U.S. Healthcare: A Study in Misaligned Incentives

While it is generally accepted that the goal of any healthcare system is to optimize the health and well-being of individuals and populations, there is less agreement about how this should be achieved and what outcome metrics should be tracked. Regardless of how you analyze it, the U.S. healthcare system is failing to deliver commensurate with our investment. It is also failing to function as a ‘system,’ an assembly of parts connected in an organized fashion and functioning as an integrated whole.

This is not surprising since it was never conceived or designed as a comprehensive system. Rather, it is a patchwork of components cobbled together by a variety of administrations over many years without careful planning. The ‘structure’ of the current U.S. healthcare system has been largely opportunistic rather than strategic. As a result, there is no shared vision, outcome metrics are chosen without careful forethought and study, and there is no true accountability.

Although healthcare leaders purport to put the patient at the center of the policies they champion and the systems they build, the truth is that most of these decisions are politically motivated; healthcare outcomes for individuals and populations are largely an afterthought—a long-term aspirational goal.

Who is the healthcare ‘customer’? Traditional business principles state that the answer is simple: “It’s the person who pays you, stupid!” Who is that in healthcare? Is it national or regional governmental agencies? Is it commercial insurance companies? Is it vendors and drug companies? Is it politicians? Is it healthcare providers? And what about patients? The answer is far from simple.

The end result is an industry that is too expensive, too fragmented, burdened with regulatory oversight and unfunded mandates, with multiple ‘customers’ each with their own agendas and incentives, many of which are conflicting. Patients are concerned about accessibility, affordability, and choice; providers are concerned about equity, pay, and working hours and conditions; organizations responsible for regulatory oversight are concerned with quality; for-profit payors and drug companies are concerned about profits; politicians are concerned with population-level outcomes and cost. There is no shared vision

These misaligned incentives are perhaps best illustrated in the tension around how aggressively to pursue preventative care strategies. What if we were able to dramatically reduce preventable deaths from smoking, opioid overdose, gun violence, and suicide? How would this impact the U.S. healthcare budget and U.S. economy? Preventative care saves lives, not money. It is expensive. Prevailing models suggest, not surprisingly, that smoking saves money for the U.S. government, because smokers die earlier{1}. Can we afford to have most people stop smoking? This is not a question that should arise in a well-aligned, high-functioning healthcare system that truly has the patient’s health and well-being as a core mission.

And then there is the pandemic. COVID-19 did not cause the current healthcare crisis, but it has unmasked the underlying dysfunction in the industry, causing it to tip over into an unstable equilibrium. We can no longer hide. The healthcare emperor has no clothes—at best, just a few rags to shield her from the prevailing storm.

Despite these misalignments, there is reason to remain engaged and hopeful. The need for healthcare is not going away. Life expectancy is expanding and has been doing so consistently at 3 months per year for several decades{2}. More older people, more effective treatment for conditions such as cancer and heart disease, and the development of more effective strategies to prevent lives lost from opioid overdose, suicide, and infectious diseases all mean one thing—more people living longer lives with chronic diseases and an even greater need for healthcare. We have no choice. There is no place to hide. We have to face this challenge head-on.

The place to start is for all stakeholders—from providers to hospitals/healthcare systems to payors to drug companies to state/federal governmental agencies—to acknowledge that we own part of the problem. We are part of the problem; we are also part of the solution. The era of healthcare management by incremental increases in efficiency is over. We are now in an era that requires a radical, bold transformation in which the industry must build resilience as well as the flexibility needed to cope, innovate, and adapt.

Note: "A Study in Misaligned Incentive" is part one of a series of six blogs on "US Healthcare: A Bureaucratic Quagmire Needing Disruption". Stay connected to read the upcoming blogs of this series.

Authors: This Blog is Co-authored by Dr. Errol Norwtiz and Venkata N. Peri

References:

1. Baumgardner JR, Bilheimer LT, Booth MB, Carrington WJ, Duchovny NJ, Werble EC. Cigarette taxes and the federal budget: Report from the CBO. N Engl J Med 2012; 367(22):2068–2070. https://doi.org/10.1056/NEJMp1210319

2. Gratton L, Scott A. The 100-year life: Living and working in an age of longevity. Bloomsbury Publishing, London. 2016.