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 / Autumn 2011 / Issue 64(originally published by Booz & Company)


Transforming Healthcare Delivery

As nations seek to expand services more cost-effectively, the stakeholders who pay the bills and provide the care must collaborate.

When it comes to healthcare, many nations are not getting enough for their money. For example, in the U.S., an estimated 30 to 40 percent of total healthcare spending is wasted through systemic underuse, overuse, and misuse, even as costs climb at a rate that far exceeds overall inflation. Although medical costs in the U.S. are among the highest in the world, its healthcare system ranks only 37th in quality, according to the World Health Organization. A study by the Commonwealth Fund found that the U.S. spends twice as much per capita on medical care as do other industrialized nations, but is in last place in preventing deaths.

The United States is not alone in its healthcare conundrum. Statistics like these and the accompanying warnings about the unsustainable nature of healthcare systems around the world have been circulating for years, if not decades.

Many government leaders are heeding these warnings. Some are undertaking massive reform initiatives, including President Barack Obama’s efforts in the U.S., which resulted in the Affordable Care Act, and Chancellor Angela Merkel’s ongoing efforts to stem the escalating cost of healthcare in Germany. But these national efforts raise fundamental questions. To what ends should reform be directed? How will those ends be achieved?

The answer to the first question is simple: Reform should be directed at bringing healthcare costs under control while improving the quality of care and patients’ experience. In the U.S., this conclusion is often translated into an immediate goal of limiting healthcare cost increases to the growth rate of the consumer price index.

This goal is easy to set, but how is it to be achieved? Unlike a business, a healthcare system can’t simply slash head count, operations, or overhead to bring costs under control. The impact on patients’ access to medical services and the quality of care would be draconian.

Instead, most systems face the challenge of controlling costs while expanding patient access and improving care quality. The only way to meet this challenge is to focus on care delivery — the primary source of healthcare costs. In the U.S., care delivery, which includes physician and clinical services, hospital care, prescription drugs, tests, and procedures, accounted for approximately 85 percent of the US$2.5 trillion spent on healthcare in 2009 (the remainder is investment and administrative expense). To achieve the quality improvement and cost reduction needed to ensure the long-term stability of the system and the success of the medical industry, healthcare systems need to transform the full spectrum of care delivery.

Systemic Obstacles

The already considerable challenge of care-delivery transformation is magnified by inefficiencies that persist throughout healthcare systems and contribute to rising costs. These inefficiencies are often rooted in the structures of healthcare systems. In the U.S., for instance, four major structural flaws impede the efficient delivery of high-quality care.

First, healthcare providers, such as doctors and hospitals, get paid for the type, volume, and complexity of the care they deliver, not the quality of care. At best, this fee-for-service payment model creates a disturbing disconnect between providers and care quality. At worst, it gives rise to abusive practices, such as churning (the unnecessary scheduling of repeat visits by physicians to bolster revenue or productivity) and self-referral (the prescription of unneeded tests or services at facilities in which the referring provider has an ownership stake).

Second, many providers are needed to treat serious illnesses, and the lack of coordination among them adds complexity and cost to care, as well as myriad opportunities for medical error. For example, the Cleveland Clinic review of “sentinel events” — unanticipated events in a healthcare setting that result in death or serious physical or psychological injury to a patient, but that are not related to the natural course of the patient’s illness — and near misses in 2007 and 2008 found that 43 percent were related to suboptimal communication.

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