Observations on the Healthcare System

At the 2024 WCRI Annual Conference, Harvard economist David Cutler discussed the recent transformations of the healthcare system.

Currently, there is more uncertainty in the healthcare system than ever before. Healthcare systems are struggling with staffing, pricing, reimbursement rates, and even solvency.

Overall healthcare needs fell during COVID as people delayed elective procedures. This was an economic shock to the healthcare system, which resulted in some systems becoming insolvent and increased industry consolidation. However, hospital admissions are still not back to pre-pandemic levels.

Telehealth use expectedly increased during COVID. However, its use has decreased and is now less than 15% higher than pre-COVID levels. The use of telemedicine has declined about two-thirds from its peak usage for physical care, but it is being strongly utilized for psychological care.

Burnout and healthcare workers exiting the workforce played significant roles in staffing throughout the peak of COVID. In early 2022, there was over a 10% reduction in nursing and residential care facilities employment, along with reductions in hospital employment. However, staffing is strengthening in physician offices, with employment up over 10% from pre-COVID figures. Long-term care facilities are still not back to pre-COVID levels. This is challenging because an inadequate number of beds in long-term care facilities leads to stays in hospital settings at higher costs.

As more care moves to outpatient care facilities, there are likely too many hospitals in the healthcare system. Hospital bed volume has decreased significantly and continues to trend downward. Treatments that carry low reimbursement rates, like psychiatric care and highly complex, expensive medical situations may be the only care left in hospitals, leading to further hospital closures.

Prior authorization’s widespread use has become the most significant trend in the insurance industry. The health insurance industry has over 5000 Current Procedural Terminology (CPT®) codes that require prior authorization, which health insurance carriers use to limit utilization. Completing all the pre-authorization requirements is a huge challenge and cost for physician offices and the healthcare system.

Private equity is becoming increasingly involved in healthcare, which adversely affects healthcare systems. They are selling land and buildings to developers and then leasing it back to facilities. They have no interest in the profitability of the hospital systems, but instead, are profiting from real estate transactions. There is concern around reduced quality of care in systems owned by private equity because they are not investing in the care experience.

Healthcare outcomes are intrinsically linked to economics. Patients on the lower end of the economic scale have significantly lower life expectancies, and access to care plays a significant factor in this. However, the industry is getting better at identifying providers who provide superior outcomes. A bundled model pays providers per patient instead of per-service. This incentivizes efficiency, preventative care, and prevention of unnecessary tests and treatment. Additionally, researchers have identified approximately $265 billion in potential savings across multiple intervention types. This includes automating the prior-authorization process, making call centers more efficient, and automating ordering and inventory.

Healthcare spending has also stabilized. Healthcare as a percentage of gross domestic product (GDP) is the same now as it was in 2007. Medicare spending growth has slowed to near zero because of controlled pricing and utilization. More significantly, preventative measures for conditions like cardiovascular disease and stroke actually work and have significantly reduced progression of these diseases. Clinical prevention is saving both money and lives.

Finally, immigration is playing an important role in the healthcare industry. Approximately 20% of physicians are new immigrants who came here on visas. In many areas of the country, the overwhelming majority of home health aids are new immigrants. The system cannot be adequately staffed without a significant influx of qualified immigrant workers.