The Affordability Innovation, Part 1: Cottage Industries and Blue Light Specials

Farma Darya

The absence of affordable care will undermine the industry’s best efforts to address health equity.

In his 2012 comedy special Mr. Universe, Jim Gaffigan questions whether Domino’s should diversify its products. “I’m not sure they’ve perfected the pizza,” he jokes.

The same might be said of healthcare’s foray into the social determinants of health (SDOH).

What is it about the data point “80% of health outcomes have nothing to do with clinical care” that has the medical profession rushing toward social risk management when it hasn’t perfected its own pizza—the affordability and accessibility of its 20% of the pie?

Rushing may not be the right word, unless you quantify it with the volume of press releases that mention healthcare SDOH initiatives. A growing SDOH industry is emerging but can it succeed? And what do Einstein and Margaret Mead have to teach about where the best solutions are found?

Affordability, where art thou?

Healthcare is perhaps the only industry where not only are many of the core products and services unaffordable, but so is the coverage meant to make them so. Only through a combination of employer and government subsidies, incentives, patient assistance programs, and the equivalent of mobile app-delivered coupons can many individuals afford basic coverage and care.

All healthcare players contribute to this scenario. In 2020, U.S. health spending totaled $4.1 trillion, tripling from $1.4 trillion since 2000. This according to the Health System Tracker, published by the Peterson Center on Healthcare and the Kaiser Family Foundation (KFF).

The tracker defines total health expenditures as “the amount spent on health care and related activities (such as administration of insurance, health research, and public health), including expenditures from both public and private funds.” In 2020, leading contributions to those expenditures broke down as follows:

  • 31% hospitals
  • 27% other health
  • 20% physicians and clinics
  • 8% prescription drugs

The tracker defines “other health” as “spending on durable and non-durable products; residential and personal care; administration; health insurance; and other state, private, and federal expenditures.” Additional categories—home health care, dental, nursing care, and other professional services—contribute roughly 3-5% each.

The stakeholders associated with these costs generally blame one another, publishing their own breakdowns of how the U.S. healthcare dollar is “really” spent. For example, in every U.S. state except Texas, physicians are the highest-paid profession with no annual average salary below $230,000.

Providers in turn call for cutting out the “middlemen profiteers [PBMs and payers] who detract from care and add to cost.” This was recently noted in an MD-penned Medical Economics article that calls for greater physician “pride of ownership” ranging from patient relationships to practice and facility control.

Payer trade associations, meanwhile, oppose a public option for healthcare coverage while applauding the public subsidies that have helped its health plan members grow their Marketplace business.

And everyone, in general, points the finger at pharmaceutical companies.

Perhaps that’s why decades of VBC have failed to move fee-for-service (FFS) much beyond an enhanced contracting model. Research shows that both Medicare and commercial approaches have largely failed to improve cost and quality—particularly concurrently and in significant, consistent, replicable ways.

Cottage industries and blue-light specials

Multiple cottage industries, buttressed by private equity, have emerged to help healthcare solve its cost, quality, and equity problems. These same efforts perpetuate the tug of war between the industry’s service and business imperatives.

In 2016, Inc. accurately predicted that the Affordable Care Act would create a “gazillion-dollar startup machine.” In 2020 alone, private equity funded nearly $14 billion in health tech solutions focused on well-being and care delivery, data and platforms, and care enablement.

The machine has created companies aimed at the entire affordability spectrum—from systemic VBC transformation to healthcare’s versions of the blue light special.

Today, the GoodRx app is the blue light that makes it cheaper to buy select prescription drugs without your health plan coverage than with it. The Catch app functions similarly, finding premium savings for customers who thought that their careful shopping had already delivered the best deal.

Healthcare is innovating and collaborating in admirable ways. But much of what passes for affordability innovation has been lagging for so long that basics look like breakthroughs. When it comes to affordability, the entire industry is a late adopter.

It is true that the healthcare industry now offers a certain measure of affordability. Medicare Advantage companies offer many $0 premium plans. And in an announcement for 2023 Marketplace enrollment, the Biden-Harris Administration noted that 80% of customers can find plan premiums for “$10 or less after subsidies.”

But coverage without care remains a challenge.

Part 2 of the Affordability Innovation will explore how healthcare costs create their own SDOH risk category and the growing number of profit-based stakeholders seeking to address this. But can they? Read on for more, including relevant perspectives from Einstein and Margaret Mead.

Laura Beerman is a contributing writer for HealthLeaders.

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