how digital technologies can radically lower healthcare ... · how digital technologies can...

How digital technologies

can radically lower

healthcare cost and

raise its benefits

Kaveh Safavi MD JD

Managing Director –

Accenture Global Health Lead

2 Copyright © 2014 Accenture. All rights reserved.

“If something cannot go

on forever, it will stop.

- Herbert Stein

Former chairman of the Council of Economic Advisers,

Presidents Nixon and Ford

Copyright © 2014 Accenture. All rights reserved. 3

Healthcare Cost Trends and the Role of Technology

1. Is the trend real or just an

artifact of the recession?

2. Will the curve remain bent

for the long term?

3. What role does technology

play in the short and long run?

4. What are the implications

for long-term curve bending

for technology?

For public policy?


-5

0

5

10

15

20

1990 1993 1996 1999 2002 2005 2008 2011

NHE as percent of GDP Rate of NHE growth Rate of GDP growth

Rate of Healthcare Spending Growth at an All-Time Low

Source: Martin A B et al. Health Affairs January 2014

Recession:

July 1990 -

March 1991

Recession:

March 2001 -

Nov. 2001

Recession:

Dec. 2007 -

June 2009

Pe

rce

nt


1

2

3

4

5

6

2006 2007 2008 2009 2010 2011

Per Capita Per Enrollee

Health Spending Growth – Per Capita and Per Enrollee

Spending for the Insured Declined More than Average

Source: Ryu, AJ. et al. Health Affairs May 2013; Cutler, DM. Sanhi, NR. Health Affairs, May 2013

At this pace, public

sector spending will

be $770 B less than

projected by 2022

Gro

wth

Ra

te (

%)


Recession Explains Only One-Third of Slow Down

5%

37%

55%

3%

Other factors such as:

• Reduction in new technology like imaging and Rx

• Increased patient cost-sharing

• Greater provider efficiency

Payer mix change (without recession)

Medicare payment reform

Recession

Source: Cutler DM, Sahni RS, Health Affairs, May 2013


Factors Accounting For Growth In Per Capita National Health

Expenditures, 2004-2013.

Healthcare Spending Increases were

Primarily Price Related

Source: Hartman M et al. Health Affairs 2015

-1

0

1

2

3

4

5

6

2004-08 2009 2010 2011 2012 2013

Medical prices

Age and sex factors

Residual use andintensity

Pe

rce

nt

National Health Expenditures

Per capita spending

growth


U.S. hospital costs are 70% higher but utilization is 30% lower than other

developed countries

High U.S. Spending Is Not Due Primarily to Over Use of

Services

Source: Anderson, GF. Frogner , BK. Health Affairs, November 2008

Percent of GDP

Real Annual Avg Growth

Rates (%) 1970-2005

Inpatient Spending per

Capita (U.S. $ PPP)

Inpatient Acute Care Days per

Capita

U.S. 15.3 4.4 $1526 0.7

OECD Median 9.1 4.1 (2.3-6.8) $904 1.0 (0.4-2.1)


US rate of healthcare expense change tracks with OECD average and has

been declining for a decade

Healthcare Cost Trends Decelerating Globally

Total Healthcare Expense, % Change

US compared to OECD Average

Source: OECD.org

-10

0

10

20

2001 2003 2005 2007 2009 2011

US OECD Average

Pe

rce

nt

2011

OECD 0.5%

US 1.8%

10 Year Trend Range

S. Korea 9.3%

OECD/US 4.0%

Portugal 1.4%


Technology Will Lower Unit Labor Costs and Increase Benefits of Care

Our View

1. Healthcare cost long term trend is dependent on labor costs

2. Sustaining long term reductions in the cost of producing a unit of care will

rely more on productivity gains rather than efficiency

3. Labor oriented productivity strategies will require using lower skilled labor

where possible, shifting work to customers or replacing labor with

technology

4. Communication and information technologies can have a role in all three

strategies either as an enabler or end application

5. The same technologies can be used to raise the benefits of care through

personalization, transparency, self service and other mechanisms

10


Conceptual Rate of Cost Increases: Low vs. High Innovation

Without Innovation, the Unit Cost of Care will Grow

Faster than US GDP Due to its Reliance on Expert Labor

Real

Annual

Cost

Increase

Low Innovation

Sector

High Innovation Sector

US Average

Productivity

without labor

Personal service

labor cost

Consumption

Source: Baumol WJ, The Cost Disease, Yale Univ. Press 2012

Years

Productivity ≠

Efficiency


US National Health Care Expenditures, By Year as % of GDP

Non-Clinical Sources of “Waste” Exceed Clinical Sources

Source: Berwick, D. M. et al. JAMA April 11, 2012

17.5

18.0

18.5

19.0

19.5

20.0

20.5

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

“Business as usual” national

health care expenditures

Failures of care delivery

Failures of care coordination

Overtreatment

Administrative complexity

Pricing failures

Fraud and abuse

Growth in national health

care expenditures matches

GDP growth


• Top 20% >12%

• Bottom 20% <(-4.0)%

• Revenue $854 higher

• Expenses $316 lower

• Occupancy

• Case mix

• Area wage

• Size

• Payer mix

Top Performing Hospitals Collect More and Spend Less

Per Discharge

Based on operating income by quintile for U.S. hospitals between 2006 and 2008

Source: Thomson Reuters ACTION O-I Comparative Database

Operating Income

Financial Advantage

No Impact


Expense Advantage per Discharge for Highest Income Hospitals

(2006 – 2008)

Top Performers Spend More on Drugs and Supplies

Cost per discharge for highest vs. lowest quintile hospital by operating income adjusted for each mix and area wage

Source: Thomson Reuters ACTION O-I Comparative Database;

Supplies ($68)

Drugs ($18)

Spend More Spend Less

Labor ($278) Interest ($121)

Bad Debt ($102)


Labor Expense Advantage is Not from Salaries or

Staffing Levels

Highest Income Lowest Income

Salary and benefit per FTE

$66,719 $62,627

Staff hours per patient per day

20.89 20.35

Based on operating income by quintile for U.S. hospitals between 2006 and 2008



Average Length-of-Stay by Operating Income Quintile (2006 – 2008)

Labor Advantage Due to 10% Shorter Length-of-Stay

3.25

3.30

3.35

3.40

3.45

3.50

3.55

3.60

3.65

3.70

3.75

3.80

Lowest Low Average High Highest

CM

I A

dj.

Avg

. LO

S

Performance based on operating income quintiles



Performance Gap Closing Levers

When is Innovation Needed?

1

7

(Performance Gap)

Core

Differentiating

Low High

Optimize

Innovate

Critical

Standardize


Getting your money’s worth…

What About Better?

(total)

Cost

(relative)

Benefit f(x)

…how do you define

value?

(absolute)

Benefit

(price paid)

Cost

Value constructs as proposed by Ron Adner “The Wide Lens” in

OR


“In your own words, how would you define “value” in healthcare?

Please be specific.” (unaided response)

For Most Patients “Value” is Neither Outcomes nor Cost

Physicians

Patients

Neither Cost or Outcome

Cost

Outcome

Not Sure

Cost & Outcome

Cost

Cost & Outcome

Outcome

Neither Cost or Outcome

Not Sure

10 20 30 40

Source: Quintiles, The New Health Report 2011


Virtual Health Benefits the Already Served with lower

cost and better experience

• As good as face-to-face care

• One patient, many doctors

• Patient group visits

• Physician collaboration

• Enhanced patient experience

(augmented reality)

• Some segments

prefer virtual

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=CkyJhHifVVmvDM&tbnid=Y4S2RzfBTfCu8M:&ved=0CAUQjRw&url=http://mobihealthnews.com/22215/five-reasons-virtual-doctor-visits-might-be-better-than-in-person-ones/&ei=6JM1U9u0BLKksQTp_4Bw&bvm=bv.63808443,d.dmQ&psig=AFQjCNFYH-MVwqSsgy4W56LQFMq3_MJA0w&ust=1396106544160457


Social Software Will Deliver Healthcare While

Increasing Self-Care and Self-Service

Source: www.bigwhitewall.com; Wicks, P. et al. Nature biotechnology May 2011

• Business-class social

networks

• Self-service platform

• Community created content

• Gaming


http://www.bigwhitewall.com/


Digital Health is attracting private investment

Digital health funding grew at an annual rate of 31% from 2008 to 2013,

culminating in $2.8B in total funding in 2013.

Historical Funding by Year

2008-2013, Millions

$2,854

31% CAGR $2,219

201

1

$2,223

201

0

200

9

$712

$1,426

Funding

201

3

201

2

$732

200

8

Source: Accenture Research, HC2020. Database has 2,016 companies, 782 with associated funding, as of

March 2014


Digital Health investment focus areas

Segmentation of total funding resulted in four trends that are setting the

table to create substantial transformation.

Engagem

ent Diagnosis Treatment

Infrastruc

ture

Nutrition

Wearables

Access

Transparency

Incentives /

Social

Gamification

Provider

Diagnosis

Self Diagnosis

Remote

Monitoring

Self Care

Virtual / Care

Coordination

Personalized

Medicine

Med

Management

Payment

Provider

Efficiency Big Data /

Analytics

Administration

Interoperability

Clinical Trials

Crowd Funding


Digital investments focus on cost and engagement

Growing at a total CAGR of 31% from 2008 to 2013, Infrastructure and

Treatment related start-ups have garnered nearly 54% of total funding.

Yearly Funding & Deals

2008-2013, Millions

0

50

100

150

200

250

300

350

400

450

500

550

500

2,500

2,000

1,500

1,000

3,000

2013

$2,866

2012

$2,221

2011

2,223

2010

$1,526

2009

$711

2008

$723

Treatment Enagement Infrastructure Deals

Fu

nd

ing

Co

un

t of D

ea

ls b

y Y

ea

r

Source: Accenture Research, HC2020. Spring, 2014

Diagosis


Curve had been dented not permanently bent yet

• The curve has been changed by more than just the recession

• The baseline will be permanently reset due to unit price compression,

administrative simplification, increase patient cost-sharing and

reduction in unexplained variation in practice patterns

• The long trend line for growth will exceed GDP subject to two “X”

factors – medical technology and labor costs

• Without changing productivity the long term curve will return to GDP

“plus”

• The key policy problem is long-term public spending not overall

healthcare spending

• Digital Technology holds promise to radically impact medical costs and

utilization


“That it will ever come into

general use, notwithstanding

its value, is extremely doubtful

because its beneficial application

requires much time and gives a

good bit of trouble, both to the

patient and to the practitioner

because its hue and character

are foreign and opposed to all

our habits and associations.”

- The London Times 1834

Laennec Stethoscope


“The future ain’t what

it used to be.”

- Yogi Berra


Kaveh Safavi, MD JD

+1 312 693 1541

[email protected]

@drkavehsafavi

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