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Regulatory, Structural Trends Impacting Innovation for Payers


June 04, 2019

Jordan Bazinsky, executive vice president and administrative officer for Cotiviti, breaks down various factors impacting innovation, including market trends that he believes are both headwinds and tailwinds to innovation, as well as shares a framework based on what’s happening in the current health care landscape.

Podcast Transcript:

Hello. My name is Jordan Bazinsky, and I'm executive vice president and administrative officer for Cotiviti.

We're a health care data analytics firm focused on improving the health care system by driving out inefficiencies, waste, creating better health care outcomes, and generally using the wealth of data available to create something new and different in the health care system—which is to say a health care system that truly does care about all participants and deliver on its promise of better health.

In working with all of our clients, we often find ourselves in conversations related to the regulatory and structural trends that are impacting innovation. Everyone knows we need to innovate, but what that looks like and what's causing it to be easier or more difficult to do is a question of great discussion and debate.

In today's conversation I'd love to address that head on, share some of the market trends that we're seeing that we think are both headwinds and tailwinds to innovation, and how we might think about a framework for innovation given what's happening in the health care landscape.

If you look back over the last 30 to 40 years, there was a time circa 1980 that US health care costs were similar to other developed nations. If you look across the OECD, you find that as a percent of GDP, the U.S. wasn't spending that much more than a lot of our peer nations.

Fast forward to today where the United States is spending over 17% of GDP on health care alone, the next closest country in the OECD being Switzerland at little over 12%, and it drops off dramatically from there.

I don't think it is a question to any of the market observers that this is an unsustainable trend, and it's one that's particularly worrisome. That said, if we were truly getting return on that investment, we might decide as a society that's an investment worth making. In other words, even at 17‑plus percent of GDP, perhaps it's worth doing because we can achieve such tremendous levels of health and wellness relative to other countries in the world.

When you look across various measures of health care, it just isn't the case. You can look at infant mortality, access, spend, utilization rates—the list is long.

One of the ones I tend to look at is mortality amenable to health care, which is to say how many deaths you could avoid given timely and appropriate access to health care. It's a really nice way to compare across different health care systems.

The United States has the highest mortality amenable to health care of all OECD nations. In the last decade-plus, we haven't moved the needle that greatly. We're spending a lot of money, but we're not getting the ROI. That's really the larger and more problematic issue at hand.

Meanwhile, the population continues to get older. More than 10,000 turn 65 every day. By the year 2030, we're going to hit a real demographic milestone in the United States where more people will be over age 65 than under age 18. That has some pretty dramatic implications for what will happen here in the U.S. as it relates to health care.

When you think about who will be going to the voting booths, what their needs will be, where money will need to be spent—in the expectation of baby boomers who've grown up in the managed care era and perhaps have very different expectations around what they get for their dollar whether it relates to health insurance, technology, access to physicians—it really is an interesting question.

Meanwhile, we're seeing very high growth rates in government plans. Medicare and Medicaid will make up an increasing percentage of overall spend by the year 2027. We think that national health expenditures will hit $6 trillion, and much of that growth really being led by the over 100‑percent growth in Medicare and the 70‑plus percent growth in Medicaid.

Increasingly, the trends that we see today will be powering the health care system and the needs of tomorrow. Not only aging, but socioeconomic status, chronic disease, poverty, geographies, lots of trends that simultaneously come together driving us from where we were, which is about $3.5 trillion in spend in 2017 to almost double that in a 10‑year time span.

I mentioned chronic disease just a moment ago. The prevalence of chronic disease has been rapidly ticking up, almost in linear fashion, since 1995. By 2030, we anticipate that roughly half of Americans will have chronic disease, and the spend associated with those chronic diseases and the number of co‑morbidities continue to go up.

All of these graphs are essentially up and to the right. Meanwhile, we're seeing almost a billion dollars in waste in the health care system today. There are a lot of trends that are converging that are really causing concern and introspection about what we expect of a health care system, what we need, what we want, what we can afford.

Now that's a grim picture. I do not mean to be the pessimist. I'm actually incredibly optimistic about the resiliency of America, and in particular the power of a lot of the new ideas coming to the fore to radically change health care for the better.

I believe that as we continue to tap into the wealth of creativity, we will continue to move forward with some of the best research in the world, access to some of the best biopharma in the world, access to some of the best facilities and clinicians in the world.

All this will combine ultimately alongside regulatory, structural and other pressures to in some ways force innovation and bring us to a place that perhaps we aren't at today, which is the combination of a wealth of resources alongside better ways of directing those resources.

When I think of the innovation framework in health care, on the one hand, I think about the what—what's current value and what's new value. I think about the how—what are current ways of doing things and new ways of doing things.

Ultimately, what we're driving towards is creating new value in new ways, so that we can have really transformative innovation. To get to that place though it's worth considering some of these headwinds and tailwinds that I was alluding to before.

If you think about Regina Herzlinger's work at the Harvard Business School and her framework for health care innovation, it tends to come in three flavors. One is innovation around consumers. How do we change the way that consumers buy and use health care?

The second is around the technology. Who's using technology and how are they using technology to develop new products, new treatments, or otherwise improve access, quality, and cost of care? A third category relates to the business models themselves. What's being done to develop new business models in health care?

Now that could relate to horizontal integration; it could relate to vertical integration. We've certainly seen a lot of M&A activity. But somewhere along the access of consumers, technology, business models, we have a bit of a 3D model whereby we can select different flavors of innovation that cross those areas to help create a better health care system.

One of the structural tailwinds that I tend to think about quite a lot is the democratization of technology and how it's being applied in health care. We've seen double‑digit growth in health care IT venture investment for the last two decades, year over year, and there's a lot of things driving that investment.

The reality is that there's been an exponential increase in computing power alongside an exponential decrease in the cost of computing resources with the prevalence of the cloud, decrease in silicon and chip costs, reduction in overall hardware costs of various flavors.

Add in open source software and the reduction of software cost and now you've got a new generation of technologically‑savvy individuals that can afford to tap into some of the latest technologies and that are pretty excited about health care given the size that it takes up in our economy.

The rise of crowdsourcing, reduced reliance on co‑located resources of hardware or software or people, and just enthusiasm in getting involved with health care—all of that is colliding to really democratize tech, and to in particular enable a lot of players who previously might not have been  able to enter the health care system to have outsized impact, driving innovations.

Meanwhile, on the regulatory side, there have been a lot of policy changes that implicitly require innovation. I don't think we're seeing the government explicitly say “you have to innovate or we won't pay you,” but that certainly is the subtext to some of the more recent policy changes that seem to be coming from states and from the federal government.

You think about the federal government's attempt to promote innovation through data transparency and digital enablement. It’s allowing a lot of these health care IT winners to aggregate and integrate data across the value chain.

Changes in the individual market, like the repeal of the individual mandate, are really requiring payers to reassess and modernize their risk pools, so we're going to have to see some creativity there.

The continued shifts from fee‑for‑service to value‑based payment arrangements are going to require sophisticated analytics to align payer and provider activity.

Underneath that you're going to see a lot of innovation and collaboration, because historically those are constituencies whose economic interests have been at odds. That shift is going to stimulate some pretty interesting innovation, unlike what we've seen previously. Then when you think about the increased use of site-neutral payments, decreasing reimbursement levels for some providers, it's shifting the site-of-care into less costly alternatives.

It will be very interesting to track with how we continue to deliver good quality of care, good access to care, but do it in a way that fundamentally costs less and is happening in places that are best equipped and developed for a particular need or one's particular stage in the wellness life cycle.

You can’t forget about the expansion of Medicaid. That's likely going to increase the number of individuals enrolled in Medicaid managed care plans, even as we see some states try and ratchet those numbers down. We've certainly seen that same trend in Medicare Advantage for the last number of years.

On the regulatory side, there are lots of reasons to be optimistic because there's a lot of wind in the sails around driving people forward, driving the health care system forward using innovation as the lever for getting more with fewer resources.

Now all that said, I do worry a bit about the technological infrastructures that are being used today in health care. Hospitals tend to run on antiquated backbones, although increasingly through Meaningful Use, we've seen that turn over.

Certainly, payer organizations tend to be on very antiquated systems. I don't see that shifting anytime soon. When I think about the priorities that are espoused by CIOs at payers, they really relate to a lot of the tech problems they seem to be having. The number one, in a larger survey done by Gartner earlier this year, was to extract and apply more insight from analytics and business technology.

Number two was improving consumer engagement and experience. Number three was delivering innovation and leveraging new technologies. Each of these has such a strong technological component.

While I am cautiously optimistic, I do think we have a headwind right now, which is lots of old technology that is not readily amenable to some of the new use cases that are trying to be adopted in the health care system, and frankly, a lot of the new expectations around what's done with data, and in particular large data sets.

On the regulatory side, another headwind that causes me some concern continues to be the uncertain future of the ACA. You think about what has happened in the almost decade since the ACA was written into law, two different cases in front of the Supreme Court, myriad cases at lower level courts.

The repeal of the individual mandate and various rulings have caused us to look at association health plans and other types of plans that erode at certain of the provisions of the ACA. Now I'm not placing a value judgment on that. I'm not making a statement as to whether that's good or bad. Rather, I am observing that there has been no reliable consistency with what can be expected of the ACA by the financial stakeholders in the health care system.

That ambiguity causes a lot of these organizations to retrench and to take a somewhat conservative approach as they wait for yet the next 90 degree turn in the ACA. I don't anticipate the ACA is going to go away. I think we'll continue to see an evolution of the foundation that was put forward in the ACA legislation. Nonetheless, I do think that the uncertainty that is created by the constant discussion of the ACA's future in the political arena does cause us to sub‑optimize for what might otherwise be greater gains that we could be seeing.

Lots of headwinds, lots of tailwinds. Ultimately, where I see real potential is in how we think about a framework for innovation in the face of all these challenges.

We have lots of catalysts of change. We have trends: industry trends, socio‑political trends, economic and geographic trends, population needs at the patient level, at the cohort level, business drivers around cost of revenue optimization. All the while, the backdrop is that somehow we all know we need to migrate towards a sustainable delivery ecosystem.

It doesn't matter what political stripes you wear, every serious conversation about health care in the United States at some level points to the need to reduce overall spend. The debate is around how and ensuring that we don't lose quality and other very important elements of the health care system in the process.

I envision a world where we are looking at a framework for innovation that really has a bias for action. In particular, I think there are four things that many of the players in the health care system can and should do to help embrace the tailwinds and mitigate the headwinds.

One, building technology fluency and dexterity. It is never too soon to embrace big data, new transactional systems, and better workflow systems to make the increasingly limited pool of clinicians that we have available to us as efficacious as possible, to make the consumer experience as positive as possible. That tech fluency is what will allow us to scale health care to the needs of the future.

Second, speeding the rollout of innovative new products with a fail‑fast mentality. I think that health care has been understandably cautious in adopting some of the startup mentalities of “let's get product into the marketplace.” If it doesn't work, well, let's identify that quickly and then let's innovate with new ideas.

It goes without saying when it comes to people's lives, we can and should be much more cautious. But as it relates to business models in the health care system, there are areas where we can be experimenting more and doing that more quickly to adopt the good ideas and toss out the bad ideas.

Third, how do we lower medical costs? By eliminating waste, using analytics to strengthen collaboration, particularly between payers and providers, experimenting with funding models, driving down some of the costs in the system—be those pharmaceutical costs or otherwise—to ultimately get to a place where we have long‑term, financially‑viable health care system.

Lastly, making technological innovation and reinvention permanent and continual. If we don't do that, it will be done to us. The unrelenting pace at which innovation, tech advances, and unfortunately disease are progressing requires us in many ways to really embrace the notion that innovation is a continual process.

We are perennially within this loop of reinventing ourselves as a health care community. We can choose to do that or that disruption will occur and there will be probably a lot of losers in that process.

I do believe that certain corners of the business community have really adopted to an “innovate quickly” mentality, reinvent your business model mentality. We're going to need to see more and more of that in health care.

To me, that's really the framework we're driving towards and within that framework, we will get to more innovation.

We will unlock the power of a lot of different investments that have been made in part, if not in full, by allowing for more collaboration, more synergistic effect, by drawing new talent in health care spheres.

All of these are very positive externalities of what will happen by embracing an innovation framework focused on tech fluency, innovative fail‑fast mentalities, lowering overall costs where we can, and embracing the notion that innovation and reinvention are not the enemy but rather the catalyst for improvements in the health care system.

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