable levels of acuity, is bad for all of us.
On a more comprehensive level that involves the conscious manipulation of the healthcare payment system in order to force change, the Affordable Care Act, as well as the MACRA (Medicare Affordability and CHIP Reauthorization Act of 2015), and a few other pieces of legislation, have set into motion tremendous change, including a massive shift away from uncontrolled, unmanaged fee-for-service, and towards value-based care delivery and purchasing under the Medicare program, and, inevitably through imitation, among private health insurers as well. And therein lies one of the main answers to what we as a country might be doing, since we’re already doing it; and that is, massive internal healthcare system reform. Avoidable inpatient readmissions? Penalized. Poor outcomes and inefficiency? Docked. Pure physician fee-for-service payment? Banished. And, with the meaningful use program under the HITECH Act (the Health Information Technology for Economic and Clinical Health Act)—the physician portion of which will now be shifted to a new set of requirements under MACRA/MIPS (the new Merit-based Incentive Payment System for physician payment under Medicare), further levers have been put in place to compel hospitals and physicians forward towards automation, in order to further improve efficiency, effectiveness, and cost savings in U.S. healthcare.
Further, with the very strong pronouncements from Health and Human Services (HHS) Secretary Sylvia Mathews Burwell, and Acting CMS (Center for Medicare & Medicaid Services) Administrator Andy Slavitt, and other federal healthcare officials in recent months, to the effect that they want the bulk of Medicare payments to come from value-based reimbursement and from alternative payment models (APMs), the feds have most certainly made it clear where we as a healthcare system must go.
It's all very logical; indeed, it would be impossible to argue with the broader logic involved, given the cost cliff we as a country are rapidly heading towards. The true set of challenges, of course, is in the doing.
And that’s where that $5.631 trillion figure meets the day-to-day working reality of CIOs, CMIOs, and other healthcare IT leaders, in medical groups, hospitals, and health systems. Because, in order to bend that five-and-a-half-trillion-dollars-plus annual expenditures curve even a little bit, will require a massive investment in, and successful implementation of, excellent health information technology. What’s more, it will require the extreme optimization of healthcare delivery and administration processes, using those IT tools, solutions, and systems. U.S. healthcare can simply no longer afford to be a trillions-of-dollars-a-year “mom and pop shop”-type cottage industry.
As I often explain to those who are learning about the U.S. healthcare industry, one of the underlying challenges here is that the U.S. healthcare industry is undergoing two revolutions at the same time, whereas other industries, most notably manufacturing and other business industries—underwent their industrial revolutions many decades before they underwent their Information Age revolution. Henry Ford introduced the assembly line concept into auto manufacturing in 1913, several decades before computerization, while Henry J. Kaiser’s Kaiser Shipyards were pumping out warships and other ships at a rapid, assembly line-based rate, throughout World War II. Meanwhile, nationwide retailers like Sears and Montgomery Ward had developed sophisticated shipping and distribution processes in the last decades of the nineteenth century.
Healthcare, uniquely among the major U.S. industries, remained largely a field of individually customized, largely unanalyzed, care delivery processes, until very recently. And it has only been in the past decade that provider leaders, under reimbursement and regulatory pressure, have begun to leverage information technology to rework core care delivery processes, and begun to systematize those processes. What’s daunting is the breadth and scope of the challenges involved, as we begin to create standardization in patterns of clinical practice and patient care organization operations. Looking at every single process of significance in every clinical service area, and participating in widespread benchmarking systems and broadly based improvement initiatives, will be the work of at least one entire generation. And it will require tremendous leadership, change management, and operational and execution skills on the part of healthcare IT leaders, who will have both the opportunity and the challenge of being able to create change—and to whittle away at that mountain of a number.
What’s momentous for everyone involved is the extent to which every single strategic solution to U.S. healthcare’s cost cliff—population health management, accountable care organization development, enhanced primary care and the patient-centered medical home; care management and multidisciplinary team-based care; bundled payment; value-based care delivery and payment; outcomes measurement and management; patient and consumer engagement; and all the others—every single strategy needed to fix what’s wrong with U.S. healthcare—will require intensive IT facilitation, data analytics, continuous analytical activity, and intensive process management.
So there has never been a time in the history of the U.S. healthcare system in which more has been asked of healthcare IT leaders. And that will continue to be the case for the next decade, at least. So as we contemplate that big $5.631 trillion in annual spending number, the question is, are healthcare IT leaders ready to help bend that ginormous curve? The answer really had better be yes, hadn’t it?