Even though the Supreme Court upheld the Affordable Care Act, it is clear that the healthcare crisis is this country is not over. While the ACA is focused primarily on expanding health coverage, it misses the two other very real problems: controlling costs and improving quality.
What America really needs are transformational changes that can eliminate waste, bring down costs, enhance quality, and increase accountability. Frankly, that’s not something the ACA or the Supreme Court ruling ever adequately addressed.
But that doesn’t mean we can’t find real solutions to our healthcare crisis.
The way it stands today, U.S. healthcare is not only the most expensive in the world, it is also the most wasteful. In 2009, the U.S. spent over 17% of GDP on healthcare, more than any other industrialized nation. And as much as half of that spending was totally unnecessary, according to industry estimates.
Much of the spending was wasted on such things as unneeded procedures, excessive hospitalizations, and inefficient claims processing. In other words, there’s a big hole in the healthcare boat. And putting another 32 million passengers aboard—courtesy of the ACA– and then hoping to fix the boat after it sinks, is not exactly a winning strategy.
The recent ruling by the Supreme Court is our cue to double-down on the types of investments we have been making for the last 14 years: young companies that have the potential to lower the cost and improve the quality of healthcare in America. If anything, these types of companies are needed now more than ever.
Innovative technology companies with breakthrough approaches are destined to have a far more powerful impact on the future of healthcare than either the Supreme Court ruling or the ACA itself could ever have. These companies are pioneering new ways to reduce administrative costs through efficiency. They are creating better markets for the purchasing of health insurance. They are ushering in platforms that reward wellness over sickness. And they are making healthcare information more readily available at the point of care to both patients and providers.
As investors, our goal is to fund promising growth companies that can plug the hole in that boat before it is too late. One such company in our portfolio is SeeChange Health, the first independent value-based health insurance company in the U.S. SeeChange understands that one of the best ways to lower costs and fix our healthcare system is to focus on wellness rather than sickness.
Specifically, SeeChange offers health plans that provide information and guidance to help people maximize their own health, and then financial incentives and rewards to individuals who take advantage of that information by turning it into health-improving action. SeeChange realizes that by paying modest financial incentives up front and over the long term, it can avoid the much larger costs of non-compliance and hospitalization down the road, particularly for people with chronic illnesses.
Another huge drain on the healthcare system is rampant administrative costs. Companies that can help lower those costs while maintaining a high quality of care will prove to be extremely valuable. Today, for example, it costs between $8 and $12 to process a single healthcare claim. That adds up to an excess of $10 billion annually. Contrast that to the pennies per event it costs to process a transaction in financial world.
But what if you could lower that cost by just a few dollars per claim? It would save the system billions of dollars each year. That’s why Psilos invested in HealthEdge, a healthcare IT company that is lowering claims processing fees, simplifying the ability to design cost-saving benefits, and removing inefficiencies from the system.
Unlike other industries in this country, healthcare has made a poor effort to streamline itself and become more efficient. And there is nothing that suggests the newly upheld ACA will effectively deal with the waste, redundancies, and excess costs that continue to drain the system. In fact, the newly contemplated delivery systems and payment structures, such as Accountable Care Organizations and pay-for-performance models, demand more than ever that healthcare organizations implement meaningful business processes that enable them to manage the financial and clinical risks they are not used to handling.
There is still a huge amount of work to be done to heal our healthcare system. And we can’t rely on the ACA or the recent Supreme Court ruling to solve all our problems. The big changes we need to see happen in healthcare will not result from legislation. Instead, it’s up to venture-backed companies to lead the way out of the boat and onto the shore.
(Albert Waxman is senior managing member of the Psilos Group.)
Photo courtesy of Al Waxman.