Analysis of U.S. National Healthcare Expenditures as a function of GDP

There has been quite some talk and I expect a bit more talk on the topic of the magnitude of National Healthcare Expenditures and what that means for all of us.

In this article, I am presenting a summary of some highly quantitative analysis that was done to understand how the National Healthcare Expenditure moves in tandem with the U.S Economy.

Accountable Care Organization and Population Health Management

The term "Accountable Care Organization" was first used by Elliott Fisher – Director of The Dartmouth Institute for Health Policy and Clinical Practice – in 2006 during a discussion at a public meeting of the Medicare Payment Advisory Commission. The term quickly became widespread, reaching its pinnacle in 2009, when it was included in the federal Patient Protection and Affordable Care Act.

Although the term ACO was not coined until 2006, it bears resemblance to the definition of the Health Maintenance Organization (HMO), which rose to prominence in the 1970s. Like the HMO, the ACO is "an entity that will be 'held accountable' for providing comprehensive health services to a population. 

There was a very valuable paper written on the topic of how to reduce cost of healthcare by Harold Miller entitled How to create Accountable Care Organizations. I highly recommend reading this paper if you have not already. This paper lays the foundation for what it takes to create and establish a profitable Population Health Management enterprise. 

The Analysis

Taking into account archived U.S. national data including healthcare expenditures data, it was observed that: (all data is in CAGR in Table 1)

Table 1: High Level Analysis of CAGRs (2004-2014) and (2015-2030)

NHE (2004 to 2014)	NHE (2015 to 2030)
4.36%	5.19%
GDP (2004 to 2014)	GDP (2015 to 2030)
3.19%	4.06%
NHE as percent of GDP (2004 to 2014)	NHE as percent of GDP (2015 to 2030)
1.17%	1.10%

What is seen as most interesting is that in the financial meltdown of 2008-2009, the NHE as percent of GDP saw the most increase as seen in Figure 1, and that if the US economy continues to grow at a stable growth rate of 4%, then by 2024, NHE will be 20% of US GDP and excess of 21% in 2030. 

Figure 1: Trend View of NHE against GDP performance

Click here to view the chart in full. 


There was additional analysis done using the data sets to confirm that the model that was built has produced estimates for 2016 to 2030 with 95% confidence. 

About the Author. 

A Case Study on Intel's Health Care Reform

I recently stumbled on a very interesting healthcare case study - Intel. 

This aligns with my prediction that I made a year ago that healthcare marketplace collaborative initiatives will pave way for making healthcare transformation successful. 

The need to accelerate the transformation of health care in the U.S. is urgent—for both patients and employers. We have seen some hopeful signs that the tide may be turning: Thanks to the Affordable Care Act, the proportion of adult Americans without health care coverage fell to 12.9% in 2014 from 18% in 2013. And the rate of increase in U.S. health care spending has recently slowed, although it’s hard to know whether that’s simply a by-product of the Great Recession. Still, the crisis is far from over.

"Intel piloted Healthcare Marketplace Collaborative (HMC) in metropolitan Portland, Oregon. Over five years, it successfully implemented new clinical processes for treating six medical conditions and for screening patients for immunizations status and illnesses such as diabetes and high blood pressure. Although assessing the HMC’s full impact was not easy—and in a number of cases impossible given how the experiment was designed—the results that could be measured were significant: The HMC reduced the direct costs of treating three of the conditions by 24% to 49%—a tremendous accomplishment in an industry where slowing the rate of cost increases is considered a major achievement."

"The HMC also emphasized evidence-based care (clinical decision making backed by validated research); eliminated unnecessary care; allowed patients to access care and return to work faster; generated high levels of patient satisfaction; and cut more than 10,000 hours of waste in business processes. What’s more, it did all this within the confines of today’s fee-for-service reimbursement system, which is widely considered a major impediment to improving the U.S. health care system."

This sheds strong light on the corporate strategy of Intel and how a giant like Intel is redesigning itself in-and-out to position for long-term growth. 

Business Drivers and Market Forces for Healthcare Payors

I was recently, working on a business case, so, by popular demand, I am presenting "Business Drivers and Market Forces for Healthcare Payors"

A. Transition from Volume to Value (V2V) based reimbursement system

1. Payers should not require primary providers to meet rigid certification or accreditation standards in order to participate in improved payment systems (such as ACO models) that improve outcomes or reduce costs
2. Payers should phase in changes to support the changes in primary care
3. Payers should make bundled payments to provider organizations and partnerships that demonstrate the capacity and expertise to manage the full episode of care and associated patients
4. Payers, providers, regional collaborators and other organizations should take steps to facilitate the transition of bundled payments, including public reporting about the total cost of care, providing technical assistance to providers, and making transitional changes to payment systems
5. Pilot projects for new payment systems should be designed to gain experience with care changes that will both improve quality and reduce or control costs

B. Bring the Individual and Family plans for specific markets under the volume to value structure

1. Such as Healthcare.gov
2. State Exchanges 

C. Evolving patient needs require localized and flexible provider-networks / products

Democratization of Healthcare: Population Health Management As A Business

What's Up With Healthcare Analytics?

• Increasingly there is talk of need for healthcare analytics. 
• We understand analytics but what is the healthcare analytics for? 
• What is analytics supposed to provide in healthcare - for who and for what? 
• Analytics by definition is required to provide actionable insights, i.e. data driven decision making. Needless to say, this is both art and science. But is it just that? 
• Guess what: big named companies are selling solutions that claim healthcare analytics that cost an arm and a leg for Hospitals; Hospitals that are already at 15% revenue loss Y2Y

What's My Interest

As I am doing my MBA from New York university's Stern School of Business, I am specializing in Corporate Finance, Strategy and Operations. After considerable research I have come to the conclusion that Democratization of Healthcare requires running Healthcare As a Business. To that effect one needs to recognize that undoubtedly many healthcare institutions, i.e. hospitals (providers) are indeed failing to be profitable. This is despite the advent of Accountable Care Organizations, which is a Top 3 CMS innovation agenda. This is grave matter because according to a recent Harvard University study, Medical Expenses is #1 Cause for Personal Bankruptcy. The caveat of this study is that 78% of the people had health insurance. Other than the argument that those people gambled away their health insurance, the key lies in understanding the following in this prescribed order:

1. Healthcare Reimbursement in Current World 
2. Triple Aim in Healthcare – the vision 
3. So, there is need for Healthcare Payment Reform 
4. Analysis of different Healthcare Payment Models 
5. Issues with choosing an ACO Model of Choice 
6. Revisiting ACO Model Analysis (Risk and Reward) 
7. Why is it tough to select ACO Model of Choice 

So, here is my latest installment on Democratization of Healthcare: Population Health Management As A Business

Introduction

While I am not giving the strategy outline itself, my intent it to make those in hospitals aware of key strategy tenants to solve the puzzle of how to make ACOs successful or how to design and implement Population Health Management. 

• There are more than 400 ACOs in the country but fewer than 10% are profitable. 
• Does this mean that ACOs are not going to be successful? 
• If ACOs are a failure than how can Population Health Management ever be successful? Considering that the operating principle of ACOs is the underlying element of Population Health Management. 

Strategy Tenants for Making ACOs Successful

http://www.ihi.org/Engage/Initiatives/TripleAim/pages/default.aspx

Issues confronting ACOs:

• There are many ACO Models as choices 
• Where to start? 
• How to design the ACO Model? 
• What Metrics should be used in deciding the ACO Model of Choice? 
• The main issue: How to decide what Metrics should be used? 

If you made the observation, the main issue is the last issue. However, most hospitals get stuck in the middle and jump to conclusions about the best approach to take for implementing whether ACO or Population Health Management and as a result encounter failure with the operations plan. Simple metric such as Per Member Per Month or alike do not suffice strategy planning. 

• Isn't the operations plan derived from strategy? 
• Isn't the main issue the lack of a well defined / well thought through strategy? 

Bottom line:

• We need more Accountable Care Organizations 
• But, Need a cost efficient solution for Providers and Payors 

Conclusion

As always I enjoy writing my blogs. Healthcare is a business. A business that measures primarily on two dimensions: (a) quality of care, and (b) cost of care. Healthcare is an interesting industry because it is multi-faceted. The patient gets service at a hospital or by a physician. The patient most probably has to pay some out of pocket fees. The physician (or hospital) bills the insurance carrier (payor). The patient is also paying the insurance carrier. The insurance carrier is also getting paid probably by the employer of the individual (the patient). 

If you have interest in learning the specific strategy and supporting operations, feel free to contact me. 

Why Kemel Density Analysis for Financial Markets

In my MBA course work from Stern School of Business, one of the courses I am currently taking is New Venture Financing by Professor Alexander Ljungqvist. His professional biography is listed here: http://pages.stern.nyu.edu/~aljungqv/

Briefly, Professor Ljungqvist is world renowned and he has previously taught at Harvard Business School, Oxford University (where he held the Bankers Trust Fellowship), Cambridge University (where he held the Sir Evelyn de Rothschild Fellowship), and London Business School. 

One of the topics he covered in the class was about using kemel density to analyze market and return performance of Mutual Funds versus Hedge Funds versus VC Fund versus Buyout Fund - in terms of relative fund risk. 

This prompted me to learn more about kemel density and its significance for analyzing risk in financial markets. 

The use of kemel density estimates in discriminant analysis is quite well known among scientists and engineers interested in statistical pattern recognition. Using kemel density estimate involves properly selecting the scale of smoothing, which is significant for minimization of misclassification errors. In the kemel density theory this is known as the "bandwidth parameter". Kemel density befits both single scale as well as multi scale dimensional analysis. In practice, it serves well to look at results for different scales of smoothing for the kemel density estimates. There has been extensive scientific research done to apply sub-classification when the scales are disparate. These characteristics make applying the kemel density particularly favorable when looking at performance of funds in the financial markets that we are interested in comparing for 'risk versus return' given that the funds themselves are fairly dispersed in their respective models.