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Band-Aids to Major Surgery: Making Healthcare Work in the U.S.

July 22, 2014

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Editor’s Note: The following post comes from Sergio Gutiérrez. Sergio is a Chicago-based designer and strategist working at the intersection of people, business, and technology. He graduated from BGSE’s MSc Economics of Science and Innovation in 2011.


 

So, as it seems, healthcare in the U.S. seems to be in of trouble and, all the voices say, design can do a lot to solve the problem. For this reason, many design and innovation consulting firms are making healthcare a strong focus area. For any designer —or any person trained to solve problems for that matter— this type of problem, because of its complexity, potential impact, and evident “higher purpose” is also very attractive.

However, regardless all the hype around this topic, thinking of design as the main driver for structural change may prove a bit unrealistic — as much as I would like to think that design can save the world. In reality, given the magnitude of the problem in the U.S., this needs to be attacked from different angles, with various strategies and tools and, probably, the most critical ones will have to come from outside the design field.

The system that is supposed to take care of us is very sick.

To help you gauge the magnitude of the U.S. healthcare problem, let me start with some background info — it won’t hurt, I promise: This is what we pay for our healthcare in the U.S…

  • The U.S. 2010 healthcare expenditure was 18% of the GDP, up to $2.6 trillion. That is roughly double the OECD average and this figure is projected to grow up to 26% of GDP by 2037 (scary).
  • The U.S. has the highest healthcare administration costs in the World at triple the OECD average.
  • Cost of healthcare per capita is above $8,200. That is more than double the OECD average of $3,200. Second, but not even close, is Switzerland with $5,200.

This is what we get…

  • There are fewer physicians and hospital beds per person than in most other OECD countries.
  • Life expectancy has increased over the last few decades but less than compared to other economies. Between 1960 and 2010, 9 years compared in the U.S. to 11 years on average on OECD countries.
  • 33% Americans were obese as of 2009 compared to an average 16% in the OECD countries.
  • The cost of certain procedures is much higher in the U.S. and the industry seems to favor more expensive diagnosis procedures.
  • In 2012, 46% of the U.S. population were underinsured or uninsured at some point, if not all year.
  • The system is terribly complex, especially for users: a new study to be released in September shows how only 14% of all insured Americans “can explain all four key health insurance concepts: deductible, co-pay, co-insurance, out-of-pocket maximum”. Can you?
  • And finally, healthcare bills is the number one reason for family bankruptcy in the U.S.

 A vicious circle

First of all, it seems that, in our case, the proverbial ”invisible hand” of the market is not good enough for U.S. healthcare to work efficiently, or, put in another way, meeting consumers’ needs with the right type of offering. When it comes to market efficiency, size matters. The background of this problem is that, in contrast with other developed economies, the U.S. doesn’t really have a large-scale, unified healthcare system. The U.S. healthcare market is a very fragmented one (regional, mid-sized providers seem to be the most common players) and, of course, there’s only so much a person can travel to get care. The result is that the U.S. healthcare market is, in reality, a sum of many small, sometimes hyper-local markets with just a few competitors in each one, due to a number of barriers to entry.

Another issue that explains this swollen market is that the incentives of the different players (namely, users, providers and insurers) are not aligned. Very roughly explained, providers make money when patients remain sick – not when they are healthy and they don’t need their services. This drives up cost-push inflation.

Insurers, on the other hand, make more money when patients don’t need to be treated or, when treatments are necessary, these can be provided more cheaply or they can be cut back altogether. This logic crams patients in between two opposing forces, neither of them really aligned with their goals: remaining healthy.

On the other side, patients with insurance and in need of peace of mind, find easy to request more tests and treatments that are zero or very low (immediate) cost for them. This patient behavior artificially drives up demand for often unnecessary treatments. To close the vicious circle, this behavior is often enabled and augmented by practitioners that see an obvious benefit in providing these additional tests and treatments: on one side, this provides increased legal protection and, on the other, it brings in more money. This drives up demand-pull inflation.

The solution(s)

A holistic, systems-thinking approach is needed. Enterprises, startups and government all need to play a role and need to leverage different tools (design, technology, regulation, etc) as to come up with an effective solution that ‘sticks’. Innovation and better regulation are urgently needed to change this downward trend. These two factors feedback into each other: better regulation can create a more welcoming environment for innovation to happen and dent this macroeconomic problem. As simple (and complicated) as that.

At a more granular level, design- and technology-driven innovation has the potential to improve the current experience for patients (PX), reducing complexity and improving health and financial outcomes.

Here are some possible strategies to improve the U.S. healthcare situation:

Stopthebleeding

 

The “major surgery” strategies: better regulation and design of the healthcare market

This model’s “major surgery” strategies are intended for the government that, through regulation, try to address the economics of the healthcare market at a systemic level. Some ideas are:

  • Soft consolidation of the market through mandatory collaboration and patient information sharing at the provider level. This would facilitate patient transfer between providers without fear of losing critical information (US national regulation regarding electronic health records is a step in the right direction. The now defunct Google Health was also a fairly good ‘grassroot’ attempt).
  • Simplification of the B2B markets and procurement schemes. A market redesign where the number of middlemen (each of them adding a markup for their services, therefore driving up total cost of healthcare) is rationalized under an honest value-based perspective.
  • A balanced approach to practitioner protection to partially isolate providers from an excessively litigious environment so they can make medical decisions leaving legal considerations out of the equation.
  • Finally, alignment of incentives for all parties involved (patients, providers, and insurance companies) to turn the vicious circle into a virtuous one.

The “drug treatment” strategies: more innovation via start-up friendly FDA regulation

A second tier of strategies are those aimed at fostering innovation and competition. A combination of startup-friendly regulation and new business models and technology can also go a long way.

Regulation needs to support innovation efforts that have potential to upend the economics of healthcare. Now, only established companies —incumbents— with great cash reserves are the only ones that can afford going through a FDA process. Smaller, more innovative players —insurgents— are ‘organically’ kept at bay by these high costs. In this scenario, incumbents don’t really need to innovate to keep making a profit — status quo is working just fine for them and the threat of new entrants is relatively low. Overall, this results in lower levels of innovation and lack of real competition and, in turn, in fewer options for patients and higher costs.

On an improved scenario where smaller players can effectively gain access to the market, entrepreneurs could, for example, create new business models that, leveraging digital technology, make a profit from prevention (in contrast with the more expensive treatments) and have real incentives to cure patients as quickly and cheaply as possible. A shift in this direction would also make healthcare more universally accessible as well.

The “band-aid” strategies: design and technology at the patient level

The third tier of the model is composed of strategies aimed specifically at improving the quality and outcomes of the patient experience.

For the government, rationalization of how patient data is created, accessed and leveraged should be one of the key goals. This would make easier for patients to switch providers, keeping track of their history and progress, etc.

For entrepreneurs and established players alike, design and technology are factors that will contribute to a better patient experience (PX) and, most importantly, to change the notion of what health care means (i.e. shift from treatment to prevention).

Design can be used to empower users by improving the way these interface with healthcare providers, insurance companies, and government agencies. Decreasing the current complexity would foster a new breed of users that are able to contrast information, fully understand their options (both medically and financially), and can, therefore, exercise real informed choice both as consumers and patients.

Lessons learned

  • The situation of healthcare in the U.S. is critical: healthcare cost here is outrageously high when compared to other developed countries.
  • Market forces are not achieving efficiency making the U.S. healthcare system and clear under-performer.
  • The U.S. healthcare market needs to be redesigned through regulation that focuses in efficiency, innovation, and real value for patients.
  • When looking at this problem from the macro level, design is just a “band-aid”: it can do a lot when it comes to patient experience but little to address the root of this macroeconomic problem.
  • On the positive flipside, design and technology can go a long way to foster a new generation of patients (that are better informed and empowered) and to help focus on prevention.

 


References

Stats:

OECD Factbook 2011-2012 & Peter J. Peterson Foundation
Healthcare regulation: “Prescription for Change”, The Economist, June 2013.
Incentives: Realigning Health Care Incentives, Jack Tawil, 2011.
Healthcare market design: Reducing healthcare costs

And, although not used for this article, don’t miss the chance to read Elizabeth Rosenthal’s “Paying Until It Hurts” series for The New York Times – and insightful account of how the U.S. healthcare works.

Disclaimer As a designer and strategist I have always been interested in the intersection of design and healthcare. People from all walks of life talk about it: there is obviously something wrong with this industry. What really moved me to start writing about has been my recent experiences dealing with the U.S. healthcare system. The tipping point was learning that a single day in a hospital room in one of Chicago’s Hospital can cost as much as $13,000 – or at least that is the average price that I was indicated. The good thing, at least for those in the profession, is that there is plenty of opportunities for good design and better businesses to help change the situation.

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