Health care in the United States is broken. CFOs know we have the most expensive health care system in the world, yet our outcomes are worse than those in most developed countries. What’s more, long-standing efforts to decrease cost and increase value through disruptive innovation have fallen flat due to the influence of established stakeholders, the persistence of restrictive rules, and the moral hazard of third-party payment.
The COVID-19 pandemic, the greatest challenge to public health in more than a century, provides us with a real opportunity to finally transform our health care system. We expect seven phenomena brought on by the COVID-19 pandemic will accelerate change in health care. If managed effectively, they will allow health care purchasers such as employers to harness the benefits of dynamic changes in the market.
1. The rise of virtual care
Americans avoided most non-emergency care this spring. Data shows massive decreases in preventive services such as colonoscopies (86%), mammography (94%), and dental care (92%). Many also delayed important but not emergency care, including orthopedic surgery and cancer chemotherapy. As the threat of infection in medical care settings has waned in many states, much ambulatory practice has returned, and Americans are again getting imaging studies, therapy, and operations.
Telehealth visits rose to as much as 14% of total visits at their peak in April. Patients saved time and parking fees, and fewer ancillary tests were performed. Patients will not mourn the loss of packed waiting rooms and hours away from work for a 10-minute appointment. We can’t do skin biopsies over a videoconference service, but virtual visits will mean no one with a suspicious skin lesion will have to wait three months for a dermatology evaluation.
Innovative virtual visit support tools continue to evolve, and algorithms and artificial intelligence enable better evaluation of suspicious lesions via smartphone cameras. Good consumer experiences with virtual care will create stickiness, and much care will continue to be delivered remotely even after the pandemic is over.
2. New digital approaches to meeting mental health needs
We have long had inadequate access to mental health care, and the pandemic has heightened needs that society and employers alike were already feeling acutely. The Centers for Disease Control and Prevention found that almost four times as many adults (40.1%) reported symptoms of major depression or anxiety in July 2020 compared with a year earlier.
The pandemic has led to dramatic increases in the use of digital and virtual mental health care, ranging from digital emotional wellbeing tools to chatbots offering cognitive behavioral therapy to text-based coaching by humans to robust virtual networks with access to a full continuum of mental health care including psychiatry services. Younger patients prefer virtual visits and other technology-based solutions, but digital and virtual tools have been used in record numbers by people in need across age groups. These alternatives can decrease costs and help address gaps in access to mental health services.
3. More entrepreneurial health care startups
The Federal Reserve has continued to keep interest rates close to zero, and investors have few places where they can obtain reliable high yields. The first half of 2020 saw the greatest venture capital investment in digital health ever — more than $5.4 billion in investment. Buoyed by the successful IPOs of Teladoc, Livongo (now owned by Teladoc), Progyny, One Medical, and others, investors now see great potential in this space.
This torrent of investment could mean a future where patients can use apps to triage their needs, initially connecting to an artificial intelligence chatbot, and escalating to coaches, nurses, and physicians depending on the complexity and the urgency. We will likely see an increase in direct-to-consumer diagnostic testing and further empowerment of patients. Entrepreneurial companies can use learnings from genomics to direct patients to the most appropriate care, and neural networks can help us convert vast troves of data into actions that will improve health.
4. Provider consolidation
There has already been substantial provider consolidation, and this is likely to accelerate as the pandemic continues. Hospitals with excellent brand recognition have been able to achieve high reimbursement rates and have vast reserves, but hospitals that offer excellent quality without as much market leverage may fail or be absorbed by higher-priced systems. This kind of consolidation has historically raised unit prices, although this will be more difficult for providers in a more price-sensitive world.
There are possible counterbalances to higher prices from provider consolidation. Providers suffering from the loss of fee-for-service payments during the pandemic could embrace alternative payment models to take financial and clinical responsibility for populations or offer warrantied bundled care for procedures or episodes. This could help promote higher value, rather than higher prices. Price regulation, either through price ceilings or price setting, could also be enacted, as is the case in most highly developed countries. The U.S. has historically been resistant to price setting, which can also lead to poor allocation of resources and can be subverted by regulatory capture. For example, hospital price regulation was eliminated in most states in the 1980s and 1990s. Another counterbalance is increased competition, including the proliferation of technology-based and virtual care options as well as specialty providers that can deliver services outside of the traditional hospital setting.
5. Increasing price sensitivity
With massive jumps in unemployment and dramatic decreases in the gross domestic product, many individuals and businesses will be less financially secure as the pandemic recedes. As a result, consumers and health plan sponsors will be more price sensitive. That sets the stage for the success of solutions that are dramatically cheaper, even if initially perceived to be not quite as good. For example, lower resolution magnetic resonance imaging machines (MRI) that allow for $100 MRI scans in Japan have never been introduced in the United States. Price sensitivity nurtures disruptive innovation, and our decreased wealth could paradoxically spur solutions that help us achieve higher value in health care.
6. Easing of regulations
Congress and the Centers for Medicare and Medicaid Services have altered or eliminated 212 rules and regulations to help the delivery system address patient needs during the pandemic. These actions have expanded reimbursement for telemedicine, eliminated some practice limitations, and decreased requirements for face-to-face contact for reimbursement.
Some of these regulatory changes, if left in place, could promote investment in startups which can accelerate health care transformation. Virtual visits utilizing providers across state lines could address rural health care access gaps. We can expand the scope of services and utilization of nurse practitioners, physician assistants, and pharmacists, including through virtual visits, to increase access to care and improve the cost of care for services currently restricted to only physicians.
Of course, some regulations are necessary to ensure fairness and health. For example, reinstating regulations that protect safety and discourage fraud would serve patients, employers, and all other parties well.
7. Increasing governmental role
The federal government was responsible for almost half of all health care spending before the pandemic, through Medicare (44 million enrollees) Medicaid (65 million enrollees), the military (4.5 million enrollees), federally subsidized exchange plans (9 million enrollees), and the Federal Employee Benefit Plan (9 million enrollees). Tens of millions lost their employer-sponsored health insurance when they lost their jobs. Some will be uninsured, but many will qualify for heavily subsidized exchange plans or will qualify for Medicaid.
Additional people on government-sponsored or government-subsidized insurance will be a financial strain for governments at the state and the federal level. The government will likely see a greater need to use its leverage to decrease unit prices, especially for pharmaceuticals.
Even though government regulations can suppress health care innovation, the government has also been the source of many of the most important payment innovations of the last generation.
Medicare pioneered “diagnosis-related groups,” a single payment to hospitals based on the initial reason for hospitalization. These have spread to commercial insurance and to government payers around the world. Medicare introduced risk adjustment, which has since been adopted widely. The Centers for Medicare and Medicaid Innovation has piloted both bundled payments and population-based payments to accountable care organizations. And, value-based insurance design, where patients pay lower cost-sharing or nothing at all for high-value services, is built into Medicare. By continuing to drive innovation in plan design, provider payment, and alternative payment models, the government can help us achieve higher value in health care purchases.
Each of these phenomena has a unique ability to impact our complex health care system. Taken together, the potential change could be transformational.
In the world of employer-sponsored health care, we are accustomed to seeing annual price increases that exceed inflation. Health care costs are second only to wages for most American companies. The changes wrought by the pandemic can promote much-needed disruptive innovation, help to lower unit costs and realign technology, and people to more effectively deliver care.
However, to bring about these changes, health care purchasers such as employers and the government can’t sit idly by. CFOs can push their firms to further increase access to digital and virtual care, embrace alternative payment models, and push hard against regulations that prevent changing the status quo. The government will need to use its purchasing power to promote innovation and its regulatory authority to overcome resistance to change from established health care incumbents. If we take advantage of current opportunities, we will knock down long-standing barriers and reap far more value from the health care system.
Jeff Levin-Scherz, MD, MBA, is a managing director and co-leader of the North American health management practice at Willis Towers Watson and an assistant professor at the Harvard TH Chan School of Public Health.
Steve Blumenfield, MBA, is the North American head of strategy and innovation for Willis Towers Watson’s health & benefits business. He hosts the Cure for the Common Co podcast on health care innovation.
Julie Stone, MPA, is the North American intellectual capital Leader for Willis Towers Watson’s health & benefits business focused on critical employer issues and emerging trends.